MONDE TYUSHA: Black entrepreneurs risk missing out on SA gas market

President Cyril Ramaphosa’s recent announcement of a plan to address the energy crisis has been widely welcomed. But there’s no magic switch that will immediately power up our economy. In the short-term at least, we remain shackled to a creaking “old gen” grid, forcing us to endure stage 6 load-shedding that costs our economy R700m per day per stage. Luckily there are immediate solutions, such as gas, that can play an important role in bridging this gap.

Trade, industry and competition minister Ebrahim Patel is critically aware of the role of the black industrialist programme for ensuring the meaningful participation of black people in our economy. He announced as much at the recent black industrialist conference. Nowhere is this intervention needed more than the SA gas sector.

Globally the energy sector is a difficult one for new entrants. In its inquiry into the liquefied petroleum gas (LPG) market back in 2017, the Competition Commission listed extensive capital investment, regulatory hurdles and limited domestic supply as just some of the barriers that impeded the participation of new and smaller participants in the sector. These challenges are further compounded by the complications involved in importing liquefied petroleum gas (LPG).

The persistence of this situation is particularly perplexing when one considers that the barriers to new entrants were acknowledged by government in its 2017 Petroleum & Liquid Fuels Sector Transformation Charter. Two of the charter’s specific objectives were to remove all barriers to transformation in the sector, and to address the “lack of meaningful operational involvement and active participation by black people, especially women and youth in the sector”.

Subsequent action such as the 2017 Competition Commission inquiry, through to the LPG rollout strategy approved by the cabinet earlier in 2022, demonstrate no forward progress in tackling these issues. There are also no substantive ideas to do so in future. Yes, they provide a helpful overview of the industry, and the Competition Commission report in particular is thorough in its examination of the inefficiencies and constraints on the growth of the market. But they do not go far enough in addressing the foundational constraints on the ability of all players, especially emerging black, female and young entrepreneurs, to penetrate and compete in the sector.

Some may suggest that in SA’s darkest hour this crisis should be put on the back burner. But there is actually no better time to fix the fundamental constraints choking the growth of gas locally.  LPG is one of the safest of the lower cost alternative energy sources available to SA homes, businesses and industry.

The Sunrise Energy import terminal at Saldanha Bay reported 36% year-on-year growth over the past four years. There is clearly a strong and growing demand for LPG in the region, and we expect this to grow even faster as the reality of life under a broken, old grid sinks in. We have a wonderful opportunity to ensure that this growth spurs economic growth, not just now but over the longer term too, by ensuring that young, black and female entrepreneurs can compete fairly.

A closer look at the structure of the industry reveals more scope for transformation. Currently gas wholesalers work with big entities (or aggregators) who buy larger quantities of LPG and exclusively import it through independent import facilities in Saldanha Bay and Richards Bay. Furthermore, small wholesalers are required to purchase their LPG from the larger wholesalers, reducing their ability to directly compete with these larger wholesalers.

Ideally, smaller players should also have the opportunity to directly import LPG parcels if this is found to be more economical. This is possible by aggregating and consolidating requirements and thus importing economically sized parcels for all small wholesalers. Alternatively, the smaller wholesalers need to be able to purchase their product directly from the larger aggregators importing the product, rather than having to purchase their product from the larger wholesalers.

Industry regulators need to take steps to create space for smaller players and help facilitate greater co-operation and efficiencies among smaller businesses to import at scale. And if regulators went a step further and required aggregators to engage with smaller players, the support of small black businesses in a sector marred by huge barriers to entry would be given a huge boost.

Were this shift to happen SA could see more players entering the market, resulting in a significant increase in LPG imports, necessitating greater access to facilities that can process, store and distribute these volumes into the local market. We already know that demand for LPG is increasing, and to meet it, the government must create policy certainty in the sector.

At the moment, expansion of existing infrastructure is a high-risk proposition in a country that seems uncertain about its position on gas. Policy certainty would derisk such investment to the benefit of consumers, who would have more abundant supply, and the national power utility, which would have the space it needs to address its challenges.

In the short-term, government support for emerging gas sector players is vital. The government must prioritise emerging suppliers for government-run institutions such as schools and hospitals, on favourable and short payment terms that can help these players grow.

The government should also act on its commitments in the LPG rollout strategy. That strategy is inadequate, but it does include at least one actionable proposal. The strategy correctly recognises the prevalence of unsubstantiated negative perceptions about LPG among the public. Now is the time for a dedicated and honest public awareness campaign about the benefits of LPG. Given that small black players are primarily active in our township and rural communities, these areas should be prioritised in the conception and rollout of that campaign.

SA is mired in an energy crisis, and addressing that crisis must be our primary concern. Gas has an important role to play in our nation’s energy mix, and in this there is an opportunity we cannot afford to miss to transform our energy sector. An even, competitive and open playing field will have numerous benefits throughout our economy. If we act now, we can ensure that these benefits no longer remain in the hands of a rich few.

• Tyusha is CEO at Sunrise Energy, a liquefied petroleum gas import facility in Saldanha Bay operating under exclusive concession from the Transnet National Ports Authority.