Briefing of Portfolio Committee on Gas Pricing PPC

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

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

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

The People of South Africa - 2001 Employment 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 4

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

Energy use in RSA 6

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

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

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

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

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

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

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 13

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

The role of gas in the energy mix 15

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

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

Reality is… …Petrol even with all Government imposts is still much cheaper than LPG at retail level… Rand / kg Imposts Mark up, BT (R/kg) % Mark up 11. 26 2. 39 1. 65 22. 88 22. 20 3. 11 12. 21 176. 97 BFP Retail Price Petrol 7. 22 LPG 6. 90 Source: Based on March 2008 Petrol figures 18

25 0 Gasc o 11 0 Dist 70 Deal er 90 Stoc k 65 Price Refineries • Sapref • Sasol • Mossgas • Calref Indicative cpl gross margin Manifolds 55 Distributors 18 0 70 0 Commercial (10 k. T) 35 Own filling Dealers 45 Stockists Forecourts 90 13050 Source: Wild Orchard, 2004 90 110 Households (13 k. T) IBLC

Proposed Business Model Exclusive Area 3 Cylinder Filling, management Centre Distribution channels Consumers Exclusive Area 2 Manufacturers & importers Primary Transportation Cylinder Filling, management Centre Distribution channels Consumers Exclusive Area 1 Cylinder Filling, management Centre RGP = Petrol BFP - R 74/kg = R 3. 29/kg But is Platt’s quoted Promote imports Max Price set Zone differentials Tariffs based on actual transport costs to each zone Expected to be between 3 & 50 c/kg Own & maintain cylinders in area Fills all cylinders in area Regulated monopoly BEE opportunity i. Gas participation? 60 c/kg Distribution channels Admin charge = 20 c/kg for marketing Allow distribution charge for delivery and collection of cylinders – cost recovery basis – 50 c/kg Consumers Require economies of scale Mixture of low & high income households Delivery & non delivery channels Retail Price on Cylinder 20

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 21

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

Pilot programme – 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

Some facts about LPG in Africa 16 Million tons Source: Total Gas 9. 7 Million tons 25

Some facts about LPG in Africa LPG consumption by sector in Africa 7. 5 Million tons Source: Total Gas 9. 7 Million tons 26

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

Some facts about LPG • Sources of LPG in RSA – From coal and natural gas (Petro. SA & 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 28

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 29

Proposed pricing structure • The structure is simply + “Refinery gate price” ( R 6. 90) + Primary transport (R 0. 70) + Wholesale margin (R 0. 50) + Retail margin (R 0. 80) + Distribution margin (R 0. 50) + VAT (R 1. 32) = Retail price: R 10. 72 30

I Thank You