Presentation to:PPC on Energy

The LPGas Safety Association

of Southern Africa

06 September 2006

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

Background Government’s commitment –

energise the poorer communities (Budget speech 2004) Government’s intention –

make LPGas the fuel of choice for domestic thermal energy: safe, clean, efficient, affordable

LPGas industry’s 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)

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

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

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

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

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)

Progress Government’s 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)

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

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

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

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)

LPGas StorageLPG SUPPLY AND DEMAND: MAY TO NOV 06

29000

30000

31000

32000

33000

34000

35000

36000

37000

May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06

LP

G M

T P

ER

MO

NT

H

Production 31287.66667 31398.7 36832.66667 29417.66667 35092.5 32166 33765

Demand 32483.475 35840 35540 34348 33240 33798.54839 31895

May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06

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

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

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)

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

Questions

THANK YOU

Addenda

Traditional Distribution Method

Refined Distribution Method

Planned Refinery Shutdowns

Comparisons

REFINERYEND USER

RETAILShops

Over the counter

DISTRIBUTOR/BRANCHCityWHOLESALER

Main Depot

Cylinder Distribution

Bulk TransportRail - Road

Bulk StorageMaintenance + MHI

DEALERTowns

Over the Counter

Break Bulk + Bulk Delivery

Bulk Storage+ MHI

Break BulkFill Cylinders

Cylinder Delivery

Fill Cylinders + Distribution

SMMEOver the Counter

Fill Cylinders Road Delivery

Cylinder Storeage + Road Delivery

Traditional UserDomestic + Commercial

Industrial

Refinery Gate

Sasol

Bulk Storage+ MHI

Fill Cylinders Road Delivery

Traditional UserDomestic + Commercial

Industrial

Bulk Delivery CostDepreciationSafety Levy

Wholesale Price

Wholesale Price

Retail Price

Retail Price

Retail Price

Retail Price

Retail Price

Retail Price

Retail Price

Retail Price

Retail Price

Retail Price

Silverton

Hardware

Spar

Fairlands

Stillfontein Garage

Cylinder Delivery

BFP Sasol Differential

Branch/Distributor Owning Cylinders

Distributor supplied in cylinders

Main depot

Branch/Distributor Owning Cylinders

Non Cylinder Owning DistributorReceives LPG in Bulk

DISTRIBUTORS, DEALERS and RETAILERFig 4

REFINERY END USERRETAIL

ShopsOver the counter

DISTRIBUTOR/BRANCHCity

WHOLESALERMain Depot

Bulk TransportRail - Road

Bulk StorageMaintenance + MHI

DEALERTowns

Over the Counter

Break Bulk + Bulk Delivery

Break BulkFill Cylinders

Cylinder Delivery

Fill Cylinders + Distribution

SMMEOver the Counter

Refinery Gate

Sasol

Bulk Storage+ MHI

Fill Cylinders Road Delivery

Bulk Delivery CostDepreciationSafety Levy

Wholesale Price

Jo’burg Main depot

Low Income House Distribution

IP Equivalent Price

IP Equivalent Price

IP Equivalent Price

IP Equivalent Price

Low Income

Low Income

Spaza

Spaza

Cylinder Delivery

BFP Sasol Differential

Branch/Distributor Owning Cylinders

SECONDARY CYLINDER BUSINESS SMME RETAIL Fig 2

REFINERY SHUTDOWN SCHEDULE Updated by :Engen Petroleum Ltd

(Planned Shut-downs)

J F M A M J J A S O N D J F M A M J

SAPREF

Date Range

Duration

% loss in production

Units Down

ENREF

Date Range 11th-31st

Duration 20 dys

% loss in production 100%

Units Down All Units

CALREF

Date Range 1-26 Aug

Duration 26

% loss in production 90%

Units Down Platformer

PETROSA

Date Range TBA

Duration 7

% loss in production TBA

Units Down DHT

NATREF

Date Range 1-12Aug 1-15Nov TBN 1st-30th

Duration 12 15 12 30

% loss in production 5% 40% mogas 5% 90%

Units Down RCD Platformer RCD CDU/Platformer

SECUNDA

Date Range

Duration

% loss in production

Units Down

25Aug-8Sep

16 days

35%

Sec E

100%

Total Shut-down

Staggered all Units

?

