Transnet SOC Limited's Petroleum Pipelines System Under Review by NERSA

The National Energy Regulator of South Africa (NERSA) has initiated a second consultation on the review of the rolled-in tariff approach for Transnet SOC Limited’s petroleum pipelines system. This review, prompted by significant shifts in South Africa's petroleum sector since the 2011 adoption of the current methodology, seeks to address issues such as refinery closures, increased reliance on imported fuels, and escalating costs of the Multi-Product Pipeline. NERSA proposes a hybrid model that retains the rolled-in system while introducing differentiated tariffs where material differences in cost of service or operational characteristics exist. The objective is to enhance cost reflectivity, ensure equitable outcomes, and promote efficient infrastructure use, balancing these with stability and broader public interest benefits. Stakeholders are invited to submit comments by August 5, 2026.

The National Energy Regulator of South Africa (NERSA) recently announced a second consultation on the review of the rolled-in tariff approach applied to Transnet SOC Limited’s petroleum pipelines system. This development signals a critical juncture for the South African energy sector, as the methodology for determining pipeline tariffs profoundly impacts the cost of fuel, the competitiveness of the market, and the financial health of Transnet’s vital infrastructure. The current rolled-in tariff, in place since 2011, is under scrutiny due to substantial changes in the country's petroleum landscape.

This review is not merely a technical adjustment; it reflects a broader re-evaluation of how South Africa's energy infrastructure should be priced and regulated in a rapidly evolving market. With the country transitioning from a refining-based economy to a net importer of refined petroleum products, the role and economics of pipeline transportation have fundamentally shifted. The proposed hybrid tariff model aims to strike a balance between cost reflectivity and maintaining stability, a challenge with significant implications for consumers, industry players, and the national economy.

This article will delve into the statutory and doctrinal underpinnings of NERSA's regulatory mandate, explore the rationale behind the proposed changes to the rolled-in tariff approach, and analyse the potential legal and economic ramifications for practitioners and stakeholders within the South African petroleum industry.

NERSA, established as a juristic person under Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004), is the primary regulatory authority overseeing the electricity, piped gas, and petroleum pipelines industries in South Africa. Its mandate, particularly concerning petroleum pipelines, is derived from the Petroleum Pipelines Act, 2003 (Act No. 60 of 2003), which empowers NERSA to set and approve tariffs for licensees operating petroleum pipelines. Transnet SOC Limited, a state-owned freight logistics company, operates over 3,000 kilometres of petroleum pipelines, effectively holding a de facto monopoly in the commercial transportation of petroleum products via pipeline in the country.

The existing tariff methodology, adopted in 2011, employs a 'rolled-in' approach. This system calculates Transnet's overall allowable revenue across its entire pipeline network, leading to a largely uniform tariff structure for users. However, the appropriateness of this approach has been called into question by significant developments in the South African petroleum sector. These include the closure or mothballing of several domestic refineries, leading to a greater reliance on imported refined fuels, and consequent changes in pipeline utilisation patterns.

Further compounding the need for review are the termination of the Natref Variation Agreement, ongoing litigation involving Sasol Oil and Transnet, and the substantial cost overruns and delays associated with the Multi-Product Pipeline (MPP) project, which was initially projected to cost R11.1 billion but is now estimated at R28.2 billion with completion delayed to November 2027. These factors collectively necessitate a re-evaluation of the tariff methodology to ensure it remains fair, cost-reflective, and conducive to the long-term sustainability and security of fuel supply.

The core of NERSA's current review centres on the efficacy and fairness of the rolled-in tariff approach, particularly in light of the evolving market dynamics. Under the existing methodology, the costs across Transnet's extensive pipeline network are averaged, resulting in a uniform tariff for users regardless of the specific pipeline segment or its associated costs. This approach has faced challenges, notably highlighted in cases such as *Sasol Oil (Pty) Ltd v National Energy Regulator of South Africa and Others* (059715/2023) [2025] ZAGPPHC 919. In this matter, Sasol argued that NERSA failed to demonstrate that there were no material differences between various pipelines, such as the Crude Oil Pipeline (COP) and the Multi-Product Pipeline (MPP), to justify a single, uniform tariff. The court in *Sasol Oil* underscored that while the 2011 methodology serves as a guideline, NERSA retains the responsibility to ensure that any tariff set is fair, reasonable, and rational, and complies with Section 28 of the Petroleum Pipelines Act, 2003.

In response to these challenges and the changing market, NERSA has proposed a hybrid tariff model. This model seeks to retain the foundational rolled-in system for calculating Transnet's overall allowable revenue but introduces the flexibility to implement differentiated tariffs where demonstrable material differences exist. These differences could relate to the cost of service, operational characteristics, or the specific function of individual pipelines. The rationale behind this hybrid approach is to enhance cost reflectivity, thereby ensuring that tariffs more accurately reflect the actual costs incurred for specific services, while simultaneously preserving the stability and broader public interest benefits that the rolled-in system was intended to provide.

The shift in South Africa's energy landscape, particularly the increasing reliance on imported refined petroleum products following refinery closures, has fundamentally altered the operational context for Transnet's pipelines. The Multi-Product Pipeline (MPP), a significant investment, has seen its costs escalate and completion delayed, placing pressure on the tariff structure. NERSA's consultation document explicitly seeks stakeholder input on how various tariff approaches might influence critical factors such as pipeline utilisation, market competition, fuel affordability, and the overarching security of fuel supply. A key concern is whether higher, more cost-reflective tariffs for certain segments could inadvertently incentivise a shift from pipeline transport to less efficient or more environmentally impactful modes like road or rail, potentially increasing overall costs for remaining pipeline users.

NERSA's role as an economic regulator is to foster a level playing field, prevent monopolistic abuses, promote investment in infrastructure, and ensure energy affordability and accessibility. The ongoing consultation process, which mandates public participation, is crucial for NERSA to gather diverse perspectives and evidence to inform a balanced and robust regulatory decision. The outcome will determine how the costs of essential petroleum infrastructure are recovered and distributed across the value chain, directly impacting the final price of fuel for South African consumers.

The second consultation on the review of Transnet's petroleum pipeline tariffs represents a pivotal moment for the South African energy sector. For legal practitioners advising clients in the petroleum value chain – including refiners, distributors, transporters, and large industrial consumers – the outcome of this review will have direct and significant implications for operational costs, supply chain planning, and competitive positioning. A shift towards a more differentiated tariff structure, while aiming for greater cost reflectivity, could necessitate a re-evaluation of existing commercial agreements and logistical strategies.

Practitioners should closely monitor the final tariff methodology adopted by NERSA, paying particular attention to the extent of tariff differentiation and the specific criteria used for such distinctions. The balancing act between ensuring Transnet's financial sustainability, promoting efficient infrastructure use, maintaining fuel affordability, and safeguarding the security of supply will be critical. Stakeholders are strongly encouraged to actively participate in this consultation process by submitting comprehensive comments by the August 5, 2026 deadline. Engaging with NERSA at this stage is essential to shape a regulatory framework that is equitable, sustainable, and responsive to the evolving needs of South Africa's energy market.