Sasol fails to rein in ‘monopoly profits’ in gas applications, say users

In its latest maximum gas price application, chemicals and energy business Sasol asks energy regulator Nersa to approve a maximum gas price of R78/gigajoule (GJ) for financial 2024 with quarterly adjustments.

In a separate application, it asks Nersa to allow it to recover the difference between the gas price it charged last year and what it believes would have been a fair price for that period. Sasol decided to delay implementation of a 96% price increase last year after an outcry from industrial gas users and while it deliberated with Nersa on the approved maximum gas price.

Had the increase been introduced, the price of gas charged to SA customers would have risen from R68/GJ to R133/GJ.

But gas users, who are opposing both price applications, say Nersa is “powerless” to legally make any retrospective decision on prices.

During public hearings held by Nersa on Wednesday, the Industrial Gas Users Association of SA (IGUA) said Sasol’s application for 2024 that used the cost-plus 2023 maximum gas price methodology still “fails to rein in monopoly profits” earned by Sasol.

Sasol’s revised maximum gas price application for the 2023 financial year is R107/GJ against its previous application of R120/GJ. The revised price, said Sasol’s legal vice-president JP Meintjies, is based on the full 2023 data available at the end of the period.

However, as Sasol recovered only R68/GJ last year, it wants Nersa to approve not only the revised price (R107/GJ), but also to let it recover the difference between this price and the price it charged for the period (R68/GJ).

At the R68/GJ price, Sasol Gas had “effectively subsidised the market due to the unchanged maximum gas price preventing” the company from recovering its increased acquisition costs or allowed profit margin, Sasol told Nersa.

Replaced methodology

Sasol also expressed concern at the new pricing methodology used by Nersa according to which prices are determined on a cost-plus basis.

This replaced the previous methodology, which came into effect in July 2021, which linked the maximum price that commercial users of piped gas can be charged to international benchmark prices.

The cost-plus method, said Sasol, does not consider risks taken by Sasol or the cost of exploration and developing as it tries to secure new gas finds.

“The maximum gas price determines the maximum level of reward earned on gas investments and therefore this mechanism is crucial in incentivising investment into developing and growing the SA gas industry,” it said.

“The 2023 Nersa [cost-plus methodology] effectively sets a ceiling on SA gas prices in line with the cost to produce of the largest current supplier.”

In its submission to Nersa, IGUA opposed both price applications and Sasol’s request to recover the price difference for 2023. The association’s executive officer, Jaco Human, said there is “simply no mathematical function in the gas energy price for clawback”.

Maximum price setting and revenue recovery are “two completely different regulatory regimes”, he said.

IGUA and other industrial gas users lodged a complaint with the Competition Commission last year alleging that Sasol engaged in excessive pricing of natural piped gas in contravention of the Competition Act.

Sasol is the monopoly supplier of SA’s natural gas, which it sources from its Pande and Temane gas fields in Mozambique and transports via the Rompco pipeline.

In preliminary findings published in July the commission said Sasol has been charging excessive prices to its customers for almost a decade, extracting markups of up to 72% on natural gas. The case has been referred to the Competition Tribunal for prosecution.

During the Competition Commission’s investigation, Sasol Gas filed a review application in the Competition Appeal Court challenging the commission’s jurisdiction to investigate the excessive-pricing complaints.

erasmusd@businesslive.co.za