_________________________
REPORT
_________________________
OF THE
PORTFOLIO COMMITTEE ON MINES AND ENERGY
ON THE
ENERGY REGULATORY BILL
Chairman Hon E .T. Chindori-Chininga
_________________________________________________________
THIRD SESSION – SEVENTH PARLIAMENT
_____________________________________
Presented To Parliament on 2010
[S.C 13 2010]
1 Introduction
The Committee on Mines and Energy, through its legislative role had an opportunity to analyse this bill through the inputs that it received from the various stakeholders that included people from the business community. The majority of the people were in support of the establishment of the the Energy Regulatory Authority because of the realisation that the energy sector plays a key role in the economic development of this country. Hence it is important that the energy sector is strengthened through the establishment of the Regulatory Authority. However, the various stakeholders expressed a number of reservations on a number of clauses such as the ones touching on the composition of the Board and the powers of the Minister over the Board.
2 Methodology
The Committee conducted one public hearing, which was attended by the Permanent Secretary from the Ministry of Energy and Power Development, officials from REA, officials from ZESA, members of CZI, officials from Noczm, representatives of BP & Shell as well as Representative of Total Zimbabwe. It was unfortunate that the Committee was unable to get the views of the ordinary Zimbabweans due to time constraints. It is imperative that the views of the ordinary people in the various constituencies should be captured because at one stage or other, the Regulator will have an interface with the ordinary consumers of energy.
3 Background
The establishment of the Energy Regulatory Authority is a welcome development, taking into account the fact that ZERC is not operational and there has not been a authority regulating the petroleum industry. As a result government sought to amalgamate or to find a single Regulator through the Electricity and Petroleum Acts. This is in line with regional practices especially SADC countries most of which have a single Regulator. Irrespective of these benefits there have been a number of challenges which have been faced by these two sectors, such the existence of high sulphur diesel on the market and the numerous complaints of high electricity bills charged by Zesa. Therefore it becomes imperative that this Bill be enacted as quickly as possible to deal with some of these problems. .
4 Findings
These were some of the finding of the Committee
4.1 Functions and Powers of Authority
In Clause 4 (f), which deals with the issue of prices that should be charged by the licensees. Stakeholders raised concern that there is need to balance the costs of investment and reasonable return on investment whilst at the same time being fair on the consumers who are paying for the service or the product. This issue is important in view of the current billing system being done by Zesa, which in most cases in not fair on the consumers. Consumers should not be burdened with inefficiencies of the the service providers.
Under the same clause under (p), which looks at issues pertaining to disputes between licensees and consumers, the concern was that any form of arbitration should have a timeline. Probably disputes should be resolved within two months of the Board's meeting taking into account the fact that they only meet six times a year.
4.2 Constitution of the Board
This section talks about the people who will constitute the Board. There is glaring omission of representatives from the business community and ordinary consumers. They need to be considered taking into account the fact that they are the largest consumers of this product. Nominations can be taken from organizations such as CZI and the Consumer Council of Zimbabwe. Employees of the parent ministry should be excluded from ZERA board as they may exert unnecessary influence.
Under the same clause, concern was raised on the gender composition which states that “at least half shall be women” Firstly, how will this be worked out, if the board consists of 9 members. Secondly, the electricity and energy sectors are highly technical and it is imperative that the people who sit on the board are chosen for their competence and not a compromise options. Therefore it may be necessary to state that the Constitution of the Board should be gender sensitive in its selection of its members.
4.3 Licensing Requirement
In this clause, under 3 (i), which talks about “the powers of any inspector or employee of the Authority to enter and inspect without warrant any premises licensed or required to be licensed under this Act, and to search for and seize documents or things for the purpose of investigating any offense or suspected offense against this Act” This is rather too harsh. The inspector has been given too much power and this clause may be abused. The inclusion of this clause is not pro-business but may be abused for purposes of witch-hunting. There is need to state the 'probable cause' of such action and a warrant must be issued. It is important that our regulatory environment is conducive to both potential investors and for those already in business.
4.4 License Application
Concern was raised by stakeholders on Clause 10 (6) where the regulator is given six months to decide on any application for a license. This is rather excessive, taking into account that the country is seeking for investment in various areas of our economy. The period should be shortened to be period of at least two months.
