Liquid Petroleum Gas shortages: Department and stakeholder briefings

Meeting report

Chairperson’s Opening Remarks
The Chairperson noted the apologies from the Minister and Deputy Minister, who were attending a Cabinet meeting.

The Chairperson noted that the purpose of the meeting was to address issues around the shortage of Liquid Petroleum Gas (LPG), which was having an adverse effect on the economy. The aim was to bring various stakeholders in the industry to look at the way forward, set timeframes and measures that were needed to mitigate against similar situations in the future.

Department of Energy submission
Mr Tseliso Maqubela, Deputy Director General: Hydro Carbons and Energy, Department of Energy, apologised for the absence of the Director General, who had to attend another meeting in Pretoria.

Mr Maqubela mentioned that while LPG had been welcomed into the market with great enthusiasm, as a cleaner and more effective energy alternative to electricity, there were numerous challenges, particularly around the supply chain and policy gaps. These challenges had a far reaching impact not only on the economy of South Africa, but also on South Africa’s neighbours, who could be forced to take steps to find alternative sources of energy that would, long term, result in the loss of their markets to South Africa, and therefore impact upon South Africa’s ability to create jobs.

He emphasised that the existing refinery infrastructure could no longer meet the demand and reliability was a serious issue. There was a need to invest in importing infrastructure, in order to increase the capacity of the refineries, instead of focusing solely on importation.

He noted that although inputs from stakeholders were beneficial, the Minister of energy was responsible for making the final decisions on policy matters and that “second-guessing” that led to delays in policy pronouncements should not be allowed to continue.

He mentioned that he was optimistic that the shortage of jet fuels at the OR Tambo Airport was a temporary crisis, and corrective measures were being taken. The same assertion, however, could not be made for the LPGs.

Mr Muzi Mkhize, Chief Director: Hydro Carbons, Department of Energy, tabled a presentation setting out the supply and demand situation, retail price regulation, LPG strategy and proposals for the future.  He noted that monthly demand varied, due to unplanned shutdowns and limited imports. The main demand sectors were manufacturing, the hospitality industry and households. Mr Mkhize said that it was difficult to monitor and enforce compliance with safety standards, because LPG retailers were not licensed.

There were six refineries, in Durban, Secunda, Mossel Bay, Sasolburg, another in Durban, and Cape Town, (see attached presentation for full details), and in addition imports were done through Durban, Port Elizabeth and Richards Bay. The Durban facility was owned by SAPREF and had a maximum holding capacity of 1 000 tonnes. The Port Elizabeth facility was owned by Shell and had a maximum holding capacity of 1 600 tonnes. The Richards Bay facility was leased by Afrox from Island View Storage, and had a working capacity of 3 500 tonnes. There were inadequate import facilities and throughput challenges with existing infrastructure. LGP supply shortages further occurred every winter, due to high demand, and also because of scheduled and unplanned shutdowns. The primary solution was the importation of LPG, submission of shutdown schedules by the oil companies and regular supply meetings chaired by the Department, mainly comprising South African Petroleum Industry Association (SAPIA) members and Transnet.

Mr Mkhize moved on to discuss issues around Retail Price Regulation. The LPG Maximum Refinery Gate Price (MRGP) was based on 93 octane movements within the Basic Fuels Price (BFP) mechanism, whereas the import price of LPG was based on Saudi Arabian prices. The Department of Energy intended to undertake a review of the MRGP and the Working Rules governing the retail price of LPG, and this would provide a firm basis to progressively look at the whole LPG value chain. Terms of reference were formulated, and research on international prices and pricing mechanisms had been done. An LPG stakeholder workshop was scheduled for 10 November 2011, when inputs from stakeholders would lead to a review of the MRGP and the working rules. The revised MRGP and Working Rules would be promulgated before the end of the 2011/12 fiscal year

He informed the Committee that the LPG Strategy aimed to provide access to safer, cleaner, efficient, portable, environmentally benign, and affordable thermal fuel for all households nationally. In addition the aim was to switch low income households from using coal, paraffin and biomass to using LPG as the thermal fuel. The LPG Strategy also aimed to contribute to demand side management by minimising the use of electricity for cooking and space heating.

