1. business and industrial
2. chemicals industry
3. plastics and polymers

Review of economic regulation of
liquid fuels and related products
Pamela Mondliwa and Simon Roberts
CCRED
Centre for Competition, Regulation
and Economic Development
University of Johannesburg
www.uj.ac.za/ccred
A. Overview
• Description of evolving regulatory framework
• Different standards against which regulatory
framework can be assessed, and government reviews
undertaken
• Linkages between regulation of fuels and related
products and economic growth
• Case study of fuel regulation, competition
enforcement and polymer chemicals
• Case study of piped gas regulation
• Conclusions
Objectives of the Study
• Part of wider project reviewing economic regulation
• In terms of development of economy and economic policy
• In terms of different rationale for regulation
• Input to measures to improve capacity of regulators
• Key questions
• Effects of regulation of pricing and access in liquid fuels and
distribution over time, against objectives of restraining market
power and fair internationally competitive prices, ensuring
security of supply, incentivizing investment, and increasing
participation (including HDSA)
• Impact of regulatory framework of fuel for related products
• Assessment of regulation of piped gas pricing in light of learning
from experience
• Why there have been observed changes, and how does this
represent the balancing of different interests
Fuel and related products supply chain
Crude Oil
Coal
Gas
Refining and synthesizing
Petrol
Diesel
IP*
LPG
Bitumen
Distribution
via pipelines
and road
By products and
chemical feedstocks,
such as ammonia
and monomers
Fuel
Wholesale
Polymers
Ammonium
nitrate, MAP
& DAP
Fuel Retail
Plastic
Products
Fertilizer
Why regulate fuel?
• Considering the rationale for regulation:
• The natural monopoly problem and market power
• Externalities and market failures
• Assessing the private and social returns
• Large capital investments, state support and
geography have meant entrenched inland position of
Sasol and Natref
• Also reason for coordination by state, and for longer term
view underpinning investments (lower discount rate)
• Value placed on local production of liquid fuels and
security of supply
• Different basis under apartheid given threat of sanctions
• Environmental concerns
Net trade: local demand
outstripping supply for liquid fuels
300
200
Billion litres
100
2002
2003
2004
2005
2006
2007
2008
2009
-100
-200
-300
-400
Diesel
Petrol
2010
2011
2012
Performance: output (VA)
40,000
Plastics (0338)
35,000
Coke and Refined Products (0332)
Basic Chemicals (0334)
Rm constant 2005 prices
30,000
Other chemicals and man-made fibers (0335)
25,000
20,000
15,000
10,000
5,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
B. Regulatory framework: history
• State took over price setting role in 1946 from industry (had
previously been self regulating with industry controlling
price and access)
• Sought to develop local fuel production
• Sasol was built as part of the States oil security strategy
• Main Supply Agreement (1954)
• constituted a government-brokered and sanctioned form of
private regulation
• oil companies were required to purchase all of Sasol’s
production volumes pro-rata to their market shares for
marketing in the inland region
• The petroleum industry was also exempted from the
competition law between 1988 and 2001.
Regulatory framework: changes
since 1994
• MSA continued to end 2003; Industry barriers were
maintained
• Protection continued, then removed in 2000
• Had provided that if the oil price were below $23/bbl, protection
• If oil prices were above $28.7/bbl, windfall gains repaid
• Prices regulated at In Bond Landed Cost (IBLC)
• Choice of majority Singapore refineries as a reference
• The use of posted prices (100% pre 1994, 80% 1994-2002) as
opposed to spot prices
• Review indicated above true import parity
• Move to Basic Fuel Price in 2003 which used better assessments
of what fuel could be imported for; and more appropriate
international sources
1994
•
•
Change in import parity price calculation (for refined product at refinery gate) from
100% posted prices to 80% posted and 20% spot prices for the selected international
markets (posted prices generally higher)
Reference refineries were changed to include wider basket (Arab gulf, Mediterranean
in addition to Singapore which was generally more expensive and further away)
2000
•
Equalisation fund discontinued (retail price smoothing, effective SSF tariff protection, synfuel
levy, crude oil price premiums paid by SFF to circumvent oil sanctions)
•
Slate levy introduced as smoothing mechanism
2003
• Move from IBLC to BFP basis for the import parity price calculation
• Change from 80% posted prices to full spot prices (of the reference refineries)
 approx 9% reduction to the retail price (as % of refinery gate price)?
