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					                             TERMS OF REFERENCE



APPLICATION OF A REGULATORY ACCOUNTING MODEL TO DETERMINE
MARGINS     RELATING       TO   WHOLESALING,          COASTAL       STORAGE        AND
HANDLING AND SECONDARY STORAGE AND DISTRIBUTION ACTIVITIES OF
THE SOUTH AFRICAN OIL INDUSTRY



1.   INTRODUCTION

     Refined petroleum products are manufactured by six refineries in South Africa
     and supply of refined petroleum products is supplemented by imports of
     refined   petroleum    products.   These    refined   petroleum    products   are
     transported by pipeline, rail, road, sea and a combination thereof to depots
     across the country. These products are then distributed directly to commercial
     customers and to points of resale, particularly, retail service stations.



     The retail prices of petrol are regulated and fixed on a monthly basis.
     Although the Department does not regulate the wholesale and retail prices of
     diesel and the wholesale prices for illuminating paraffin, these prices are
     published on the Department of Minerals and Energy’s website. The
     Department also regulates the Single Maximum National Retail Price
     (SMNRP) for illuminating paraffin and a maximum LPGas refinery gate price.
           The retail and wholesale price structures in Gauteng for the month of January
           2008 are tabulated hereunder in cents per litre:

            Price element                     Petrol      (95 Diesel        Illuminating
                                              Unleaded)          (0.05%     paraffin
                                                                 sulphur)

            Basic Fuel Price                  445.413            509.630    500.128

            Transport costs                    13.900             13.900     24.100

            Delivery costs                       7.000              7.000    14.400

            Wholesale margin                   39.487             39.260     39.472

            Retail margin                      59.700                N/A       N/A

            IP tracer dye levy                  N/A                0.010       N/A

            Fuel Tax                          121.000            105.000       N/A

            Customs and Excise                   4.000              4.000      N/A
            levy

            Road Accidents Fund                41.500             41.500       N/A
            levy

            Petroleum          Pipelines         0.190              0.190
            levy

            Slate levy                          4.810               4.810     5.000

            Demand Side                        10.000                N/A       N/A

            Management Levy

            (DSML)



           The Basic Fuels Price (BFP) is determined on a set of Working Rules to
           administer the Basic Fuels Price1 Coastal storage and stock financing
           are two of the elements that make-up the BFP. Coastal storage covers
           the cost of providing storage and handling facilities at coastal terminals.


1
    Working Rules to administer the Basic Fuels Price (www.dme.gov.za)
        Coastal storage and handling activities are also executed by parties other
than the oil majors and to promote investments in storage and handling, oil majors
and independents should earn a similar return on storage assets.



        Currently marketers are compensated for wholesale activities through the
        MPAR (Marketing of Petroleum-Activities-Return)2 mechanism. Refined
        petroleum products are stored and handled at storage facilities before these
        products are transported from these storage facilities to points of resale or
        end-consumers for own consumption. The marketing companies are currently
        compensated for the storage and handling of products at depots and for the
        distribution thereof from the depots through the so-called service differential
        which is based on a set of Guidelines3. Capital costs in respect of storage
        and handling are however compensated through MPAR.



        The Department of Minerals and Energy has recently concluded an
        investigation into the implementation of a Regulatory accounting system4.
        This approach seeks to ring-fence marketing and distribution activities that
        take place beyond the refinery gate. The approach seeks to ring-fence
        wholesale, storage, secondary distribution and retailing activities. It further
        seeks to delink the costs of regulated businesses from those costs that are
        related to unregulated parts of the oil industry. At the moment costs of
        servicing unregulated commercial business are mixed with costs related to
        regulated activities.



        In line with the provisions of the Petroleum Pipelines Act, 2003 (Act No. 60 of
        2003) the National Energy Regulator of South Africa (NERSA), inter alia,
        approves the tariffs for storage activities. The Department is however still
        responsible for setting the margins for wholesaling, transportation, storage,
        distribution and retail activities.


2
  .MPAR Guidelines can be obtained from the Department of Minerals and Energy.
3
  .Service differential guidelines can be obtained from the Department of Minerals and Energy.
4
  Task 141 Report can be obtained from the Department of Minerals and Energy.
       The rate of return for marketing assets in South Africa has traditionally been
       15% but lacks a scientific basis. In terms of the Regulatory Accounting
       system, the return on assets (ROA) in respect of all ring-fenced activities will
       now be determined based on the Capital Asset Pricing Model (CAPM)
       approach, which seeks to provide a return for an activity that is
       commensurate with the risks associated with each activity.



2.     SCOPE OF WORK

2.1    Develop an activity based approach to set the wholesale, secondary storage

       and distribution as well as coastal storage and handling margins of the local
       industry. That is, coastal storage and handling activities will be taken out of the
       BFP determination and set separately.

