The government yesterday released long-awaited proposals for implementing cleaner fuel standards by 2017, but postponed a decision on how motorists and oil producers would fund the required upgrades to refineries, estimated to cost R25 billion.
The cost recovery mechanism for the upgrade would be selected after discussions with industry, the Treasury and other stakeholders, the Department of Energy said. It hoped to conclude the talks this year.
The proposals were outlined in a draft position paper on fuel specifications and standards, which targets 2017 as the deadline by which South Africa should be brought in line with Euro 5 fuel specification standards. The EU standards are regarded as among the world’s most advanced.
Energy Minister Dipuo Peters said yesterday the cost recovery instrument to fund the upgrade would be selected once full cost-benefit analyses had been performed. She suggested the possibility of differentiated taxes as a funding source.
Automobile Association of South Africa spokesman Gary Ronald said there was already a premium on 95 octane petrol in Gauteng.
James Seutloadi, the head of the SA Petroleum Industry Association (Sapia), said funding would be a key challenge in the discussions ahead. Sapia urged a speedy process to obtain regulatory certainty “in order to enable the very substantial investments that will need to be made by the oil companies”.
Muzi Mkhize, the Energy Department’s chief director of hydrocarbons, said the costs of an upgrade would be passed on directly to consumers in an unregulated market, but South Africa’s fuel industry was regulated. “It’s known there are incentives if we move to this specification,” he said.
Peters announced the upgrade would be achieved via a staggered shut down of refineries while safeguarding security of supply. The government envisaged the first refinery complying with the new fuel standards in 2015, and the last refinery by 2017.
The clean fuels programme would kick off with imports in 2013, although coal-to-liquid and gas-to-liquid fuel producers Sasol and PetroSA could produce some components.
South Africa’s first clean fuels programme was implemented in 2006 with the banning of lead from petrol and the reduction of sulphur levels in diesel from 3 000 parts per million (ppm) to 500ppm, along with a niche grade of 50ppm.
The latest proposals, Clean Fuels 2, include the reduction of sulphur to 10ppm; the lowering of benzene from 5 percent to 1 percent of volume; the reduction of aromatics from 50 percent to 35 percent of volume; and the specification of olefins at 18 percent of volume.
Mkhize said South Africa would not blindly follow the EU standards, but would take socioeconomic differences into account.
He acknowledged comments from the motor manufacturing industry that the earliest it could introduce new technology vehicles was 2012.
Nico Vermeulen, the executive director of the National Association of Automobile Manufacturers of SA (Naamsa), said it had been advocating the introduction of Euro 5 fuel into the country through importation at the earliest opportunity to bring the country into line with European fuel standards. Naamsa could see no reason why oil companies should not be allowed to import and market the fuel at the earliest opportunity.
He said the introduction of Euro 5 fuel would enable manufacturers, importers and distributors to offer high technology fuel efficient vehicles to the local market, which had many benefits, including less harmful emissions, cleaner air, lower fuel consumption and a beneficial effect on the balance of payments over time.
Mkhize said the new fuel specifications would facilitate the introduction into the local market of biofuels compatible with the relevant EU standards. This included incentives to promote bioethanol.
Apart from synthetic fuel operations run by Sasol and PetroSA, South Africa has four oil refineries: BP and Shell’s Sapref, Engen’s Enref in Durban, Chevron’s Cape Town refinery and Total and Sasol’s inland Natref. - Business Report