Transnet is suing energy giants Sasol and TotalEnergies for nearly R1.3bn, accusing the companies of short-paying tariffs due to it, as the fallout from the cancellation of an apartheid-era variation agreement for the transport of crude oil intensifies.
The state-owned freight and ports company is demanding R815m from Sasol and R461m from TotalEnergies for services related to the use of its pipeline to move crude oil from Durban to the Natref refinery in Sasolburg, Free State.
If Transnet is successful in its legal action, the money will come in handy for the state-owned enterprise (SOE), which reported a profit of just R159m in the six months ended September 2022.
Transnet says the amounts it is claiming from the two companies arise from invoices issued for services rendered for the period after the termination of the variation agreement. The amounts on the invoices rely on tariffs set by the National Energy Regulator of SA (Nersa).
Transnet says the invoices were not settled in full as the companies claimed the SOE was under a legal obligation to discount the tariff it charged them.
Transnet, which holds a licence to operate SA’s petroleum pipeline system, contends in its legal papers that it is not obliged to discount the tariff if Nersa has not approved a discounted tariff.
Sasol’s argument is that by charging it the “maximum tariff”, Transnet exercised coercive power over it.
The matter is expected to be aired in the courts in the next few months.
Transnet drew first blood last week when the high court in Johannesburg dismissed Sasol’s interlocutory application to compel Transnet to hand over documents related to how it set the tariff.
“All this court knows is that Sasol unilaterally paid a lesser amount. The court does not have the benefit of knowing how that lesser amount was arrived at. The question which falls for determination is why this court is to direct discovery to be made of documents which will explore what the lesser tariff should have been when Transnet’s case does not depend on it nor does Sasol’s case depend on a finding as to what the lesser ‘correct’ tariff should have been,” reads the judgment.
Inland refinery
The termination of the variation agreement Transnet is referring to is a contract that has its roots in 1967, when the apartheid regime wanted to protect energy security in the face of sanctions. At the time, coastal refineries did not have the capacity to meet inland demand, and to avoid running out of fuel, the government decided to establish an inland refinery in Sasolburg.
The then government concluded an agreement with TotalEnergies to establish an inland oil refinery. This was subject to the condition that costs of transporting crude oil from the coast to the inland refinery would not place TotalEnergies at a disadvantage compared with coastal refineries.
To get TotalEnergies’ participation, a “neutrality principle” was included in the contract that ensured tariffs for the conveyance of crude oil from the coast to Natref were structured so that the principle of neutrality was maintained. A tariff for transporting the crude oil was set at 40c per 100lb.
The agreement was amended in 1991 and provided that Transnet would increase the tariffs for conveyance of crude oil by no more than a weighted average cost for the conveyance of refined petroleum products from the coast to inland markets.
However, in 2008 Transnet breached the variation agreement by increasing the tariff by 10.25%. This was followed by another breach in 2011, when Transnet hiked the tariff by 107%, sparking a legal battle with Sasol and TotalEnergies.
Transnet in 2020 terminated the agreement, arguing that the evergreen contract in essence ensured TotalEnergies and Sasol derived a favourable benefit provided by means of a finite public resource, a benefit not enjoyed by other oil companies such as BP, Shell and Caltex.
Nersa
The other reason advanced by Transnet for terminating the agreement was that due to changes in the law over the years, particularly the transfer of powers of determining tariffs to Nersa, it had become legally impermissible for it to comply with the variation agreement.
The Constitutional Court in June 2022 ruled that Transnet was within its rights to cancel the contract.
Sasol, valued at about R151bn on the JSE, said it is in discussions with Transnet over a new contract. “Transnet continues to provide crude oil conveyance services to Sasol Oil while both parties are engaged in ongoing contractual negotiations for a bespoke agreement for the specific services required by Sasol Oil from Transnet,” a Sasol spokesperson said.
TotalEnergies did not respond to a request to comment.
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