South Africa's state-owned logistics utility Transnet on Monday said it was in talks with the government regarding an alternative funding mechanism for the portion of the R12.3-billion new multi-product pipeline between Durban and Johannesburg.

This is after the National Electricity Regulator of South Africa (Nersa) announced that the cost of transporting petroleum through Transnet pipelines would be reduced by 10.38 percent from Wednesday.

Transnet had asked for a 74.42 percent tariff increase to help fund the construction of the new pipeline, but Nersa decided to set tariffs for the operation of the existing system alone.

The existing system is running at full capacity and the new pipeline, which is to replace the Durban-to-Johannesburg pipeline, will ensure security of fuel supply to the inland market.

Seen as forming the backbone of fuel supply infrastructure to Gauteng and other parts of the inland market for the next 50 years, the new pipeline was scheduled to start carrying product from the latter half of 2010.

"The Nersa determination, which results in an aggregate 10 percent decrease in tariffs, appears to be based on an inconsistent application of the tariff methodology compared to the previous year," said Transnet in a statement.

"This, together with a commercially unacceptably low return on capital employed, will not enable sustainable pipeline operations and needs urgent review," it added.

The utility said it was assessing these matters and will take such action as is appropriate once the review has been completed.

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