Presentation to: PPC on Energy

1
Presentation toPPC on Energy

• The LPGas Safety Association
• of Southern Africa
• 06 September 2006

2
Items for Discussion

• Background to Current Projects
• Memorandum of Understanding
• W Cape DSM Project
• 2 Plate Cooker Campaign
• Initial Challenges
• Progress
• Achievements to Date
• The Real Issues
• The Way Forward

3
Background

• Governments commitment energise the poorer
  communities (Budget speech 2004)
• Governments intention make LPGas the fuel of
  choice for domestic thermal energy safe, clean,
  efficient, affordable
• LPGas industrys commitment pilot affordable
  package alternatives to fuels electricity
• Cost of appliances identified as a major barrier
• Application made for DSM funding
• DME critical of Free Basic Electricity only
• Minister directs FBE policy towards rural areas
  (non electrified)

4
Memorandum of Understanding

• Several meetings Eskom/DME/LPGSASA on DSM
  funding
• Shortlist of 10 points agreed
• Promotion of the SAFE use of LPGas
• 2 Plate cooker, 5kg cylinder, first fill free
• R50 cylinder deposit to prevent selling for scrap
• Paraffin equivalent price less R2, 00/kg
• Compatibility cylinders and appliances
• Local availability and accessibility
• Limit DSM funding to electrified ( identified)
  areas
• Letter of support for this MoU from Minister
  Sonjica
• Initial campaign achieved 60 000 but stopped by
  DME

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W. Cape DSM Project

• LPGas industry approached to commit to
• 2 Plate cooker campaign
• Stove, Hob, Heater campaign
• Scope for phase 1 and 2
• 100 000 and 500 000 households
• 30 000 and 60 000 households
• Geographically W E Cape but limited initially
  to Cape Town Metro
• MoU elements to apply. LPGSASA to manage safety,
  promotion and acceptability

6
2 Plate Cooker Campaign

• 4 Companies committed Afrox, Bulgas, Kaya Gas
  Totalgaz
• 450 Field workers appointed and trained
• Explain mechanics, benefits and safety issues
• Complete questionnaires, distribute leaflets
• Safety Officers paid R1 000, 00 per month
• To complete project at end of July
• 45 Survey Officers engaged to collect feedback on
  the project implementation

7
Initial Challenges

• Only one supplier operated in first month
  (Totalgaz)
• Appliance availability vs. proposed deadlines
• Consumer enthusiasm logistical nightmare for
  participating companies
• LPGas availability becomes national focus due to
  negative publicity
• LPGas, priced on BFP, increases way beyond
  electricity, generating further bad publicity
• Rogue dealers overcharging, not honoring vouchers
• Cylinders empty at inconvenient times

8
Progress

• 2 Plate cooker campaign has been welcomed in the
  Cape eagerly anticipated elsewhere - despite
  negative publicity
• Many important lessons have been learnt which
  will guide us through the next phases
• There can be no turning back on the momentum
  generated over the last 3 months(more stock
  arriving)

9
Progress

• Governments policy direction is pointing to
  increased usage of LPGas for the LIH
• LPGas industry commitment should not be taken for
  granted, direction practice is vital
• Sustainability of supply of LPGas is integral
• Stability of price of LPGas is equally so
• Stakeholder buy-in to be confirmed and
  coordinated
• Recognition of the WLPGA (Annual Forums)

10
Achievements to Date

• 51 000 households visited
• 40 000 households converted
• Four (?)companies rolling out
• Establishment of dealerships ongoing
• LPGSASA research being undertaken (Dikepolana
  Resources)
• Eskom research to be undertaken

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The Real Issues

• LPGas safety
• LPGSASA coordination necessary. Uncompromised
  safety - non negotiable
• LPGas pricing
• Linked to BFP creates a problem no control,
  fluctuations, customer confusion, negative press
• LPGas availability
• Information inaccurate, unreliable no control,
  unable to plan, communities disillusioned,
  negative Press, Quota required for poorer
  communities
• LPGas accessibility
• More dealers required, increased (job)
  opportunities, increased commitment from suppliers

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The Real Issues cont.

• LPGas deliverability
• Roll out programme, proper and achievable
  planning - make it happen, but make it
  achievable- commitment from and sustainability
  of companies
• Support from other players Eskom, DME, NER
• Pressure required. Subsidy (non fuel?) essential.
  DME to assist, not to target industry (Press
  reports, etc.)
• Long term commitment to the project
• Suppliers cannot commit on a stop/start basis
• Communities will support continuity
• Stakeholder responsibilities
• Government imperative
• Cannot ignore the success thus far
• Seriously consider what has been achieved and
  what can still be achieved, including support
  from Ministers, FBE, RDP, etc

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Storage of LPGas

• Refineries produce Propane and Butane which are
  gases
• LPGas is a common name used to describe a mixture
  of the two gases
• The supply of LPGas is entirely dependent on the
  local refineries
• LPGas is a capital intensive industry
• Unlike Paraffin, LPGas requires costly pressure
  vessels
• Like all fuels it is dangerous if the safety
  standards are bypassed
• Safety is well regulated and managed
• There was always a surplus supply of LPGas (330K
  tons/420K tons)
• The demand has suddenly shot up to equal the
  local supply (Graph)

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LPGas Storage
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Storage of LPGas

