Sasol Gas’ 96% price hikes will hurt economy, ordinary South Africans

Sasol Gas has hiked the gas price by 96% from 1 August, although it was not approved by NERSA and the Industrial Gas Users Association of Southern Africa is extremely concerned about this increase of R133/GJ that is estimated to cost the South African economy R325 million per month.

Sasol Gas is a regulated entity under the Gas Act and the monopoly supplier in the piped-gas industry.

The Industrial Gas Users Association of Southern Africa (IGUA-SA) says in a statement the operational cost of gas inputs is significant and the current gas pricing uncertainty poses a risk for the industrial sector that is economically and commercially exposed to significantly increased gas energy costs.

This exposure plays out in the upstream and downstream contracts in force across all supply chains and will adversely impact end consumers and the economy. IGUA-SA’s members are currently assessing the business impact of this notified gas price increase, including planning for necessary adjustments in terms of price increases and/or manufacturing cutbacks.

Members of the fast-moving consumer goods (FMCG) industry, for example, rely on gas energy to produce bread and other foodstuffs and would have little choice but to significantly increase prices in response. This will affect everybody, especially the poor.

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National Energy Regulator did not approve gas price increase

However, the National Energy Regulator of South Africa (NERSA) said in a statement on 4 August, that it did not approve such increases and would “investigate any possible unreasonable or excessive pricing cases and further collaborate with other administrative bodies that have concurrent jurisdiction on this matter.”

NERSA is also conducting independent verification and assessment of its pricing methodology and says that a decision will be made “in due course”.

IGUA-SA previously lodged a High Court application to ask that NERSA effectively balances Sasol Gas’s market power by determining its maximum prices by the “cost-plus” method, but the court process has not yet been concluded.

In the meantime, IGUA-SA appealed to NERSA to urgently take an unambiguous position on gas pricing to avoid any adverse short-term impacts and provide, at a very minimum, economic certainty for business.

The industry body has also proposed that NERSA urgently adopts a price methodology which will meet all requirements in law and economics.

“Gas energy price increases of 96% are untenable and pose a significant risk to an already struggling and weakened South African economy. On the one hand, businesses are facing closure across the manufacturing sector, while on the other hand it would appear that the gas industry is heading for a regulatory void from a NERSA gas-pricing perspective,” says Jaco Human, Executive Officer of IGUA-SA.

“NERSA’s own July 2021 approved price methodology lags global gas markets by 12 months and as a result, gas pricing is known well in advance. IGUA-SA alerted NERSA almost one year ago of imminent excessive gas price increases and even approached the High Court in December 2021 to have this patently irrational methodology set aside.”

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Sasol Gas a ‘monopolist’

Human says Sasol’s unilateral implementation of a 96% gas price increase further confirms its actions as a monopolist.

“NERSA cannot simply hope and expect Sasol, as a monopolist, to act as a free-market player and price gas at competitive market levels.”

He believes NERSA’s fundamental role is to regulate and constrain Sasol as monopoly supplier of gas and says it is one of the basic tenets of the Gas Act and Constitutional Court judgement of 2019, when NERSA received clear principles and further guidance on how to regulate gas pricing.

“On the back of NERSA’s maximum gas price methodology, the basis for price setting by Sasol remains vague and arbitrary without any clear reference to the 2019 Constitutional Court judgement that requires Sasol’s cost base to be used as an anchor point in the setting of gas prices.”

Human adds that IGUA-SA has also approached the Competition Commission to mitigate the consequences of NERSA’s current gas price methodology and the consistent monopoly pricing in the market for gas.

“Across the energy sector, whether for electricity or energy infrastructure, NERSA uses cost as the basis for price or tariff setting within its mandate. Yet for gas energy NERSA – despite IGUA-SA’s continued representations and engagements, or even the 2019 Constitutional Court Judgement against it in this matter – does not effectively consider Sasol’s cost base for price setting.”