The Competition Commission has recommended small wholesalers of liquid petroleum gas (LPG) must be given preferential access to 10% of the market and contracts between refiners and wholesalers may not exceed 10 years.
The commission released its final report into the LPG market on Monday after a three-year investigation prompted by concerns about limited local supply of LPG and possible anticompetitive practices. A year ago it released a preliminary report for public comment. The gas is sold to households and businesses.
The commission said it found evidence of collusion in setting cylinder deposit fees and this would form part of its ongoing cartel investigations.
SA only has five LPG refineries: Sapref, Enref, Sasol, PetroSA and Chevref. Four wholesalers — Afrox, Easigas, Oryx Energies and TotalGaz — account for 90% of the market.
Some of the contracts between refineries and wholesalers have been in effect for 25 years. There are high barriers for new entrants, including capital cost, regulatory hurdles and securing supply.
SA only has five LPG refineries: Sapref, Enref, Sasol, PetroSA and Chevref. Four wholesalers — Afrox, Easigas, Oryx Energies and TotalGaz — account for 90% of the market
The commission found competition in the sector was hindered by the Department of Energy’s pricing regulations, which have not been reviewed despite the department’s 2012 commitment to do so. Prices were not being properly monitored and enforced because there were too few inspectors.
In its preliminary report, the Competition Commission asked for submissions on whether price monitoring should remain with the department or move to another regulator. In its final report it recommended that the National Energy Regulator of SA (Nersa) take over price regulation and monitoring.
Due to limited import and storage facilities for LPG, it was less profitable to import LPG than to make it locally, but with better logistics more gas could be imported profitably, the commission concluded.
Once supply bottlenecks had been cleared, prices could be deregulated. The commission found there were regulatory overlaps and uncertainties between Nersa and the Transnet National Ports Authority which, with onerous licensing requirements, hindered investments in the LPG market.
Nersa should issue wholesale licences, it recommended.
It also recommended that Nersa set cylinder deposit fees annually and that switching between wholesalers by bulk customers, which is inhibited by vague contracts and the ownership of the infrastructure by the supplier, should be made easier by having separate agreements for LPG supply and for rental of LPG equipment. Customers must be given information on how to switch suppliers.
A 2012 Department of Energy survey showed a small percentage of mainly higher-income households used gas for cooking and heating. Most residents use electricity.
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