PRESENTATION TO THE PPC CLEANER FUELS 2 PROGRAMME

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Presentation Outline• What is desirable

• Background

• Originally envisaged pathway

• CF2 Programme Objectives

• CF2 Programme Approach

• European Emissions Standards and proposed RSA Fuel Specifications and Standards

• Discussion Document on CF2 Specifications and Standards

• Cost recovery mechanism / incentives

• Way Forward

• Closure

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What is desirable?• Proper alignment of Fuel Specifications &

Standards; Vehicle Technology; and Regulation of Emissions

• Health; Vehicle Engine Technology; and Environmental considerations

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Background• Petroleum Products Amendment Act, 2003 (Act No. 58 of 2003)

empowers the Minister of Energy to regulate specifications and standards of petroleum products

• 01 January 2006: Prohibition of lead addition and reduction of S max conc. from 3,000 parts per million (ppm) to 500ppm

• 23 June 2006: Regulations Regarding Fuel Specifications and Standards finally promulgated – now referred to as CF1o Marked a departure from self-regulation through compliance with SABS

voluntary standardso Allowed a 6 mths (Jan to Jun) flushing period to “clean” the systemo Amongst others, introduced: Bio-fuels under permitted fuel grades; a 50

ppm sulphur niche diesel grade; 500 ppm sulphur standard grade diesel; permission of only unleaded petrol grades - metal free and metal containing; labeling;

o Demand side management levy imposed on inland ULP95 to curb “octane wastage”

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Hallmark of CF1: Partnership / coordination

Originally envisaged pathway• Follow EU & Align with SADCo Euro 2 - from 2006o Euro 3 – from 2008 (?)o Euro 4 - from 2010

• Octane structure from 2006o Coastal Region: 91, 93, 95 & 95LRPo Inland Region: 91, 93, 95 & 93LRP

• Originally envisaged pathway did not materialise - decision to defer implementation linked with lessons learnt during CF1 and need to have a fuel supply disruption-free 2010 FIFA World Cup competition

• Lessons learnt included the recommendations of the Moerane Investigation into the Dec 2005 fuel shortages

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CF2 Objectives

Further tightening of fuel specifications and standards:

• To address the effect of harmful emissions, including greenhouse gas emissions, on human health and the environment;

• To facilitate trade with the rest of the world (export and import);

• To prevent a situation where South Africa gets used as a dumping ground for low quality fuels and old vehicle technology;

• To improve future access to improved vehicle technology; and

• To protect jobs in the refining, car manufacturing and other related sectors from being lost in the future.

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CF2 Programme Approach• The formation of an Interdepartmental Task Team (IDTT)

comprising:

o Departments of Energy (DoE), of Environmental Affairs (DEA); of Transport (DoT), of Trade and Industry (DTI); and of Science and Technology ; and National Treasury (NT), as well as the South Africa Bureau of Standards (SABS).

• Development of a Government viewpoint and roadmap for CF2 o Discussion Document , incl. Government’s Roadmap for CF2o Draft Regulations regarding Specs & Stdso Engagement of stakeholderso Final Regulations and Position Paper

• It was decided that SA should migrate directly from the current an equivalent of Euro 2 emissions standards to that of Euro 5 emissions standards

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Euro and Proposed RSA Specs

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Parameter1 Unit Euro II

Spec

RSA (CF1)

Spec

Euro IV

Spec

Euro V

Spec

RSA (CF2)

Spec

Petrol

Sulphur mg/kg 500 500 50 10 10

Aromatics Vol % 50 50 35 35 35

Benzene Vol % 5 5 1 1 1

RVP kPa 45 - 75 45 - 75 45 - 60 45 - 60 45 - 652

Olefins Vol% No max No max 18 18 18

Diesel

Sulphur mg/kg 500 500 / 503 50 10 10

(PAH) Polycyclic

Aromatic

Hydrocarbons

% m/m 11 No max 11 11 11

Cetane Number none 45 45 51 51 51

Distillation

T90, max.

T95, max.

oC

oC

N/A

360

362

N/A

N/A

360

N/A

360

N/A

360

Notes: (1) Unless otherwise stated all figures indicate maximum allowable levels.; (2) Vapour pressure shall be 65kpa maximum with a 5 kPa waiver allowed when ethanol is used; (3) * = niche grade specification; and (4) “Euro” refers to European Emissions Standard

Discussion Document on CF2 Fuel Specs & Stds• Discussion Document published on 8-Mar-11

• Comments received from oil companies mainly centred around 4 issues:

o Cost recovery mechanism/incentives: Oil companies allege that capex for refinery upgrades to produces CF2 fuels is ~ R40 billion They expect some form of reimbursement or incentives

o Timeframe required for refinery upgrades: ~4 to 6 years

o Transitional fuels: a niche grade of 10ppm fuels is needed while still awaiting for the CF2 fuels as mandated by the Regulations. This is to allow automobile industry to introduce the latest vehicle technology

o Fuel parameters: particularly olefins and aromatics levels in the draft Regulations

Special dispensation to be considered for synthetic fuel refineries and other issues relating to beneficiation of local resources (e.g. manganese)

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Cost recovery mechanism / incentives• Key challenge: the cost recovery to be employed

o Iit is a complex issue on the critical path of CF2 Programme development that has required several multilateral and bilateral meetings with industry players

• DoE continues to engage National Treasury (NT) to solicit possible solutions to the issue of cost recovery mechanism/incentives

• NT indicated to DoE that detailed information was required from individual oil companies i.r.o. their alleged inability to fund the refinery upgrades on their own but to secure funding from other sources

• Subsequent to the meeting with the NT, DoE developed questionnaires, seeking further clarity regarding the actual cost of required upgrades, and forwarded same to be filled by each oil company

• Thereafter, DoE, together with NT, engaged the oil companies individually until December 2011.

• DoE has developed an internal Discussion Document on cost recovery to deliberate on with NT during March 2012.

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Amendment of Regulations• March 2011: Publishing of the Discussion Document

• June 2011: Stakeholder consultation on Discussion Document

• 17 October 2011: DoE published in the Government Gazette No. 34681 the Draft Amendment Regulations regarding Fuel Specifications and Standards for public comment

• 15 December 2011: Closing date for public comments

• 17February 2012: DoE held a stakeholder workshop to discuss and seek clarity on comments received

• DoE has considered comments and is finalising the Regulations for promulgation.

• .

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Way Forward• Resolution of the cost recovery mechanism / incentives

o Top-down and bottom-up approaches

o In principle decision to incentivise or not incentivise

o Bang for the buck?

• Promulgation of Regulations and Position Paper; and

• A proper structure to manage the implementation of CF2 from late 2012 to post commissioning in 2017

o Inclusive of transitional fuels

• Keep the BLNS (Botswana, Lesotho, Namibia, Swaziland), which are an integral part of the RSA liquid fuels market, informed

o Mainly through the Interstate Oil Committee (IOC) Meetings

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InkomuInkomu

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