The Strategy further aimed to enhance the level and quality of energy services currently available to residential users throughout South Africa and contribute to the Government’s green economy programme for reduction of greenhouse gas emissions. Strategic interventions would include development of supply infrastructure, a licensing regime, combating uncompetitive behavior and producing cylinders locally. The Department of Energy (DoE or the Department) would now complete the review and work closely with LPG industry stakeholders to address supply challenges.

National Association Automobile Manufacturers of South Africa (Naamsa) submission
Mr Shibishi Maruatona, Director, General Motors South Africa, presented the submission of the National Association of Automobile Manufacturers of South Africa (Naamsa). He provided a background to the LGP situation and current business impact. He noted that the Eastern Cape automotive sector was a high volume user of LPG and propane gas. It was mainly reliant on Petro-SA as a single source of supply. Eastern Cape was the hub of the catalytic converter industry, and shortages of LPG and propane were of particular concern. In July and August, serious shortages were experienced, as well as delays due to diversion and additional transit time, and extra cost. In October, the shortage situation escalated, with four refineries down for extended periods due to scheduled and unscheduled maintenance. Multi-national suppliers had made significant investment in South Africa for manufacture of catalytic converters and were extremely concerned. The ageing infrastructure seemed to be a major factor behind frequent refinery shutdowns for unscheduled maintenance, and this was apparently the cause of recent shortages. The LPG demand from the automotive industry was going to increase, so it was essential that the LPG supply problems were resolved.

Mr Maruatona added that the current business impact assessment from various automotive component suppliers revealed that there was a switch from propane to LPG, resulting in reduced efficiency and longer cycle times, thereby reducing global competitiveness. The short term imported gas premium cost ranged between 6% and 15%, and in some rare cases three times the normal going rate. LPG stock levels averaged 35% of demand and had at stages dropped to below 10%. In addition, certain catalytic converter components were in critical shortage globally. The downtime caused by LPG shortages resulted in premium export freight costs and loss of confidence in South Africa as a source. This was exacerbated by the fact that the LPG distributors, and some catalytic converter (catcon) suppliers, had issued letters to global customers explaining their inability to act due to force majeure.  In response, the Department of Trade and Industry (dti) was pressing the catcon industry for increased investment, by localising substrate extrusion.

Mr Maruatona summarised that Naamsa members were major users of LPG and shortages of LPG would be a further deterrent to local investment. Ongoing shortages of LPG would impact negatively on business confidence, investments, exports and jobs. The catalytic converter manufacturing sector had been earmarked as critical by the Revised Industrial Policy Action Plan (IPAP2), New Growth Path (NGP) and source for growing beneficiation. He urged that the refineries must urgently address ageing infrastructure and share scheduled maintenance plans, to avoid simultaneous capacity disruptions in future.

Discussion
Mr J Gunda (ID, Northern Cape) asked for the reasons why DoE had been unable to meet set targets in various interventions such as in new petrol per site inspections, issuing of additional petroleum licences and the additional electricity connections to households, as indicated in its Annual Report.

Mr Maqubela replied that DoE had indicated to both the Portfolio and Select Committees, in previous meetings, that as a result of financial constraints some projects had to be scaled down to avoid compromising quality. He said further presentation on electricity connections could be made at a later date.

Mr K Sinclair (COPE, Northern Cape) and Mr B Mnguni (ANC, North West) asked for details of the strategy put in place by DoE in order to address the present crisis.

Mr Maqubela replied that the short term strategy was that DoE was looking at unlocking import options through Saldanha Bay. The main hindrance came from the Port Authorities who were, for safety reasons, hesitant to having LPG delivered through their ports. The long term strategy included interventions such as the regulation of the retail price of LPG and incentives to attract new producers of LPG through the MRGP review.

Mr Maqubela noted that there were some contradictory positions taken by DoE and the industry in terms of the long term solution. While DoE thought the solution lay in the building of refinery infrastructure, industry felt that importation of the LPG from global markets should be adopted, thus  making South Africa an import destination. He noted that this did not seem a viable option considering that South Africa was far removed from these sites, and vulnerability to pirates in East Africa. A better option was to build its own refineries and import some components from nearby countries such as Angola.

