By Carien Kruger
Under the proposed new legislation, farmers who store fuel on their farms will, for the first time, need a certificate for each storage point or face heavy fines if the proposed law’s requirements are not met.
“Overreaching” and “this takes things too far” are some of the comments made by an agricultural business and a farmer on the Bill. Read these comments at the end of the article.
The agricultural business chamber, Agbiz, is very concerned about provisions in the Petroleum Products Bill, which could prove costly for producers and agricultural businesses that sell fuel.
Annelize Crosby, Agbiz’s Head of Legal Intelligence, says the Bill was published for comment on 20 October 2024, and the organisation submitted written comments before the deadline on 20 December. Agbiz will also participate in the public hearings on this matter.
The existing Petroleum Products Act (Act 120 of 1977) already gives the Minister of Mineral and Petroleum Resources extensive powers to control almost every aspect of the petroleum industry. This Bill envisages even greater control.
According to the Bill, all consumers who store petroleum products for their use, such as farmers, will need an end-user certificate. Crosby says it appears that producers will be unable to purchase large volumes of fuel for storage or use in end-user facilities without such a certificate.
One of the provisions is that end-users must provide financial provision through insurance, a bank guarantee, or cash.
The so-called controller will issue the certificates case-by-case, which may contain conditions.
The criteria for considering a certificate application are “efficiency” (which relates to volumes, among other things), environmental requirements, and black economic empowerment (BEE).
Difficult to implement, cost implications for producers
Crosby says the way the state wants to handle the application process and issuance of certificates is impractical and unenforceable. “It will bring significant problems, costs, and possible complications for end-users and place an enormous administrative burden on end-users, many of whom are small businesses.”
Agbiz suggests that end-users storing less than 23 000 litres should be exempted from the requirement to obtain a certificate.
“To further alleviate the burden, implementation should be phased or based on a multi-level system that considers the size and risk level of storage facilities to ensure that smaller operations are not unfairly disadvantaged.”
Headache for businesses
Businesses will be divided into categories, and wholesalers and retailers will have to apply for licences. All existing licence holders must also reapply within the six months provided. The licences will impose additional requirements, and vertical integration will be prohibited.
The same criteria of efficiency, environmental requirements, and BEE that will apply to certificate applications will also be used for licences.
According to Crosby, licences will be non-transferable, which is a problem. “This can lead to unnecessary economic hardship for licence holders experiencing business problems, such as insolvency or market shifts. It also indicates that a zero-market value will be attached to the asset the licence holder operates.
Inspections and fines
The Bill stipulates that the minister, a regional-level controller or any inspector with the necessary powers can conduct inspections without a warrant.
Broad powers are proposed for inspectors, such as being able to question people, request documents, and inspect objects and machinery – all without prior notice. This can cause disruption and possible interference with commercial activities,” says Crosby. “The exercise of such broad powers, without clear guidelines, can lead to arbitrary decision-making and a lack of accountability.
“Agbiz’s view is that, except for cases where there is reasonable suspicion of a violation of the Bill’s provisions, or where there is an immediate need to prevent damage or preserve evidence, all inspections should be done with a warrant. Inspections should also be subject to a reasonable notice period,” says Crosby.
“Closing a site based on suspicion that prohibited activities are taking place is unfair and can lead to arbitrary enforcement. Suspending operations or closing a site without tangible evidence or a formal investigation infringes on licence holders’ rights with legitimate operations.
“Agbiz believes that any decision to close a site should be based on clearly verifiable evidence of prohibited activities, and the licence holder should be allowed to respond or contest the closure before such a decision is made.”
Crosby says the proposed fines are very high. For example, when an end-user certificate is unavailable and needs to be shown, the fine can amount to R50 000 per day. “The fact that a party, notwithstanding an appeal, will have to pay high penalties and then try to recover them through a court process seems unfair and unjust.
“The proposed fines appear disproportionate to the seriousness of the offences. This is particularly concerning in businesses operating with tight margins, such as in the petroleum and agricultural sectors, where fines can lead to the closure of businesses, affecting not only the businesses but also the broader economy and workforce.”
