Transnet pipeline cost surges 20%
The new fuel pipeline between Durban and Gauteng will now cost R15.4bn to build
March 10, 2010
By SLINDILE KHANYILE
Transnet's cost for building the multiproduct-pipeline between Durban and Gauteng had ballooned by more than 20 percent to R15.4 billion, the parastatal said yesterday.
The cost was estimated at R12.6bn at the end of February last year. The additional R2.7bn will be funded by a mixture of internal resources and debt. Transnet has R7bn cash on hand and its capital expenditure budget for the next five years has risen to R93bn.
The rise in the cost will result in a 4c a litre increase in fuel prices at completion of the entire project, which has now been shifted to the end of 2012 instead of next year.
Neville Eve, the general manager for project development and execution at Transnet Capital Projects, said the hike was a result of rising steel prices, uncertainty in power supply, costs of beefing up security, delays in obtaining regulatory approvals (including environmental impact assessments), tight deadlines and the recession.
Eve added: "We had very little time to come up with a design. Demand was driving us and we had to fast-track the schedule.
"When the economic downturn happened, we thought it would give us better market rates, but that did not happen because South Africa was at peak and there were no discounts for us because there were a number of projects taking place, (including roads and stadiums). There is cost of schedule and people, which impact on your bottom line."
Pipeline construction costs rose by R1.1bn, indirect costs increased by R581 million, steel prices grew by R482m, national key points went up by R70m.
There was also a R280m hike for a terminal delay, while R'm was included for diesel-powered generators to provide back-up power.
The new multiproduct-pipeline will have capacity to transport 1.2 million litres an hour between Durban and Johannesburg. It will replace the 45-year old DJH pipeline, which has reached the end of its economic life.
The new multiproduct pipeline will have an economic life cycle of 75 years.
Transnet has had to beef up security during construction.
"We go through informal settlements and security is a real issue. We do suffer from material that goes missing," said Eve.
In the 2010/11 financial year, Transnet Pipelines will bring on stream assets worth R1.6bn and, as a result, it has asked for a 51.3 percent tariff increase.
In the 2011/12 year, pipelines assets to be commissioned are valued at R10.1bn, while in 2012/13 they will be R3.8bn.
Charl Moller, the chief executive of Transnet Pipelines, said tariff increase applications would be steep in the coming years as the company commissioned more assets.
The tariffs are determined by the National Energy Regulator of SA (Nersa). In the past three years, Nersa's decisions had not been favourable to it.
Chris Wells, the acting chief executive at Transnet, said that the state-owned company had warned of big increases because of the pipeline, which had been increased to a 24-inch width by the government from the 16-inch pipe that Transnet had proposed. "It is not Transnet trying to rip off the consumer, but the application of a formula," said Wells.
Meanwhile, Wells added that the R1.5bn in instalments over three years that Transnet would receive from the government as announced by the finance minister would be used solely for pipelines.
Wells said tariff applications would have increased by the same margin even if the grant was not awarded.
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