The unreliability of Eskom has forced households, businesses and energy consumers to rely on other sources of energy. There is no doubt that the gas value chain is increasingly and incalculably more important for consumers.
The actions and behaviours of downstream gas producers, distributors and retailers are therefore critically important to regulate and hold accountable for the benefit of SA energy consumers — the recent worrying market behaviours by gas multinationals Sasol and Vita Gas raise concerns about the sector.
In 2012 the department of energy presented a white paper to parliament titled “Options for LPG Expansion”. This was one of the measures aimed at preventing the country’s energy nightmare. One of its goals was to reduce heavy reliance on electricity through a diversified energy mix — as still is the case of the current energy plan endorsed by the cabinet. The parliamentary energy committee learnt about plans to transition low-income households from coal and paraffin usage to affordable liquid petroleum gas (LPG), possibly through subsidies. Unfortunately, after more than a decade, little progress has been made in implementing these proposals.
It is important to note that such a transition remains critically important given how many of the poorest households in SA still rely on dirty and unsafe sources of energy such as paraffin and coal, which brings along a plethora of health-related complications.
However, the missed opportunity to implement these strategies is not entirely lost. The LPG industry still holds enormous potential not only for energy supply but also for much-needed job creation and economic growth. However, it requires a safeguarded and rational approach from all stakeholders, which in recent times has not been the case.
The Competition Commission recently found that gas giant Sasol overcharged consumers by more than 72% after a complaint by gas companies Egoli Gas and Spring Lights Gas as well as the Industrial Gas Users Association of SA. This excessive pricing practice has been commonplace in the market for the better part of the past decade.
The ultimate effect of such pricing practices hits the end-user the hardest — ordinary SA households and businesses who are already economically battered by Eskom’s unreliability.
Meanwhile, as the abrasive winter season confidently arrived in SA, a unique energy crisis almost caused severe chaos in the country. The LPG industry was thrown into disarray when Vita Gas abruptly terminated its contract with Sunrise Energy, almost leading to a monumental supply crisis, especially in the Western Cape.
Vita Gas, a subsidiary of Vitol, a multinational commodity player, imports LPG into the country through Sunrise Energy's terminals located in Saldanha. Just before the Youth Day holiday weekend, Vita Gas abruptly cut ties, removed its products from the facilities, and walked away from Sunrise Energy due to legal disputes. This sudden move left the Western Cape's homes, hospitals, restaurants and other LPG-dependent entities in the lurch, as the typical inclement Cape weather posed threats through strong winds.
While there may be complex legal issues between the two companies, SA’s current precarious energy situation needs security of fair supply. Abruptly stopping the supply of gas, leaving consumers in a vulnerable position such as Vita Gas did in June, will only hinder the growth of an already shaken industry.
While leaving gas consumers in the lurch during an incredibly vulnerable time, Vitol is in the process of acquiring a 74% stake in Engen, the leading retail supplier of petrol and diesel in the country. This is the type of market behaviour that I imagine would make the competition authorities nervous about the bona fides and integrity of Vitol and erodes any assumptions of good-faith practices they may have enjoyed. This matters, because whatever the acquisition terms are that the Competition Commission may place on this deal, are terms that they hope would be adhered to.
There is, however, positive developments in the sector to hold onto. A prime example is the construction of the 22,600 metric tonnes LPG import facilities in Richards Bay, which began in 2018. This infrastructure will facilitate a smoother supply of LPG in the country, reducing bureaucracy, delays, and accessibility issues in the region. Besides being good for business, it also offers a substantive opportunity at transitioning to cleaner sources of energy. However, the industry needs more predictability and stability.
Just as we hold Eskom and other state-owned enterprises accountable when they fail to consider the broader public good, we should do the same with the private sector. The energy sector is too crucial for any of us to ignore risky behaviour by companies whose actions could further worsen our fragile economy.
Regulatory authorities and the government should take seriously the task of protecting an already vulnerable consumer base as more and more businesses and households will increasingly rely on gas as an energy source.
• Dickson, a former communications adviser to the home affairs ministry, is a political analyst, policy and political risk consultant and talk show host.
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