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Send  Share  RSS  Twitter  29 Jul 2010

POWER SUPPLY: Concerns Around LPG Pricing

 



Recent Western Cape Business News

THE new regulated price of bottled Liquid Petroleum Gas means that the Government will make more money from VAT than the retailers who stock, supply the gas and provide a service to the public.

This was pointed out by the Cape Chamber of Commerce in a letter to the National Energy Regulator.

The Chamber expressed its disappointment at the price and said it would do little to encourage industries to turn to gas for heating requirements and that an important opportunity had been lost to relieve the burden on Eskom’s national electricity grid.

In his call for a “rethink” on the gas price, Albert Schuitmaker, Director of the Chamber, said there was concern at the low R1.20 per kilogram margin for retailers. “As a consequence, many retail gas suppliers will opt out of the business to concentrate on other products. These gas shops provide an essential service and play a vital role in promoting safety and encouraging domestic consumers to switch to gas appliances.

It has been clear for some time that the Eskom grid is under the greatest stress during the evening peak hour when stoves and heaters are turned on and electricity is generated at very high cost by the gas turbines which run on imported diesel fuel. The use of LPG appliances can play a significant role in reducing the demand for electricity during the evening peak hour and we believe that everything possible should be done to encourage consumers to use gas instead of electricity wherever possible. We have no doubt that a more attractive gas price would have this effect.”

Schuitmaker said LPG cost R5.50 per kilogram at the factory gate but this trebled to R15.69 for the consumer with retailer earning only R1.20 per kg. This meant that the profit margin on a 9kg cylinder which sold for R141- 21cents at the coast was only R10.80 or 7.65 percent of the retail price. VAT was R1.92.

Our concern is with the allocation of costs between the factory and the retailer and we would urge that these costs be re-examined with a view to reducing the cost of LPG to the consumer and improving margins for retailers. Unless this is done it is likely that all sales of LPG will move to service station forecourts where overheads are already covered and where no qualified staff is present to provide a service and important advice on safety to the public.”


 
 
 
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