Mr Mnguni inquired what DoE was doing to prevent industry second guessing on policy matters.

Mr Maqubela replied that the second guessing was not peculiar to this industry but occurred in a number of forums, as various interest groups tried to secure their positions, usually at the expense of progress being made.  He emphasised that the Minister needed to have the final say in policy making, especially in the case of Port Owners.

Mr Mnguni asked for the Department to be more specific about the interest groups that were hindering the supply of LPG.

Mr Maqubela replied that he had not made himself clear. He was confident that a way forward for the short and long term could be paved in this meeting, as most of the major stakeholders were present.

Mr Mkhize noted that it was a great achievement to be able to bring all the various stakeholders to discuss the way forward.

Mr D Gamede (ANC, KwaZulu Natal) mentioned that the LPG crisis should not have caught the Department off guard as it had been noted, five years earlier, that there could be a crisis of LPG, and the Director General had held several meetings with Petro SA. He asked what contingency measures had been put in place then to address the problem.

Mr Maqubela replied that the Energy Security Master Plan had been formulated. One of the listed interventions included the building of the Transnet pipeline which, regardless of some delays, was under construction. He stated that the pipeline would be commissioned very soon. There had been shortcomings in DoE’s efforts to coordinate and unlock import facilities at ports particularly Richards Bay and Saldanha Bay. He noted that National Energy Regulator of South Africa (NERSA) had already issued a licence to a company that wanted to invest in the import facilities in Saldanha Bay. However that could not be done before the Port strategy and investor’s strategies were aligned.

Mr Gamede commented that since Transnet had the infrastructure it needed to be part of the discussions on the long term solutions and therefore should have been present.

Mr Sinclair reiterated that, in addition to Transnet, the Port authorities, who played such a significant role in securing LPG needed also to be present.

Mr Mnguni asked if the unplanned shut downs we a strategy by industry to escalate the price of the commodity.

Mr Maqubela replied that DoE was considering publishing shut down schedules in order to curb the alarm they caused. He did not believe that the shut downs were intentional, as they also caused loss to producers.

Mr Mkhize added that it was a disincentive for industry to have the refineries have unplanned shutdowns. The concern lay in situations where the planned shut downs lacked follow-up contingency plans.  This situation was problematic, and required more punitive measures to be used.

Mr Sinclair noted that the responses revealed that the Department was missing the point. Shut-downs were a daily normal occurrence in business. The Members were interested in finding out what measures had been put in place to mitigate the situation. He asked how DoE was going to manage the buffer between the baseline and optimal levels of the supply of LPG.

Mr Gunda asked for an explanation as to the challenges faced by the DoE in sanctioning those who failed to supply, due to reasons other than the normal financial losses arising from lost sales and associated losses.

Mr Maqubela replied that DoE would regulate, and it would use punitive measures as a last resort. It preferred a process in which there was firstly engagement and dialogue, before punitive measures were implemented. Some measures could not be implemented if the failure to supply involved equipment failure from ageing machinery.

Mr Maqubela mentioned that the Department needed to look at strategic stocks, which in turn meant insurance, which cost money. The remaining question therefore was where the DoE could give optimal value to put in its investment, either through importing infrastructure or storage facilities. He added that in a few weeks the Minister would be taking Cabinet through the Strategic Stocks Policy.

Mr Sinclair was sceptical about the time frames given by the Deputy General on the upcoming policy making.

Competition Commission of South Africa submission
Mr Thembikosi Bonakele, Deputy Commissioner, Competition Commission of South Africa gave some background and highlighted two exemption applications evaluated in the energy industry. He noted that the liquid fuels industry was dominated by a small number oil refinery companies. The industry was also subject to regulation at the refinery gate and retail levels, but due to the small number of players and the history of regulation, the industry had been prone to competition problems. These included collusion, information exchange, and concerns regarding abuse of dominance. Security of supply was of national importance, given the significance of fuels and by-products like LPG and bitumen to the economy. If security of supply were to be ensured, this would require some degree of coordination among competitors. The Competition Commission (CC) had been engaging with key stakeholders to address competition concerns and security of supply concerns.

