Johannesburg — THE cost of Transnet's multiproduct petroleum pipeline has risen by R2,75bn to R15,42bn, following "significant engineering", the company said yesterday.

The R2,75bn includes costs associated with construction, buying and expropriating land, steel and back-up power generation.

Neville Eve, Transnet GM for project development and execution, said yesterday that when the project started it was driven by demand for petroleum products in the inland market. It began before detailed engineering was completed. "We took a certain amount of risk. We had to fast-track the schedule."

Transnet acting CE Chris Wells said yesterday that it was the government's decision to build following a fuel supply crisis in 2005. The Moerane commission, which investigated the crisis, said there was an urgent need for an additional petroleum products pipeline to supply the inland market.

Wells said that at the time there was uncertainty about the regulatory framework. There was no certainty of cash flow, he said. The National Energy Regulator of SA (Nersa) regulates the country's pipeline industry and gives licence holders allowable revenue, based on their assets.

Transnet said that while the pipeline would begin operation at the end of March next year, in line with its licence conditions, it would be completed in December 2012, a year later than initially scheduled.

Transnet Pipeline CEO Charl Moller said the delay in the completion of the pipeline would not have an effect on security of supply. Until the completion of the new pipeline, Transnet would continue to transport petrol and jet fuel using the existing pipeline between Durban and Johannesburg, he said.

Running the pipelines concurrently for two years while the new one was completed would ensure security of supply, Wells said.

Transnet also commented on the government's recent announcement of a 7,5c/l levy on diesel and petrol to fund the pipeline over the next three years. It said the levy was not an additional income to Transnet. It was money that would still have accrued to the company through tariffs. The levy compensated Transnet for the security of supply component of the pipeline investment, it said.