4.5 Renewal of Licenses
Clause 12 (1), states that 'a licensee may apply for the renewal of its license'. Stakeholders told the Committee that they is no need to make it a requirement for a licensee to apply for the renewal of his/her license. If the license holder has performed well, it should be a forgone conclusion that he/she is still in business. If there is a breach this will be dealt with in terms of clause 15.
4.6 Cancellation of licenses
Clause 15, states that the licensee should have the right to appeal to a court of law should the authority intend to cancel the license. In all cases, where there is a dispute between a licensee and the authority, the licensee should have the right to appeal initially to the Minister and then to a competent court.
4.7 Funds of Authority
Clause 18 (1) (a) states that funds of the authority will come from fees, levies and other income from licenses. Fees must not be based on the level of income of a licensee, otherwise there is a risk of having the authority having vested interest in increasing tariffs in order to increase their revenue as is the case with POTRAZ. At the same time it is also a challenge if the license holder is making losses. It also needs to be made clear if some of these levies or fees will be collected through the gazetting of a statutory instrument.
4.8 Accounts of Authority
Under Clause 21. It should be made clear that the authority is intends to be a non-profit organization and is not established for purposes of collecting license fees from energy sector to raise revenue for the government.
4.9 Minister may give policy directions
Clause 24 (1) is also criticized on the grounds that clause 4 (4) states that the Authority shall not in the 'exercise of its functions under this Act, be subject to the direction or control of any person or authority”. Yet Clause 24 (1) contradicts this statement. This seems to open the door for the Minister to interfere in the operations of the Authority. There is need to be clear in that while policy guidelines need to be followed, the Minister should not interfere with operational issues.
5. Other Issues Not Covered by the Bill
During consultations there are other issues that arose that are not covered in the Bill but may present challenges for the Authority. These include:
5.1 Current Structure of Noczm
Noczm is a private company registered under the Companies Act, yet it has to perform national obligations pertaining to the pipeline and storing of strategic reserves. At the same time the parastal has to manage the debt redemption levy, dead stock and buffer stock. The bill makes it a requirement for the parastatal to pay a license or to be charged other levies or duties. Such a scenario over- burdens the parastatal. Recommendations were made that Noczm should be restructured so that it competes fairly with other players in the petroleum sector. Separate entities to look at the pipeline and national strategic reserves should be established, as been the case in other countries such as Kenya.
5.2 License Holders
During consultations, it emerged that there are more than 110 import license holders in the petroleum sector. Concern was raised that most of these operate from backyard industries. South Africa, which is a huge petroleum importer has less than 20 import license holders. This is important in terms for co-ordinating, environmental and safety reasons. The new Authority may need to take it into consideration.
5.3 Infrastructure Development
The petroleum sector needs to be restructured to ensure that roles and responsibilities are well defined. Currently, a lot of infrastructure in the oil industry is under-utilized because importers are providing the product to the final consumer. The ideal situation is that there should be a mechanism in the importation, storage and delivery of the product.
5.4 Skills Flight
The Committee was informed that both the oil and the electricity sectors are facing challenges of recruiting people with the requisite skills. Therefore it is important that the Authority has the resources to attract people who are knowledgeable about the industry. The Committee was also told of the case where government lost a case against an oil company which had imported fuel with high sulphur diesel, because there was no one competent enough to determine the thresholds of the sulphur content in the the diesel.
5.5 Co-ordinating Mechanisms
Stakeholders expressed concern that there is no co-ordinated approach by government when it collects revenue particularly from the petroleum sector. These agencies such as EMA, ZIMRA, Ministry of Transport, Local Authorities and Noczm are charging one form of levy or another on the petroleum sector. This is not good for business. The stakeholders envisaged a situation where the Regulatory Authority would become a one-stop shop. At the same time, concern was raised that there was need to place a time line on the repayment of debt- redemption levy, which is known to be around U$100 million.
6. Conclusion
The Committee supports the establishment of this Regulatory Authority. However, it is important that the concerns of the business operators and well as users of the petroleum and electricity product and services are taken on board. This will ensure the Authority is relevant and is able to deliver a good service to the the nation.
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