Top court sets aside Nersa’s piped gas price
Ruling is a favourable outcome for seven large-scale gas users, including the PG Group, Consol Glass, Nampak, Mondi and Illovo Sugar
The Constitutional Court has upheld a decision to review and set aside the National Energy Regulator’s (Nersa) maximum prices for piped gas.
In a judgment handed down on Monday, the apex court supported a ruling by the Supreme Court of Appeal (SCA) when it found the regulator’s maximum price decision on piped gas was irrational and must be set aside.
This is a favourable outcome for seven large-scale gas users, including the PG Group, Consol Glass, Nampak, Mondi and Illovo Sugar, who first approached the courts several years ago, when the regulator’s price determination caused their gas bills to rise substantially.
SA’s piped gas industry is monopolised by Sasol Gas, which is effectively the sole supplier of gas and importer of natural gas into the domestic market. It uses the majority of the gas itself.
Sasol, along with a Mozambique partner, developed natural gas fields in the neighbouring country and built a pipeline to carry gas production into SA. Although Sasol’s gas pipeline was already up and running in the early 2000s, the SA government agreed not to regulate the gas prices for 10 years to compensate the company for its pipeline investments.
The regulation kicked in in 2013 and Nersa approved two applications from Sasol — one for maximum gas prices, and one for transmission tariffs.
This resulted in a substantial increase in the price of piped gas for the large-scale consumers. Aggrieved, the seven parties approached the high court to have the regulator’s decisions set aside, arguing Nersa’s methodology was flawed.
The high court dismissed the case because it had been brought beyond the 180-day limit, as set by the Promotion of Administrative Justice Act.
The gas consumers then took the matter to the Supreme Court of Appeal, which in May 2018 overturned the high court’s decision and ordered that both the maximum price decision and the tariff decision be reviewed and set aside. The appeal court concluded the maximum price was irrational and unreasonable because the increase in price was so substantial.
Nersa and Sasol subsequently approached the Constitutional Court for leave to appeal against the appeal court ruling.
In her judgment, Justice Sisi Khampepe agreed that the maximum gas price was irrational but not because it has resulted in a substantial price rise for large users, but rather because Nersa’s methodology failed to consider Sasol’s marginal costs as the recognised monopolist.
The Constitutional Court further ruled that the transmission tariff was independent of the maximum gas prices and granted Nersa and Sasol leave to appeal the Supreme Court of Appeal’s ruling in that regard.
Abdul Davids, head of research at Kagiso Asset Management, said he was unsure of the “materiality” of the Constitutional Court’s decision on Sasol’s business given the negligible contribution of Sasol Gas to the group profits.