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ENERGY REGULATOR OF SOUTH AFRICA

In the matter regarding

THE PRICE CAPPING MECHANISM FOR THE FINANCIAL YEARS 2008/2009 AS PER CLAUSE THE 8 OF SCHEDULE ONE TO THE AGREEMENT THE

CONCERNING

MOZAMBICAN

GAS

PIPELINE

BETWEEN

GOVERNMENT OF THE REPUBLIC OF SOUTH AFRICA AND SASOL LIMITED

On 10 March 2010 the Energy Regulator determined the price cap for the financial years 2008/2009 as per clause 8 of Schedule One to the Agreement Concerning the Mozambican Gas Pipeline between the Government of the Republic of South Africa and Sasol Limited (Schedule One to the Agreement). The results are as follows:

SVWAGP and EBP for the financial years 2008/2009 SASOL VOLUME WEIGHTED AVERAGE GAS PRICE (SVWAGP) (RAND PER GIGAJOULE OF GAS) 01 April 2008 to 31 March 2009 63.28 EUROPEAN BENCHMARK PRICE (EBP) (RAND PER GIGAJOULE OF GAS) 89.12

EFFECTIVE PERIOD

As the average SVWAGP is below the EBP no mandatory refund by Sasol to its External customers is applicable.

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Reasons for Decision

1. Introduction

1.1

In terms of the Gas Act, 2001 (Act No. 48 of 2001) and Schedule One to the Agreement Concerning the Mozambican Gas Pipeline between the Government to the Republic of South Africa and Sasol Limited, the Energy Regulator is responsible for the administration of Schedule One to the Agreement which includes a price cap applicable to the average gas price to External Customers. The Energy Regulator has determined the price cap in terms of clause 8 of Schedule One to the Agreement for the financial years 2008/2009.

2. Applicable Law

2.1

In terms of clause 8 of Schedule One to the Agreement, the average gas price charged by Sasol Limited to its External Customers 1 is subject to a price cap. This price cap requires the calculation of the Sasol Volume Weighted Average Gas Price (SVWAGP) as well as a European Benchmark Price (EBP).

2.2

In terms of the slate mechanism contained in this clause, at the end of each year for which the price cap is determined:

Schedule One to the Agreement defines an External Customer as follows: A customer other than Sasol and its subsidiaries but shall for the purposes of clauses 8.1 and 8.2.3 include a maximum of up to 3 million Gigajoules per annum of gas sold to Natref.

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(a)

if the average SVWAGP for the Year 2 is below the average EBP for that Year then there will be no mandatory refund by Sasol Limited in terms of the price cap mechanism to its External Customers; and

(b)

if the average SVWAGP for the Year is above the average EBP for that Year then Sasol Limited will refund the over-recovery equitably to its External Customers in proportion to the amount paid for gas during that Year.

2.3

The EBP is based on gas prices in the Netherlands, Italy, France, Germany, Spain and Belgium expressed in Rands (see clause 8.2.1 of Schedule One to the Agreement).

2.4

The price data sources used in the calculation of the EBP and SVWAGP are stipulated in clause 8.2.2 of Schedule One to the Agreement and include:

the gas price data published for Energy Advice by the World Gas Intelligence report (WGI); and the Oil Price Assessment Limiteds (OPAL) Energy Pricewatch and Eurostat. It should be noted that the OPAL price index for the 125 900 volume category has been discontinued and replaced in the calculations by a suitable alternative (see paragraph 3.8 below).

2.5

The SVWAGP is meant as a comparator for Sasols gas prices and is calculated for a given year by dividing the total income from sales of piped gas by the total volume of sales of piped gas to External Customers, excluding customers consuming more than 10 million GigaJoules of gas per annum.

Year means any sequential period of 12 months with the first year measured from the first day of the month in which First Gas occurs. First Gas occurred on 26 March 2004.

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3. Analysis

Determination of the price cap

3.1

The price cap is calculated following the steps detailed in Annexure A (Price Capping Methodology).

