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MINERALS AND ENERGY PORTFOLIO COMMITTEE
6 September 2006
PRICING AND AVAILABILITY OF LIQUID PETROLEUM GAS (LPG): DEPARTMENT AND LPG SAFETY ASSOCIATION BRIEFINGS
Chairperson: Mr E N Mthethwa (ANC)
Documents handed out:
Department of Minerals and Energy (DME): Presentation on the Pricing and Availability of Liquid Petroleum Gas (LPG)
LPGAS Safety Association: Presentation to the Parliamentary Portfolio Committee on Minerals and Energy
The Committee was briefed by the LPGas Association of Southern Africa and the Department of Minerals and Energy on issues surrounding the pricing and availability of Liquid Petroleum Gas (LPG). The Committee identified LPG accessibility, affordability and security of supply as major issues, and also strongly emphasised that safety of LPG users be prioritised. It became apparent that the major reason for the high LPG price is that it is linked to the Basic Fuels Price and thus fluctuates accordingly. The Committee agreed that this needed to be reconsidered. Both the delegations agreed that the chief reason for the lack of LPG supply in South Africa is the lack of co-ordination between shutdown times at major refineries. The supply is crippled when large plants shut down simultaneously. This lack of supply is further exacerbated by South Africa’s lack of LPG import infrastructure. However, according to current domestic supply / demand ratios, the creation of such infrastructure is not economically viable. The Committee acknowledged that all spheres of government needed to work together in order to provide sustainable solutions to the abovementioned problems. The Committee was strongly opposed to the possibility that ‘free basic electricity by 2012’ was being replaced by the broader concept of ‘free basic energy,’ but the Department assured the Committee that this was not the case. It was further maintained by the Department that LPG could be used in conjunction with electricity, and that it was also a workable solution to the real and current poverty which prevails in poor areas.
Department of Minerals and Energy (DME) Presentation on the Pricing and Availability of LPG
Mr N Gumede, the Acting Director General of Hydrocarbons and Energy Planning at the DME, opened the presentation by emphasising the importance of LPG and stated that it was the main domestic thermal fuel used in South Africa. He highlighted the dangers associated with the use of LPG, and pointed out that the DME was completely committed to promoting and ensuring safety in so far as the domestic use of LPG was concerned. He went on to say that user behaviour also needed to be addressed when dealing with safety issues in this regard. He stated that if government was going to attempt to provide gas as an alternative to electricity under the heading of ‘free basic energy,’ the expenditure would be massive and such an initiative would most likely prove to be unaffordable.
Mr Gumede also mentioned that there has been a general decrease in LPG demand since 2001, and that there are no conclusive statistics to illustrate that there has been a significant increase in demand this year. He stated that when refineries are down, there is no LPG production and this drastically affects the supply of LPG. This problem was exacerbated by South Africa’ inadequate capacity to facilitate LPG imports. He added that usually production exceeds demand in South Africa, so the department cannot economically justify the implementation of such importation infrastructure. He added that the LPG price is based on the basic fuels price (BFP) and not the LPG demand, so South Africa’s LPG pricing is out of sync with global supply and demand patterns. The presentation covered the areas of domestic LPG demand patterns; sources of LPG in South Africa; international patterns of LPG supply and demand; refinery gate pricing mechanisms; benchmarking; LPG transformation initiatives and was concluded with an overview of the Attridgeville pilot programme.
LPGas Safety Association (LPGSA) presentation
Representatives from the LPGas Safety Association included Mr T H Townsend (General Manager), Mr P Harris (Consultant to LPGSA), Mr K Robertson (Communications) and Mr M Gaba (Managing Director). Mr Townsend, assisted by Mr Gaba, began the presentation by mentioning that only ten LPG related fatalities were recorded last year, and stated that paraffin was more expensive. He stated that LPGas was a non-profit organisation, and that it was completely dedicated to ensuring safety with regards to the use of LPG in all sectors of society. He outlined the issues relating to LPG safety, the two–plate stove initiative, pricing, availability and accessibility. Mr Townsend emphasised that LPG supply is heavily reliant on the functionality of refineries, and that when refineries shut down simultaneously, there are huge implications for LPG supply. He also maintained that the LPG price needed to be de-linked from the BFP.
Mr S Mkhize (DME: Director: Petroleum and Gas Regulation) acknowledged the oversight function that Parliament plays with respect to the functioning of the DME.
Mr J Combrink (ANC) asked whether cylinders are manufactured locally, and who were subsidising them. He also enquired why the cylinders are so expensive. He stated that when South Africa has to import LPG at some stage in the future, the prices are going to escalate even more. He asked whether the problem was not with Eskom, who could be seen to be ‘running away’ from electricity supply infrastructure for the poor and encouraging other forms of energy use. He also enquired why there was a LPG shortage in Gauteng and not, for instance, the Western Cape.
Ms N Mathibela (ANC) asked whether LPG is not just easier to use, as opposed to being safer to use. She emphasised her concern with regards to LPG safety issues, and asked for clarification in this regard. She also asked what would happen to those who have converted their cooking devices if an LPG shortage cripples the Western Cape.
Mr C Molefe (ANC) stated that there is a problem in that industry does not always ‘effect what it says it is going to effect.’ He also asked what the total gas production capacity of South Africa is.
Ms H Blose (ANC) expressed her disappointment that neither of the delegations contained any women. She stressed that South Africans ‘do not want to go back to suffering,’ and that the women and children will be the ones who end up carrying these heavy cylinders over long distances in order to have them refilled. When the distributed LPG vouchers are used up, the poor will still not be able to afford to refill the cylinders.
