SA industrial gas users say the most recent price increase by Sasol will see the price of gas almost double, which will ultimately adversely affect consumers and the economy.
The Industrial Gas Users Association of Southern Africa (IGUA-SA) said on Wednesday that it was “extremely concerned” about the 96% gas price hike announced last week by Sasol Gas. The increase, which will take the price of piped gas to R133 per gigajoule, kicked in on August 1.
“IGUA-SA estimates the increase will cost the SA economy R325m per month,” the industry body said.
The price increase, it said, would influence upstream and downstream contracts that are in force across all supply chains.
The price increase was the result of Sasol’s implementation of the National Energy Regulator of SA’s (Nersa) new gas pricing methodology, which came into effect in July 2021. The new methodology links the maximum price that commercial users of piped gas can be charged to international benchmark prices, instead of using cost as the basis for tariff setting.
According to IGUA-SA, that approach is set to cost the manufacturing sector R27bn over the next three years “for no underlying structural reason other than a pricing methodology of Nersa.
“IGUA-SA’s members are currently assessing the business effect of this notified gas price increase, including planning for necessary adjustments in terms of price increases and/or manufacturing cutbacks.
“For example, [fast-moving consumer goods] industry members reliant on gas energy to produce bread and other foodstuffs would have little choice but to significantly increase prices in response. The impacts will be felt by all, especially the poor.”
The industry body represents companies such as Ingrain, a large-scale producer of starch and glucose, sugar business Illovo, Consol Glass and steel company ArcelorMittal.
IGUA-SA has long warned that the new pricing methodology used by Nersa would result in huge price increases.
In December, it formally applied to the high court to set aside Nersa’s approval of Sasol Gas’s maximum prices for the period March 2014 to June 2023 using the new methodology, arguing that it was based on world gas prices that did not take SA market conditions into account. The application has yet to be heard in court.
According to the executive officer of IGUA-SA, Jaco Human, the organisation has also approached the Competition Commission to mitigate the consequences of Nersa’s current gas price methodology and the “consistent monopoly pricing in the market for gas”.
In its annual report for 2022, the organisation said that in the wake of a surge in global gas prices “Nersa’s irrational methodology will cause SA gas prices to increase [up to] 300%, with severe consequences for the SA economy”.
“Gas energy price increases of 96% are untenable and pose a significant risk to an already struggling and weakened SA economy. On the one hand, businesses are facing closure across the manufacturing sector, while on the other, it would appear that the gas industry is heading for a regulatory void from a Nersa gas pricing perspective,” Human said.
He said that Nersa could not “hope and expect” Sasol, as a monopolist, “to act as a free-market player and price gas at competitive market levels.
“Our members have been suffering due to Sasol Gas’s unconstrained monopoly prices. Any substantial gas price increase will only make the situation worse, causing significant and irreparable harm,” he said.
Responding to Sasol’s 96% gas price increase, Nersa released a statement saying it had not approved such |increases and it would “investigate any possible unreasonable or excessive pricing cases.
Nersa also said it was conducting an independent verification and assessment of its pricing methodology and a decision would be made “in due course”.
According to Nersa, the maximum price envisaged by the Methodology to Approve Maximum Price of Gas in SA — which was approved in March 2021 — was well below R100per gigajoule.
Nersa said that a recent “unprecedented surge in international gas prices inadvertently affected SA gas prices”, but that it did not expect licensees such as Sasol to exploit the crisis to the detriment of consumers and the industry.
Sasol has defended the price increase, saying in a written statement that it had not applied the maximum allowable price determined in terms of the 2021 Nersa price decision.
Applying this approved adjustment method would have yielded, according to Sasol, a maximum gas price of R273 per gigajoule.
“The price change reflects the cyclical nature of gas and other commodity prices’ response to inflationary pressures on operating costs, an increase in gas exploration and development activities,” Sasol said.
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