3.2

The calculated SVWAGP and EBP for the period 01 April 2007 to 31 March 2008 and (ii) 01 April 2008 to 31 March 2009 are provided in the Table 1 below.

Table 1: SVWAGP and EBP for the financial years 2007/2008 and 2008/2009

SVWAGP PERIOD (RAND PER GIGAJOULE OF GAS) 1 April 2007 to 31 March 2008 1 April 2008 to 31 March 2009 39.20

EBP (RAND PER GIGAJOULE OF GAS) 72.15

% CHANGE

63.28

89.12

61.4%

3.3 The EBP increased by 34.6 % from (R66.19/GJ to R89.12/GJ) between 2007/08 and 2008/09. The increase in EBP was influenced by the increase in oil prices as well as changes in the exchange rate.

3.4

The Rand/USD exchange rate had risen by 11.3% from minimum of R7.27 to maximum of R8.09 for the period of April 2007 to March 2008 and 20.7% (R7.93 to R9.57) for the period of April 2008 to March 2009

3.5

The increase in the SVWGAP is the result of increases in the average gas price charged by Sasol Gas to its External Customers. The total volume

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consumption of piped gas by Sasols External Customers increased by 2.5% (53 579 753 GJ p.a to 54 941 337 GJ p.a) in the period 01 April 2007 to 31 March 2008 and 1 April 2008 to 31 March 2009. Sasol Gas total volume sales had increased by 65.5% (R2 100 493 619 to R3 476 819 900) in the period 01 April 2007 to 31 March 2008 and 1 April 2008 to 31 March 2009.

3.6 From Table 1 above it is evident that the SVWGAP is below the EBP for the calculated year cycles. This implies that there will be no mandatory refund by Sasol to its External Customers as provided for in clause 8.2.4 of Schedule One to the Agreement.

3.7 The following should be noted regarding the above calculations:

(a)

The discontinued OPAL price index for the 125 900 GigaJoules per annum volume category was replaced in the calculations by a straight average of the price indexes in the preceding (i.e. 37 700 GJ p.a) and following (i.e. 377 000 GJ p.a) volume categories from 2002 (the year in which the 125 900 GigaJoules per annum volume category was discontinued);

(b)

75% of the transmission tariff payable to Petronet for transporting piped gas from Secunda through the Secunda Empangeni - Durban transmission pipeline was deducted from the prices paid by customers within KwaZulu-Natal for the purpose of calculating the SVWAGP. This is in accordance with clause 14.3 of Schedule One to the Agreement; and

(c)

All prices used in calculating the price cap were exclusive of South African Value Added Tax (as per clause 8.2.2 of Schedule One to the Agreement).

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3.8 The calculations show that the average weighted gas price as charged by Sasol Limited in 2007/08 in South Africa is below the price charged in selected European countries. However, certain observations regarding this comparison of prices should be noted:

3.8.1 This comparison of prices is made regardless of underlying cost structures. It does not provide any information regarding the profit margins of individual firms or the extent to which the potential market power of a particular firm could be enabling monopoly pricing in the market for piped gas.

3.8.2 The gas volume categories prescribed in clause 8.2.3 of Schedule One to the Agreement effectively compare the prices charged to larger users in South Africa (up to 10 million GigaJoules of gas) with those charged to smaller customer (1.8 million GigaJoules of gas) in the benchmark countries. This distorts the comparative value of the benchmark price as larger customers tend to be charged lower prices and the inclusion of these larger customers in the calculations will lower the average price.

4. Decision making process

On 10 March 2010 the Energy Regulator approved the determined SVWAGP and EBP for the period 01 April 2008 to 31 March 2009.

5. Conclusion

5.1

The SVWAGP as determined for the financial year 01 April 2008 to 31 March 2009 is below the EBP for the above same periods.

