The Industrial Gas Users Association of Southern Africa (IGUA-SA) has described as “untenable” a 96% hike in the gas price by Sasol and has called on the energy regulator to intervene urgently to address what it describes as Sasol’s monopolistic behaviour, as well as to prevent manufacturing cutbacks and socioeconomic distress.

Sasol confirms that the price of piped gas sold to its South African customers has been increased to R133.34/GJ, effective from August 1, but insists that it has shown restraint in holding back from applying the maximum price allowed under the prevailing methodology for setting domestic gas prices.

“This gas price was determined using the approved calculation methodology prescribed in the 2021 National Energy Regulator of South Africa (Nersa) Maximum Gas Price Decision for Sasol Gas.

“Applying this approved adjustment method yields a maximum gas price of R273.43/GJ,” Sasol tells Engineering News.

The price change, Sasol adds, reflects the cyclical nature of gas and other commodity prices’ response to inflationary pressures on operating costs, an increase in gas exploration and development activities and funding requirements to ensure security of supply.

However, IGUA-SA CEO Jaco Human warns that the hike is set to cost the South African economy R325-million a month and could trigger both manufacturing cutbacks and retail price hikes.

He notes that industry members reliant on gas energy to produce bread and other foodstuffs will have little choice but to significantly increase prices, exacerbating an already intensifying cost-of-living crisis.

“Gas energy price increases of 96% are untenable and pose a significant risk to an already struggling and weakened South African economy.

“On the one hand, businesses are facing closure across the manufacturing sector, whilst on the other hand it would appear that the gas industry is heading for a regulatory void from a Nersa gas-pricing perspective,” Human adds.

IGUA-SA has been at loggerheads with Nersa over the gas-price methodology for years and in December last year lodged an application in the Gauteng division of the High Court challenging Nersa’s 2021 approval of Sasol Gas’ maximum gas prices.

At the time, the industry body warned that gas prices could rise by 220% by August, from R68/GJ rising to more than R217/GJ.

IGUA-SA has also made repeated call for Nersa to adopt a methodology that uses Sasol’s cost base as the main reference point for setting the price.

In 2019, the Constitutional Court declared a previous maximum-price formula – calculated using a reference basket of alternative fuels  – to be irrational and unlawful. Nersa then adopted a new formula, which uses a benchmark of international gas prices associated with the US Henry Hub, the Dutch Title Transfer Facility and the UK National Balancing Point.

However, IGUA-SA argues that the new formula is yielding an outcome that is even higher than those that emerged from the alternative-fuels basket, and well above those that prevailed during the decade-long “grace period” from 2004 to 2014, when Sasol Gas was regarded as an “unconstrained monopolist”.

Human called for an unambiguous response form Nersa which, on August 4, noted that it had not approved Sasol’s hike and that it would investigate any possible unreasonable or excessive pricing cases.

“Sasol’s unilateral implementation of a 96% gas price increase further confirms its actions as a monopolist.

“Nersa cannot simply hope and expect Sasol, as a monopolist, to act as a free-market player and price gas at competitive market levels,” Human argues.

However,  Sasol says the revised price was submitted to Nersa by Sasol Gas on May 29, together with a request to confirm that the price was in compliance with the 2021 Maximum Gas Price decision.

“In its efforts to confirm its compliance, Sasol Gas also engaged with Nersa on several occasions after this submission,” the JSE-listed company says, adding that it believes the piped-gas price being implemented to be compliant with the regulator’s decision.

IGUA-SA has also approached the Competition Commission in an effort to mitigate the consequences of the current gas price methodology.

Nersa did not immediate respond to a request for comment, but noted in a recent statement that it had embarked on a process of reviewing and refining the current methodology.

Full-Time regulator member responsible for piped-gas regulation Nomfundo Maseti added: “Nersa will also consider other avenues available to make sure that the previous Energy Regulator decision taken before the international energy crisis is not inimical to the South African consumers and the gas industry.”