Prudency Assessment on the new Multi Product Pipeline (NMPP)

Prudency assessment of a 715 km 24” and 16” refined product pipeline network.

Transnet Pipelines operates approximately 3,800 km of high pressure petroleum and gas pipelines. It is the dominant pipeline operator in South Africa and has a de facto monopoly of the pipeline conveyance of petroleum from Durban to the inland destinations.

On 12 September 2007, the Energy Regulator issued Transnet with a construction licence to construct a 24-inch diameter petroleum product pipeline from Durban to Jameson Park and three 16-inch diameter pipelines, as follows: (a) from Jameson Park to Alrode; (b) from Alrode to Langlaagte; and (c) from Kendal to Waltloo, inclusive of accumulator facilities at Durban and Jameson Park. Transnet named this project the New Multi-Product Pipeline (NMPP).

The NMPP project has been characterised by delays and cost overruns. The project is running more than 10 years late and the final forecast cost is now almost three times the original forecast cost. NERSA has been concerned about the delays and escalations in costs.

NERSA wishes to determine if Transnet’s NMPP project assets were prudently acquired or not. NERSA appointed EPCM with the appropriate competencies to advise the Energy Regulator in this regard.

Services Provided

• Performance of a prudency assessment of the assets acquired (or capex) by Transnet for the Project from 26 May 2015 to 31 March 2019 (“the subsequent period”);
• Performance of a prudency assessment on the operating expenditure (“opex”), borrowing costs (also opex) and further capex on the Project (assumed full period of Project for this bid); and
• Provision of advice on matters related to the above (tariffs, etc.).

Deliverables Include

• The consultant’s findings from their investigation into the processes followed by Transnet in the procurement of the NMPP construction services and assets. Investigations included:
  • cost escalations due to Transnet’s negligence and imprudence such as, but not limited to, late payments to contractors;
  • internal audit and external audit reports relating to such procurement;
  • Transnet’s technical and/or investment decisions and/or reviews of NMPP procurement;
  • a review of steering committee or oversight committee meetings relating to the NMPP before construction and during construction and the appropriateness of such committees and the governance structures used to manage the NMPP project; and
  • undue increase to operational costs.
• Findings from the investigation into the prudency of the costs of the NMPP project, using a quantity surveyor’s and forensic accountant opinion.
• Assessment of the reasons for cost escalations and to what extent the following were responsible for such cost escalations:
  • the contracting strategy(s) employed;
  • Government legislation (such as the Public Finance Management Act and the National Key Points Act), regulation, directives or instructions;
  • Transnet’s capabilities, at different stages during the life of the contracts, to manage such contracts;
  • risk mitigation measures put in place by Transnet in managing the contracts; and
  • the appropriateness of penalty clauses in contracts including penalties payable by Transnet for cancellation of contracts.
• The manner in which contract(s) dealt with or failed to deal with cost escalations due to unforeseen occurrences such as terrain obstacles, geotechnical challenges and other unforeseen costs.
• The manner in which contract/s dealt with or failed to deal with risk allocation between Transnet and the contractor concerned and whether or not these risk allocations were normal and prudent in the industry.
• The study supported by excel spreadsheets quantifying the impact of the findings of the study.
• Expert opinion on the implementation of the Prudency Guidelines and other related documents.