Transnet to fight R6bn cost award to Sasol and TotalEnergies

Transnet Pipeline’s multipurpose pipeline. SUPPLIED.

Transnet Pipeline’s multipurpose pipeline. SUPPLIED.

Published Jun 21, 2024


Petrochemical giant Sasol closed 2.1% higher on the JSE after it won a R3.8 billion claim against transport utility Transnet, plus about R2.3bn in interest, after marathon litigation that started in 2013.

Sasol and TotalEnergies had accused Transnet’s Transnet Pipelines subsidiary of overcharging on the transportation of crude oil from Durban to the Natref crude oil refinery in Sasolburg by not correctly using an agreed formula to determine the tariff.

Transnet said yesterday it would appeal the High Court judgment.

Transnet said the dispute flowed from the transportation of crude oil on their pipeline from a historic agreement that was cancelled in 1991, allowing for neutrality tariffs, maintaining that Total and Sasol had a transportation benefit from a finite public resource, which other oil companies like BP, Shell and Caltex did not benefit from.

Transnet said the agreement had as its central feature that, in calculating the tariff from Durban to the Natref refinery, the so-called “neutrality principle” would apply in terms of which Natref would neither be advantaged nor disadvantaged by its inland location.

It said the variation agreement adhered to following the termination of the agreement had been impossible to implement due to changed circumstances in the main, and the stretching profit margins of the the claimant companies.

Transnet said the judgment had enormous implications not only for the public purse, but also for Transnet’s ability to discharge its obligations under the applicable legislation and its licence conditions.

“Transnet intends to appeal the judgment and is in the process of instructing its legal team accordingly,” it said in a statement on Thursday.

The dispute has its roots in a 1967 agreement between the then South African government and Total, which established an inland crude oil refinery at a time when coastal refineries were struggling to meet inland demand.

To secure the participation of Total in the inland refinery Natref, the government put in place a pipeline tariff structure that would match the costs of a coastal processing facility.

Sasol, which was set up as a state-owned business in 1950 and privatised in 1979, owns 63.64% of Natref, with TotalEnergies holding the remainder.

A tariff was set for transporting the crude oil at 40 cents per 100 pounds. “The government and Total were satisfied that this tariff guaranteed neutrality,” the judgment read.

The neutrality principle, as it was known, was then in place for the Natref refinery. Based on the agreement, tariffs to transport crude oil to the refinery had to adhere to the neutrality principle.

According to the variation agreement – which still adhered to the neutrality principle – Transnet could increase tariffs to transport the crude oil. Still, the increase could not be more than the weighted average fuel cost of petroleum products.

But in 2008 and 2011, Transnet did not stick to the neutrality principle and increased tariffs above the weighted average fuel cost. Both Total and Sasol then lodged legal proceedings against Transnet for breaching the variation agreement.

The companies had claimed contractual damages for being overcharged by Transnet. The refund claimed by both companies was under R2bn. This is almost half of Transnet's profit after tax. Shortly after Sasol lodged its legal application, Transnet in September 2017 issued a written notice to both companies indicating it would terminate the variation agreement in the next three years. Following Transnet’s termination notice, Total and Sasol sought that the court declare the variation agreement binding.

Transnet in April reported a 1.5% year-on-year improvement in the total rail volumes reaching 151.7 million tons at the end of March 2024, although the figure still fell 1.8% short of Transnet’s recovery plan target of 154.4 million tons for the 2023/24 financial year.