2010
•
Move from MPAR to Regulatory Accounting System (RAS)
Current regulation and institutions
• Policies & Objectives
• Petroleum Products Act (1977), amended 2003 and 2005
• Energy White Paper (1998):
o Short and medium term objective to re-regulate the liquid
fuels industry to achieve higher levels of competition and
unrestricted market access
o Long term objective of deregulation (removing price and
trade controls)
• Replacing MPAR with RAS in 2010:
• To locate margins at level where costs incurred.
• Short coming: the model is based on Retailer-Owned,
Retailer-Operated stations (40% of market, CORO is 60%)
• Some (limited) opening up to independent traders,
increased in around 2011
• Institutions
• DoE
• Nersa
• Competition Authorities
• Role played by industry in (self)regulation – SAPIA and
oil companies
Progress with liberalization
(against White Paper)
• Phase 1 milestones (still only partially met)
•
•
•
•
•
•
•
Sustainable presence, ownership/control by HDSAs of ~25% NO
Mutually acceptable arrangements between producers & marketers of fuel on the upliftment &
marketing of synfuels YES
equitable participation of small businesses in the industry NOT ENTIRELY
The introduction of suitable transitional arrangements within the Service Station Rationalisation
Plan YES
Equip regulator with capacity required to adequately monitor possible post deregulation
distortions and address these NOT ENTIRELY
arrangements to address any labour related consequences of deregulation NO
capacity to license and/or regulate oil and liquid fuel pipelines storage facilities if this is found
necessary YES
• Phase 2 milestones
•
Retail price regulation, import control and Government support for the Service Station
Rationalisation Plan will be simultaneously removed
• Phase 3 milestones
•
Government will monitor and evaluate possible problems arising from the introduction of
deregulation and will take corrective action
C. Assessing economic regulation
• Previous assessments
•
•
•
•
•
Liquid Fuels Industry Task Team (1994)
Arthur Andersen (1995)
PVM
Windfall Tax Team (2006/07)
Nedlac Administered Prices study (2011)
• Concerns
• Post 1994: IBLC benchmarks and data at above actual IPP
levels
• Since mid-2000s: MPAR, non regulated products
• Critical review
Regulation affects firm strategies, determines
outcomes: developments of Sasol-Engen merger
• Sasol decision to give notice on MSA - part of strategy to respond to
anticipated liberalisation:
•
•
• Notice in 1998 for MSA to end Dec 2003
• OOCs do not have to buy Sasol product (so can bargain for lower
prices); Sasol can move downstream
• NB MSA had only been granted limited exemption by Competition
Commission
Sasol acquisition of OOC means instant distribution network – do not have
to rely on OOCs for sale of product
Take bigger stake in crude oil refining – coastal refiners have surplus
• Explored acquisitions of various OOCs (refining and marketing/
distribution operations), decided on Engen
• Tribunal blocked merger as found Engen acquisition reinforced
market power in inland market
Sasol-Engen (uHambo merger)
• Sasol decision to give notice on MSA part of strategy to respond to
anticipated liberalisation:
• Move downstream so as not to rely on OOCs for sale of product
• Take bigger stake in crude oil refining
• NB MSA had only been granted limited exemption by Competition
Commission
• Explored acquisitions of various OOCs (refining and
marketing/distribution operations)
• Tribunal found Engen acquisition reinforced market power in inland
market as:
• Power constrained by Sasol’s reliance on OOCs as customers
• Sasol vertically integrating downstream would change the
bargaining game which had seen inland discounts
Sasol-Engen merger cont.
