Industrial gas users are “extremely concerned” that Sasol Gas is increasing prices by 96 percent, and have warned the increase might filter through to other products, such as for the price of bread.
The Industrial Gas Users Association of Southern Africa (IGUA-SA) said yesterday they estimate the increase, would cost the economy some R325 million per month, and would force manufacturers to in turn, raise their own prices.
The increase, which became effective on August 1, follows the National Energy Regulator of South Africa’s (Nersa) warning days ago that it had not approved such increases, and that it will “investigate any possible unreasonable or excessive pricing cases, and further collaborate with other administrative bodies that have concurrent jurisdiction on this matter”.
Sasol said, however, it recognised the impact of higher gas prices on its consumers, and its increase of R133.34 per gigajoule was far below the R273.43/GJ price increase that would have taken effect, if it had calculated the price using the method prescribed in the 2021 Nersa Maximum Gas Price Decision for Sasol Gas.
Sasol Gas is a regulated entity under the Gas Act and the monopoly supplier in the piped-gas industry.
“Gas energy price increases of 96 percent are untenable and pose a significant risk to an already struggling and weakened South African economy. On the one hand, businesses are facing closure across the manufacturing sector, whilst on the other hand it would appear the gas industry is heading for a regulatory void from a Nersa gas-pricing perspective,” said IGUA-SA executive officer Jaco Human.
“The operational cost of gas inputs is significant, and the gas pricing uncertainty holds risk for the industrial sector...which will adversely impact end consumers and the economy,” he said.
He said IGUA-SA’s members were currently assessing the impact of the increase, including planning for necessary adjustments in terms of price increases and/or manufacturing cutbacks.
For example, FMCG industry members reliant on gas energy to produce bread and other foodstuffs will have little choice but to significantly increase prices in response. The impacts will be felt by all, especially the poor, he said.
Meanwhile, Nersa is currently conducting an independent verification and assessment of its pricing methodology, and that a decision will be made “in due course”.
IGUA-SA previously lodged a High Court application so that Nersa balances Sasol Gas’s market power by determining Sasol Gas’s maximum prices by the “cost-plus” method. This High Court process has not yet been concluded.
IGUA-SA yesterday “urgently appealed” to Nersa to urgently take an unambiguous position on gas pricing, in order to avoid any adverse short-term impacts and provide, at a minimum, economic certainty for business.
IGUA-SA had also made proposals to Nersa about a price methodology which would meet all requirements in law and economics.
Human said Nersa’s July 2021 approved price methodology lagged global gas markets by 12 months and, as a result, gas pricing was known well in advance.
“Sasol’s unilateral implementation of a 96 percent gas price increase further confirms its actions as a monopolist. Nersa cannot simply hope and expect Sasol, as a monopolist, to act as a free-market player and price gas at competitive market levels,” the industrial gas users organisation said.
“Nersa’s role is to regulate and constrain Sasol as monopoly supplier of gas. It is one of the basic tenets of the Gas Act and Constitutional Court judgement of 2019 where Nersa were handed down clear principles and further guidance on how to regulate gas pricing,” said Human.
“The basis for price setting by Sasol remains vague and arbitrary without any clear reference to the 2019 Constitutional Court judgement that requires Sasol’s cost base to be used as an anchor point in the setting of gas prices,” he said.
IGUA-SA had also approached the Competition Commission to mitigate the consequences of Nersa’s current gas price methodology and the monopoly pricing in the market for gas.
Sasol said the price change reflected the cyclical nature of gas and other commodity prices’ response to inflationary pressures on operating costs, and an increase in gas exploration and development activities. This included funding requirements to enable gas supply security to South Africa.
“The revised price.. is less than half that of Nersa’s benchmark index of selected international natural gas prices used to approve the maximum price allowed,” Sasol Gas said.
“Sasol believes the actual piped gas price implemented is compliant with the 2021 Nersa Maximum Price Decision,” and that it would continue to co-operate with the applicable industry regulators to achieve this end.
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