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Nersa probes Transnet spending

Johannesburg - The National Energy Regulator of South Africa (Nersa) is investigating whether Transnet overspent on assets for the Durban-Joburg petrol pipeline, which is going to cost more than double the forecast.

Nersa is hiring experts to advise it on how prudent Transnet’s acquisition of assets was for the pipeline.

File image - The fuel pipeline at Umbilo. Credit: INLSA

Nersa said it granted Transnet a construction licence for the pipeline in 2007.

“Since that time Transnet’s forecast final cost for the project has escalated from R11 billion to R23.4bn. Nersa is concerned about this escalation in costs and wishes to determine if the assets were prudently acquired,”the regulator said.

Nersa said the existing 12-inch pipeline from Durban to Joburg, owned by Transnet, was nearing the end of its design life. The replacement is a multi-pipeline project, that includes a 24-inch pipeline and three 16-inch pipelines.

Tariffs decided on must allow the licensee – Transnet – to “recover the investment, operate and maintain the system and make a profit commensurate with the risk”, said Nersa.

Ultimately, higher costs on the pipeline meant higher driving costs for motorists.

The big increase in costs emerged publicly late last year.

The technical experts must work out what “prudently acquired” assets means. They must find out whether costs escalated because of negligence by Transnet such as late payments to contractors; look at audit reports and decisions on the procurement; and use an expert such as a quantity surveyor to assess prudency of costs.

The investigation must consider how these matters influenced the cost increases; contracting strategies; laws and regulations; the contract with Fluor SA, its termination and replacement with Arup Worley Parsons; the effect and rationale behind changing the procurement approach from seven contracts to more than 95 contracts; Transnet’s capability to manage such contracts; Transnet’s risk mitigation measures; and the appropriateness of penalty clauses.

The investigation must also look at the way the contract dealt with “unforeseen occurrences” such as terrain problems.

Nersa wants the investigation to start within a month of appointing the team, and to finish as soon as possible.

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