•
Tribunal found credible threat by Sasol to foreclose (refuse to supply)
OOCs given the merger
• Vertically integrating downstream would change the bargaining game
which had seen inland discounts, as OOCs had countervailing power
•
•
Tribunal hearing revealed strategy, exclusion, bargaining games
Sasol had responded to OOCs bargaining for discounts by:
• Commit to cut back production (at Natref); by-pass OOCs thru exports
• OOCs: ability to turn to coastal volumes through pipeline, rail, road
• Synfuels pricing internally had reflected its poor alternatives
• Cannot easily vary production; very low variable costs
• Should be willing to sell at prices far below inland IPP, absent creating
commitment to maintain these prices
• Structure of transaction to lock-in inland IPP prices for 10 years
• In the end, did not need merger as demand increase, and logistics
constraints – pipeline capacity and cost are critical
Windfall tax team
• Against backdrop of structural increase in oil prices (and
other natural resources)
• This meant a ‘windfall’ for synfuels producers with low cost
feedstock and established capacity
• Had been ‘tariff protection’ with floor price (of $23/bbl)
and refund above ceiling price
• Taskteam Brief (multiple objectives reflecting different
priorities in government)
• Fiscal response to situation of higher oil prices
• Improved efficiency of value chain, transmission to consumers
• Future investment to meet accelerated growth, employment,
Reduce volatility of fuel price
• Energy policy objectives, including security of supply
Windfall tax team – main findings
•
Rents/excessive profits arise at different levels:
•
•
•
•
Inland ‘must have’ fuel volumes not subject to supply competition because
infrastructure constraints: regulatory reform and/or fiscal measures
Recommended: smart regulation package, together with fiscal measures
•
•
•
•
•
•
Upstream oil & gas (linked to royalties)
Excessive synfuels profits – different cost structure and IPP basis for pricing
Regulation improvements: remove import control; BFP be over-hauled to get
price closer to ‘true IPP’; change petrol to price cap; regulate pipeline tariffs
Address inland market power: Until logistics constraints removed in inland market
regulation of prices at level approximating competitive market prices
Special levy on synfuels triggered by oil price above specified level – independent
study had recommended $28/bbl in 2000 (could be updated for inflation)
Incentivising new investment in local fuels (aside from crude oil and imported
natural gas), i.e. including synfuels
Noted existing regulatory reform: MPAR being reviewed (wholesale margin);
Retail margin no longer regulated
Noted likely windfall profits from Sasol privatization, but not in ToR
Windfall tax team – what happened next?
• Findings noted by NT in 2007
• Regulatory recommendations referred to Ministry of
Minerals & Energy (was not part of Windfall Tax process)
• Noted that ‘most countries’ used royalties, production
sharing agreements or state equity (UK has higher taxes
over threshold?)
• Noted negative effect of higher taxation on investment, and
policy objective to reduce dependence on imported fuel
• No further action taken regarding regulating synfuels inland
prices, or progressive taxation structure
• NT indicated that Cabinet ‘effectively’ released Sasol from
obligation to repay subsidies in 1998, provided it continued
to develop the petrochemicals sector
Cont.
• Quid pro quo?
•
•
NT welcomed Sasol commitment to feasibility of investing in Project
Mafutha CTL and possibility of GTL upstream investment in refining
Would ‘hold Sasol to its commitment to significantly expand its
synthetic fuel production capacity in support of national interest in terms
of fuel security and macroeconomic stability’
• Sasol promoting new Mafutha synfuels in Waterberg, but:
• only with substantial government (IDC financing) and guarantees
• big concerns about CO2 emissions and water use
• not clear would lead to lower prices under existing regulation.
• Bottom line? No enforceable agreement, no credible commitments
• Sasol not making investments in expanding refining
• investments made related to clean fuels (Project Turbo) and more
recently in polymers; but, not leading to more competitive prices, simply
those in its narrow interests
Criteria against which to make
assessment?
