Industry association the Industrial Gas Users of South Africa (IGUA-SA) has welcomed the Competition Tribunal's order that energy and chemicals company Sasol be interdicted from increasing its current gas prices above R68.39/GJ.

IGUA-SA brought the interim relief application before the tribunal, in Pretoria, in August last year to interdict Sasol from raising the price of pipeline gas, arguing that Sasol was abusing its dominance by charging excessive prices for natural gas, and that its proposed price hikes would cause harm to the industry.

“The tribunal found that IGUA-SA and its members have a prima facie right not to be subjected to excessive pricing in circumstances where there is no effective competition. In making this decision, the tribunal stated that no evidence was placed before the tribunal to suggest that the National Energy Regulator of South Africa (Nersa) had investigated the matters of excessive pricing that the Competition Commission is now considering,” IGUA-SA said in a statement.

The tribunal noted that “...the Nersa methodology [the Second Methodology] is based on an international benchmarking system which, on its face, appears to render an entirely inappropriate price for South Africa in present economic circumstances”.

The Competition Tribunal also ruled that Nersa and the Competition Commission have concurrent jurisdiction with regard to aspects of the pricing of gas. Nersa determines the maximum price of gas and the commission investigates and addresses allegations of excessive pricing in respect of gas, among others, IGUA-SA said.

“This is particularly relevant after IGUA-SA lodged an excessive pricing complaint with the Competition Commission in May 2022 and after Sasol proceeded, on the back of Nersa’s flawed Second Methodology, to implement a price increase of some 96% in August 2022, which was subsequently withdrawn,” said IGUA-SA executive officer Jaco Human.

“Now that the jurisdictional position is clear, the Competition Commission can clearly proceed with its work to investigate the potential for excessive gas pricing and exercise its summons against Sasol to participate in the investigation. This will provide added protection to gas consumers whilst Nersa implements and approves Sasol Gas’ application for gas pricing on a new price methodology [Third Methodology],” he highlighted.

In a parallel matter that will be heard in May, IGUA-SA also brought an application before the High Court to have Nersa’s Second Methodology set aside. In its application, IGUA-SA argues that the maximum gas prices generated by the Second Methodology bear no relationship to any reasonable proxy that would mimic the prices that would arise in a competitive market for piped gas in South Africa, and would have perversely allowed an increase in excess of 200% on the current gas price.

Nersa, in recognising the failures of the Second Methodology, recently adopted its Third Methodology. IGUA-SA has consistently warned that this pricing methodology will also have perverse price outcomes in the absence of any reference to competitive market pricing and the real cost of gas supply, and given its continued reliance on foreign benchmarks for profit margins.

“IGUA-SA has long argued for the application of a true cost-plus approach, taking Sasol’s or any third party’s cost of gas, plus what is required for them to make a fair return and reward them for risk. This will ensure equitable outcomes for gas suppliers and users alike for the benefit of the South African economy and consumer,” the association said.

“In our view, the outcome is welcomed. The tribunal's judgment is a significant step forward in addressing concerns raised by IGUA-SA and its members regarding Sasol Gas' pricing practices and Nersa’s past and present maximum gas price-setting methodologies. We believe these decisions will be very helpful to the Commission in finalising the excessive pricing complaint and also to Nersa in its approval processes to set maximum pricing for gas,” Human added.