The Energy Regulation and Markets Review - Stikeman Elliott

South Africa
This framework is subject to any matters prescribed by regulations made by the Minister
of Energy. The Piped Gas Regulations are relevant here and regulate third-party access to
transmission pipelines, except for the special dispensation arising under the Regulatory
Agreement.
The Piped Gas Regulations prescribe that the allocation mechanism for
uncommitted capacity must comply with the following principles:
a use it or lose it (but taking into account diurnal and seasonal load variances);
b non-discrimination;
c contract lengths; and
d technical feasibility.
The Gas Regulator may, following its receipt of a complaint from any person who is
denied access to a transmission pipeline, determine the uncommitted capacity of the
pipeline and an allocation mechanism consistent with the above stated principles.
The Regulatory Agreement obliges Sasol to supply distributors outside its
distribution areas licensed by NERSA pursuant the Regulatory Agreement, subject to
available uncommitted distribution capacity, and the technical feasibility and economic
viability of the proposed connections. The Regulatory Agreement further obliges Sasol to
ensure mandatory third-party access for green-fields and brown-fields customers purchasing
minimum specified annual gas quantities to specified pipelines including the Mozambique–
South Africa transmission pipeline over the Sasol Special Dispensation Period.
iii Rates
Electricity
Currently, tariffs for electricity (excluding municipal surcharges on municipal
distribution services) are regulated by NERSA, which may set and approve tariffs charged
by licensees. 42 Licensees may not impose electricity supply tariffs that NERSA has not
approved (excluding municipal surcharges on municipal distribution services).
The tariff principles enumerated in the ERA 43 obligate NERSA to enable an efficient
licensee to recover the full cost of its licensed activities including a reasonable margin or
return. NERSA, accordingly, adopts a cost of supply or rate of return methodology.
NERSA’s pricing methodology does not include incentive rates for efficiency gains. In
theory, inefficiencies in supply should not be passed on to customers, and licensees should
therefore not recover any associated costs or losses; however, the regulated methodology
for ensuring that inefficiency losses are not passed through to customers has not been
elaborated on by NERSA and does not appear to be well documented.
Historically, Eskom tariffs used to be among the lowest in the world 44 as they
have been based on the value of its regulatory asset base, which is largely nearly fully
42 Sections 4(a)(ii) and 14(1)(d) of Act 4 of 2006.
43 Section 15.
44 According to the Eskom Annual Report 2009, the cost of electricity in developing countries
belonging to the OECD averaged between 8 and 9 US cents per kWh when compared with the
cost of electricity in South Africa, which was 3 US cents per kWh.
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