Liquefied Petroleum Gas Safety Association Presentation to the Parliamentary Portfolio Committee 12 March 2008

Background Feb 2003 A DME/UNDP workshop with the LPGSASA and World LPG Association Appliance barrier to entry – Subsidy required LPGas should not be subsidised Parliament In response to the Minister’s plan for clean, efficient & safe LPGas to be offered as alternative, acceptable fuel for the poor To move from traditional, dangerous, unhealthy, polluting & contaminating fuels like wood, coal and paraffin Feb 2005 Pilot of 90,000 houses were converted Appliance packages subsidised by Industry A proposed switching fund never established Oct 2005 Pilot closed down

March 2006 the LPGas Industry assisted in the Cape Town electricity crisis at one month’s notice Eskom contracted with four companies DSM Funded switch of appliances electricity to LPGas The project ran for 3 months Low Income – 88,828 two plate cooker ‘pack’ supplied Project complete – LPGas is supplied to the consumers Upper Income electrical appliances removed 3360 four plate stoves, 1402 hobs and 1458 heaters The project was discontinued due to: Shortage of LPGas (the 25% surplus absorbed) Chevron refinery shut down by Eskom Shortage of cylinders and appliances Petrol (LPGas) Price escalated Converting from one shortage to another was a problem Background

The benefits Some homes received LPG cookers and low-cost fuel It saved 60MW of demand This was more than all other domestic demand-side interventions put together Suddenly the real benefits of LP gas to a developing economy became very apparent Philip Lloyd Energy Research Centre University of Cape Town

The benefits II Equipping each home cost about R550 Or about R40 million for all homes Providing 60MW of new generating capacity would have cost about R1.3bn The capital saving of converting to LPG is enormous Philip Lloyd Energy Research Centre University of Cape Town

LPGas Gate Price Gate price is regulated Linked to 93 octane petrol (/litre) 2006 Western Cape project MoU retail price R7.50/kg Inc VAT 2008 Current gate price is R8.34/kg (R7.99/kg + R0.35/kg excl VAT) Crude oil has now reached $100/barrel and $=R8 LPGas price continues to inflate

Interface meetings Interface meetings are held on a regular basis between the DME and the LPGSASA Important topics frequently discussed Principles (not prices) of Retail Price regulation Confidentiality, Survey content, etc. Advantages and disadvantages The long term supply of LPGas Demand exceeded refinery supply Importation of LPGas – A terminal is required now

DME to regulate the LPGas Retail price Confidential Survey under way Discussions at the Interface meetings The Low Income Household Retail price is cross subsidised Voluntarily self regulated by suppliers MoU with DME R2/kg less than paraffin equivalent (March R14.07) LPGas Retail Price

Upper Income Household Retail price Note: Two prices below are the examples DME used on radio and at Interface meetings LPGas Distributor retail prices are at ± R17/kg In line with International pricing Have a collect or delivered price Convenience store prices are at ± R25/kg (Pricing policy) All products are substantially higher than hyper stores LPGas is ± 50% higher than a Distributor price Price regulation could reduce this after hours access to LPGas Not currently price sensitive in spite of convenience store pricing Small cylinder refills (Cadac type cylinders) Require additional labour and equipment Distributor and convenience prices are higher for refills

The supply of LPGas is entirely dependent on the local refineries There was always a 25% surplus supply of LPGas (330K tons/420K tons) During 2006 Eskom crisis demand exceeded the local supply of 420K tons To meet this new demand new sources have to be found Sasol manufacture more Import In order to import, a major import and storage terminal will be required LPGas Storage

Surplus capacity meant that storage capacity was not a serious problem The issue of shortages was raised about three years ago Refinery LPGas storage is about 3 days unlike Petrol/Jet/Diesel 25 days The Marketers have about 2 weeks storage The market can cope with one refinery shutdown (not 4) The lack of adequate storage is due to: LPGas storage being expensive It has not been essential up to now The demand is high in winter The surplus in the summer should be stock piled Refineries plan shutdown when liquid fuels are in low demand LPGas Storage

Calculation of Basic Fuel Price (BFP) elements: Average CIF (Cost Insurance Freight = landed cost for imports) FOB, Insurance, Freight, Demurrage allowance Ocean loss allowance Wharfage charge Coastal Storage Costs Stock Financing Costs BFP “Rules” for: Coastal Storage Costs include 25 days storage at a rate of SA cents/liter + inflation (from 2002) Stock Financing Costs 25 days stock Interest rate 2% below Prime Rate Basic Fuel Price

Free Basic Energy Conference 2004 – The Minister requested the LPGSASA to introduce the concept of Free Basic Alternate Energy (FBAE) DME revised policy FBAE has been introduced SALGA and municipalities visited and accepted Non electrified areas are benefiting Residents to have equivalent Rand value for LPG (R55/month)

RDP Housing This would be an ideal opportunity to introduce LPGas into new dwellings at no cost to the consumer It would facilitate educating new homeowners on benefits, safety and efficiency of LPGas The Municipalities have not taken this up

In Conclusion LPGas supply this winter No refinery shutdowns are planned for winter Eskom supply and unplanned shutdowns ? Private import facility has been installed at Richards Bay New additional road tankers in service 500,000 new branded cylinders put into service (R175 m) DME negotiating with Spoornet to reinstate rail tankers Back up cylinders at end user DME to regulate the retail price

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