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SVWAGP and EBP for the financial years 2008/2009

EFFECTIVE PERIOD

SASOL VOLUME WEIGHTED AVERAGE GAS PRICE (SVWAGP) (RAND PER GIGAJOULE OF GAS)

EUROPEAN BENCHMARK PRICE (EBP) (RAND PER GIGAJOULE OF GAS) 89.12

01 April 2008 to 31 March 2009

63.28

5.2

This implies that no mandatory refund by Sasol Gas to its External Customers is applicable as is provided for in Clause 8.2.4 of Schedule One to the Agreement.

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ANNEXURE A
Price Capping Methodology 1.1. The European Benchmark Price is based on gas prices in the Netherlands, Italy, France, Germany, Spain and Belgium. The gas price data published for Energy Advice by the World Gas Intelligence report (WGI), Oil Price Assessment Limiteds (OPAL) Energy Pricewatch and Eurostat will be used to establish the Price Cap. All prices will exclude taxes and Government imposts. Specific volume category 100 000 cubic meters per year (3 770 Gigajoules per annum) 1 million cubic meters per year (37 700 Gig Joules per annum) 35 million kilo Watt hours per year (125 900 Gigajoules per annum) 10 million cubic meters per year (377 000 Gigajoules per annum) 50 million cubic meters per year (1 885 000 Gigajoules per annum) Additional volumes (1 885 000 Gigajoules per annum) 1.2. Publication World Gas Intelligence (WGI) World Gas Intelligence (WGI) Oil Price Assessment Ltd (OPAL) World Gas Intelligence (WGI) World Gas Intelligence (WGI) World Gas Intelligence (WGI)

Section 8.2.3 further provides that all prices must be smoothed by means of a 12-month rolling average i.e. the rolling average price for a particular month will be the monthly average of that month and the 11 preceding months. A single European Benchmark Price (EBP) weighting the above relevant rolling average European prices according to SASOLs market volume profile is calculated as follows: (a). Sasols External Customers are ranked and numbered by order of gas consumption for each Year, from the smallest to the largest. (b). The cumulative average gas consumption per External Customer for the Year (i.e. cumulative consumption divided by cumulative number of External Customers) is calculated beginning with the smallest External Customer. (c). The cumulative average gas consumption per External Customer for the Year is matched exactly to the first European specific

1.3.

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volume (3 770 Gigajoules per annum) and any excess volume from the last (i.e. largest) External Customer in this category is carried over to the next category. (d). The total gas consumption for all Sasols external customers in this category is multiplied by the equivalent European specific volume rolling average price for the 6 countries contemplated in clause 8.2.1 for the Year to obtain the turnover for this category. (e). For the next category (37 700 Gigajoules per annum) the cumulative average gas consumption per External Customer for the Year begins with the volume carried over from the last External Customer in the 3 770 Gigajoules per annum category. (f). The cumulative average gas consumption per External Customer for the Year is matched exactly to the European specific volume (37 700 Gigajoules per annum) and any excess volume from the last (i.e. largest) External Customer in this category is carried over to the next category.

(g). Once again the total gas consumption for all SASOL External Customers in this category are multiplied by the equivalent European specific volume rolling average price for the 6 countries contemplated in clause 8.2.1 for the Year to obtain the price volume product for this category. (h). The price volume product is calculated similarly for all the other categories except for the 1 885 000 Gigajoules per annum category. (i). For the 1 885 000 Gigajoules per annum category, all the remaining External Customers consuming less than 10 million Gigajoules per annum are included, even though the cumulative average per External Customer per Year would exceed 1 885 000 Gigajoules per annum. The final cumulative volume for this category is then be multiplied by the European specific volume price for 1 885 000 Gigajoules per annum for the 6 countries for the Year to obtain the price volume product for this category. The total of the price volume products for all the categories are then be divided by the total volume for the Year for all the categories to obtain the EBP.

(j).

1.4.

The EBP is converted into Rands at the average of the daily exchange rates for the Year as obtained from the Business Day, the South African national morning newspaper, and quoted as being the closing South African Rand exchange rate against the US Dollar, that reflects the value Reasons For Decision Price Cap 2008 Page 9 of 14

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of the last currency transaction that was completed on the previous trading day.

