https://www.engineeringnews.co.za

Gas price losers seek legal relief, while others benefit from lower prices

BIG USER DISCONTENT Large gas consumers, including Consol, are unhappy with the new methodology

BIG USER DISCONTENT Large gas consumers, including Consol, are unhappy with the new methodology

Photo by Pictures by Chief Photographer Duane Daws

4th April 2014

By: Terence Creamer

Creamer Media Editor

  

Font size: - +

T

he much-debated gas price restructuring will proceed despite a legal challenge that has been launched by seven large gas consumers, including Consol, Dawn, Illovo, Mondi, Nampak, PG Group and South African Breweries.

The new regime was due to come into effect on Wednesday March 26, following the expiry of parts of an agreement between Sasol and the South African government, which has governed gas pricing for the past ten years.

The adjustment has been made in line with the Gas Act of 2001, which stipulates that the National Energy Regulator of South Africa (Nersa) should shift from the market value pricing methodology that has prevailed hitherto to a nondiscriminatory pricing methodology.

Following public participation processes dating back to 2011, Nersa opted for the maximum-prices methodology.

However, anxiety levels remain high among some gas consumers, which would prefer a cost-plus methodology. That said, it has also emerged that a number of other gas consumers, which were discriminated against during the previous regime, could enjoy price decreases.

Nersa approved maximum Sasol Gas prices of R117.69/GJ on March 26, opening the way for the company to begin ‘actual price’ negotiations with its 347 customers.

But, by October last year, the seven key customers initiated legal proceedings against Nersa and Sasol Gas and a Gas Users Group spokesperson reports that they have since been joined by about ten other concerned companies.

Nersa CEO Phindile Baleni says that the law provides for Nersa decisions to be taken to the High Court for judicial review, but she also stresses that the new methodology will be implemented while such proceedings continue.

The legal process remains at an early stage, with Nersa yet to file an answering affidavit.

Regulatory member for piped gas Nomfundo Maseti adds that, as part of an effort to ensure a “smooth transition”, Sasol Gas reset prices on March 1 and cut a further 5% off those lower base prices.

She also indicates that 25% of the 20 customers that consume 80% of Sasol’s ‘external volumes’ will experience a decrease in prices – Sasol consumes a material amount of gas imported from Mozambique for its own consumption in Sasolburg and Secunda.

But the Gas Users Group remains uncomfortable with the methodology adopted, as well as the price trajectory that it implies.

Its spokesperson tells Engineering News that most of those opposed to the arrangement have signed interim deals to secure supply. However, clauses have been included to allow for a change to the arrangement pending the outcome of the judicial review. Nersa reports that 310, or 89%, of Sasol Gas’s customers concluded contract negotiations ahead of the implementation date.

The opponents of the maximum-pricing methodology believe the solution remains too favourable to Sasol Gas and that the weighted basket used (which comprises coal, diesel, electricity, heavy fuel oil and liquid petroleum gas prices) is flawed in that it delinks the future prices of the key drivers of crude oil and producer inflation.

“The big concern is that gas prices are going to escalate far beyond the producer price inflation level,” the spokesperson says. A regulatory intervention, he argues, should surely have moved to moderate rather than accelerate prices in a market characterised by imperfect competition.

The Gas Users Group is also of the view that the March rebasing of prices is also more advantageous to gas consumers within the Sasol group itself than it is to external users, as it gives them time to restructure and realign their businesses to the higher price outlook.

But Sasol describes the new pricing structure as “workable and appropriate for the sustainable development of the South African gas industry”.

“Under the new pricing structure, most of our customers are experiencing price decreases,” spokesperson Alex Anderson asserts, adding that Sasol Gas is confident that its prices are competitive with other forms of energy in South Africa, as well as in relation to international gas prices.

“Sasol Gas’s average molecule price (excluding tariffs) is approximately R42/GJ, which is substantially below the maximum price for gas, which is R117/GJ.”

But Anderson acknowledges that some customers will experience some short-term financial impact as they transition to the new gas prices and that steps have been taken to limit the impact.

“Sasol Gas and its customers have enjoyed a long and mutually beneficial relationship. For many of our customers, this relationship spans several decades and we look forward to this continuing into the future.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

Comments

Latest News

Magazine video image
Magazine round up | 29 March 2024
29th March 2024

Showroom

AutoX
AutoX

We are dedicated to business excellence and innovation.

VISIT SHOWROOM 
GreaseMax
GreaseMax

GreaseMax is a chemically operated automatic lubricator.

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.235 0.289s - 137pq - 2rq
Subscribe Now