Say goodbye to cheap, reliable, and accessible LPG supplies

Eskom is already a business disaster, a place where government intervention and management was inevitably going to take it. 

Now the government has decided to meddle with the liquid gas supply chain, so say goodbye to a wide distribution network, reliable supply, and ultimately cheap prices for your gas hobs or gas heater.

Here’s the thinking.

1. Over time government destroys Eskom’s infrastructure, so now SA sits with a rationed electricity supply and rising electricity prices.
2. Homebuilders and owners at the margin prefer to switch to Liquid Petroleum Gas (LPG) appliances such as gas hobs and heaters as these (while at times more expensive) will be more reliable than the electricity supply because the market supplies LPG readily.
3. Now government sets its sights on the booming LPG industry’s margins as a result of this increased demand, inevitably causing a market failure.  Surely if the industry is so ‘profitable’, more LPG players would enter the market that would erode these so-called ‘excessive profit margins’?
4. With the LPG market about to get smashed by the state, what are the other options if you want a reliable source of energy that won’t see market failure?  Solar?

Household gas prices capped

Jul 12 2010 09:26 / Francois Williams

Cape Town -  Prices for liquid petroleum gas (LPG) will be capped from this week by the department of energy.

From Wednesday retailers at the coast can charge no more than R15.69/kg for LPG, and in Gauteng no more than R17.27/kg.

From August, LPG prices will be adjusted every month – like those of petrol and diesel.

Departmental spokesperson Bheki Khumalo said LPG is used mostly by wealthier South Africans for heating or camping purposes. But LPG is not readily available to low-income households, which generally use wood or paraffin for cooking or heating.

The department believes LPG prices are excessive because of the high profit margins along the entire value chain – from the filling of cylinders to the cash register.

The department said regulating the maximum retail price provides LPG industry players with fair compensation for their capital investment and operating costs.

http://www.fin24.com/Business/Household-gas-prices-capped-20100712

LPG retailers slate price clamps

Jul 14 2010 07:42 / Francois Williams

Cape Town – Retailers of liquid petroleum gas (LPG) are upset with the new price clamps on gas, and many are threatening to stop selling LPG altogether.

After Friday’s surprise announcement by the department of energy that household gas prices would be regulated and a cap put on the profit margin of R1.20/kg, as from Wednesday, retailers claim it will not be worth their while to sell the gas.

Retailers at the coast can charge no more than R15.69/kg for LPG, and in Gauteng no more than R17.27/kg.

Peter Noke, national director of the South African Petroleum Retailers Association, said the regulated prices, along with the many risks involved in selling LPG, would make LPG more affordable, but not more accessible.

The retail industry was disappointed that it was told only on Friday that prices were to be regulated from this week, he said. Many retailers read the news in Sake24 only on Monday.

http://www.fin24.com/Business/LPG-retailers-slate-price-clamps-20100714 

FREEMAN COMMENT: Nice one Galty.  Glad you picked up on this.  The joke about these policies is that government genuinely thinks it is being clever by doing this.  If they had even a smattering of intelligence and economic understanding they would know that price ceiling policies have been tried by different governments in different parts of the world on different products for millennia, and each time the result is exactly the same: market failure, shortages, entrepreneurial failure, business shutdowns, and eventually the emergence of ’black’ markets.  Do our leaders really think it is possible to ‘decree’ a price lower on a sustainable basis?  What do they think the pricing mechanism is? Do they even understand what a price is?  I doubt it.

People always argue that ‘key’ industries must be regulated for the greater benefit of society as these markets provide products of national importance.  This bollocks is easily dispelled by simple logic.  Food is among the most necessary goods around.  Without food for a few days we become incapacitated, and after a couple of weeks we die.  Not so with energy products which are, in reality, a luxury.  The food market is by and large greatly unregulated by government, and yet all people are well fed every day without the help of the state.  Furthermore, just look as govts regulation of Eskom.  Government tried to pretend that it could sell their monopoly product at a dirt cheap price forever.  Eventually it found out it had got it wrong and is busy cranking up electricity prices alarmingly.

Folks, govt doesn’t need to regulate ‘important’ sectors and nor can it hope to keep prices low.  The market provides services better than the state, and market prices will always find a way to be expressed, regardless of the state’s meddling.  Any sustained efforts by the state to suppress prices for products will either result in market failure and a shortage of that good if the state is good at what it does, or a thriving ’underground’ market if the state is bad at what it does.  Let us that hope that if this policy is followed through by government that at least it is bad at policing it…