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GLOSSARY OF TERMS PIPED GAS Act Means the Gas Act, 2001 (Act No.48 of 2001). Coal Bed Methane A form of natural gas extracted from coal beds that is similar to natural gas in that its main constituent is methane. Consumer Means a person who uses gas except for those persons who purchase gas from a reticulator. Compressed Natural Gas A substitute for gasoline (petrol), diesel, or propane fuel. It is considered to be a more environmentally "clean" alternative to those fuels and it is much safer than other motor fuels in the event of a fuel spill: natural gas is lighter than air, so it disperses quickly when leaked or spilled. External Customer Means a customer other than Sasol Limited and its subsidiaries but shall for the purposes of clauses 8.1 and 8.2.3 of Schedule One to the Agreement include a maximum of up to 3 million Gigajoules per annum of gas sold to Natref. First Gas Means the date upon which natural gas from Mozambique is first sold and delivered on a commercial scale and a continuous basis to pipeline customers in South Africa, i.e. 26 March 2004. Gas Means all hydrocarbon gases transported by pipeline, including natural gas, artificial gas, hydrogen-rich gas, methane-rich gas, synthetic gas, coal bed methane gas, liquefied natural gas, compressed natural gas, re-gasified liquefied natural gas, liquefied petroleum gas or any combination thereof.

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Gas Regulator Means the Gas Regulator as contemplated in the Gas Act and replaced by the Energy Regulator as contemplated in the National Energy Regulator Act, 2004 (Act No. 40 of 2004). Gigajoules (GJ) A metric term used for measuring energy use. One GJ is equivalent to the amount of energy available from 26.1 m3 of natural gas. Hydrogen-Rich Gas A colourless, odourless, non-metallic, tasteless, highly flammable diatomic gas with the molecular formula. Landed Price at Secunda Means the average price per Gigajoule of the 120 million Gigajoules per annum of gas for the Project delivered to Secunda. Liquefied Natural Gas A natural gas that has been converted to liquid form for ease of storage or transport. Liquefied Petroleum Gas A mixture of hydrocarbon gases used as a fuel in heating appliances and vehicles. Methane-Rich Gas A colourless, odourless gas with a wide distribution in nature. It is the principal component of natural gas. A manufactured gas produced at Sasols coal to liquids Secunda plant and has a lower methane content and calorific value than natural gas. Natural Gas Means a gaseous fossil fuel consisting primarily of methane but including significant quantities of ethane, propane, butane, and pentaneheavier hydrocarbons removed prior to use as a consumer fuel as well as carbon dioxide, nitrogen, helium and hydrogen sulphide. Natref Means National Petroleum Refiners of South Africa (Pty) Ltd.

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Price Means the charge for gas to a distributor, reticulator or final customer. Price Cap Mechanism Means a limit on Sasols average revenues from gas sales compared to a European benchmark. Regulations Means the Piped-Gas Regulations made in terms of section 34 (1) of the Gas Act. Schedule One to the Agreement Means the Agreement Concerning the Mozambican Gas Pipeline between the Government of the Republic of South Africa and Sasol Limited. Site Means a separate area of land with its buildings owned or rented by a gas consumer. Subsidiary Means a subsidiary as defined in the Companies Act, 1973 (Act No.61 of 1973). Synthetic Gas A gas mixture that contains varying amounts of carbon monoxide and hydrogen generated by the gasification of a carbon-containing fuel to a gaseous product with a heating value. Year Means any sequential period of 12 months with the first year measured from the first day of the month in which First Gas occurred.

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ANNEXURE C ABBREVIATIONS

EBP GJ OPAL p.a R SVWAGP USD WGI

European Benchmark Price Gigajoule Oil Price Assessment Limited Per Annum Rand Sasol Volume Weighted Average Price United States Dollar World Gas Intelligence

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