Industry Incentives on cleaner fuels the big issue, says the DOE


It was desirable that issues regarding human health have a proper alignment with the fuel industry, said Muzi Mkhize, chief director-hydrocarbons, department of energy (DOE), when he addressed the portfolio committee on energy on the cleaner fuels programme at present being conducted in South Africa.

But in giving out incentives for industry to invest in new plant, government had to ensure that it got “bucks for the bang”.    Mkhize said that in regard to the original regulations on emissions, fuel specifications and standards following the prohibition of lead additives, the DOE programme known as CF1 “did not go very well”.

DOE’s more recent plan, CF2, has been to follow EU developments and the “EU5 standard specifications” in the area of cleaner fuels, and then to align such with SADC countries. He would not be drawn on specifics asked by MPs on issues regarding certain refineries having different suppliers and differing oil qualities. Also he did not elaborate on progress with SADC countries on the issue.

Again, octane structures established in terms of the CF2 programme for both coastal and inland regions of South Africa 2006, bench-marked in terms international fuel specifications, were delayed, Mkhize said, primarily whilst DOE digested lessons learnt from CF1 and the pressing need to delay things for there to be uninterrupted supplies during World Cup.

Mkhize said that the new EU5 and CF2 fuel specifications were needed to with the original objectives in mind:

•    To reduce harmful emissions
•    To encourage trade with internationals
•    To avoid SA being a dumping ground for low grade fuels and old vehicle technology
•    To allow new vehicle technology to gain a foothold
•    To protect jobs at refineries; car manufacturing and accessory sectors

As part of the “road map”, Mkhize noted that DOE continues to engage National Treasury in terms of legislation to finalise the exact regulations needed for new fuel specifications but this was “in the knowledge that the refineries would have to spend approximately R40 billion to bring their plants up to speed”. As such, this involved the issue of incentives to do so, he added.

Also, solutions on concerns raised by oil companies during workshops and debate regarding such cost recovery issues and other incentive matters were now being tackled as a priority, Mkhize said, bearing in mind that operational structures on fuel specifications were now urgent bearing in mind that CF2 had to also cover the investment period from the present to the final operational date for refineries in 2017.

Mkhize said that in DOE’s view, “the way forward had to include top-down and bottom-up approaches” but if incentives were to be deployed, which was a decision yet to be made, then how to get value for money for the incentives offered was the issue facing government.

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