Petroleum gas war looms

2013-05-05 14:01

KayaGas claims it is being blocked by a cartel-like old boys’ club

Legal challenges are coming thick and fast in the liquid petroleum gas (LPG) sector, where competitors are allegedly resorting to dirty tricks, unlawful competition and the manipulation of regulators to defend their turf.

The City of Cape Town is being sued for “effectively prohibiting” a pioneering model for the LPG trade in townships and informal settlements, allegedly manipulated by vested interests in the oil and gas sector.

At the same time the supply of LPG to shopping malls is subject to a competition commission investigation – and an imminent arbitration case.

These literally involve the foundation of the sector – the physical gas infrastructure installed at practically all shopping centres, hotels and entertainment complexes where gas is used for cooking.

These cases challenge gas companies’ right to claim permanent ownership of gas systems built into malls and the perpetual exclusive supply contracts that go with them.

The golden thread between the cases is KayaGas, a relatively new arrival in the industry that claims it is being blocked left, right and centre by a cartel-like old boys’ club consisting mostly of JSE-listed Afrox, French-owned Easigas and BP’s LPG business, which is being sold to Oryx Energies this year.

The allegations are flying both ways, with KayaGas being accused of “hijacking equipment”, “shameless profiteering” and pursuing unsafe gas sales into informal settlements.

The bottom line is that LPG is allegedly being kept expensive and inaccessible at a time when there is a clear government policy to promote the gas as an alternative to dangerous paraffin and which forms a major part of the campaign to save the power grid from collapse in winter.

Selling gas to the poor

The City of Cape Town has been dragged to court by KayaGas for refusing to authorise the company’s expansion of its flagship filling centre in Blackheath.

According to the company, the city is just using that as leverage to get KayaGas to abandon its business model – supplying 5kg cylinders to stockists in informal settlements who are then provided with specially made fireproof shipping containers.

The city is not only refusing to issue the needed Flammable Substance Certificate (FSC) for KayaGas, but also allegedly refusing to turn the application down.

There is nothing wrong with the facility plans themselves, but the city demands KayaGas provide a full list of all its customers, and proof that they too have FSCs, reads KayaGas’ major complaint to the Western Cape High Court.

That is basically impossible because to get an FSC, these spazas would need to provide their erf numbers, business zoning, building plans and a large fee. Informal settlements can provide none of these things.

The company’s business model is indirectly being declared illegal through an oversevere interpretation of bylaws, goes KayaGas’ argument.

“KayaGas reasonably believes it has become the target of industry forces that have pressured the fire department to act against KayaGas,” reads the affidavit filed late last month in the company’s case against Cape Town.

The city has until May 17 to reply in the semi-urgent application.

KayaGas claims it is “singled out for special treatment and sanction by the fire department, which at the same time has ignored similar conduct by other operators” who also sell into the informal settlements.

The court papers further complain that Cape Town is asking KayaGas to hand over the details of its entire distribution network – information competitors could use to completely uproot it.

KayaGas argues its business model is for the public good. It was born out of an Eskom scheme in 2006 that gave KayaGas 25?000 free 5kg cylinders.

The company was initially supported by the Industrial Development Corporation in its plan to get LPG adopted on a large scale in informal settlements.

If the city doesn’t budge, then “we will have to stop selling into the informal sector”, says KayaGas MD George Tatham.

“It would be an absolute last resort just to sell from our terminal gate. It will destroy the market as the paraffin market has been destroyed, and end with LPG killing large amounts of people, like paraffin is doing,” he says.

KayaGas already has about 300 stockists, has deployed about 48 containers around Cape Town with 12 more in the works and claims to provide 500 000 poor Capetonians with LPG.

Shopping malls a battleground

KayaGas is also embroiled on two fronts in a separate battle for the high end of the LPG market – bulk supplies to malls, hotels and everywhere else where a single gas installation is used by multiple kitchens.

Established gas companies maintain an iron grip on the market with questionable contracts, intimidation and bullying tactics – among which are routine threats to remove all the gas infrastructure from a mall if they lose a supply contract.

KayaGas alleges this in two separate cases involving clashes with Easigas and Afrox, respectively.

The first case revolves around the Key West Mall in Bedfordview, Gauteng, where the owner tried to end a contract with Easigas and give it to KayaGas late in 2010. A simple change of supplier immediately turned into a legal war.

As is usually the case, Easigas had installed the mall’s bulk LPG tank, pipes, gas meters and vaporisers when it got the contract back in 1996.

The mall initially asked Easigas to sell the on-site bulk tank to KayaGas. Easigas replied by saying it would send contractors to remove the LPG infrastructure. The mall then let KayaGas hook a temporary tank to the system.

Easigas ultimately filed papers accusing KayaGas of trying to “hijack” its equipment at the mall as well as “shameless profiteering” on the back of Easigas’ investment.

Arbitration around Easigas’ right to the infrastructure is set down for June 24 and will be “sudden death” with no appeals, says Tatham.

An almost identical incident at the Broadacres centre in Fourways, where Afrox had the contract, has led to a complaint with the competition commission.

The complaint is against Afrox, Easigas and BP Southern Africa.

“The commission will make known its findings once the investigation is complete and the matter referred to the competition tribunal,” says Themba Mathebula, a spokesperson for the commission.

According to KayaGas’ complaint, there is a “network of similar agreements and conduct” involving threats to the equipment and a barrage of legal intimidation of the mall’s tenants.

Tatham says it has encountered the same kind of opposition almost every time it scored business at a mall or similar complex. In one instance, the former gas supplier even had contractors drill holes in the LPG piping, he told City Press.

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