The views of a business and a farmer
Agrimark, part of the KAL Group, is one of the agricultural businesses that will be seriously disadvantaged by certain provisions in the Bill. It has submitted a 20-page submission as commentary on it, noting several issues of concern.
Sean Walsh, CEO of the KAL Group, speaking on behalf of Agrimark, says there are two major issues specifically the agricultural value chain should be concerned about:
- “According to the Bill, every end-user of petroleum products with any kind of tank facility must apply for an end-user facility certificate every year. We don’t see any point in this requirement at all. In our opinion, there could be 150 000 to 180 000 end-user facilities in the agricultural value chain in South Africa. One thinks, for example, that every diesel tank, warehouse, generator, and water pump depends on fuel power. The certificate requirement places an enormous additional and unnecessary financial and administrative burden on the agricultural value chain. The current licence application costs R500, excluding the administrative costs to prepare it. This requirement could thus cost the industry from R50 million to R90 million per year. It is excessive. And what about hospitals, schools, and private households with generators? We suggested that the certificate requirement be limited to end-user facilities with a permanent capacity of 20 000 litres or more. This would largely exclude agriculture.
- “The Bill’s proposal that a retailer may only sell up to 2 000 litres per transaction is completely impractical. Several tanker trucks have a larger tank. Several agricultural businesses buy more per time from retailers. How can you tell a farmer who shows up at your filling station with a 4 000-liter tanker: ‘No, you must drive twice.’ That’s utter nonsense. What about users like spraying services, veld fire services, harvesting services, borehole services, and generator services? The list is endless.”
From a farmer’s perspective, parts of the Bill make no sense.
Jaco Minnaar, who farms grain between Henneman and Kroonstad, says the purpose of the Bill or the end-user facility certificate is unclear.
“If it’s the prevention of pollution, I can assure you diesel is expensive enough that farmers aren’t just going to waste it. Of course, it’s important to keep it safe.”
Minnaar says the experience has shown that the state tries to implement many regulations but applies very little of them and usually also has a too limited understanding of the regulations, leading to so-called inspections becoming ‘checkbox exercises.’
“We see many regulations that were put in place with a good purpose, but in the practical application, it becomes a big frustration and expense for the regulated (person or entity). In agriculture, we can cite several such examples. This Bill appears to be another such case.”
Minnaar says that if there are approximately 200 000 facilities in agriculture that qualify for certificates, the state will have to issue about 1000 certificates per day to have them renewed annually.
“It is almost impossible, among other things, to properly ensure that the facilities comply with the requirements – not to mention the inspections. The cost of R500 per facility might sound small, but when the work behind it is considered, as well as the administration from the state’s side, it will quickly add up to astronomical amounts, contributing to the cost of production. Ultimately, Joe Public, who buys the product, will pay for this. I don’t think our country can afford this.”
Minnaar is also concerned about the proposed inspections. “Untimely, unexpected inspections increase farm safety risks with more people visiting premises without permission or appointments, creating unnecessary friction and frustration.
“Storage facilities are not erected or moved overnight, so there is no need for surprise visits. Even the inspectors from the Department of Labour, who are allowed to visit farms at inopportune times, do so by appointment. These are ill-considered provisions.”
Minnaar says even if 20 000 litres is exempted from the certificate requirement, the Bill’s provisions will still affect about half of grain farmers, especially vegetable farmers, who use their transport.
“Such farmers use more fuel in certain months, so it is not a practical or logical figure. The threshold for requiring a certificate should be around 50 000 litres storage capacity because only then is there a substantial pollution risk.”
Minnaar says that regarding restrictions on trade, the proposed new regulation interferes with the free market and competition rather than promoting competition.
“South Africa cannot endure over-regulation and consequently more expensive costs. Placing a limit of 2 000 litres per transaction in retail is like prohibiting consumers from buying more than one Coke per person. There might be reasons for this, but it is completely ill-considered.”
Minnaar says everyone must protect the environment and prevent pollution as far as possible, but this regulation must be practically applicable and risk-based. “This proposed bill just takes things too far.”