• Market power
• Price control?
• Regulating access?
• Investment?
• Security of supply?
• Diversification and industrial development?
Critical assessment – learning from
the past
• Firms had achieved high margins, by:
• Effectively self regulating
• Leveraging from legitimate concerns about security of supply to
custodianship being passed to industry
• Influencing what measures were used (IBLC) and what data
were used to do the measurement (spot v posted; Singapore
refineries etc)
• Rate of return on marketing assets means ‘gold-plating’
very weak incentives for efficiency
• Insiders as gatekeepers, even in trading and retail
• Competition undermined, even where it would have
been possible
• Unwinding historical arrangements, but legacy persists
Criteria – addressing market power
• Control over infrastructure
• Inland position – ‘location advantage’
• Lily Pipeline – was used for strategic crude oil stocks; Sasol
secured it for industrial gas to KZN (preventing it being used
for bringing product inland)
• Control over productive capacity and technology
• PetroSA restrictions
• Competition investigations:
•
•
•
•
•
•
Exemption for MSA – restricting competition
Information exchange in fuel
Merger control
Allocating customers and dividing markets?
Polymer chemicals
Fertilizer
Assessing regulation: assessing
investment and security of supply
• Distinguish between:
• Local refining from imported crude (does this increase security?)
• Production from local (regional?) feedstock
• Security means accessing supplies:
• can import, with efficient distribution
• Access to distribution:
• Insiders have controlled and argued for centralized coordination
• Competition means greater responsiveness to demand,
increased participation, lower information requirements on reg
• Investment decisions in refining?
• Mafutha? Umthombo? Role of PetroSA? Regional dimensions?
• Considering refining as part of petrochemicals production?
Regulation of fuel and economic
development – adopting a wider lens
•
•
•
•
Fuel is part of petrochemicals industry, not stand alone
Key linkages with upstream feedstock: coal, oil, natural gas
And, with infrastructure: pipelines, rail, storage
Requires major investments in large scale plant and site
 Consider as part of economic structure
• Linkages
• Agencies, that is, different interests
• Evaluate sector development as part of industrial policy development of pattern of comparative advantages and
capabilities
Regulation and development of fuel
and chemicals
• Complex and diversified sector
• Industries in this sector are highly inter-linked
• Well-developed upstream & underdeveloped
downstream
• Largest broad manufacturing grouping in terms of
value-added
• Third largest employer in manufacturing: relatively
capital-intensive upstream and more labour-intensive
downstream
Performance of different parts of
industry?
•
•
•
•
Average growth of plastics sector (value-added at factor cost, constant prices) compared to
coke & refineries and basic chemicals (Quantec data):
• 1994 - 2011
• Plastic products: 1.8%
• Coke & refineries: 6.0%
• Basic chemicals: 4.9%
• Other chemicals and man-made fibers: 4.7%
• 2006 - 2011:
• Plastic products: -3.4%
• Coke & refineries: 4.8%
• Basic chemicals: 2.8%
• Other chemicals and man-made fibers: -0.5%
Trade deficit
• Plastic products net trade deficit trebled from 2002 to 2011, to R4.9bn (constant 2005
prices)
Employment: more than 25% of jobs lost in plastic products since peak in 2000
Plastic products should be growing more rapidly than GDP and than upstream sectors in
diversified industrialising economy
Performance of different firms?
• Data on listed firms indicates that mark-ups are very high in
petroleum and basic chemical products:
• Aghion et al. (2008) est of price mark-ups over marginal cost for
1971-2004 found coke & petroleum products 2nd highest
manufacturing sector (at c330% mark-up)
• Chemicals profits (net income to asset ratio) in South Africa is
more than 2.5 times the world average
• The adjustments made to the IPP calculations indicate that
refiners have been earning above IPP prices
• Windfall Tax Study indicated very high margins for synfuels
producers give the prevailing crude oil price
• NB PetroSA had been obliged to sell to OOCs at export parity
• Downstream sectors (plastic products) performing poorly
Economic policies to support
industry?
