Gas import row heats up

2014-03-16 14:00

Sunrise Energy, a company 49%-owned by the Industrial Development Corporation, is trying to block Avedia Energy from erecting its own terminal

A battle is raging to control the strategic Port of Saldanha Bay as an import route for liquified petroleum gas (LPG) – just as the lack of import facilities is once again leading to a supply crunch.

Sunrise Energy, a company 49%-owned by the state’s Industrial Development Corporation (IDC), is trying to block a rival from erecting its own LPG terminal at the port.

The rival, Avedia Energy, accuses Sunrise of trying to establish a monopoly and “sterilise” Saldanha as a source of LPG competition, which could lead to lower domestic prices.

Sunrise is currently appealing against Avedia’s environmental approvals – and is trying to get the National Energy Regulator of SA (Nersa) to reject the rival’s application to erect its tanks.

The tanks, worth about R80?million, have already been imported and are waiting on site pending Nersa’s approval.

Sunrise, which is currently seeking equity investors, says it can have phase one of its terminal running by mid-2015 while Avedia says it can import LPG by the end of this year.

The emerging fight is taking place against the backdrop of government plans to promote LPG as a major energy source in South Africa, as an alternative to scarce electricity and a safer alternative to paraffin and wood.

There are plans to expand or establish LPG import facilities at several South African ports but Saldanha has the advantage of being on the same coast as major LPG sources Angola and Nigeria, as well as feeding into South Africa’s largest LPG market, the Western Cape.

The much-needed import facilities have been held up largely by the price regulations in place, which some potential importers say is not economically viable.

Plans to change how the price is set have been on the cards since 2012 after the energy department began setting the LPG price in 2010.

Initially, government said it wanted prices to go as low as R10/kg.

Instead, the regulated prices, which are tied to the price of 93 octane petrol, have ballooned to between R24/kg and R27/kg in different regions.

Cape Town-based Nigerian businessman Atose Aquele, who heads Avedia, claims he could undercut the regulated price by as much as R10/kg.

The Sunrise terminal in Saldanha would be a “common user” facility, available to LPG traders importing gas and marketing it in Western Cape especially.

It would charge them tariffs approved by Nersa.

Avedia has ties to a Nigerian partner in ExxonMobil and plans to be a vertically integrated LPG supplier, bringing its own gas from the Niger Delta and marketing it under its own brand in South Africa, as well as providing gas to other local traders.

Avedia’s plan involves an initial storage capacity of 4?000?tons, later expanding to 8?000?tons at a total cost of nearly R300?million.

This would allow it to ship 100?000 tons into the local market every year, it claims.

The Sunrise terminal will initially be larger, with an initial 5?500-ton facility which the company wants to triple by 2028.

The Sunrise terminal, when complete, is estimated to cost R1.3?billion.

It is uncertain how much of that the IDC plans to put up. Late last year, the state funder issued a request for funding to selected companies, inviting them to buy equity in the venture.

In order for the Sunrise terminal to be viable, Sunrise seemingly needs to stop Avedia starting its operations.

City Press has seen correspondence between Nersa and the Transnet National Ports Authority (TNPA) in which TNPA dismisses Sunrise’s objections.

Rod Crompton, Nersa’s regulator member for petroleum pipelines, wrote to TNPA CEO Tau Morwe at the end of January asking for his view on the various Sunrise objections.

According to Crompton, Sunrise is afraid that Avedia’s terminal would make its own common use terminal inviable and even transform it into a “stranded asset”.

Sunrise also alleges Avedia is undermining a number of regulations.

Morwe wrote back on March 6, rejecting all these claims.

“Our estimated future consumption far surpasses the projected throughput by Sunrise Energy and Avedia Energy,” said Morwe.

“We are of the view that any participant in the LPG market will be viable.”

When asked if this was a legitimate consideration for Nersa when considering applications, the regulator replied that the aims of the Petroleum Pipelines Act include “orderly development” and the promotion of “competitive markets”.

» Sunrise and the IDC did not respond by the time of going to print.

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