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[2016] ZAGPPHC 1119
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PG Group (Pty) Ltd and Others v National Energy Regulator of South Africa and Another (57506/2013) [2016] ZAGPPHC 1119 (4 October 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
04/10/2016
CASE
NO.:57506/2013
NOT
REPORTABLE
NOT
OF INTEREST TO OTHER JUDGES
REVISED
In
the matter between:
PG
GROUP (PTY)
LTD First
Applicant
THE SOUTH AFRICAN BREWERIES
(PTY) LTD Second
Applicant
CONSOL GLASS (PTY)
LTD Third
Applicant
NAMPAK
LIMITED Fourth
Applicant
MONDI
LIMITED Fifth
Applicant
DISTRIBUTION
& WAREHOUSING NETWORK LTD Sixth
Applicant
ILLOVO
SUGAR SOUTH AFRICA LIMITED Seventh
Applicant
and
NATIONAL
ENERGY REGULATOR OF SOUTH
AFRICA
First
Respondent
SASAL
GAS
LIMITED Second
Respondent
Heard: 12
May 2018
Delivered:
4
October 2016
JUDGMENT
A.A.LOUW
J
Introduction
[1]
The seven
applicants are all companies which operate in the industrial sector
in South Africa. They are also large-scale consumers
of piped gas
delivered to it by the second respondent, Sasol Gas Limited.
[2]
The first
respondent is NERSA, a regulatory authority established as a juristic
person in terms of section 3 of the National Energy
Regulator Act 40
of 2004(the 11NERSA Act") with its physical address at Kulawula
House 526 Madiba (former Vermeulen) Street,
Arcadia, Pretoria. NERSA
regulates the piped-gas, electricity and petroleum pipeline
industries in South Africa in terms of the
Gas Act, 48 of 2001 (the
·
Gas Act"
;), the Electricity Regulation Act, 4 of 2006,
and the
Petroleum Pipelines Act, 60 of 2003
. The decision that are
the subject of this review application relate to NERSA1 s function as
the regulator of the piped-gas industry
in South Africa.
[3]
The second
respondent is Sasol Gas, a company duly registered and incorporated
in accordance with the company laws of South Africa,
with its
principal place of business at 272 Kent Avenue, Randburg and its
registered address at 1 Strudee Avenue, Rosebank. Sasal
Gas is a
wholly-owned subsidiary of Sasol Limited ("Sasol Ltd), which is
an international energy and chemical company listed
on the JSE
Limited and on the New York Stock Exchange. Sasol Gas is the sole
(monopoly) supplier of piped-gas in South Africa.
The decisions that
are the subject of this review application concern the grant of
applications made by Sasol Gas to NERSA for
the approval of maximum
prices for the supply of piped-gas in South Africa.
[4]
In their amended notice of motion the applicants ask for the
following relief:
“
1.
The decision by the first respondent on 28 March 2013 to approve two
applications by the second respondent, namely:
1.1.
an
application for maximum gas prices and for a trading margin for the
period 26 March 2014 to 30 June 2017;
1.2.
an
application for transmission tariffs for the period 26 March 2014 to
30 June 2015 are reviewed and set aside.
2.
If it is
found to constitute a reviewable decision, the methodology adopted by
the first respondent on 28 October 2011 to approve
maximum gas
pricing is reviewed and set aside; alternatively is declared to be
invalid for the purposes of the first respondent's
consideration of
the application referred to in 1.1 above.
3.
In the
event that the relief set out in paragraph 1 and 2 is granted, any
maximum gas prices subsequently approved by the first
respondent for
the second respondent shall apply retrospectively with effect from 26
March 2014 until the date of termination of
such approval.
4.
The costs
of this application shall by paid by those respondents who oppose the
relief sought herein on
a
joint and several
basis, the
one
paying
the other to be absolved.”
Background
Saeol's
special dispensation
[5]
In the late 1990s
and early 2000s, Sasol and a Mozambican partner developed natural gas
fields in Mozambique and built a pipeline
to pump gas to South
Africa. In consideration for this investment, the government and
Sasol entered into a Mozambican Gas Pipeline
Agreement on 26
September 2001.
[1]
It incorporated a Regulatory
Agreement, which allowed Sasol to determine its gas prices by
market
value pricing".
[2]
This method allowed Sasol to
charge each customer a price based on what it would cost the customer
to switch out of gas to an alternative
fuel.
[3]
[6]
It is common cause
that only a monopolist, unconstrained by any competition, can price
on this basis. It allows the monopolist to
exact the highest possible
price from each individual customer. NERSA described it as follows:
"The
conditions in the South Africa piped-gas market manifest those of
a
monopolist who has an
influence in the market in terms of gas supply and prices.
Notably, the price of natural gas and synthetic
gas is referenced to
the cost of an alternative energy source available to an
individual customer
...
This is an example of
perfect price discrimination by
a
dominant supplier who
possesses market power and it must be noted that this price
discrimination is allowed in terms of clause 1.16
of (the Regulatory
Agreement)".
[4]
[7]
The Pipeline
Agreement (including the Regulatory Agreement) was conditional upon
the inclusion of a provision in the
Gas Act (which
was then in the
making) that made the agreement binding on NERSA for ten years.
