COMPETITION COMMISSION CONCLUDES LPG MARKET ENQUIRY

Wednesday, April 26, 2017
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The South African Competition Commission (Commission) has concluded its enquiry into the state of competition in the Liquefied Petroleum Gas (LPG) market and provided its report to the Minister of Economic Development, Mr Ebrahim Patel on 24 April 2017.

The Commission has identified a number of impediments to competition in the LPG sector and has recommended that:

  • The Commission monitors the market on the basis that the Commission considers the structure of the market to be conducive to collusive behaviour;
  • The legal and adjudication processes of the National Energy Regulator South Africa (NERSA) and Transnet National Ports Authority be aligned, including NERSA issuing and monitoring wholesale licenses;
  • NERSA determine pricing, monitor the maximum refinery gate price and the maximum retail price, and prioritise import efficiency and optimisation with a view to facilitating the importation of large parcels of LPG.  It is also recommended that the Department of Energy (DoE) conduct a study on price deregulation once import facilities, which are under construction, are available;
  • A review of the regulatory framework applicable to the construction of LPG import and storage facilities at ports be conducted, including the Petroleum Pipelines Act and National Ports Act;
  • Smaller wholesalers be granted preferential access to 10% of LPG volumes available to the open market, that long-term LPG contracts between refineries and wholesalers be limited to 10 years in duration, and that all automatic renewal clauses be abolished;
  • NERSA, rather than the DoE, be responsible for the determination of deposit fees and subsequent annual reviews;
  • Cylinder exchange practices be more inclusive and that wholesalers do not unreasonably deny other parties the opportunity of entering into bilateral agreements to facilitate the exchange of cylinders. It is recommended that any wholesaler who has invested in cylinders and complies with the relevant regulations, including those relating to safety, should not be barred from participating in cylinder exchanges;
  • NERSA’s mandate be expanded to include dispute resolution processes relating to the interpretation and application of a valuation methodology of LPG equipment, that NERSA develop and publish a valuation methodology for bulk LPG equipment installation and adjudicate disputes in relation to the valuation of bulk equipment and installations leading to switching impediments.

The recommendations are expected to be published in the Government Gazette on Friday, 28 April 2017.

For more information, please contact the Bowmans Competition Practice.