Mr Bonakele noted that on 5 June 2009, the Minister of Trade and Industry designated the industry in terms of Section 10(3)(b)(iv) of the Competition Act, and this meant that exemption could be granted for conduct required to contribute towards maintaining the economic stability of an industry. Following that designation, an exemption application was made, in December 2009, by SAPIA, to ensure security of supply during the 2010 FIFA World Cup. The exemption application covered a wide range of products manufactured or supplied by SAPIA members, including LPG. It was sought for a period of six years, up to 31 December 2015. The Commission divided its evaluation of SAPIA’s exemption application into a short and long-term exemption. The short-term exemption was granted in time for the 2010 Soccer World Cup. Demand conditions for liquid fuels during the World Cup were uncertain, and so the CC determined that coordination of activities was imperative to ensure that various depots and service stations throughout the country met the anticipated demand. That short-term exemption was unconditional, and was given to 31 August 2010. SAPIA was granted the long-term exemption in October 2011. The Commission found evidence of infrastructure bottleneck in the industry and as such felt that coordination was necessary to ensure the reliability of supply. SAPIA, its members and other industry participants would be allowed to participate in joint arrangements, and share information to the extent necessary to coordinate their logistics and supply requirements. Conditions imposed on SAPIA included a restriction on sharing competitively sensitive information, except for the purposes described in the exemption application.

Mr Bonakele noted that competition issues in energy markets had been prioritised by the Competition Commission, and stressed that the granting of the exemption had been coupled with imposition of certain conditions that aimed to minimise anti-competitive outcomes and promote greater participation in the sector. This would contribute towards levelling the playing field and promoting competition in the petroleum and refinery industry.

KayaGas submission
Mr George Tatham, Managing Director, KayaGas, highlighted that supply of gas was the main problem. He noted that refineries were the main source of LPG, but that in South Africa there had been under investment in capacity because local refineries were mostly small, old and not internationally competitive. These refineries’ economics did not justify investment to meet EU fuel specifications. They could not meet growing LPG demand. Import capacity was very limited as existing import facilities were inadequate and limited the ability of LPG to serve the economy. There was no terminal in Cape Town, which was a major market, and lack of storage made the supply system unstable. There was room for an entrepreneur like KayaGas to design and implement solutions, because reliance on the present oil/gas industry’s vested interests had failed to meet the challenge of a developing economy. The Committee was informed that at least six licenses or permits were required for a new LPG import installation. It appeared there were no deficiencies in policy, regulatory framework or executive capacity. However, an entity like KayaGas was finding it very difficult to introduce innovative solutions because of lack of a clear and final Government strategy for LPG. There was also an extensive set of regulations that hamstrung any developer, even if they were implemented efficiently. In addition there was a lack of co-ordination between regulatory authorities and government entities and the unintended consequences of this.

Mr Tatham recommended that the National LPG Strategy be finalised and that two LPG import terminals be built at Richards Bay and Saldanha Bay. Fast-track licensing of filling plants was also needed, to prevent cross-filling of cylinders and to encourage investment in cylinders. Poor households needed to be provided with an incentive to switch to LPG. Mr Tatham requested Parliament to critically examine the existing regulatory framework, the manner in which the civil service functioned around this situation, and the record of the major energy companies in the LPG market.

Discussion
Mr Mnguni noted that there appeared to be contradictory statements by KayaGas, because early in the presentation it was highlighted that the LPG was safe but later cited an instance in which someone’s house was blown up as a result of switching of cylinders.

Mr Tatham replied that cross filling was an illegal practice that was damaging the safety record of those who were adhering to regulations. In such cases he noted that stronger regulations were required to bring the non-compliant individuals to book.

Mr Tatham added that a lot of time, money and effort had been invested by LPG-producing companies into the Safety Standards Association to ensure that LPG was safe. The standards were extremely well drafted and implemented to world standards. He noted that an independent study was published by the University of Cape Town‘s Energy Institution revealed that the use of LPG was 100% safer than that of paraffin. However, there were challenges around safely regulations that could not be implemented in the informal settlements. For example, in order for a household to use LPG,  a person was required to give an erf number, permission from the owner (in this case, the Municipality and Minister of Public Works) were required, as well as an approved building structure and correct zoning. These regulations had been strictly implemented by the Cape Town Fire Department, therefore limiting the number of households that could access the resource. In some instances these safety regulations were also used as barriers to entry into the market.

