Concourt rules Nersa's decision on Sasol's maximum gas price 'irrational'

File picture: Karen Sandison/African News Agency(ANA)

File picture: Karen Sandison/African News Agency(ANA)

Published Jul 16, 2019

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Cape Town – Apparent inadequate competition in

the gas market seven years ago, which

had prompted the National Energy

Regulator of SA (Nersa) to approve

energy company Sasol’s maximum

gas price, has ended with the Constitutional Cou

“The means selected by Nersa to create an environment akin to competition were not capable of achieving the purpose for which the section 21(1)(* ) power was conferred.

“Therefore, irrationality has been established,” the court ruled.

The case dates back to November 2012 when Nersa determined that there was inadequate competition in the gas market due to Sasol’s monopoly of the market.

In an attempt to remedy the situation, Nersa had approved applications from Sasol for the determination of its maximum gas prices, and its transmission tariffs.

The decision upset SA Breweries (SAB), Consol Glass, Nampak Limited, Mondi Limited, Illovo Sugar SA, Distribution and Warehousing Network and the PG Group.

All these aggrieved parties applied to the high court in Pretoria against the decision.

The respondents all piped gas, and had argued that as a result of Nersa’s decision they had experienced a substantial increase in the prices they had been paying.

According to court papers, the high court held that the methodology used by Nersa to determine maximum prices fell within the ambit of section 7 of the Promotion of Administrative Justice Act (PAJA), and because the review application was brought outside of the 180-day limit set by PAJA, it was out of time to consider the merits.

But on appeal the Supreme Court of Appeal (SCA) overturned the high court’s order.

The SCA held the high court had erred in not recognising that the administrative actions were reviewed, and not the methodology.

In the Constitutional Court, Sasol submitted that the maximum pricing methodology contained a set of rules that bound Nersa and all persons applying for approval of maximum prices.

The rules, Sasol argued, meant that the respondents needed to set aside the maximum pricing methodology if they wished to impugn the maximum price decision.

The respondents argued that while regulations required Nersa to be objective, they did not oblige Nersa to make a free-standing upfront determination.

“Nersa gave Sasol the choice between the basket of alternatives and the pass-through approaches, meaning that until Sasol’s choice was made, the maximum pricing methodology was, in its own terms, hypothetical and subject to change.

“The maximum pricing methodology was also not binding on Nersa in its determination of Sasol’s gas prices - it was merely an interim step towards Nersa’s determination of Sasol’s maximum prices,” the Constitutional Court judgment read.

In a majority judgment penned by Justice Sisi Khampepe, the court found that Nersa’s decision on Sasol’s maximum prices was irrational, and must be set aside.

The court also found the tariff decision was independent from the maximum price decision.

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