/ 16 August 2022

Sasol gas price hike ‘will hurt South African businesses, consumers’

Sasol Getty
The Carbon Majors report is a database of historic production data from more than 100 of the biggest oil, gas, coal, and cement producers in the world. (Waldo Swiegers/Bloomberg via Getty Images)

The 96% price hike by Sasol is set to hurt many South Africans who rely on natural gas, said Jaco Human, chief executive of the Industrial Gas Users Association of Southern Africa (Igua-SA).

Saso is the monopoly supplier of natural gas in South Africa.

Speaking to Mail & Guardian, Human said it was mostly small businesses which relied on natural gas that would feel the pinch, if the National Energy Regulator of South Africa (Nersa) did not take a firm stance against Sasol.

“There is going to be quite a broad impact on this, especially in monetary terms. We estimate this to be in the region of about R325-million a month. 

“But, without a doubt, the beverage that you drink, the bread that you eat, the bricks that you need, the tiles that you’re going to put down in your houses, all these things are going to become more expensive, the sugar that you drink in your tea. It’s quite a broad spectrum that will be impacted,” he said.

The price hike would add to the high unemployment rate in the country as many companies would have to adjust their businesses, and decrease the number of staff members, to stay afloat.

South Africa has one of the highest unemployment rates in the world at 46.72%, consisting of 7.921-million unemployed and 4.832-million discouraged, from a potential workforce of 27.297-million.

“Many industrial users of gas are not able to pass on the costs because the markets don’t allow it. They are either faced with sort of readjusting the manufacturing, in other words, manufacturing less or cutting back production, and potentially laying off staff,” he said.

Human said, since the beginning of the month, the association had received calls from small to medium companies asking for intervention in prices.

He said there were about five 500 companies which used gas and only 15 to 20 of those were large corporates. The rest were medium to small enterprises. 

Looming Court Case

Igua-SA is taking Nersa to court to challenge its methodology which has given Sasol the right to increase prices as it pleases. Human said Nersa had not taken a firm stance around the methodology, which is the reason Sasol could hike prices at any time.

Nersa said Sasol should not push the price higher than R273.43 per gigajoule.

“Another key area of concern to us is that we are finding ourselves in a regulatory void. That’s the same methodology which we are fighting in the high court at present as a parallel process that links gas pricing to free-floating markets around the world.

“What Sasol is now saying is that, ‘I’m actually not pricing up to the maximum even, not three times, but two times,’ but the impact is felt severely,” he said.

Their court papers argued that Sasol Gas’s ability to price at these levels, from a Competition Act perspective, determined that the price hike was a form of extortion and excessive.

Sasol stands to benefit from the price hike after its share price skyrocketed to 65% this week, due to the commodity boom, after being close to collapse during the pandemic.

However, Sasol said their pricing was lower than the maximum amount. It argued they had informed Nersa and customers that the price of piped gas would increase to R133.34/GJ. 

Sasol Africa spokesperson Alex Anderson said: “Sasol Gas recognises the impact of the increase in prices on customers, therefore, Sasol has not applied the maximum allowable price determined in terms of the 2021 Nersa Maximum Gas Price Decision.

“Sasol Gas has abided, and continues to abide, by the Nersa Maximum Gas Price Decision that applies to the period April 2014 to 30 June 2023,” he said.

In 2013, the association reviewed Nersa’s decision which was meant to address competitive pricing in the piped-gas market, however, Igua-sa said Nersa’s decision failed to mimic competitive prices in the piped-gas market.

Nersa Responds

This is despite Nersa’s position which argued that they had not approved the methodology and, therefore, Sasol had no right to hike prices.

Last week, Nersa’s full-time regulator member responsible for piped gas, Nomfundo Maseti, said the regulator would investigate concerns raised by multiple stakeholders about the “excessive” price increases announced by Sasol Gas.

“Nersa will investigate any possible unreasonable or excessive pricing cases and further collaborate with other administrative bodies that have concurrent jurisdiction on this matter.”

Nersa follows a methodology to determine maximum gas prices. In July 2021, Nersa approved a new methodology which applied an international benchmarking approach. The maximum gas price is thus calculated from the weighted average of prices from international gas hubs in the US, the Netherlands and the UK. 

In April, Nersa initiated a consultation to facilitate proactive engagement with stakeholders on the spike in international gas prices and mitigation measures.

Despite its efforts, Human said Nersa’s methodology would benefit Sasol Gas and not South Africans.