Battle for the pipeline

2014-08-03 15:00

The battle around potentially game-changing import facilities for liquefied petroleum gas (LPG) in Saldanha has taken a turn that ­threatens millions invested by the state-owned Industrial Development Corporation (IDC).

Sunrise Energy, 49% owned and largely funded by the IDC, is building an import terminal for LPG in Saldanha. The majority stake belongs to Cape Town’s Ilitha Holdings.

It has also been fighting tooth and nail to stop a rival ­company, Avedia Energy, from building its facility at the port, which is literally across the road.

It has now, at least temporarily, lost that battle after the National Energy Regulator of SA (Nersa) granted Avedia construction licences for a storage facility and a pipeline that will connect to Sunrise’s pipeline at Saldanha.

In doing so, Nersa has rejected Sunrise’s claims that this decision will turn its terminal into “stranded ­assets”, jeopardising the R121?million the IDC has ­already put into it.

The first phase of the Sunrise terminal was ­budgeted to cost R700?million, with about another R500?million needed for later expansions.

However, Sunrise will still be able to appeal the ­decision and argue that Nersa had its facts wrong.

Importing large quantities of LPG through Saldanha holds the promise of finally creating a viable LPG market in South Africa after years of chronic undersupply.

It has the potential to make LPG a viable, safer and cleaner alternative to paraffin stoves and lamps?–?and counter the ­demand for electricity.

City Press has seen Nersa’s reasons for the decision ­document, which dismisses all of Sunrise’s arguments about why it cannot coexist with Avedia’s facility.

What is certain is that Sunrise does not believe its import facility can coexist with that of Avedia.

“Any tie-in to the Sunrise energy terminal will fundamentally affect its terminal utilisation and throughput, compromising the business case and economic viability of the terminal,” says IDC spokesperson Mandla Mpangase.

Both sides have presented themselves as consumer ­champions.

Avedia’s managing director, Atose Aquele, claims that the ­Sunrise terminal is too expensive and that tariffs based on its costs will be uncompetitive.

Sunrise this week said it was Avedia that was trying to ­“control the downstream LPG market” by undermining the equal access terminal it is building.

Avedia is a vertically integrated LPG company tied to Union Petroleum Services, which will supply LPG from Nigeria’s ­Bonny Island.

It will import LPG for bottling and sell it under its own brand.

Sunrise’s project stems from a terminal operator agreement with the Transnet National Ports Authority?–?the landlord of South Africa’s ports.

The agreement was for an “end-to-end” facility with three parts: a mooring for ships, a pipeline on to land and a handling facility with tanks where customers can get their LPG.

Avedia has fought to challenge the validity of this agreement –?and now won a major victory in this fight.

Avedia’s new Nersa licence allows for it to connect its own storage facility to the Sunrise pipeline. This means it will pay Sunrise a tariff for use of the mooring and pipes, but not for the handling facility.

Karen Rowe, Sunrise’s project development manager, ­accuses Avedia of “undermining regulatory processes to their own benefit” and putting “a critical infrastructure project at significant risk”.

According to her, it is an “attempt to force an ­interconnection to the Sunrise Energy infrastructure to the detriment of Sunrise Energy, undermining the Sunrise Energy terminal viability”.

The battle is now likely to revolve around Sunrise’s two major arguments against Avedia.

It claims that the pipeline tie-in is simply not ­“technically feasible” and is unsafe.

Even if it was possible, it “would reduce the Sunrise Energy utilisation capacity in terms of throughput and would ­significantly put its economic viability into question”.

The second argument is that having both terminals would lead to years of oversupply before demand catches up, causing losses all around.

The shape of things to come

The fight between Sunrise and Avedia about importing LPG through Saldanha is part of a wider contest about control over the LPG market in South Africa.

It is generally assumed that the market will grow by leaps and bounds if the infrastructure is in place.

However, who controls the infrastructure is now the subject of a market inquiry by the competition commission.

The commission announced the terms of reference for the inquiry in June, saying it would investigate the market power wielded by major resellers Afrox, Easigas, BP Southern Africa and Total, as well as the “switching” costs when large ­consumers of LPG like malls try to change suppliers.

Current safety regulations are also under the microscope after claims that they were designed to stop competition.

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