THE Competition Commission initiated a market inquiry into the liquefied petroleum gas (LPG) sector in SA given its growing importance as an alternative source of energy due to power shortfalls and rising electricity costs.
The commission said it was important that the LPG sector functioned effectively in order for SA to meet its strategic objectives as far as sustainable energy was concerned. The commission had reason to believe that some features in the sector distorted or restricted competition.
“The sector is still characterised by limited supply with imports supplementing the domestic supply… Only 3% of households in SA use LPG as their main energy source for cooking,” the commission stated in its terms of reference published on Friday.
The commission admitted that the sector was “highly regulated” in terms of safety and price.
However, the fact that LPG was limited in supply might “confer substantial market power” to major resellers that secured a steady supply from refineries.
The inquiry will examine supply bottlenecks and whether they create incentives for anti-competitive conduct, the reasons behind high switching costs between suppliers, and the current price regulatory framework with the objective of looking at ways to limit market power by players in the market.
This is the second market inquiry initiated by the commission following its new powers under the Competition Act to conduct general investigations into the state, nature and form of competition in a market, rather than a narrow investigation of specific conduct by a firm.
The market inquiry into the private healthcare sector started in January this year following concerns about the increased costs of healthcare in SA and the effect on accessibility. Both inquiries will be completed by the second half of next year.
Approximately 300,000 tons of LPG is manufactured in SA annually, generating turnover of about R1.5bn. Six refineries, Sapref, Sasol Synfuels, PetroSA Synfuels, Enref, Chevref and Natref produce and supply LPG.
Major resellers such as Afrox, Easigas, BPSA and Total Gas distribute it bulk or in a repackaged form. Afrox, Easigas and Sapref also imported at least 6,100 tons of LPG through facilities in Richards Bay, Port Elizabeth and Durban.
Afrox head of LPG Mark Radford said they were aware of the inquiry and were currently studying the parameters of the inquiry. “Afrox has not been approached by the commission, but supports the inquiry and will give the commission its full co-operation,” he said.
Albert Aukema, senior associate director at law firm Cliffe Dekker Hofmeyr, said it was not clear from the terms of reference if the commission was seeking more or less regulations.
He said it was, however, clear that the inquiry would include an analysis of the price regulatory framework to look for improvements and to assess the existing barriers to entry for new players, and whether government policies regarding the sector were “aligned”.