2.2    Determine which costs should be allowed in each part of the

       petroleum value chain thereby ring-fencing costs that are related to each
       ring-fenced activity.

2.3    Develop an approach to ensure that all costs related to non-regulated
       activities do not form part of the cost base associated with any of the ring- fenced
activities.

2.4    Determine the rate of return that would be applicable to each part of the
       value chain using the CAPM methodology.

2.5    For each margin, determine the appropriate period for its review and the
       review of the elements that underpin it and develop rules for effecting
       such adjustments.

2.6    Develop computer programs/models, to be utilised by the Department, to
       determine margins and its elements, including the rate of return, on an
       annual basis in order to determine the applicable tariffs to be included in   the
price structures of petrol, diesel and illuminating paraffin.
3.    OUTPUT FORMAT

3.1   The contractor will be required to deliver the following:

3.1.1 An appropriate margin for the wholesale, storage and secondary
      distribution activities of the oil industry.

3.1.2 An appropriate rate of return for assets associated with storage
      and secondary distribution activities of the oil industry

3.1.3 Rules to determine margins for each of the wholesaling, storage
      and secondary distribution activities of the oil industry.

3.1.4 Computer-based programs/models which will be utilised by the

      Department to determine the margins and tariffs to be included

      in fuel price structures.



4.    COMMENTS ON TERMS OF REFERENCE

4.1   Comments on the Terms of Reference must be submitted by tenderers

      at the same time as when the bid is submitted to the Department

      of Minerals and Energy.



5.    TRANSFER OF SKILLS

5.1   Tenderers must submit, at the same time as the bid, to the

      Department of Minerals and Energy a skills transfer plan and program



4.    TIMEFRAME

4.1   The project should be completed within 6 months from the time of the

      signing of the contract.



6.    INTELLECTUAL PROPERTY
6.1   Outputs, data, models, copyrights, trademarks and logos arising from

      the project and generated in the execution of the project shall

      vest in the Department of Minerals and Energy.




7.    FUNDING AND COSTING

7.1   Quotes should be in RSA Rands on a fixed cost basis and include

      Value Added Tax.



8.    EVALUATION CRITERIA

8.1   Proposals will be evaluated against the criteria listed below:-



      CRITERIA                                       WEIGHTING (%)



      (a) Total costs                                           30

      (b) Qualifications, experience and track record           20

      (c) Project design, methodology and work program          40

      (d) HDI                                                   10



      TOTAL                                                     100

8.2   Only bids which score a minimum score of 60 percent in respect

      of criteria (b) together with (c) will be considered.



8.3   A form will be used which will reflect the name of the tenderer, the

      different criteria with space provided to record points awarded.
8.4   Each tenderer will be awarded points out of 100.



8.5   COSTS: Formula for each calculation on price:



      50 X Lowest tender on a comparative basis (R-value)

          Relevant higher tender on a comparative basis (R-value)




8.6   All prospective contractors must have a significant BEE component. In

      the case of a consortium, the lead company must have a

      significant BEE component.



9.    QUALIFICATIONS, EXPERIENCE AND TRACK RECORD

9.1   Contractors would be required to demonstrate a good understanding of

      the oil industry’s wholesale and secondary distribution sectors and have

      appropriate financial experience in the application of financial models.



10.   METHODOLOGY AND WORK PROGRAM

10.1 The tenderer must give a detailed description of the methodology it will

      utilize to successfully complete the task directive, as well as a detailed

      program/project plan.



11.   EVALUATION METHODOLOGY

11.1 A panel of four (4) officials will evaluate the proposals. The panel members

      will each individually evaluate each of the proposals received against the
      criteria and weightings reflected in paragraph 7.



12.   GENERAL INFORMATION

12.1 The Project Leader should at all times be available.

12.2 A compulsary information session, prior to the submission of final

      proposals, will be held at the offices of the Department of Minerals

      and Energy on 20/02/2008 at 10:00.

12.3 The Department of Minerals and Energy is not obliged to award a tender

      And has the right to readvertise the Terms of Reference.

12.4Final proposals must be deposited into the Tender Box on the ground floor

      of the Department on…07/03/2008……. by 11H00.




13.   QUERIES

13.1 Should you have any queries, please contact Ms Zime Ndlangana or

      Ms Bongiwe Sithembile.

13.2 Telephone number (office):

                   Ms Z Ndlangana: (012) 317-8053;
                   Ms B Sithembile: (012)-317-8744
                   Facsimile No: (012) 317-8969;
                   E-mail address:
                   Zime.Ndlangana@dme.gov.za
                   Bongiwe.Sithembile@dme.gov.za
13.3 Office No: A809, Mineralia Centre, corner of Andries and Visagie Streets,
      Pretoria.

				
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