Tag Archive | BP

Competition Commission gets to know LPG market

 DOE holds off on LPG regulatory changes…

Sent to clients 25 Oct….In a briefing to the Portfolio Committee on Energy on the report by the Competition Commission (CC) into the Liquified Petroleum Gas (LPG) sector, acting Director General of the Department of Energy (DOE), Tseliso Maqubela, has again told Parliament that the long-standing LPG supply shortages are likely to continue for the present moment until new import infrastructure facilities come on line.

He was responding to the conclusions reached by the CC but reminded parliamentarians at the outset of the meeting that the Commission’s report was not an investigation into anti-competitive behaviour on the part of suppliers but an inquiry, the first ever conducted by the CC, into factors surrounding LPG market conditions.

Terms of reference

In their general comments, the Commissioner observed that the inquiry commenced August 2014 on the basis that as there were concerns that structural features in the market made it difficult for new entrants and the high switching costs for LPG gas distributors mitigated against change in the immediate future.

They worked on the basis that there are five major refineries operating in South Africa, these being ENREF in Durban, (Engen);

refinery

engen durban refinery

SAPREF in Durban, (Shell and BP); Sasol at Secunda; PetroSA at Mossel Bay; and CHEVREF in Cape Town (Chevron). There are four wholesalers, namely Afrox, Oryx, Easigas and Totalgaz.

Wholesalers different

As far the wholesalers are concerned, in the light of all being foreign controlled, CC also observed that transformation was poor, but this was not an issue on their task list, they said. They had assumed therefore that BEE legislation was difficult to enforce and that the issue had been reported to the Department of Economic Development, the portfolio committee was told.

Price regulation at the refineries and at retail level is supposedly determined by factors meant to protect consumers, the CC said, but their inquiry report noted no such regulations specifically at wholesale level. This fact was stated as being of concern to the CC in the light of known “massive profits in the LPG wholesaling sector”.

Structures

Commissioner Bonakele said, “We started the inquiry because of the worrying structures of the market but in benchmarking our market structures with other countries and we found LPG in SA was not only unusually expensive but was indeed in short supply. Why? When it is so badly needed, was the question, he said

The CC established from the industry that about 15% of LPG supplied is used by householders and the balance is for industrial use.   In general, they noted that there were regulatory gaps also in the refining industry but regulatory requirements were over-burdening they felt and contained many conflicts and anomalies.

The CC had also reported that the maximum refinery gate price (MRGP) to wholesalers and the maximum retail price (MRP) to consumers were not regulated sufficiently and far too infrequently by DOE.

Contentious

There needed to be one entity only regulating the entire industry from import to sale by small warehousing/retailers, they said. The CC suggested in their report that the regulatory body handling all aspects of licensing should be NERSA .

As far as gas cylinders were concerned, Commissioner Bonakele noted in their report that there are numerous problems but their criticism was that the system currently used was not designed to assist the small entrant. The “hybrid” system that had evolved seemed to work but there was a “one price for all” approach.

DOE replies

In response, DG Maqubela confirmed that the inquiry had been conducted with the full co-operation of DOE into an industry beset with supply and distribution problems, issues that were only likely to change when there were “adequate import and storage facilities which allowed for the import of economic parcels of LPG supplied to the SA marketplace.”

When asked why local refineries could not “up” their supply of LPG to meet demand, DG Maqubela explained that only 5% of every barrel of oil refined by the industry into petroleum products could be extracted in the form of LPG. Therefore, the increase in LPG gas supplied would be totally disproportionate to South Africa’s petrol and diesel requirements.

Going bigger

Tseliso Maqubela, previously DG of DOE’s Petroleum Products division, told the Committee that two import terminal facilities have recently been commissioned in Saldanha and two more are to be built, one at Coega (2019) and one at Richards Bay (2021). These facilities were geared to the importation of LPG on a large scale.

He said, in answer to questions on legislation on fuel supplies, that DOE were unlikely to carry out any amendments in the immediate future to the Petroleum Pipelines Act, since the whole industry was in flux with developments “down the road”.
It would be better to completely re-write the Act, he said, when the new factors were ready to be instituted.