Ms B Abrahams (DA, Mpumalanga) noted that the issue of safety should not be compromised, no matter whether the gas was used in the informal or formal markets.

Mr Tatham agreed that the issue of safety should not be compromised, but noted that some regulations could be tailor-made for informal settlements, without compromising actual safety. All that was required was an open-minded and innovatory approach.

Mr Mnguni asked for the reasons as to why the primary location of the largest terminal was to be Richards Bay.

Mr Tatham replied that the largest single market along the South Indian Ocean was the supply envelope which fed from Richards Bay, including Kwa Zulu Natal Province, which accounted for 70% demand in South Africa. It made sense to locate the largest terminal near the largest market. Other ports were not presently an option. The import of LPG to Cape Town had been banned, and the Durban Port was congested, and a fire incident at one of the storage facilities had made the port authorities very hesitant about installing another facility. There was still a need to evaluate how to access important markets like Kimberley.

Mr Mnguni asked if the same individuals who had foreseen shut downs were those who were supposed to import, and wondered if artificial shortages were created.

Mr K Sinclair (COPE, Northern Cape) inquired if the Environmental Impact Assessments (EIAs) had become a commercial tool to hinder progress in the industry.

Mr Tatham replied that EIAs were being manipulated and most instances were responsible for stopping development, or adding to the costs of development interventions.

Mr Sinclair asked why the Department continued to insist on building refineries when the industry was claiming that it was not a viable option. He noted that the main requirement was to make the product available.

Mr Sinclair stated that he was disappointed that NERSA did not want to contribute to the discussions.

The Chairperson noted that he could take up the issues with the Chief Executive Officer of NERSA.

The Chairperson noted that the shortage of bitumen, which was affecting the construction industry, had been left out of the discussions.

Liquid Petroleum Gas Safety Association of South Africa submission
Mr Dennis Herold, Chief Executive Officer, Liquid Petroleum Gas Safety Association of South Africa, informed the Committee that the LP Gas Safety Association (LPGSA) was a non-profit organisation that represented the downstream LP Gas industry. This comprised of companies who uplifted LP Gas from the local refineries, in terms of the wholesale licensing conditions and the MRGP for LP Gas, equipment, hardware and appliance manufacturers and LP Gas installers. The organisation’s vision was to ensure the sustainable growth of the LP Gas industry through adherence to safety and best business practices. The organisation was further mandated, by the Department of Labour, to ensure that LP Gas appliances and cylinders in South Africa were verified to comply with the South African National Standards, and incorporated into the Pressure Equipment Regulations, under the Occupational Health and Safety Act.

Mr Herold outlined that the LP Gas industry response to the LP Gas shortages. He noted that the refineries were old, and geared to liquid fuels (Mogas and Diesel) not LP Gas. The refinery bulk storage for LP Gas was not sufficient, neither were import facilities for ‘bulk’ LP Gas, and inland storage was insufficient. The refinery maintenance was geared towards ‘slack’ periods for liquid fuels but LP Gas was in high demand over the winter months. The rail infrastructure and rolling stock for transport of rolling stock was insufficient. Distributors and retailers were paying premium prices, some exceeding the maximum retail selling price, which had resulted in consumers paying far more than the legislated price. LP Gas allocated to distributors & retailers had averaged only 20% of their normal off take. Distributors and retailers had lost, on average, 30% of their customer base, and had thus either retrenched, or put on short time more than 50% of their staff. He added that retailers and distributors were restricted in the quantities they may carry by their respective local Fire departments. However, the shortage resulted in them filling cylinders illegally. He noted that stricter regulations were required to protect the LP Gas industry from unscrupulous operators who pirated cylinders and use them illegally. This included the cross border migration of cylinders, intended for use in South Africa, which never returned to South Africa.

The main factor limiting downstream marketers making an investment in storage infrastructure was the current regulatory framework, and particularly the MRGP for LP Gas. This regulation set the maximum price for LP Gas uplifted from the refineries. It listed the local refineries and required LP Gas wholesale companies to purchase LP Gas from these refineries for local consumption in South Africa.