•
•
•
•
•
•
Industrial policy and incentives
Trade policy
Environment
Mining/natural resources policy
Regional development
What coordination between these?
E. Case study of linkages of fuels to chemicals
& manufacturing: propylene and polypropylene
• Context:
• Propylene is by-product of synfuels, produced in very high
proportions (relative to ethylene)
• Investments to produce propylene are part of liquid fuels
• Not subject to regulation
• Can be combined into fuel pool (for petrol, diesel) to limited
extent and with further processing required
• There is a ‘fuel alternative value’ which for Synfuels is
relatively low
• Propylene made into Polypropylene
• This is key input to plastics, and priced at IPP level
despite net exports of around half of production
Case study: history
• Sasol had apparently changed behaviour in 1995,
Arthur Andersen review found:
• Sasol was not charging IPP for number of by-products and
co-products
• Prices were in line with net export prices for various products
such as PP
• This meant downstream industries were not disadvantaged
• Sasol then returned to IPP by at least 2000
• Competition regime meant to address dominant firm
conduct, including excessive pricing
• DTI concern about poor growth of labour-absorbing
downstream industries, such as plastic products
Plastics trade performance: major categories
H3917: Plastic tube, pipe,
hose and fittings
World Trade
100
H3918: Plastic floor, wall or
ceiling covering, roll or tiles
50
H3919: Self-adhesive plates,
sheets, film etc of plastic
0
2003
US$ millions
-50
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
H3920: Plastic plate, sheet,
film not cellular, reinforced
H3921: Plastic plate, sheet,
film, foil, strip, cellular, nes
H3922: Bathroom wares, of
plastics
-100
H3923: Containers, bobbins
and packages, of plastics
-150
-200
H3924: Plastic table,
kitchen, household, toilet
articles
H3925: Plastic articles for
use in construction nes
H3926: Plastic articles nes
-250
-300
Polymers cont.
• DTI requested Competition Commission to investigate polymer
pricing in 2007
• Commission initiation after initial research. Case referred by
Commission on excessive pricing of propylene & PP
• Tribunal hearing concluded in 2013, decision pending
• Sasol arguments on definition of economic value
• The advantage from cheap feedstock is a special advantage that
Sasol should retain profits from
• How to assess return on capital – replacement cost, shared costs
• Common cause that: Sasol costs of producing PP are lower
than almost all other countries while its prices to local
customers have been higher
• No other policies pursued in meantime (industrial policies,
regulatory measures)
Case study: Gas regulation?
•
•
•
•
•
•
•
•
Regulation is understood in terms of price and access
Prices are controlled because otherwise they would be set at monopoly
levels
Regulation thus seeks to control the rents that accrue as a result of market
failures
These rents represent the excess income that is achieved over and above
the next best alternative.
However, this excess is sometimes required to attract capital into a
particular market
This complicates the role of the regulator as they have to distinguish when
it is efficient to allow high profits and when it will retard growth
Gas Act Identifies stimulating investment and fair and competitive prices
as its objectives
Requires the regulator to make choices about which interests to prioritise
when taking its decisions
Legislation relating to the Gas Market
•
•
•
•
•
In 2001, Sasol Gas needed to make investment decisions regarding
Mozambique gas, but there was no specific legislation for gas projects at
the time
the South African Government and Sasol Gas concluded the “RSA
Regulatory Agreement”, giving Sasol Gas a Special Regulatory
Dispensation regarding exclusive rights to ROMPCO’s infrastructure for a
period of 10 years from the first gas received by Sasol.