Mr E Lucas (IFP) stated that the safety issue was serious, and that the main problem was inadequate and flammable housing (made of wood, cardboard, etc). Mr Lucas stated that the DME seemed to be encouraging gas over electricity, which disappointed him. He stated that this was very unfair, as there are households which have been waiting 12 years for electricity supply. He also pointed out that by encouraging LPG and by providing the two-plate stoves, an LPG dependency was being created within the community, which will ultimately increase the gas price. He stated that appliances distributed in such initiatives must be of the highest standards to ensure safety.
Adv H Schmidt (DA) asked how many cooking hours one got from one cylinder of LPG. He reiterated Mr Lucas’s comments, and asked whether the DME was indicating that it was going to replace the idea of ‘free basic electricity’ by 2012 with the notion of ‘free basic energy.’ He stated that these two concepts are very different, and that toying with such an idea was dangerous. He stressed that by increasing the number of households which are reliant on LPG, one will only increase the LPG demand even further. He asked whether the department had considered this in its planning.
Mr Gumede said that the department was not moving away from the ‘free basic electricity’ concept, and said that this idea had neither been introduced nor entertained by the Minister at all. Such a proposal would need extensive research before it could even be considered. He stated that access to electricity is a right, and that the DME was not suggesting a movement away from this. He mentioned, however, that each household has a choice whether to use LPG or not. Mr Gumede stated that the link between the LPG price and the BFP was a major reason for the high price of LPG, and that this needs to be reconsidered. He maintained that the shortage of supply in the Gauteng region was directly linked to the refinery shut downs. South Africa does not have infrastructure to import LPG, and cannot warrant the establishment of facilities on domestic supply and demand ratios. It was further stressed that any energy source is potentially lethal if used incorrectly, and alternative energy sources are not without their problems. He stated that, with regards the initial 2-plate stove campaign, he was not happy with the fact that the LPG flame was on top of the energy carrier, and opposed this vigorously. He also stated that this was usually the case with paraffin devices.
Mr Gumede stated that the R7 p/kg price of LPG includes delivery to the actual household. Qualified individuals will then check and maintain the LPG appliances to ensure safety standards are strictly adhered to. With regards to the paraffin price, Mr Gumede said that this was being looked at.
The Chair asked both the delegations to deal comprehensively with the aspects of accessibility, safety and security of LPG supply.
Mr Mkhize stated that, with regards accessibility, LPG has always been available in South Africa, but conceded that pricing was a problem. He assured theCcommittee that the DME was very dedicated to safety in so far as LPG use is concerned, and said that in various DME and LPGas initiatives, people have been trained on how to use LPG effectively and safely. From an affordability aspect, he said that the cylinders must be owned by the company which supplies them, as maintenance is necessary on all cylinders. With regards to the mass of the cylinders, they have been reduced from 9 kg to 5 kg to increase ‘carryability.’ A R50 deposit is also necessary to prevent the cylinders from being sold for scrap metal. Mr Mkhize conceded that most cylinders are imported as there is not sufficient LPG demand to warrant a South African based company. Steel is produced in South Africa, but is very expensive and is exported to the East. CADAC and Alpha were producing cylinders but the price of steel and lack of demand resulted in their closure. Mr Mkhize stated that an agreement had been reached with South African steel companies, and that local production of cylinders was actively being pursued and encouraged.
The Chair stated that a lot had been answered, but asked for more clarification on why the consumer, at the end of the value chain, was carrying the price burden.
Mr Molefe asked how government expected to mitigate these problems.
Mr Lucas stated that LPGas has contradictory roles, as they are agents of LPG and are trying to promote safety. He asked for clarification on their respective roles in this regard.
Mr Schmidt asked whether alternative energy sources had been considered (wave, wind, solar energy etc.) and if so, how they were going to be accommodated by the DME with reference to the ‘overall LPG picture.’
Ms Mathibela thanked LPGas for explaining the different types of cylinders, and asked what became of the cylinders when they are no longer of use.
Mr Gaba assured the Committee that the highest international standards were adhered to in so far as cylinders were concerned. He also stated that the World Health Organisation (WHO) endorses the use of LPG. He pointed out that before alternative forms of energy can be considered they needed to be extensively researched. He informed the Committee that the LPGas Association does not sell gas at all, so there can be no conflicting interests in this regard.
Mr Gaba stated that LPG can help alleviate poverty. He maintained that the Committee, as the elected and trusted leaders of the country, is instrumental in so far as the success of the initiative is concerned.
Mr Gumede said that the White Paper envisages and accommodates the use of many energy alternatives, but expressly includes LPG. He said that a difficult part of the initiative would be the transformation of mindsets around the topic of energy, and encouraging people to use the right sources of energy for the right application. He used the example of a geyser, which should actually be heated by the sun. South Africa does not have an adequate supply of natural gas. Thus, it is the supply and demand of gas that needs to be controlled before any sustainable changes can be made.
Mr Mkhize stressed that government needs to work together in order to implement changes and move forward.
The Chair thanked the delegations, and stated that different perspectives and interpretations of the issues at hand were sometimes very useful. He stated that government needed to work together with all sectors of the LPG industry in order to move forward. He identified the linking of the BFP with the LPG price as an issue which needs to be addressed. He concluded by mentioning that LPG cannot be a fuel for the poor if it is too expensive, and he also stated that issues around regulation must be explored.
The meeting was adjourned.
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