1. Briefing of Portfolio Committee on Gas Pricing PPC Presentations 12 March 2007 NH Gumede – Deputy Director General S12A, Ground Floor, NCOP Wing

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

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

4. 4 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

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

6. 6 Energy use in RSA

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

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

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

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

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

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

13. 13 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

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

15. 15 The role of gas in the energy mix

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

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

18. 18 Reality is… …Petrol even with all Government imposts is still much cheaper than LPG at retail level… Rand / kg BFP Retail Price Imposts Mark up, BT (R/kg) % Mark up Petrol7.2211.262.391.6522.88 LPG6.9022.203.1112.21176.97 Source: Based on March 2008 Petrol figures

19. Distributors Own filling Fore- courts 90 65 55 354590 110 Households (13kT) cpl Indicative gross margin 130- 50 Commercial (10kT) Manifolds Dealers Stockists Refineries Sapref Sasol Mossgas Calref IBLC25 0 Gasc o 11 0 Dist70 Deal er 90 Stoc k 18 0 Price70 0 Source: Wild Orchard, 2004

20. 20 Proposed Business Model Manufacturers & importers Primary Transportation Cylinder Filling, management Centre Consumers Distribution channels Exclusive Area 3 Cylinder Filling, management Centre Consumers Distribution channels Exclusive Area 2 Cylinder Filling, management Centre Consumers Distribution channels Exclusive Area 1 Own & maintain cylinders in area Fills all cylinders in area Regulated monopoly BEE opportunity iGas participation? 60 c/kg Zone differentials Tariffs based on actual transport costs to each zone Expected to be between 3 & 50 c/kg Admin charge = 20 c/kg for marketing Allow distribution charge for delivery and collection of cylinders – cost recovery basis – 50 c/kg Require economies of scale Mixture of low & high income households Delivery & non delivery channels Retail Price on Cylinder RGP = Petrol BFP - R74/kg = R3.29/kg But is Platt’s quoted Promote imports Max Price set

21. 21 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

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

23. 23 Pilot programme – Consultant report Definition of Acronyms: BFP – Bottle Filling Plant; WIC – Walk-in-Centre

24. 24 Pilot Programme - Consultant report Definition of Acronyms: BFP – Bottle Filling Plant; WIC – Walk-in-Centre

25. 25 Some facts about LPG in Africa 9.7 Million tons16 Million tons Source: Total Gas

26. 26 Some facts about LPG in Africa Source: Total Gas LPG consumption by sector in Africa 7.5 Million tons9.7 Million tons

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

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

29. 29 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

30. 30 Proposed pricing structure The structure is simply + “Refinery gate price” ( R6.90) + Primary transport (R0.70) + Wholesale margin (R0.50) + Retail margin (R0.80) + Distribution margin (R0.50) + VAT (R1.32) = Retail price: R10.72

31. I Thank You