After World War II, demand for petroleum products increased. In 1966, the Government decided to establish an inland refinery at Sasolburg through the Administration (later SATS, then succeeded by Transnet). Total was reluctant to participate as it preferred a coastal refinery which would avoid pipeline costs. As a precondition, Total required that it not be placed in a worse position than a coastal refinery. The Government undertook to apply "the neutrality principle" - ensuring the inland refinery would not be disadvantaged regarding transportation costs compared to coastal refineries. In 1991, after Transnet initially refused to recognize this principle, a variation agreement was concluded embodying the neutrality principle, requiring crude oil tariff increases not to exceed the weighted average increase of white fuels tariffs. This was complied with until March 2005. When the National Energy Regulator Act 40 of 2004 (NERSA Act) and Petroleum Pipelines Act 60 of 2003 (PPA) came into force in 2005, establishing a new regulatory regime with NERSA setting tariffs, Transnet refused to recognize the neutrality principle. Total instituted action claiming the variation agreement remained binding and seeking payment of shortfalls.
The appeal was dismissed with costs of two counsel.
A contract for discounted tariffs remains enforceable despite a change in legislative regime where nothing in the new legislation is incompatible with the contractual obligation. Section 28(6) of the PPA, requiring licensees to charge only tariffs set or approved by NERSA, does not preclude a licensee from charging less than the maximum tariff set by NERSA pursuant to a pre-existing contractual obligation. NERSA's tariff determinations as "maximum tariffs" expressly permit discounting. Treating parties in objectively different circumstances (inland versus coastal refineries) identically would constitute unfair discrimination under sections 21 and 28(2)(a)(iii) of the PPA. New legislation is presumed not to interfere with vested contractual rights absent clear indication to the contrary.
The court observed that Transnet's argument that section 21 of the PPA was meant only to ensure new competing licensees not be disadvantaged had no warrant, noting there was no reason the PPA would be intended to discriminate against long-established suppliers. The court also noted that evidence showed coastal customers were currently being treated the same way as the Natref refinery, which itself constituted unfair discrimination putting Natref shareholders at a disadvantage. The court commented that this unfair treatment was clearly what the NERSA decision aimed to avoid by allowing maximum tariffs and discounting.
This case is significant for establishing that contractual rights survive changes in regulatory regimes unless the new legislation is clearly incompatible with such rights. It demonstrates the principle that new legislation is presumed not to interfere with vested contractual rights. The judgment clarifies the interpretation of "non-discriminatory" tariffs under the PPA, establishing that treating parties in different circumstances identically may itself constitute discrimination. The case provides important guidance on the relationship between regulatory tariff-setting powers and pre-existing contractual arrangements, confirming that maximum tariffs set by regulators may permit discounting pursuant to contractual obligations. It also illustrates how historical undertakings given to induce commercial participation in government projects may create binding long-term obligations that survive regulatory changes.