The Competition Commission has asked for further submissions and information in respect of concerns raised as part of the commission’s inquiry into the liquefied petroleum gas (LPG) sector.

The commission launched the inquiry in September 2014, with the aim of examining whether the supply bottlenecks in the LPG sector would create circumstances or incentives that distort, prevent or lessen competition, as well as to analyse the current price regulatory framework and its impact on competition in the sector.

To date, the commission had received more than 68 submissions from stakeholders across the LPG value chain.

Market participants indicated specific factors that could negatively impact on competition in the sector, prompting the commission to call for further submissions.

The concerns raised included the “long-standing historical relationships” between LPG producers and certain large wholesalers, which, some argued, had the potential to lead to distortions in the market related to the supply allocation of LPG.

In particular, new entrants raised concerns around rationed supply allotted by LPG producers in favour of preferential allocation, through long-term supply agreements. Some raised concerns that LPG producers favour their formerly owned downstream entities.

However, LPG producers indicated some general factors that were taken into consideration in their decision to allocate supply. This included the history of volume offtake, credit terms, the customer’s business profile and product availability, to name a few.

The commission said the extent to which these long-term supply agreements created a constraint on the ability of small wholesalers to compete effectively in the market was concerning and that it would seek further submissions on whether this conduct distorted competition and acted as a barrier to entry for new entrants or the expansion of existing players.

Further, it noted that submissions and comments needed to highlight the minimum uptake required by “smaller players” to compete effectively and the extent to which this uptake may be feasibly reserved for the “smaller players” by LPG producers.

Smaller wholesalers have also stated that the current regulatory environment and contractual arrangements served as a potential barrier to their expansion, as the incumbent LPG suppliers were often unwilling to negotiate for the sale of existing equipment. This was a barrier to switching for the end-user when making a decision to switch LPG suppliers.

Concerns with the cylinder exchange programme had also been noted, particularly by smaller players, who felt excluded from participating in this programme, owing to the alleged unfair conduct of larger wholesalers. Some large wholesalers allegedly refused to enter into cylinder exchange with smaller players and, thereby, allegedly impeded their growth.

Several market participants had also highlighted the existence of rogue fillers/traders that illegally used legitimate market participants’ assets in a prohibited practice commonly referred to as cross-filling. These rogue traders and illegal players did not incur investment costs, as they relied on the use of the legitimate wholesalers’ infrastructure or cylinders.

Given the hazardous nature of LPG, it is prohibited for market participants to fill one another’s cylinders, as the risk for any hazard arising from a defective filled cylinder lay with the owner of that cylinder. Market participants stated that this practice led to the under-use of assets and a disincentive to invest in assets that can grow the market.

The maximum refinery gate price (MRGP) and maximum retail price (MRP) were also highlighted as concerns, with market participants stating that additional items, such as surcharges for gantry fees, transport levy and other miscellaneous cost items, were added to the MRGP and that the retail margin provided for in the determination of MRP acted as a disincentive to further investment in the market.

Interested parties would have until September 25 to make additional submissions to the commission.

WESTERN CAPE SHORTAGES
The Western Cape provincial government’s Red Tape Reduction Unit had, meanwhile, liaised with the Transnet National Ports Authority to develop an interim solution to bridge the shortage of LPG and mitigate the economic impact of the shortages on the province.

Through the unit’s intervention, South Africa’s biggest LPG importer KayaGas was allowed an additional four hours in the Cape Town port, on top of its usual 12-hour limit, to receive gas from vessels in the port.

“The additional time will allow [it] to stock all of the retailers on [its] books, for the first time in several weeks, Western Cape Minister of Economic Opportunities Alan Winde said on Thursday.