He explained that wholesale companies could only import LP Gas with an import permit granted by International Trade and Administration Commission (ITAC), in the event that refineries were shut down. This was facilitated through ITAC under recommendation from the Department of Energy. Unplanned shut downs had a severe effect on planning and made this process very difficult, due to the procedure for obtaining an import permit.

It was difficult for members of the LPGSA to invest in more storage, because when refineries were up and running, wholesalers had to procure product from the refineries. When the refineries were down, the wholesale companies had to import. If they were to invest in storage there were times when it would not be utilised

Mr Herold concluded the presentation by recommending that Government should assist with the 'fast tracking' of infrastructure development, especially with regard to import facilities in areas controlled by National Ports Authority. Storage should be part of the infrastructure planning, and not independent of the supply of LP Gas from refineries. This should include the improvement of Transnet LP Gas rail tankers and rolling stock, for better and safer transportation of LP Gas via rail. The MRGP for LP Gas required amendment to cater for import parity, and infrastructure investment. A defined timeframe should be tabled, so that industry was presented with an opportunity to plan future investments. Security of supply was critical. In the event all the refineries in South Africa were shut-down due to unplanned maintenance, supply must not be affected and alternative reserves should be available. LP Gas needed to be treated like other fuels (Mogas and Diesel), with adequate reserves in place.

Discussion
Mr Gunda (ID) asked for clarity on how other countries had managed to secure LPG supply.

Mr Harold replied that one example was Ghana, which had a greater utilisation of LPG than South Africa. The Ghanaian Government had put in place measures to ensure security of supply, and there, the use of LPG was so widespread that taxis were running on liquid petroleum auto gas. Measures were also put in place to ensure that local and foreign companies had their investment protected within a regulatory framework. Mauritius, on the other hand, had secured its supply through building of more storage facilities.

Federated Hospitality Association of Southern Africa submission
Mr Eddy Khoza, National Chairperson, Federated Hospitality Association of Southern Africa (FEDHASA) mentioned that he was optimistic about the possible solutions to address the shortage of LPG. This shortage was adversely affecting the hospitality industry. He noted that most of the members were keen about switching to LPG but we mainly constrained by issues of supply.

SAPIA submission
Dr Ben Mokhaba, Executive, South African Petroleum Industry Association, introduced the representatives from Petro SA, Engen and Chevron. His presentation would give the industrial and supply side perspective. He noted that the SAPIA was made up of different companies and therefore their views were at times divergent.

Dr Mokhaba described the process of refining the various by products of oil for example LPG, Bitumen, gas, petroleum.

He noted that the main explanation for the crisis on the supply side was that the capacities of refineries, which had been created in the 1960s, were reduced while the increase in demand had risen in line with the increased demand for energy resources to build the economy.

Mr Fani Tshifularo, Executive Director, South African Petroleum Industry Association, gave an overview  of SAPIA, noting that it comprised representatives from BP Southern Africa (Pty) Limited, Chevron South Africa (Pty) Limited, Engen Petroleum Limited, Sasol Limited, Shell South Africa Marketing (Pty) Limited, The Petroleum Oil and Gas Corporation of South Africa (Pty) Limited (PetroSA) and Total South Africa (Pty) Limited. The petroleum industry in South Africa was a significant source of jobs, income and taxes. Its economic significance was larger than suggested by direct measures, because it interacted with many other industries and had a wider effect than most industrial sectors. The petroleum industry was also considered to be the backbone of the economy because it was the primary source of energy in the world.

Mr Tshifularo noted that LPG was a liquid recovered from the processing of natural gas and the refining of crude oil, and was used in variety of applications, including households, commercial use, restaurants, industrial applications, heating of bitumen for road building and roofing, firing furnaces, welding equipment, industrial food production (such as bread-making), ceramics, brick-making, forging and bending, galvanising and special metallurgical processes.

