Liquefied Petroleum Gas Safety Association

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

2. 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 2004 - 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

3. Background • 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 - 6220 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

5. The benefits • Some 70 000 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

6. 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

7. 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

8. 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

9. LPGas Retail Price • 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)

10. 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

11. LPGas Storage • 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

12. 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

13. Basic Fuel Price • 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 2.083 SA cents/liter + inflation (from 2002) • Stock Financing Costs • 25 days stock • Interest rate 2% below Prime Rate

14. 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)

15. 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

16. 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

17. QUESTIONS? THANK YOU