Transnet asks for tariff hike

Johannesburg - State-owned transport group Transnet Limited has submitted an application to the National Energy Regulator of South Africa (Nersa) to adjust its petroleum pipeline and storage tariffs for the 2009/10 year in order to achieve the revenue required for Transnet Pipelines (TPL), it said on Wednesday.

TPL requires a significant revenue increase in order to cover costs and raise the necessary debt finance to construct the New Multi-Product Pipeline (NMPP), which is urgently required to meet growing demand for fuel in the inland market, Transnet said.

Given Nersa's present tariff methodology, this would mean an increase of approximately 10 cents per litre between Durban and Gauteng. The actual increase and impact on other routes would vary depending on the zone in which the fuel was purchased, the company said.

Adjustments to the pipeline tariffs will be determined by Nersa and will depend on Nersa's methodology for adjusting individual tariffs relative to each other.

Transnet said the costs for the transportation by TPL constitute a small part of the overall price of fuel - estimated to be 3.1% after the proposed tariff increase - and is essential to ensure that the required strategic essential pipeline infrastructure can be financed. A revenue increase of 74% is therefore required and this has been submitted to Nersa.

Transnet said it has to raise capital on the strength of its balance sheet, and is projected to invest about R2bn building the NMPP between Durban and Gauteng and associated infrastructure, which will be the backbone of fuel supply infrastructure to Gauteng and other parts of the inland market for the next 50 years.

"The required revenue increase should be understood in the context that the investment will increase TPL's asset value by more than four times," it said.

The next two years of construction and the first two years after the commissioning of the NMPP will result in high financial risk to Transnet.

The shortfall of funds even after the proposed revenue increases, cumulatively amounts to R9.5bn by 2010/11.

"This cash shortfall, which has to be funded by borrowings, is very significant in the current global economic crisis, which has made borrowing extremely difficult and increasingly costly. It is essential that Transnet's funders, rating agencies and the Board of Directors have relative certainty on the pipeline cash flows," the company said.

"We look forward to Nersa approving the tariffs necessary to finance this strategic essential infrastructure for the safeguarding of the security of supply of petroleum products in the inland fuel market," Transnet said.

- I-Net Bridge