Capetonians would laugh at me, but I’ve been burning the gas heater at night just lately. Winter seems to have suddenly, and ferociously, set in, and I don’t do cold.
I’m sure I’m not the only person who was taken by surprise when summer came to a swift end and was replaced by dark, cold mornings and chilly evenings.
That, says Afrox, is why it’s importing more LPG; ostensibly so it can provide security of supply in times of shortage.
That there would be a shortfall in LPG was already on the cards last month, when the Western Cape experienced a shortfall in bottles to be refilled because of PetroSA’s decision to halt LPG production at its Mossel Bay refinery.
As a consequence, LPG suppliers in the province have resorted to more expensive imported gas so they can maintain supplies to customers.
Afrox has now also turned to imports and will be bringing in gas from Petredec and Bidvest Tank Terminals.
Read also: Afrox inks gas import deal
Totalgaz, one of South Africa’s leading suppliers of LPG, is another company that relies on gas bought from importers in order to maintain supplies to its customers, national sales and marketing manager Estelle Steenkamp said in April.
“The imported gas comes at a premium, but we are trying to hold on to our customers.”
That premium will doubtless be eating into these company’s margins, and won’t make their shareholders happy.
And they cannot simply increase pricing to the end user because the Department of Energy has a complicated formula that sets the maximum price.
So there’s a cut-off point, and if you’ve paid more to import the gas than you can sell it at, tough.
Incidentally, the formula works off the price of petrol as well as trucking distance and requires more than a basic calculator to set the maximum price. And, given that it’s based on 93 unleaded petrol, will fluctuate every month as fuel goes down, or in the most recent case, up.
As a result, the simple economic rules of supply and demand just don’t factor in here.
You know, the rule that says when people want more, up the price, and drop it when they are not buying.
There’s another reason that rule won’t work when it comes to gas: peak buying in winter because cooking with gas hasn’t totally caught on yet, and who wants to get a gas bottle in summer so it can sit in a corner and grow cobwebs?
Government’s intervention in the price of LPG is good news for consumers because it stops gas companies from profiteering when the cold sets in.
Read also: Commission wants more competition in SA’s LPG market
Yet, free-market proponents will tell you that supply and demand is there for a reason. It’s a self-righting cycle. As prices go up, demand drops, so prices go down.
Demand could, in theory, shift to another item. Instead of buying Koo baked beans, for example, you may opt for another brand which is cheaper.
When it comes to heating, however, this doesn’t seem to apply. The options are rather limited. You can’t suddenly build a bonfire in your lounge, electricity is - as we all know - costly and set to remain that way for some time, and hot water bottles get cold.
We’re stuck with the options we have, and that’s not much choice, especially given the uncompetitive nature of the heating market.
This is why I find the Competition Commission’s desire for more competition in the sector a bid odd. Granted, I don’t have total insight into its two-year-old probe, but there are obvious structural issues that impede competition: government regulation and demand cycles.
Read also: LPG shortages prompt more expensive imports
The commission says there are “significant bottlenecks in the regulatory environment which restrict the ability of potential competitors”.
These apparently include long-term supply contracts, and favouring bigger wholesalers over mom-and-pop outlets.
I’m all for supporting the little guy, but when I’m buying gas, I’ll go to the cheapest place, which is often an outlet that buys in bulk and can be more competitive.
And long-term supply contracts mean nothing when there is nothing to supply.
I’m sure the commission will find some dodgy practices that could help in bringing the price down, but I don’t think it’s going to be a silver bullet that makes it cheaper, and safer, for South Africans, especially the poor, to heat themselves in winter.
Every year we hear horror tales of people who have burnt to death, or lost everything, or been badly disfigured because the only heating source they have - a paraffin lamp mostly - has tipped over and razed down informal home after informal home.
This has to stop.
We need a long-term solution that sees government supporting innovators to come up with heating sources that don’t need fossil fuels, and are cost effective.
Now that’s cooking with gas.
* Nicola Mawson is the online editor of Business Report. Follow her on Twitter @NicolaMawson or Business Report @busrep.
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