Rules

On the regulatory environment, DG Maqubela pointed out that for a new refinery investor it would take at least four years to get through paper work through from design approval to when the first spade hit the soil. This had to change. The integration of the requirements of the Department of Environmental Affairs, Transnet, the Transnet Port Authority, DTI, Department of Labour, Cabinet and NERSA and associated interested entities into one process was essential, he said.

On licencing, whilst DOE would prefer it was not NERSA, since they should maintain their independence, in principle the DOE, Maqubela said, supported the view that all should start considering the de-regulation of LPG pricing. He agreed that DOE had to shortly prepare a paper in on gas cylinder pricing and deposits which reflected more possibilities for new starters.

MPs had had many questions to ask on the complicated issues surrounding the supply, manufacture, deposit arrangements, safety and application of cylinders. In the process of this discussion, it emerged, once again, that LPG was not the core business of the refinery industry and what was supplied was mainly for industrial use. The much smaller amount for domestic use met in the main by imported supplies for which coastal storage was underway over a five-year period.

Refining

DG Maqubela noted that on Long Term Agreements (LTAs) between refineries and suppliers, DOE in principle agreed with the Commission that LTAs between refiners and wholesalers could be reduced from 25 years to 10 years, to accommodate small players. Again, he said, this would take some time to be addressed, as was also an existing suggestion of a preferential access of 10% for smaller players.

All in all, DG Maqubela seemed to be saying that whilst many of the CC recommendations were valid, nobody should put “the cart before the horse” with too much implementation of major change in the LPG industry before current storage and supply projects were completed.

However, the current cylinder exchange practice must now be studied by DOE and answers found, Tseliso Maqubela re-confirmed.
Previous articles on category subject
Overall energy strategy still not there – ParlyReportSA
Gas undoubtedly on energy back burner – ParlyReportSA
Competition Commission turns to LP gas market – ParlyReportSA

Posted in BEE, Energy, Finance, economic, Fuel,oil,renewables, LinkedIn, Trade & Industry0 Comments

Parliament lists its recommendations to minister of energy

In a parliamentary report on the department of energy’s strategic report for the year 2011/2, of which the final recommendations will go to the minister of energy, a call was made for “loopholes” in the Petroleum Products Act to be expedited and to increase funding of both the nuclear regulator (Nersa) and the Nuclear Energy Corporation of South Africa (Necsa).

Both Nersa and Necsa had drawn attention in their annual budget vote presentations earlier to Parliament on the general shortage of funds appropriated in terms of Pravin Gordhan’s 2012/3 budget, Nersa complaining that their budget was so insufficiently funded as to become a “danger to South Africa”.

On the subject of Nersa, the final page of the committee’s report to the minister states that Nersa should have its “mandate increased” to cover “petroleum pipeline and piped gas” and also to deal with the “deteriorating electricity infrastructure situation”. The report also said that Nersa should involve itself in South Africa’s nuclear build programme, as should Necsa.

In the subject of electricity distribution, recommendations included the necessity of introducing urgently the smart grid plans which became evident during departmental presentations. They drew attention to the SANEDI plan, called by the Central Energy Fund a “Smarter Grid”, which was the integration of two main utility infrastructures in South Africa, the electricity grid and the existing information and the telecommunications infrastructure.

The committee drew the attention of the minister to their concern on the continued reliance on the Sasol pipeline carrying natural gas from Mozambique, asking the minister to note their views that gas exploitation would become a major issue in the development of Southern Africa.

They noted that refinery capacity figures were “very low”, as evidenced by the quantity and volumes being imported, and that storage capacity and infrastructure development in this area was therefore an immediate necessity. On refineries generally, the committee noted the “very encouraging stance” adopted by PetroSA on its own refinery project, “Project Mathombo”.

The committee drew attention to the work of the South African Supplier Development Agency (SASDA) to accelerate progress in the development of black suppliers in terms of BBEEE and economic growth plans of government but said that “Engen, BP, Shell and Chevron have not contributed at all to transformation in the areas where SASDA was involved”.

The recommendations to the minister pointed out that promises were made in terms of the agreements signed “but nothing has happened”. SASDA’s attempts to get the companies on board, “even after engaging their respective CEO’s, had proved fruitless”.

 

 

Posted in Cabinet,Presidential, Electricity, Energy, Finance, economic, Fuel,oil,renewables, Mining, beneficiation, Public utilities, Trade & Industry, Uncategorized0 Comments


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