South African Energy Policy FES Briefing Paper 11| August 2007 Page 2 1 Introduction This paper examines commonalities in South African energy policy and the G8 St Petersburg Declaration on Global Energy Security policy 1 (Petersburg Declaration) and assesses what in­terests South Africa might have in contributing to implementation of the G8 policy and how this might be achieved. South Africa faces many of the same energy sec­tor challenges as expressed in the Petersburg Declaration, although, South Africa faces addi­tional challenges that developing countries face. Prior to 1994 the state had invested heavily in the energy sector. Often these investments had been un-economic and that the sector had ope­rated in conditions of secrecy imposed by legisla­tion and levels of accountability and transparen­cy were problematic. The major South African energy markets were non-competitive and/or controlled by large monopolistic energy enterpri­ses and/or heavily regulated non-competitive re­gimes. It is to be expected that reforms of the sector which would per force take on large in­fluential and powerful actors in the South Afri­can economy, would face significant challenges. South African energy policy experienced a fun­damental shift after the 1994 election. This shift found expression in a comprehensive and inclu­sive energy policy development process culmina­ting in publication of the White Paper on the Energy Policy of the Republic of South Africa da­ted December 1998(SAWPEn). Although it is nearly ten years old, the SAWPEn still forms the basis for South African energy policy. South Africa is still effectively in the initial stages of giving effect to much of the policy in SAWPEn. A raft of legislation has been promulgated to gi­ve effect to this policy and consequent energy sector transformation. Establishment of Inde­pendent Regulation is in its infancy. Re­structuring and reform processes are still under­way. Intended re-structuring and introduction of competition in the electricity sector has not yet been achieved and re-regulation of the petro­leum/liquid fuels sector has not occurred. There have been some severe unintended consequen­ces of the process to implement re-structuring and introduction of competition in the electricity sector and the de-regulation of the liquid fuels sector. 1 As expressed in the G8 St Petersburg Declaration on Global Energy Security of 16 July 2006 2 Correspondence between South African energy policy and the Petersburg Declaration As expressed in its own energy policy documents, in particular the comprehensive South African Energy Policy White Paper of 1998(SAWPEn), South African policy is largely in agreement with the Petersburg Declaration and the June 2007 G8 Summit Declaration on Climate Change and Energy Efficiency in the main approach of how to address these challenges: i.e. through trans­parent, efficient and competitive markets, en­hancing energy efficiency, diversifying energy supplies, through paying special attention to the energy needs of those without access to ade­quate energy, promotion and support of envi­ronmentally sound development and usage of energy, and through effective engagement with all stakeholders in development and implemen­tation of policy. South African expressions of energy policy agree in approach and broad prin­ciples, and also, for each of the items in the Pe­tersburg Declaration a corresponding and com­patible item can be found in the SAWPEn. Key policy statements illustrate the broad agreement between SAWPEn and the Petersburg Declarati­on. The compatibility is not limited to issues rai­sed but also to the solutions chosen to address the issues. 3 Significance of the five key elements of the Petersburg Declaration for South African energy policies Open, transparent, efficient and competitive markets Policies stated in SAWPEn are in many cases a fundamental departure from policy existing be­fore SAWPEn and require fundamental re­structuring and reform of the major South Afri­can energy sub-sectors, from highly regulated non-competitive markets and non-transparent government intervention and regulation towards competitive markets and independent transpa­rent regulation. South African internal markets for electricity and petroleum/liquid fuels and piped gas are still es­sentially non competitive. In electricity generati­on, while Eskom does not have exclusive genera­tion rights, it has for historical reasons a practical monopoly on bulk electricity and in electricity distribution customers do not have a choice of supplier. The petroleum/liquid fuels sector is tightly regulated ranging from quota control of product imports through to price control of main products at retail level. Some coal markets are