LPG price regulation may spell tough times for suppliers

While government’s regulation of Liquefied Petroleum Gas (LPG) should mean lower prices for energy buyers, there are concerns about the impact this will have on suppliers.

It is anticipated that smaller players in the sector will find it difficult to adjust. Service levels may be influenced negatively as smaller businesses try and find ways to adjust and reduce costs to make up for the sudden reduction in revenue, Andrew Hillman, MD of Bespoke Sourcing Solutions said in July.

Government hopes that reducing LPG prices by more than 30 % will decrease South Africa’s dependence on our fragile electricity network and provide consumers with a viable alternative to fuels such as wood and paraffin.

LPG currently accounts for around 2 % of South Africa’s energy market.

However, lower margins could make it uneconomical for distributors to deliver LPG supplies to more remote parts of the country, said Hillman.

Short-term supply shortages could also be an issue as demand for LPG increases.

Government has made provision to spread the impact of the price reduction throughout the supply chain by capping other costs such as primary transport, operating expenses, secondary transport and wholesale and retail profit and adding these to the refinery price.

Afrox said in a statement it will engage with the Department of Energy (DE) to address any possible improvement or negative consequences that may result from the implementation of the regulation.

The DE has set the refinery gate price at R5.49 per kilogramme until today and intends to review this monthly, along with the fuel and illuminating paraffin prices, taking into account fluctuations in the price of crude oil and the value of the Rand.