Nersa approached on viability of Saldanha LPG plant

Siseko Njobeni

Johannesburg - Sunrise Energy, which is building a liquefied petroleum gas (LPG) import facility in Saldanha, has asked the National Energy Regulator of South Africa (Nersa) to approve a maximum loading service tariff of R2 175 a ton for the 2016 financial year.

The 2016 financial year runs from March 1 2015 to February 29 2016.

The company is also persuading Nersa to calculate its tariffs using the levelised costing approach, instead of the rate of return methodology.

Raising the stakes, Sunrise has questioned the viability of the project if Nersa does not change the tariffs approach.

The company said competition from other modes of LPG transport put a cap on the price it could charge.

“This market reality is that the normal (rate of return) method for calculating annual tariff will result in tariffs that are not recoverable during the early years of the project,” it said.

In later years, the rate of return approach will result in tariffs that are below the prevailing market prices.

The rate of return method will result in Sunrise not being able to recover its costs in the market and thus render the project unviable, the company said in its tariff application to Nersa. It said the application of the rate of return methodology could undermine infrastructure investments.

“We have to emphasise that, for the construction of the project to be able to proceed, the tariff needs to be set on a levelised basis in order to ensure its market viability,” Sunrise said in its application.

Sunrise said its circumstances were different from the other regulated industries such as petroleum and gas pipelines and electricity, where it said the regulated entities are monopolies.

The imported LPG will compete with other suppliers in the market. These include LPG transported by road tankers from as far as Gauteng, Eastern Cape and KwaZulu-Natal.

The company also alluded to what it termed challenging market conditions under which it is developing the project.

These include lack of clear historical data and lack of comprehensive government policy for LPG rollout.

“Sunrise is bearing the full market risk associated with the project, confident in the growth assumptions being made. The assumptions, however, depend on the ability of the downstream LPG distribution market to respond,” Sunrise said.

The company has assumed that electricity shortages and price increases will drive the growth of the LPG market.

The project is a so-called open access facility that will be accessible to qualifying wholesalers, distributors, importers, traders and industrial LPG users, the company said.

Nersa has invited stakeholders and members of the public to comment on the tariff application.