An investigation into the South African LPG sector by South Africa's competition commission is necessary to ensure that current LPG marketers were not abusing the market, a senior government energy official said.
South Africa's regulatory Competition Commission began its inquiry into the LPG sector on 15 September. Its investigation is expected to be completed within 18 months.
"The inquiry is necessary to ensure that there is competition in the industry so the industry can prosper and benefit South Africa at large," Muzi Mkhize, chief director of hydrocarbons policy at the energy department. told the Argus Africa LPG 2014 conference.
The commission unusually decided to launch the inquiry without receiving formal complaints from industry participants or the public on the sector
"The commission is initiating the LPG market inquiry because it has reason to believe that there are features of the sector that may prevent, distort or restrict competition," the commission said.
Other regulators and some LPG marketers have highlighted potential market abuse by dominant LPG firms in the sector.
Dominant firms had become used to high rates of return in the sector and wanted the "sun to shine forever," said Rod Crompton, regulator at the National Energy Regulator of South Africa (Nersa).
South Africa has extensive regulations on building new LPG import infrastructure but these had been "mis-used" by existing marketers to delay or prevent the construction of new LPG import facilities in the country, said Atose Aguele, managing director of Avedia Energy.
Avedia Energy has so far spent four years getting official clearances to build a new 8,000t/y LPG import facility at Saldanha in Western Cape province.
The commission's inquiry will consider issues such as the presence of any supply bottlenecks in the South African LPG sector that may serve to create "circumstances or incentives that distort, prevent or lessen competition, as well as the impact of the regulatory framework and switching costs on competition in the sector."
The commission estimates that around 300,000t/y is sold in South Africa, generating a turnover of about Rand 1.5bn ($137mn).
The inquiry comes as leading marketers aims to increase LPG use in Africa's most advanced economy. Future demand growth will have been met with imports and new import infrastructure, including ports and storage facilities.
Separately, Mkhize will also visit Ghana, Morocco and Senegal to compare how the LPG industry in these countries functions and to see if they can provide solutions to South Africa.
LPG demand growth in South Africa has also been curtailed by price, which is beyond the reach of most South Africans. Electricity, paraffin and wood burning are cheaper alternatives.
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