The Department of Mineral Resources and Energy (DMRE) introduced new levies on the piped gas and petroleum pipelines industries that lay the foundation for addressing financial and operational requirements within the energy sector.

This decision was announced during the budget speech delivered by the Minister of Mineral and Petroleum Resources, Gwede Mantashe, in which he highlighted the government’s commitment to investing in productive sectors to support social spending sustainably.

Mantashe spoke of the need for interventions that would promote inclusive economic growth and employment creation. One such intervention is the comprehensive review of the fuel price formula, which includes the new levy on piped gas and petroleum pipelines.

“The President spoke about establishing a Sovereign Wealth Fund which, in our view, is urgently needed for our developing economy and necessary to sustain our economy when we go through difficulties,” he said.

“We can look into various models, including mining royalties, which give us an average of about R28bn per annum, that can be considered without creating a complex tax system in the economy.”

We are convinced that, if we start with it and continue with it over the years, we will have a sustained sovereign wealth fund into the future. The levy for piped gas is 48.308c/GJ, based on an estimated volume of 181.9m GJ per annum and a budget requirement of R87m. For petroleum pipelines, the levy will be 0.43596c/l, payable by the person holding the title to the petroleum immediately after it has entered the inlet flange. This is based on an estimated volume of 15.6bn litres per annum, and a budget requirement of R68m.

Reliable energy supply

Mantashe outlined the importance of reliable and affordable energy supply and the necessity of maintaining and improving infrastructure to ensure efficient operations.

The levies are part of a broader strategy to fund regulatory activities and infrastructure maintenance, thereby ensuring the sustainability and reliability of these critical energy sources.

The updated levy structure is mandated by the Gas Regulator Levies Act (Act No. 75 of 2002) and the Petroleum Pipelines Levies Act (Act No. 28 of 2004).

This structure will see an increase in the charges applicable to companies operating within these industries.

The primary goal of these levies is to provide adequate funding for regulatory oversight and infrastructure improvements, ensuring that the sectors can continue to operate efficiently and safely.

Impact on the wholesale sector

Companies involved in the wholesale of piped gas and petroleum products are likely to experience increased costs due to the higher levies.

These costs may be passed on to consumers, potentially leading to higher prices for end-users. There will now also be an additional burden to be fully compliant with the updated regulatory requirements. This might involve additional administrative work and adjustments to financial planning to accommodate the new levies.

With the intention being to fund improvements and maintenance of the infrastructure for gas and petroleum pipelines; this could lead to better service reliability and safety standards in the long term, benefiting both the industry and consumers.

Increased cost burden

The increased cost burden might impact the competitive dynamics within the wholesale market.
Smaller players could find it more challenging to absorb the additional costs compared to larger, more established companies. Stakeholders will need to adapt to these changes and strategise accordingly to mitigate the impact on their operations and maintain market competitiveness.

The government’s commitment to a detailed management framework and accelerated execution will be crucial in ensuring the success of this initiative.