Liquified petroleum gas price could be deregulated

The price of liquified petroleum gas should be deregulated once South Africa has the facilities to import large quantities of the gas, the Competition Commission has recommended.

Currently, the liquified petroleum gas price is set once a month by government and is in effect derived from the petrol price.

The commission’s report on the liquified petroleum gas market last week makes sweeping recommendations that will require regulatory changes by various government departments.

The report must now be tabled in Parliament by Economic Development Minister Ebrahim Patel.

The recommendations include the redrafting of the private contracts of a variety of companies, from gas wholesalers and refineries to malls and industrial users of gas.

The major thrust of the report is, however, directed at a market that will only exist once South Africa has the import facilities.

Liquified petroleum gas, an oil refinery by-product, is produced by five local refineries, but in small quantities.

The report’s major recommendations relate to getting import facilities off the ground faster following a long and bitter regulatory battle involving two private operators – Sunrise Energy and Avedia Energy – for constructing facilities at Saldanha Bay.

The commission has recommended that the departments of energy and transport sort out the overlapping jurisdictions of Transnet National Ports Authority and the National Energy Regulator of SA (Nersa).

A new liquified petroleum gas import facility in Saldanha is about to be commissioned by Sunrise Energy after years of regulatory delays.

Next door, a competing facility owned by Avedia Energy is less than two months from being operational, according to Avedia director Atose Aguele.

The Sunrise project includes a pipeline for offloading gas from ships and a storage facility. The Avedia project only has a storage facility that interconnects with the Sunrise pipeline – an interconnection that led to a long legal battle.

Avedia is now challenging Sunrise again – to review the tariffs Nersa has determined it can charge Sunrise and all other customers for the pipeline.

This amounts to R994 per ton of liquified petroleum gas.

If you add the storage tariff that customers will pay to either Sunrise or Avedia, the total tariff amounts to R2.18 per kilogram – slightly over 10% of the regulated maximum retail price of liquified petroleum gas.

According to Aguele, Sunrise somehow inflated the cost of its pipeline to several times what it could conceivably have cost to build – either intentionally or through incompetence.

Nersa then allowed Sunrise to charge tariffs based on those costs, creating the R994 tariff, which Aguele claims is 20 times the cost at comparable facilities elsewhere in the world.

“I don’t have the data, but I can only assume,” he told City Press this week.

These probes are a new part of the competition arsenal allowing for sweeping reviews of whole sectors to identify practices and regulations that impede competition – as opposed to the competition authorities only reacting to specific complaints.

Inquiries are ongoing into the health, retail and banking sectors.

According to commission spokesperson Sipho Ngwema, the inquiry was intended to take two years, but overshot that by about six months owing to lengthy engagements with all parties involved after preliminary recommendations and findings released last year.

“This approach ensured that we get recommendations that are implementable and not necessarily chasing time to complete the inquiry,” he told City Press via email.

When it comes to recommendations that impact private companies’ behaviour, the commission will monitor implementation, but possibly resort to enforcement action if nothing happens, said Ngwema.

In the liquified petroleum gas market, the commission has taken aim at a number of long-standing battles between wholesalers.

Afrox, one of the major wholesalers of liquified petroleum gas, said that it supported the recommendations that would affect the supply of liquified petroleum gas from local refineries.

These include the “capping” of offtake agreements companies like Afrox have with refineries to 10 years, and opening an allocation for smaller wholesalers.

Currently, these agreements are often perpetual and give preference to wholesalers historically tied to specific oil companies.

“We believe these recommendations could assist in providing a fair and level playing field for all parties concerned,” said Afrox in an emailed response to questions.

The company is less sanguine about the recommendation relating to the bulk infrastructure it and other wholesalers have installed at the premises of various clients such as shopping centres or factories.

Small competitors have previously accused major wholesalers such as Afrox and Easigas of unreasonably refusing to sell their on-site tanks and piping systems and instead using the threat of physically removing the infrastructure as a way to ensure clients effectively never switch suppliers.

The commission’s report recommends that Nersa become a dispute settler and that a pricing methodology be developed for the transfer of this infrastructural backbone of the gas market if and when a client wants to switch suppliers.

Afrox said in an emailed response to questions that it “in principle does not oppose this recommendation”.

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