Publications
Partners
- Vita Gas has made a seemingly sudden decision to halt LPG imports into the Western Cape.
- The owner of the LPG import facility said it was blindsided by the move.
- A LPG shortage appears to have been averted as alternative supply will land this week.
- For more financial news, go to the News24 Business front page.
Vita Gas, a subsidiary of Dutch commodity trading giant Vitol, has walked away from a contractual arrangement with Sunrise Energy, leaving the import terminal facility scrambling to secure a supply of liquefied petroleum gas (LPG) for the Western Cape region.
Vita Gas, which imports LPG through Saldanha and counts Vitol as one of its shareholders, said it had walked away from the contract because its position had become "untenable" in the face of ongoing litigation pursued against it by Sunrise Energy.
Sunrise Energy, which runs the import facility at Saldanha and ensures the transfer of LPG from one party to the other, however, said that while it was seeking changes to its contract with Vita – in a bid to open its facility up to other players – it never wanted to cease doing business with the company.
LPG is mainly used for heating by commercial customers such as restaurants and hospitals; and by residential customers for home use. Not only is LPG in higher demand in winter due to the cold, but the Western Cape is also known to face supply constraints at this time of year due to Cape storms and deep-sea swell conditions that prevent vessels from entering the Saldanha port.
While refineries like PetroSA's Mossgas and Chevron's Milnerton plant previously supplied the local market with LPG, the closure of these plants left the region highly dependent on imports which are brought in exclusively through Saldanha Bay.
Now owned by Glencore's Astron Energy, the Milnerton plant has been restarted, but – according to the South African Petroleum Industry Association (Sapia) – it now produces far less LPG, which in any case is for Astron's own consumption.
As such, imports through Saldanha are critical for about 99% of the Western Cape's LPG supply.
'Untenable'
Vita Gas on Friday said it "will no longer contest Sunrise Energy's actions to terminate Vita Gas' contract for the long-term use of Sunrise Energy's LPG import terminal in Saldanha Bay".
Vita Gas said it deeply regrets that it has not been possible to find a mutually acceptable way forward, but "Sunrise Energy has, for over three years, sought to terminate the contract and, whilst Vita Gas contests the validity of Sunrise Energy's arguments, the lengthy and ongoing legal actions against Vita Gas have made the situation untenable."
Vita Gas said that it appreciated that its decision is likely to lead to some short-term supply issues for local distributors and [subject to Sunrise Energy's prior agreement] is willing to continue to supply LPG via the terminal for a period of time.
"Sunrise Energy has advised that it has a number of other interested parties wishing to utilise the terminal for imports, so it is envisaged that any such new arrangements would be short term only," Vita said.
Sunrise Energy's CEO, Rajen Singh, however, said Vita's move had been unexpected and "deceptive" as the company as recently as Thursday was still telling both Sunrise and gas wholesalers that a vessel carrying LPG was due to arrive at the terminal.
Noting that some forewarning would have allowed Sunrise or the gas wholesalers to make alternative supply arrangements, Singh said:
Sunrise makes no money from the trading of LPG, but as the only import facility for LPG supply into the region, Singh said the company felt obliged from a moral standpoint to help bring someone in to fill the gap, "so that the end user does not suffer because of the decision that Vita Gas has taken to cancel the contract without prior notice", he said.
Another supplier will now bring in a vessel in the next day or two, weather permitting.
This, Singh said, will avert a supply shortage in the region.
Sapia's head of security of supply, Siganeko Magafela, said the market will still have to engage this new supplier to see whether they can agree on price.
Vita's decision comes just as a hearing into its alleged anti-competitive conduct is due to be heard by the Competition Tribunal in early July. A probe by the Competition Commission – which was initiated by a complaint lodged by Sunrise – alleged Vita had abused its market dominance in supplying imported LPG in the Western Cape.
This resulted from an exclusive agreement Vita secured with Sunrise, which prevented competitors from accessing the Sunrise terminal facility and services in a manner that would enable them to import LPG at a sufficient scale to participate in the market.
The commission referred the matter to the tribunal, calling for an administrative penalty to be levied against Vita.
Singh said to remedy the anticompetitive effect of the agreement with Vita, Sunrise wanted the contract amended or for a new contract to be negotiated. According to Singh:
Singh said it was too soon to say what the scrapping of the contract means for the competition process. It will also take some time to obtain a proper legal opinion on whether Sunrise could take action against Vita Gas.
Sapia's Magafela said any LPG import challenges at the port of Saldanha would confine supply constraints to the Western Cape. The inland region is supplied by production from Sasol, while Richards Bay and Durban have the largest LPG import facilities. While it is technically possible to move LPG from Richards Bay or Secunda to the Western Cape, this would come at a great expense, Magafela said.
Vita Gas said it and its shareholders, including Vitol, intend to continue investing in the South African energy sector. Through its significant shareholding in the terminalling company VTTI, Vitol is invested in the Burgan Cape Terminal fuel terminal in Cape Town.
Meanwhile, Vivo Energy, Vitol's downstream company across 23 countries in Africa, is expected to complete its agreement to combine with Engen, one of South Africa's largest fuel retailers. Both Vitol and VitaGas will continue to supply LPG to South Africa "where practicable', the company said.
