Tariff shock looms for gas users

Manufacturers such as Consol Glass, Nampak, Mondi, Distribution & Warehousing Network (DAWN), Illovo Sugar and the PG Group might be subjected to a shock increase in the total price they pay for gas, if the energy regulator Nersa approves a tariff proposal for a new loopline in Mozambique.

At its piped-gas committee meeting on Wednesday, Nersa discussed an application by the Republic of Mozambique Pipeline Investment Company (Rompco), to approve a tariff of R49.87/gigajoule (GJ) for the transmission of gas from Mozambique’s Temane gas field in a new 127km-loop pipeline, due for commissioning in December 2016

Rompco is a joint venture between Sasol Gas (50%); iGas (25%) – a subsidiary of the Central Energy Fund (CEF) and representative of the South African government; and Companhia Limitada de Gasoduto (CMG) – the Mozambican gas utility (25%).

This tariff will be one of the building blocks of the total maximum gas price upon which prices paid by all piped gas users in South Africa is based. Rompco transmits the piped gas sold by Sasol Gas to all piped gas users in South Africa, except those in KwaZulu-Natal supplied through the Transnet ‘Lilly’ pipeline.

This is the first time Nersa’s been asked to approve a tariff for the gas infrastructure that is wholly located in Mozambique. The tariff for the existing cross-border gas pipeline (Mozambique-Secunda Pipeline / MSP) was agreed upon at an inter-governmental level through a prescribed formula.

The new Loopline 2 is connected and tied into this existing gas pipeline, increasing the capacity of the MSP for the benefit of all users. The location of the pipeline in Mozambique however, raises questions about Nersa’s jurisdiction. Loopline 2 was licensed by Nersa’s counterpart in Mozambique, INP.

It is the second loopline to be constructed parallel to the existing gas pipeline, stretching from Mozambique to Secunda, popularly known as MSP.

Rompco funded the first, but in terms of the application, South African users are expected to fully fund the total capital investment of this second loop line through the tariff. Only 7.8m GJ per year, that is 32% of the total capacity of 24m GJ per year, would however be allocated to the South African market.

The Rompco proposal does not provide for a fair cost allocation between South African customers and Mozambican customers who will also benefit from the additional capacity.

The proposed tariff is more than three times the current tariff of R13.34/GJ for the existing cross-border pipeline (GTA1) that is much longer, stretching 865km, with a much bigger capacity of 126m GJ per year. It also compares unfavourably with the current tariff of R12.87/GJ for the compressor station at Komatipoort (GTA2), with an annual capacity of 27m GJ.

According to Nomfundo Maseti, Nersa regulator member for piped-gas, Rompco argues that the capacity expansion is meant to facilitate the immediate demand of 7.8 million GJ volumes of gas that is required by the South African market.

Moneyweb’s efforts to speak to the Gas Users Group were unsuccessful.

The question is however why South African users are allocated only a small portion of the capacity, yet expected to carry the total capital costs of the entire capacity (24m GJ per annum) of Loopline 2.

Nersa will in the next few days publish the Rompco tariff application as well as a discussion document asking for comments from stakeholders and will hold a public hearing before taking a final decision.

A sharp increase in the gas tariff, which might result in higher total charges for natural gas, will be a further shock for intensive gas users who earlier this month lost a court battle to have Nersa’s decisions for the transmission tariffs for 2014/15, and the maximum gas price for March 2014 – June 2017, reviewed and set aside.

Several large gas users, all members of the Gas Users Group, approached the High Court in October 2013 for relief after a change in the methodology used to determine gas prices from market value pricing (MVP) to maximum price methodology. They argued that this resulted in an irrational and perverse outcome that enabled Sasol, the gas supplier, to charge double what it used to.

The court rejected the application on technical grounds, finding that the applicants should have challenged the methodology after it was approved in October 2011. The delay in bringing the applications was unreasonable, the court found.

Maseti welcomed the court’s decision and said it brings certainty about gas pricing, which together with the Department of Energy’s gas-to-power programme, paves the way for the development of the local gas market.

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