[5]
[8]
The
Gas Act was
passed on 12 February 2002. It satisfied the condition of the
Pipeline Agreement in that
s 36(2)
provided that the Pipeline
Agreement was binding on NERSA for ten years after natural gas was
first received from Mozambique.
[9]
This dispensation
expired on 25 March 2014. This, for the first time, rendered Sasol
Gas' gas prices subject to regulation by NERSA.
The
Gas Act and Regulations
[10]
Section 4(g)
of
the
Gas Act provides
that one of NERSA;s functions is to regulate gas
prices in terms of
s 21(1)(p)
in the prescribed manner.
[11]
Section 21(1)(p)
says that, where there is inadequate competition in the market; NERSA
must approve the maximum prices for gas.
[12]
Regulation 4(3)
provides that, when it determines maximum prices; NERSA must,
"(a)
be objective i.e. based on
a
systematic methodology
applicable on a consistent and comparable basis;
(b)
be fair;
(c)
be
non-discriminatory;
(d)
be
transparent;
(e)
be
predictable; and
(f)
Include efficiency incentives.”
[13]
Regulation 4(4)
says that the maximum prices set by NERSA must enable
the licensee to
“
(a)
recover all efficient and prudently incurred investment and
operational costs; and
(b) make
a
profit commensurate
with its risk.”
[14]
Quite apart from NERSA's price regulation,
s 22
of the
Gas Act also
prohibited Sasol Gas' discriminatory pricing.
NERSA'S
three
processes
[15]
NERSA followed three interrelated decision-making processes to
determine the maximum prices Sasol may charge for its gas.
[16]
The first was to determine .the methodology it would employ to
determine the maximum prices under
s 21(1)(p).
That process ran from
October 2010 to October 2011.
Its
milestones were the following:
16.1 On 21 October 2010, NERSA
published a first draft of its Methodology for public comment.
[6]
16.2 In June 2011, NERSA
published a second draft of its Methodology.
[7]
16.3 It finally approved its
Methodology on 28 October 20 11.
[8]
16.4 NERSA gave its reasons for
its adoption of the Methodology on 24 November 2011.
[9]
[17]
The second process was for NERSA to determine whether th re was
inadequate competition in the gas market within the meaning
of
s
21(1)(p).
This process ran from September 2011 (a month before
finalization of the Methodology) to February 2012, with the following
milestones:
17.1
NERSA
published a draft of its
"Inadequate
competition•
determination in September 2011.
[10]
17.2
NERSA
made its final
"inadequate
competition”
determination
on 29 February 2012.
[11]
[18] The third process was
NERSA's determination of Sasol's maximum prices. This process started
in December 2012 and was completed
in April 2013. Its milestones
were:
18.1
Sasol
made two applications on 24 December 2012. The one was for
determination of its maximum gas prices.
[12]
The
other was for the determination of Sasol's transmission tariffs.
[13]
18.2
After
initial public comment, on 11 February 2013, NERSA published drafts
of its determination of Sasol's two applications.
[14]
18.3
After
public hearings and further submissions, NERSA finally determined
both Sasol's applications on 26 March 2013.
[15]
18.4
NERSA
published reasons for its determinations of Sasol's maximum gas
prices and transmission tariffs on 24 April 2013.
[16]
Undue
delay
[19]
It is common cause that NERSA's decision to make the Maximum Price
Decision ("the MPD·) falls within the ambit
of PAJA.
[20]
Section 7(1)
of PAJA provides that proceedings for judicial review
must be brought 'Without unreasonable delay" and not later than
180
days after the person concerned became aware of the
administrative action.
Section 7(1)
means that an applicant who
complies with the 180-day rule may nevertheless be non-suited on the
basis that he or she delayed unreasonably.
[21]
In
OUTA
[17]
,
the SCA summarised the
principles that apply to delay under PAJA
:
·At
common law application of the undue delay rule required
a
two stage
enquiry. First, whether there was an unreasonable delay and second,
if so. whether the delay should in all the circumstances
be condoned.
Up to
a
point, I think,
s 7(1)
of PAJA requires the
same
two stage approach.
The difference lies, as I see it, in the legislature's determination
of a delay exceeding 180 days
as
per se unreasonable
.
Before the effluxion of 180 days. The first enquiry in applying
s
7(1)
is still whether
the
delay (if any)
was unreasonable.
But
after the 180 day period the issue of unreasonableness is pre-
determined by the legislature; it is unreasonable per
se.
It follows that the
court is only empowered to entertain the review application if the
interest of justice dictates an extension
in terms of
s 9.
Absent
such extension the court has no authority to entertain the review
application at all. Whether or not the decision was unlawful
no
longer matters. The decision has been 'validated' by the delay. That
of course does not mean that, after the 180 day period,
an enquiry
into the reasonableness of the applicant's conduct becomes entirely
irrelevant. Whether or not the delay was unreasonable
and, if
so,
the extent of that
unreasonableness is still a factor to be taken into account in
determining whether an extension should be granted
or not."
