Pricier pipeline to hit drivers

Johannesburg - The cost of Transnet's new fuel pipeline linking Durban with Gauteng has risen by R2.7bn.

The pipeline, which would have cost R12.6bn last year, will now cost R15.4bn. What is more, completion has been delayed by a year.

The project will now be ready only in December 2012.

Neville Eve, Transnet's head of capital projects, says the cost increases can be attributed to several factors.

These include changes to the scope of the project and the decision to provide the pipeline with backup power. Electricity generators at all the pump stations have added R180m to the bill. Steel costs have also risen as much as R1.06bn since 2007.

According to Eve, delayed property transfers and environmental impact studies have also had a significant impact on the price.

Chris Wells, Transnet's acting chief executive, says Transnet will fund the cost increases with internally generated debt and cash. But, as soon as the project is completed, tariffs will have to rise - which in turn will affect the consumer's pocket.

The impact of the new pipeline on consumers' pockets will be seen as soon as from April 1 this year, because Transnet has asked the National Energy Regulator (Nersa) to increase the tariffs on its existing pipeline by 51.3%.

If this increase is approved, the direct effect on a litre of petrol in Gauteng will be about 4c.

This increase represents only R1.6bn of the total cost of the pipeline, which will be acknowledged as an asset at this time.

Transnet realises a return on its assets only once the assets have been completed and taken into use. Consumers can therefore expect a bigger shock in 2011/12, when Transnet expects to recognise up to R10bn of the pipeline as an asset.

Consumers are already paying a levy of 7.5c/litre on fuel - from which Transnet receives R4.5bn.

- Fin24.com

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