High Court rules in favour of Sasol Oil against Nersa's pipeline tariffs

The Gauteng High Court in Pretoria has ruled in favour of Sasol Oil, setting aside a decision by the National Energy Regulator of South Africa (Nersa) to approve petroleum pipeline tariffs for the 2023/24 financial year.

Judge D. Makhoba found that Nersa acted unreasonably and irrationally when it imposed a uniform tariff across Transnet’s crude oil and multi-product pipelines, despite their significant cost and operational differences.

Nersa had approved the tariffs on 23 February 2023, relying on a “rolled-in” tariff methodology adopted in 2011, which treats the entire network as a single system.

Sasol challenged the decision under the Promotion of Administrative Justice Act (PAJA), arguing that the approach unfairly disadvantaged users of the crude oil pipeline (COP).

Sasol argued that its submissions were disregarded, and that the adoption of the 2011 rolled-in methodology was inappropriate for the 2023/24 tariff determination. 

The court agreed, holding that Nersa failed to consider fairness as required under section 28 of the Petroleum Pipelines Act.

Judge Makhoba said Sasol’s submissions had been disregarded and that the regulator had misdirected itself by applying the 2011 methodology as if it were binding law.

“It is unreasonable for Nersa to impose a single pipeline system tariff based on the 2011 rolled-in approach. The COP and the multi-product pipeline are not physically connected and have different cost structures,” the judgment read.

The court ordered that Nersa’s decision be remitted for reconsideration and directed the regulator to pay Sasol’s legal costs.

No cost orders were made against other respondents, which included Transnet, TotalEnergies, Shell, Engen, BP, Astron Energy, Royal Refinery, the Airline Industry Association of Southern Africa, and the Minister of Mineral Resources and Energy.

Nersa stated that the rolled-in methodology was adopted in 2011. As that decision was never challenged, it argued that the methodology remained valid until set aside by a court. 

Nersa further argued that the Petroleum Pipelines Act did not prescribe a tariff-setting methodology. It said that its adoption of the rolled-in approach, consistently applied since 2011, fell within its statutory discretion.

The regulator contended that Sasol’s case rested on its narrow commercial interest in the National Petroleum Refiners of South Africa (Natref) refinery.

Its claim that the COP tariff was unfair merely because MPP costs were higher, Nersa argued, overlooked the broader context.

It pointed out that Sasol’s interests were considered in 2011 when the rolled-in methodology was adopted, and that there were circumstances where COP costs might have exceeded those of the MPP.

The judgment could have wide implications for the way Nersa regulates petroleum pipeline tariffs, with the court reaffirming that pricing methodologies are guidelines, not binding rules, and must always comply with statutory requirements of fairness and non-discrimination.

Matebello Motloung, Sasol's acting senior manager for external communications, said with the decision bounced back to Nersa for review, adding that the group anticipated engaging in the process as an affected party.

"The court essentially agreed with Sasol Oil’s position that the tariff does not comply with the Petroleum Pipelines Act, No. 60 of 2003 and has remitted the impugned decision back to Nersa for reconsideration," Motloung said.

"Once Nersa engages in this process, Sasol Oil will participate as an affected party."

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