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Briefing of Portfolio Committee on Gas Pricing

This briefing discusses the gas pricing policy in South Africa, focusing on addressing inequality and increasing access for low-income households. It explores the current energy use patterns, household demands, and potential solutions to make LPG more affordable and accessible for the poor.

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Briefing of Portfolio Committee on Gas Pricing

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  1. Briefing of Portfolio Committee on Gas Pricing PPC Presentations 12 March 2007 NH Gumede – Deputy Director General S12A, Ground Floor, NCOP Wing

  2. Team members • The team comprises of • Nhlanhla Gumede – Deputy Director General (Hydrocarbons & Energy Planning • Muzi Mkhize – Chief Director (Hydrocarbons) • Elizabeth Marabwa – Director (Hydrocarbons Policy)

  3. RSA realities - Inequality - Gini Index Source: World Development Report 2003

  4. The People of South Africa - 2001Employment status of people aged 15-65 by Race (note: Figures used from Labour Force Survey 2001, and not Census 2001) Source: Stats SA - Census 2001

  5. Households of South Africa - 2001Type of Dwelling Unit by Race Group Source: Stats SA - Census 2001

  6. Energy use in RSA

  7. Distribution of Energy types use in the residential sector Source: Energy outlook for South Africa - 2002

  8. Energy use by the residential sector Yes, different residential sectors have different needs Source: Energy outlook for South Africa - 2002

  9. Households of South Africa - 2001Main Energy Source for Cooking / Heating / Lighting Source: Stats SA - Census 2001

  10. Households of South Africa - 2001Main Energy Source for Cooking by Region, Race Source: Stats SA - Census 2001

  11. Households of South Africa - 2001Main Energy Source for Heating by Region, Race Source: Stats SA - Census 2001

  12. Residential sector - demand curves Price Middle income households High income households Low income households No income households Quantity

  13. Domestic energy demand is inelastic • Domestic energy demand is inelastic in general • When people have to cook, they have to cook • When people have to heat their homes, they have to heat • When people need warm water, they need warm water Energy demand merely shifts from one form to the another, depending almost exclusively on economics

  14. LIH – application demand curves Price Mobility Lighting Thermal - electricity Thermal – Liquid Fuel Thermal - Coal Thermal - biomass Quantity

  15. The role of gas in the energy mix

  16. Taking due cognisance of impact of imported oil on the economy

  17. Bringing LPG to the poor…. Price regulation Ensuring Access by poor • Reduction of current industry wide high prices • Investigate sharing of logistic value chain • Investigate cylinder filling options “Free basic energy” provision • Availing cylinders and appliances to the LIH • Focus in LSM’s that can afford LPG • Exchange unsafe appliances • For those poor LIH’s who can’t afford to buy LPG, exchange 50kW free electricity for say 15 kg LPG per month

  18. Reality is… …Petrol even with all Government imposts is still much cheaper than LPG at retail level… Source: Based on March 2008 Petrol figures

  19. Indicative gross margin cpl Dealers Existing Channel to Market Commercial (10kT) Manifolds 55 Distributors 65 35 45 90 Stockists • Refineries • Sapref • Sasol • Mossgas • Calref Households (13kT) 90 Fore- courts 110 Own filling 130- 50 Source: Wild Orchard, 2004

  20. Exclusive Area 3 Exclusive Area 2 Primary Transportation Manufacturers & importers Consumers Consumers Consumers Exclusive Area 1 Distribution channels Distribution channels Distribution channels Own & maintain cylinders in area Fills all cylinders in area Regulated monopoly BEE opportunity iGas participation? 60 c/kg Cylinder Filling, management Centre Cylinder Filling, management Centre Cylinder Filling, management Centre Admin charge = 20 c/kg for marketing Allow distribution charge for delivery and collection of cylinders – cost recovery basis – 50 c/kg RGP = Petrol BFP - R74/kg = R3.29/kg But is Platt’s quoted Promote imports Max Price set Require economies of scale Mixture of low & high income households Delivery & non delivery channels Retail Price on Cylinder Zone differentials Tariffs based on actual transport costs to each zone Expected to be between 3 & 50 c/kg Proposed Business Model

  21. LPG pilot program • To test the efficacy of the proposed approach, pilots have been undertaken in Pretoria and Secunda • Set out to connect 30 000 households • Objective: switch users from electricity to LPG for thermal application • After several delays, communities excited • In Attridgeville uptake highest in older part of township but now taking up in all parts • Load shedding has resulted in higher uptake in Tembisile

  22. LPG pilot program – Consultant report Definition of Acronyms: BFP – Bottle Filling Plant; WIC – Walk-in-Centre

  23. Pilot programme – Consultant report Definition of Acronyms: BFP – Bottle Filling Plant; WIC – Walk-in-Centre

  24. Pilot Programme - Consultant report Definition of Acronyms: BFP – Bottle Filling Plant; WIC – Walk-in-Centre

  25. Some facts about LPG in Africa 16 Million tons 9.7 Million tons Source: Total Gas

  26. Some facts about LPG in Africa LPG consumption by sector in Africa 7.5 Million tons 9.7 Million tons Source: Total Gas

  27. LPG in the Energy Market Household Thermal use LPG Market by Sector Market about 330kt will reduce by 100kt Source: Wild Orchard, 2004

  28. Some facts about LPG • Sources of LPG in RSA • From coal and natural gas (PetroSA & Sasol) • Local 4 other local oil refineries • Importation • No real terminal at this stage • Various LP Gas import facilities in planning stage • Potential import sources • Angola, Nigeria, Algeria, Egypt, Saudi Arabia and Qatar

  29. Proposed Pricing approach • As an outcome of the pilot project, a new pricing system is proposed • Very similar to the petrol pricing structure • Intended to promote importation of gas • Starts with existing refinery gate price approach • Basis is cost reflectivity • Import parity basis • Reduce number of “middlemen” in the LPG value chain

  30. Proposed pricing structure • The structure is simply • “Refinery gate price” ( R6.90) • Primary transport (R0.70) • Wholesale margin (R0.50) • Retail margin (R0.80) • Distribution margin (R0.50) • VAT (R1.32) • Retail price: R10.72

  31. I Thank You

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