• Storage capacity has not been a serious problem
  up to now
• Refinery storage is about 3 days unlike
  Petrol/Jet/Diesel 35 days
• The Marketers have about 2 - 3 weeks storage
• The market can cope with one refinery shutdown at
  a time (not 4)
• The lack of adequate storage is due to the fact
  that
• LPGas storage is expensive
• It has not been essential up to now
• The (current) demand is cyclical with high demand
  in winter
• the surplus in the summer should be stock piled
• Refineries shutdown when their major products are
  in low demand

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Storage of LPGas

• LPGas is becoming a household fuel of choice - as
  it is world wide
• To meet this new demand new sources have to be
  found
• Sasol manufacture more - Import
• In order to import, a major import terminal will
  be required
• Tanker ships can carry up to 40,000 tons of
  refrigerated LPGas
• An import terminal should store at least 60,000
  tons (60 days current demand)
• Estimated capital cost of an import terminal is
  - 120 m (R840 m)
• Working capital required to fill the storage -
  Aug 06 BFP is R360 m
• Opportunities for Foreign and BEE investment

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LPGas Storage

• Calculation of Basic Fuel Price (BFP) elements
• Average CIF (Cost Insurance Freight landed cost
  for imports)
• FOB, Insurance, Freight, Demurrage allowance
• Ocean loss allowance
• Wharfage charge
• Coastal Storage Costs
• Stock Financing Costs
• BFP Rules for
• Coastal Storage Costs include
• 25 days storage
• at a rate of 2.083 SA cents/litre inflation
  (from 2002)

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The Way Forward ??

• Outcome of the Meeting
• A Common Vision
• 3 000 000 households to be switched
• Mutual agreement/support
• Strategy/Agreement to cover
• Base Price Comparable with electricity
• Availability Quota committed to LIH campaigns
• Storage Capacity, strategic stock (35 days)
  Levy/cross subsidisation to fund a terminal
  BEE Opportunities
• F B E Support for municipalities

19
Questions

• THANK YOU

20
Addenda

• Traditional Distribution Method
• Refined Distribution Method
• Planned Refinery Shutdowns
• Comparisons

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Fig 4
DISTRIBUTORS, DEALERS and RETAILER
Cylinder Distribution
END USER
RETAIL Shops Over the counter
DISTRIBUTOR/BRANCH City
WHOLESALER Main Depot
DEALER Towns Over the Counter
SMME Over the Counter
REFINERY
Break Bulk Fill Cylinders
Cylinder Delivery
Cylinder Delivery
Traditional User Domestic Commercial Industrial
Refinery Gate
Bulk Storage MHI
Fill Cylinders Road Delivery
Retail Price
Hardware
Retail Price
Sasol
Silverton
Retail Price
BFP Sasol Differential
Non Cylinder Owning Distributor Receives LPG in
Bulk
Wholesale Price
Bulk Transport Rail - Road
Bulk Storage Maintenance MHI
Fill Cylinders Distribution
Bulk Delivery Cost Depreciation Safety Levy
Retail Price
Traditional User Domestic Commercial Industrial
Cylinder Storeage Road Delivery
Retail Price
Main depot
Spar
Branch/Distributor Owning Cylinders
Retail Price
Fairlands
Retail Price
Wholesale Price
Distributor supplied in cylinders
Retail Price
Break Bulk Bulk Delivery
Bulk Storage MHI
Fill Cylinders Road Delivery
Retail Price
Retail Price
Garage
Stillfontein
Branch/Distributor Owning Cylinders
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SECONDARY CYLINDER BUSINESS SMME RETAIL
Fig 2
Low Income House Distribution
REFINERY
END USER
RETAIL Shops Over the counter
DISTRIBUTOR/BRANCH City
WHOLESALER Main Depot
DEALER Towns Over the Counter
SMME Over the Counter
Break Bulk Fill Cylinders
Cylinder Delivery
Cylinder Delivery
Refinery Gate
Sasol
BFP Sasol Differential
Bulk Transport Rail - Road
Bulk Storage Maintenance MHI
Low Income
IP Equivalent Price
Fill Cylinders Distribution
Spaza
Bulk Delivery Cost Depreciation Safety Levy
IP Equivalent Price
Joburg Main depot
Wholesale Price
Break Bulk Bulk Delivery
Bulk Storage MHI
Fill Cylinders Road Delivery
Low Income
IP Equivalent Price
IP Equivalent Price
Branch/Distributor Owning Cylinders
Spaza
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World Health Organisation

• an annual investment of 13 billion could halve
  the number of people cooking on polluting,
  traditional fuels and provide an annual payback
  of more than 90 billion in terms of time lost
  from poor health and collecting fuel.
• Importantly for the LP Gas industry, WHO
  recommends that much of this 13 billion annual
  investment should go to helping people gain
  access to LPGas. WHO also suggests offering
  one-time subsidies to help with the purchase of
  appliances. This report is available for free
  down load from the WHO website (http//www.who.int
  /indoorair/publications/fuelforlife.pdf)
• Prior to this report being published, the WLPGA
  published a study on Indoor Air Pollution
  (Household Fuels And Ill-Health In Developing
  Countries) and this is available for free
  download from our web site. (http//www.worldlpgas
  .com/v2/publications.php?id04)
• Again, on our web site we have an interview with
  Professor Kirk Smith - one of the worlds leading
  experts on air pollution, who explains why LPGas
  is the most ideal household fuel.
  (http//www.worldlpgas.com/v2/press.php?idintervi
  ew-0306)