Promoting fair competition in SA liquid fuels sector

Genesis was retained by a major refinery in South Africa to evaluate and recommend measures that the government could implement to ensure a level playing field and maintain the economic viability of locally produced liquid fuels while also keeping the fiscus whole.

Decarbonisation is crucial in South Africa due to the country’s high carbon intensity and the need to secure its energy future, necessitating a transition to cleaner energy sources. Within this context, petroleum refineries are vital for the provision of transport fuels and energy. However, over half of South Africa’s traditional refinery capacity is either temporarily or permanently offline, leaving only one domestic supplier in operation.

Additionally, the loss in domestic refining capacity has coincided with a surge in liquid fuel imports, posing a risk of long-term displacement of local production. The rise in imports is occurring alongside a projected rapid increase in the local effective carbon tax on liquid fuels, giving rise to “carbon leakage”. This refers to local firms being disadvantaged by competing against overseas firms that are not subject to similarly stringent carbon taxes.

The project team’s experience in policy assessment, knowledge of the complex policy environment, understanding of market players’ economic incentives, grasp of local and international market dynamics, and expertise in international trade were critical in establishing a balanced view that cut through the complexities involved.

The analysis focused on key legislation, including the Carbon Tax Act and South Africa’s liquid fuels import policies. The goal was to identify, inform and design a package of policy measures. The team also developed a framework to assess the policy measures and evaluate their consistency with the principles of various policies and legislation.

On this basis, we performed a detailed assessment of the policies, legislation and existing tax incentives for energy efficiency. This assessment aimed to design and propose policy measures to mitigate the effects of carbon leakage arising from liquid fuels imports. The proposed measures were designed not only to balance the interests of various stakeholders (including the environment), but also to account for different policy and regulatory objectives. This was achieved by identifying key decisions and decision makers, timelines, policy levers and potential outcomes.

Genesis’ recommendations served as the basis for the policy measures to be proposed by the refinery to key players in the liquid fuels space such as National Treasury, the Department of Trade, Industry and Competition, and the Department of Mineral Resources and Energy.