The agreement also had obligations relating to the supply of piped gas to
customer and third party access to the Mozambique pipeline and Sasol’s
own pipelines
The Gas Act was enacted in 2002 and enforced the RSA Regulatory
Agreement mandating NERSA to control access through licensing and
registrations and prices through maximum piped gas prices post the
special dispensation
The special dispensation period comes to an end on 25 March 2014
Gas prices under the special
dispensation
• Sasol Gas priced using the market value pricing principle (MVP)
• Where MVP was defined as the determination of the gas price in
comparison with:
• the cost of the alternative fuel delivered to the customer’s premises (in the
case of Greenfields Customers); plus
• the difference between all the operating costs of the customer’s use of the
alternative fuel and all the operating costs of using natural gas; plus
• the difference between the Nett Present Value (NPV) of the capital costs of the
customer’s continued use of the alternative fuel and the NPV of the capital
costs involved in switching to natural gas,
• This pricing methodology produced a price cap for Sasol Gas and it
could negotiate with individual customers.
• Sasol Gas was allowed to offer discounts on the MVP based on
annual quantity purchases
• There was an additional clause to cap the average prices
• The purpose was to limit Sasol Gas revenues compared to a
benchmark
• The benchmark was the European Benchmark Price established
using data from Spain, Netherlands, Belgium, Italy France and
Germany.
• The Sasol volume weighted average gas price was not allowed to
exceed the EBP
• In the event that it did customers were eligible for refunds from
Sasol Gas
The Gas Act
• NERSA to set prices for distributors, reticulators and all classes of
customers, where there is inadequate competition
• requires non-discrimination prices, tariffs and other conditions
• Gas Act mandates NERSA to ‘approve maximum prices for
distributors, reticulators and all classes of customers, where there is
inadequate competition’
• Based on the legislative provisions NERSA developed two sets of
methodologies:
• Tariff Guidelines, 2009, applicable to transmission and storage
tariffs
• Maximum Prices Methodology, applicable to the price for gas
energy (molecule)
• In February 2012, NERSA determined ‘inadequate competition’ in
gas
Maximum prices as per NERSA (gas
energy price)
• Maximum price based on a weighting of prices of alternative
sources
•
Coal, diesel, electricity, HFO and LPG
• Weights are derived by total energy consumption of the selected
sources:
•
Coal (36.2%), diesel (24.8%) and electricity (37.1%)
• Prices of sources derived from available benchmarks
•
•
•
•
•
Coal is the FOB Richards bay price
Diesel is the BFP for diesel
Electricity is the Eskom average tariff
HFO is the DOE price
LPG is the maximum Refinery Gate Price (Coast)
Evaluation- Special Dispensation
• The MVP effectively allows maximum exertion of market power up to
alternative.
• NERSA has not found that the Sasol volume weighted average gas
price has exceeded the EBP
•
•
•
Is the European Benchmark appropriate considering that the Gas is mainly
sourced from Russia and Algeria (longer transmission distances)
The comparison is of SASOL customers consuming up to 10 million GJ pa and
the EBP customers consuming a maximum of 1 885 000 GJ pa
Should the EBP comparison be done on a customer category level rather than
using average prices?
Comparing International gas price by consumption category (NUS
survey for 4500GJ pa comparable –SA class 3)
Canada
1.78
United States
1.83
Australia
3.29
Poland
3.91
Surveyed Countries
Netherland
4
Belgium
4.1
France
4.15
Unighted Kingdom
4.18
Spain
4.35
Austria
4.76
Italy
4.9
Portugal
4.92
Germany
5.33
Finland
7.01
South Africa
7.12
Sweden
10.35
0
2
4
6
Cost (USc/kwh)
8
10
12
New Dispensation:
•
•
•
•
Weights based on total rather than industry energy consumption
FOB Export coal prices are used rather than ex-mine prices
Export grade coal used rather than grades bought by local industry
Average elec tariff used rather than the industrial tariff (or even
megaflex)
Implications of different benchmark prices
• Choice of benchmarks matters
•
•
The local the bituminous coal price is R460/t cheaper than the export FOB price
(DOE Energy price Report, 2012)
The average electricity rate 8.03 c/kwh higher than the industrial users rate (DOE
Energy price Report, 2012).
