profits in the liquid fuel sector
11 April 2006
As announced in the Medium Term Budget Policy Statement (MTBPS) on 25
October 2005 and thereafter in the 2006 Budget Review, the Minister of Finance,
Mr Trevor A Manuel, MP, hereby appoints a task team to advise on possible
reforms to the fiscal regime applicable to windfall profits in South Africaâs
liquid fuel energy sector, with particular reference to the synthetic fuel
industry.
The synthetic fuel industry accounts for between 35 and 40 per cent of
domestic liquid petroleum sales in South Africa. Local fuel producers sell into
an administered price market at prices determined by the international price of
crude oil without reference to domestic production costs. Concerns exist that
this dispensation benefits synthetic fuel producers and their shareholders
disproportionately, at the expense of the consumer and the taxpayer.
Internationally, oil and gas companies are often subject to fiscal regimes
that effectively taxes the windfall profits associated with high crude oil
prices relative to resource extraction costs. Careful consideration needs to be
given to the long-term development of the domestic fuel industry, the design of
appropriate fiscal measures and the evolution of the relevant environmental and
industrial regulatory arrangements. Mindful of international practice and the
complex balance of economic aspects to take into account, the Minister of
Finance has requested that the fiscal regime applicable to South Africaâs
liquid fuel producers be re-assessed.
The task team is expected to make an objective assessment of the options for
securing the optimal contribution of the synthetic fuel industry to long-term
development in South Africa, against the background of, inter alia, its
significance for the economy and the balance of payments, its historic
dependence on the state for capital funding and price support, the impact of
movements in the oil price and exchange rates on synthetic fuel producers
profitability and the potential for further expansion of domestic synthetic
fuel production.
The task team is an advisory technical team and will be chaired by Dr
Zavareh Rustomjee, an independent consultant with extensive experience in the
industry and former Director-General of the Department of Trade and Industry.
In carrying out its task, the task team will consult with key stakeholders in
the private and public sector, including but not limited to:
* The Department of Minerals and Energy
* Synthetic fuel producers; SASOL and PetroSA
* SAPIA (South African Petroleum Industry Association)
* Major oil companies based in South Africa
* Organised business
* Organised labour
* The accounting and legal professions
* Consumer lobby groups and
* The South African Revenue Service (SARS).
The task team is requested to prepare a discussion paper for comment by 31
July 2006 and to complete its work by 15 September 2006.
The task team will comprise of the following experts:
i. Dr Zavareh Rustomjee (chairperson and convenor)
Dr Rustomjee is an ex Director-General of the Department of Trade and Industry.
He is currently an independent consultant and a director of a number of
companies, including the Central Energy Fund (Pty) Ltd. He is a qualified
chemical engineer and holds a PhD in economics.
ii. Dr Grove Steyn
Dr Steyn is an independent consultant with expertise in the areas of
regulation, technology and innovation.
iii. Dr Boni Mehlomakulu
Dr Melomakulu is responsible for the Resource Based Industries Unit at the
Department of Science and Technology. She worked in the synthetic fuels
industry from 1997 to August 2003.
iii. Dr Rod Crompton
Dr Crompton is currently with the National Energy Regulator (NER). He was
previously the Deputy Director-General for Hydrocarbons and Energy Planning
with the Department of Minerals and Energy and the Managing Director of the
Minerals and Energy Policy Centre.
v. Ms Almorie Maule
Ms Maule is an independent businesswoman with extensive experience in the
petroleum industry. She served as CEO of Engen from 1999 to March 2002.
The National Treasury will provide secretariat assistance through Mr Cecil
Morden, the Chief Director: Economic Tax Analysis in the National Treasury. The
task team is expected to have its first meeting on or before the first week of
May and will convene hearings of key stakeholders in the liquid fuels industry
at an appropriate stage. Organisations or individuals wishing to provide
written inputs for the attention of the task team, may request further
information from, or submit any comments to, Cecil Morden at cecil.morden@treasury.gov.za.
Enquiries:
Thoraya Pandy
Cell: 082 416 8416
Issued by: National Treasury
11 April 2006