[18]
(our underlining)
[22]
As both respondents raise the issue of the applicants' undue delay as
a bar to having this review heard, it is appropriate
to deal with
that at the outset.
[23]
The first point of departure between the applicants and the
respondents is whether the calculation of delay should run from
October 2011 when the methodology was adopted by NERSA or only from
the date of taking the MPD. The differing viewpoints of the
parties
are set out in the applicants' heads of argument as follows:
“
22. NERSA
[19]
and Sasol
[20]
argue that, in terms of
regulation 4(3)(a)
, NERSA's Methodology was a •rule book"
binding on NERSA. It was thus bound to apply the Methodology in its
determination
of Sasol's applications. They argue that the court
cannot entertain a review of NERSA's determination of Sasol's
applications without
first setting aside the Methodology.
23.
In
an attempt to avoid this argument, the applicants ask, if necessary,
that NERSA’s
adoption
of the Methodology be reviewed and set aside.
[21]
NERSA and Sasol, however,
contend that, because NERSA adopted the Methodology in October 2011,
the application for its review, launched
in October 2013, was out of
time.
24.
We
submit that the respondents' argument is misconceived. NERSA's
Methodology was not a "rule book" binding upon NERSA.
It
was merely a policy NERSA adopted as a preliminary step towards its
determination of Sasol's gas prices."
[24]
In advancing its
argument that the methodology was not binding, the applicants contend
that it flies in the face of one of the fundamental
rules of
administrative law namely that the decision-maker vested with a
discretionary power my not fetter its discretion by rigid
adherence
to a pre-determined policy. This principle is well established
[22]
[25]
In advancing this
argument the applicants lose sight of the fact that
regulation 4(3)
provides that when NERSA determines maximum prices it
must
be objective and based on a
systematic
methodology
applicable on a
consistent and comparable basis and must
inter
alia
also be
predictable
.
When the MPD was to be made NERSA was not free to jettison the
methodology.
[26]
This clearly
distinguishes this case from the general principles referred to
above. There rested a statutory
duty
on NERSA to lay down a
methodology. This was done almost two years before the review
application was brought. According to the test
set out in
OUTA
the delay is
therefore
per se
unreasonable. This court
is therefore only empowered to entertain the review application if
the interest of justice dictates
an extension in terms of
section 9.
[27]
For this enquiry,
even after the 180 day period, the reasonableness of the applicants'
conduct is still relevant. The applicants
set out no facts which
prevented them from taking the methodology decision on review
timeously.
[28]
I further have regard to the fact that the applicants are large
corporations with access to quality legal advice. They employed
three
counsel.
[29]
My conclusion is that the review should not be entertained because of
the unreasonable delay.
Order
The
application is dismissed with costs, including the costs of two
counsel.
__________________
A.
A. LOUW
Judge
of the High Court
[1]
Mozambican Gas Pipeline Agreement 28 September 2001 vol 2 p 94.
[2]
Regulatory Agreement 28 September 2001 vol 2 p 107 at p 118 clause
8.3.
[3]
Regulatory Agreement 28 September 2001 vol 2 p 107 at p 109 clause
1.18.
[4]
Final Inadequate Competition Determination vol 4 p 317 at p 325 para
4.2(a)(ii).
[5]
Pipeline Agreement vol 2 p 106 clause 14.2 read with clause 36 of
the Gas Bill B18- 2001 published on 23 March 2001.
[6]
Draft Methodology (1) 21 October 2010 vol 2 p 128.
[7]
Draft Methodology (2) June 2011 vol 3 p 185.
[8]
Final Methodology 28 October 2011 vol 3 p 218.
[9]
Methodology Reasons 24 November 2011 vol 3 p260.
[10]
Draft Inadequate Competition Determination September 2011 vol 4 p
333.
[11]
Final Inadequate Competition Determination 29 February 2012 vol 4 p
317.
[12]
Sasol Gas Price Application 24 December 2012 vol 4 p 343.
[13]
Sasol
Transmlsaion Tariff Application 24 December 2012 vol 5 p 377.
[14]
Draft Price Determination 11 February 2013 vol 5 p 408; Draft
Transmission Tariffs Determination 11 February 2013 vol 5 p 428.
[15]
Final Gas Price Determination 28 March 2013 vol 7 p 562; Final
Transmissions Tariffs Determination 26 March 2013 vol 7 p 803.
[16]
Reasons for Gas Price Determination 24 April 2013 vol 7 p 565;
Reasons for Transmission Tariffs Determination 24 April 2013 vol
7 p
604.
[17]
Opposition to Urban Tolling Alliance and Others v The South African
National Roads Agency Ltd and Others
[2013] 4 All SA 639
(SCA)
[18]
OUTA (supra) at para 26
[19]
NERSA Answer vol 15 p 1331 para 60.2.
[20]
Sasol Answer vol 8 p 718 paras 155 to 169.
[21]
Amended notice of motion vol 7 p 642 prayer 2.
[22]
Kemp NO v Van Wyk
2005 (6) SA 519
(SCA) para 1;
National
Lotteries Board v SA Education and Environment Project
20l2 (4)
SA 504 (SCA) para 9.