• Illustrative exercise for 2011
• Calculated Maximum gas energy price for 2011 (NERSA data) –
R103.40
•
•
•
Using the Industry sector energy consumption balances in the calculation of the
weights alone decreases the 2011 maximum gas price by 17%
Using the industrial electricity price instead of Eskom average reduces the
calculated maximum gas price by 8%
Using the local coal price instead of FOB Richards Bay 7%
SA Energy consumption vs Industry
consumption
was
Overall consumption
Overall Consumption
(TJ)
Coal
Industry Sector
Weights
Industry Sector
consumption (TJ)
Weights
759858
36.2%
460245
49.55%
Diesel
520952
24.8%
50628
5.45%
Electricity
779140
37.1%
417595
44.96%
HFO
23648
1.1%
364
0.02%
LPG
17323
0.8%
0
0.00%
2100921
928833
Illustrative exercise (2011)
Weights (industry)
Price-A (R/GJ)
Price-B (R/GJ)
Coal
Diesel
Electricity
HFO
LPG
49.55%
5.45%
44.96%
0.04%
0%
15.47
8.49
61.79
0.05
0.00
3.60
8.49
52.61
0.05
0.00
Weighted Maximum
100%
85.81
64.75
Price-A: Calculated using benchmarks as stipulated in the methodology
Price-B: Changed the thermal coal price to FOR and electricity price to industry tariff
Approved Maximum Piped Gas Price
GJ p.a
Gas Energy
Price (GE) R/GJ forecast
2014
Reductions
%
Class 1
< 400
128
Class 2
401 - 4 000
Class 3
Reduction
(R/GJ)
Sasol GE
(R/GJ)
(26/3/2014)
NERSA
approved
(26/3/2013)
7.50%
9.6
R 118
R 108.86
128
7.50%
9.6
R 118
R 108.86
4 001 - 40 000
128
15.00%
19.2
R 109
R 100.04
Class 4
40 001 - 400 000
128
22.50%
28.8
R 99
R 91.21
Class 5
400 001 - 4 000 000
128
30.00%
38.4
R 90
R 82.38
Class 6
> 4 000 000
128
37.50%
48
R 80
R 73.56
Breakdown of impact of price decision by
customer Size
Total
Total in %
volume
% Volume
268
58%
1 872 400
3%
Small Customers that may face increases
74
16%
1 227 600
2%
#
66
14%
22 323 100
36%
Large Customers that may face increases
57
12%
36 576 900
59%
Total customers
465
100%
62 000 000
100%
*
Small Customers that will/ may face decreases
Large Customers that may/will face decreases
All Customers facing price decreases
72%
39%
All Customers facing price increase
28%
61%
Sasol Gas Turnover and Operating
Profit
SA Energy: Sasol Gas
Financial
Year
2012
2011
2010
2009
2008
2007
2006
2005
Turnover R m
6931
5445
5371
5666
4697
3702
3209
2404
2985
2578
2479
2424
1785
1936
1526
931
43
47
46
43
38
52
48
Operating
Rm
profit
Operating
profit %
margin
39
F. Conclusions?
• Regulatory framework continued to benefit upstream industry for
many years
• Now evident in re-assessments of margins, benchmarks used
• The ‘deals’ brokered with the industry under apartheid had a
rationale in terms of investment and support for Sasol
• Rationales have changed, but implications persist?
• Continued balance towards investment returns even where new
investment is unlikely
• Government has continued to privilege a particular view of
security of supply considerations oriented to insiders
• Investment concerns motivated by Sasol appeared to trump
stronger interventions (Windfall tax)
• Industry structured now more skewed to upstream than in 1994
• Regulatory framework sets ‘rules of the game’, balancing
interests
• Are the outcomes consistent with required balance?