He summarised that the Minister of Energy set the MRGP, and maximum retail prices for residential customers on a monthly basis. LPG security of supply was affected by shortages due to early shutdowns, fires, late start-up after maintenance, un-planned shutdowns, inability to meet demand, long import lead-times and limited import facilities. Industry had responded to the shortage by setting up a Logistics Planning Team (LPT), chaired by the Department of Energy (DoE), to monitor supply of petroleum products. In addition SAPIA members submitted production and stock data to the DoE and industry response actions were discussed and agreed to. Within the LPT there was consensus that the LPG supply situation would only improve once all refineries were back on full production.

He cited the main challenges as lack of import terminals and the way that regulated prices hampered the ability to make a return on investment. In addition, industry’s appetite for investment was suppressed by bureaucratic administrative procedures and lack of resources for rail movements of products. There was also no synergy between government departments – such as NERSA, DoE and TNPA. There were incentives for refineries to produce additional LPG. There was also no correlation between MRGP and actual logistical cost of imports, and no adjustment to cost recovery elements in regulated pricing during the last 18 months.

Mr Tshifularo concluded that there was a need to address the complaints about the current regulations and rules relating to Maximum Refinery Gate Price, Maximum Retail Price for residential customers and annual cost adjustments. There was also need to incentivise the industry to build import facilities.

Discussion
Mr Gunda noted that he did not appreciate Dr Mokhaba ’s opening assumption that he needed to simplify his explanations about the manufacturing process, as it implied that the Committee was not on the same footing as the presenters.

Dr Mokhaba  apologised to Mr Gunda and said that he was in no way attempting to “talk down” to Members, but wanted to ensure that everyone started from the same understanding.

Mr Sinclair believed that the intention of the presenters was to give absolute clarity for a better understanding on the issues at hand. He had learnt a lot from the introduction.

Mr Gunda asked the extent to which SAPIA was engaging with NERSA and other stakeholders when formulating its strategy.

Mr Tshifularo noted that discussions were ongoing. Forums such as the LPT were established to increase participation of the various stakeholders, mainly SAPIA, TRANSNET and DoE. He also noted that there were bilateral engagements between DoE and major players in the energy sector.

The Chairperson asked how regularly members of SAPIA met, as it was obvious that there was failure in communication in terms of planned shutdowns.

Dr Mokhaba  replied that SAPIA members created a multi year schedule that was distributed among themselves, so that they could try to alternate planned shut down periods, and to prevent shortage in LPG supply.  However, unplanned breakdowns and fires led to the disruption of the schedule.

Mr Sinclair noted that nothing had been said about how far reaching this crisis was. Only perceptions, and not figures, had been presented.

Mr Tshifularo replied that individual figures were not presented in SAPIA as the companies were in competition with each other. However figures were presented to DoE, and these could be made available to Members on request.

Mr Sinclair asked for information regarding the Logistics Planning Team that had been commissioned to deal with the crisis.

Mr Tshifularo replied the team consisted of Transnet, SAPIA and DoE.

Mr Mnguni asked for an explanation for the MRGD price regulation, given that companies were in business to maximise profit.

Mr Bonakele noted that regulation was supposed to protect customers. However, the best means of regulation was actually to open the regulatory framework to allow the participation of smaller players who could complement the local refineries, through importation of LPG. It would be important to ensure that the local refineries did not also become importers, as this could increase their monopoly in the market and result in manipulation of prices.

Mr Maqubela agreed with Mr Bonakele that the industry required new players through opening of import regulations, in order to increase competition among locally producing importers.

A representative from Petro SA noted that the industry was caught unawares, as previous discussions had been focused on petrol and diesel. The recent crisis in security of supply of LPG indicated that this was an area that needed action.

A representative from Engen noted that the crisis had taught the industry that there were cracks in the system. It was impossible to give a guarantee that the crisis could never occur again.

Dr Mokhaba thanked the Chairperson for his guidance, and particularly for this meeting that had avoided stakeholders pointing fingers at and blaming each other. The  crisis was not just caused by the negative effects of failure in logistics and lack of refinery capacity, but also must be seen as a positive result of the vibrancy of the economy, which was increasing the demands for fuel.

The Chairperson noted that the meeting had helped to clear misconceptions about the reasons for the crisis. It was important for Government to have more active oversight over the situation and import regulations. He also thanked the Competition Commission for the way it had dealt with exemptions.

The meeting was adjourned.