Cheaper natural gas prices a pipe dream for Joburg households

21 September 2014 - 02:31 By JANA MARAIS
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HOUSEHOLDS are not benefiting from the new gas pricing framework, which was designed in part to cut prices for small users.

HOUSEHOLDS are not benefiting from the new gas pricing framework, which was designed in part to cut prices for small users.

The National Energy Regulator of SA (Nersa) has been governing prices Sasol Gas charges for natural gas imported by pipeline from Mozambique since March. While the new rules have led to lower prices for most Sasol customers, households continue to experience price hikes.

Household customers of Egoli Gas, which buys gas from Sasol for distribution in the greater Johannesburg area, had a 5.8% price increase last month. They now pay R263.31 a gigajoule (GJ), which is significantly more than the estimated $2 (R22) GJ Sasol pays for the gas in Mozambique.

While it is not clear what Egoli Gas pays for its feedstock, it would be below the R117.69 a GJ ceiling Sasol is allowed to charge.

Nersa's price ceiling for Sasol is based on a basket of alternative fuels, including Brent oil and electricity, and bears no relation to cost.

Similarly, the City of Johannesburg determines the maximum price Egoli Gas is allowed to charge households, using another basket that is based mainly on Brent oil and consumer and producer inflation.

The disconnect between the two regulatory frameworks meant Egoli Gas had not been able to pass on the full increases it faced from Sasol to consumers, leading to a decline in its profit margins, said Simphiwe Mehlomakulu, chairman of Reatile, owner of Egoli Gas.

Sasol said most customers had experienced a price decrease compared with the pricing under the framework in place before March 26.

Where customers experienced increases, a mechanism was approved to stagger the implementation of the new price structure, it said.

Another challenge brought about by Nersa's new rules is that Sasol now changes its prices quarterly while Egoli Gas can change prices to households only annually.

Egoli Gas's prices for nonhousehold customers are not regulated. Egoli Gas has about 8000 customers, including about 6000 households, in the greater Johannesburg area.

Mehlomakulu, who could not disclose the price Egoli pays Sasol for gas due to confidentiality agreements, said maintenance costs due to the age of the network, gas losses during distribution and the cost of distributing to a large number of small-scale users affected its profitability.

Households have experienced massive rises in energy prices, with Egoli Gas prices rising from R90 a gigajoule in 2003 to R263.31 at present. However, Mehlomakulu said they were better off than they would have been using electricity costing about R292.33 a GJ.

In addition to the cost saving per GJ, a gas geyser will use about 54% less power than an electricity equivalent, according to Egoli Gas estimates.

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