Western Cape Business News

Send  Share  RSS  Twitter  17 Mar 2009

POWER SUPPLY: Calls For Price Regulation


Recent Western Cape Business News

THE price of gas could come in for more regulation following an investigation by the Department of Minerals and Energy.

The government sets the price of LPG at the refinery level, leaving wholesalers and retailers to set prices as they wish. Consumers, however, note that LPG retail prices have not dropped in line with the steep decreases recently in crude oil and refinery gate prices.

Last month the Cape Town Regional Chamber of Commerce and Industry said it would like to see the Competition Commission extend its investigation of anti-competitive practices in the oil industry to cover the ‘fixing’ of fuel prices in terms of a formula that is an unfortunate legacy of the Apartheid era.

The investigation follows the admission by Sasol to the Commission that it has discovered competition law contraventions in its gas division. Jeremy Wiley, president of the chamber, says many people believe that the formula which determines wholesale and retail fuel prices falls short of the requirements of the country’s competition laws and that it may even be unconstitutional.

The formula, which is based on the cost of importing refined petrol and diesel from Europe and Singapore, was negotiated at the time of an international oil embargo against South Africa.

“In those circumstances the government’s negotiating position was weak and the oil companies were in an extremely strong position. Since then the oil embargo has come to an end and the country now has full access to international markets, but we are stuck with controls and price-fixing formulas that date back to the days when South Africa was the polecat of the world.”

Wiley says the best solution will be the deregulation of the oil industry but if this can not be achieved immediately a good start would be a new formula to calculate petrol and diesel prices.

The Chamber views anti-competitive practices as a hangover from the past when vast sections of the economy were controlled by a number of government-appointed marketing boards which fixed prices.

The oil industry was the sole survivor from the era of government control and it is completely out of place in the economy of the new South Africa. “The industry has been protected from competition for far too long and it is time for a complete review of how it operates and how prices are determined,” Wiley says.

Wiley says the deregulation of the industry has been accepted in a Government White Paper as the new policy but it had not been implemented for reasons that are difficult to understand.

Indications are meanwhile that the Department of Minerals and Energy, in consultation with the gas industry, will be investigating the entire value chain to determine where regulation will most benefit consumers while allowing profit for the industry.

Draft regulations may be available for public by May or June this year, it is expected.

The Liquefied Petroleum Gas Safety Association of SA points out that the price of LPG is directly linked to the price of 93 octane petrol and will fluctuate with the petrol price.

The best prices can be obtained by buying directly from LPG distributors. It recommends that consumers shop around to find their local distributor/agent and the one which offers the most competitive price.

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