34 dys

100%

All Units

REFINERY / OPERATION

30Mar-13Apr

9Oct-4Nov

24

VBK / DHT / Amine

40% mogas grades

Platformer

8May-23May

15

25Jun- 21Aug

60days

100%

3Q2006 4Q2006 2Q20072Q2006 1Q2007

Last Updated Prinited

24 August 2006

14 dys

25 July 2006

1Q2006

PRICE COMPARISONS93 Petrol - DME Website

LPG Bulk BFP - (LPG Maximum Refinery Gate Price excluding the Sasol differential) = CEF Media Release

IP BFP & Regulated Retail Price exl VAT = CEF Media Release

Packed (IP when packcked is un-regulated) = Retail and Hardware stores

LPG WLP (Wholesale List Price in 9 kg cylinders incl VAT) = An LPG Wholesale Company

LIH (low Income Household in 5 kg cylinders) = IP energy equivalent price less R2.00 Incl VAT

LPG Retail (Retail price incl VAT delivery and credit for 49 kg cylinders) = A reputable Gauteng Distributor

Gauteng Cape Town

Month Petrol 93 (R/l) LPG Bulk (R/kg) IP (R/l) LIH (R/kg) LPG (R/kg) LPG Retail (R/kg)BFP Var BFP +35c Diff Var BFP Retail Var Retail Var Retail Var Retail Var

Jan-05 2.00 2.49 2.84 2.03 3.65 9.69 Feb-05 2.18 0.18 2.86 3.21 0.37 1.99 3.60 -0.05 9.69 - - Mar-05 2.17 -0.01 3.18 3.53 0.32 2.34 4.06 0.46 10.08 0.39 - Apr-05 2.46 0.29 3.41 3.76 0.23 2.83 4.72 0.66 10.52 0.44 -

May-05 2.66 0.20 3.13 3.48 -0.28 3.09 5.07 0.35 10.52 - - Jun-05 2.44 -0.22 3.64 3.99 0.51 2.84 4.82 -0.25 10.52 - - Jul-05 2.73 0.29 3.90 4.25 0.26 3.17 5.25 0.43 10.98 0.46 -

Aug-05 3.00 0.27 4.29 4.64 0.39 3.32 5.45 0.20 11.55 0.57 - Sep-05 3.26 0.26 4.43 4.78 0.14 3.42 5.59 0.14 11.92 0.37 - Oct-05 3.38 0.12 4.03 4.38 -0.40 3.45 5.62 0.03 11.92 - - Nov-05 3.07 -0.31 3.62 3.97 -0.41 3.44 5.61 -0.01 11.92 - - Dec-05 2.72 -0.35 3.58 3.93 -0.04 3.09 5.21 -0.40 7.62 11.92 - 10.10

Jan 05 - Dec 05 36% 0.72 44% 1.09 52% 43% 1.56 23% 2.23 VAT excl VAT incl

Jan-06 2.66 -0.06 3.69 4.04 0.11 3.07 5.18 -0.03 7.56 -0.06 11.92 - 10.10 - Feb-06 2.80 0.14 3.52 3.87 -0.17 3.11 5.23 0.05 7.65 0.09 11.92 - 10.10 Mar-06 2.69 -0.11 3.96 4.31 0.44 3.15 5.28 0.05 7.75 0.10 11.92 - 10.10 - Apr-06 2.96 0.27 4.37 4.72 0.41 3.30 5.36 0.08 7.90 0.15 12.43 0.51 10.52 0.42

May-06 3.35 0.39 4.81 5.16 0.44 3.50 5.62 0.26 8.39 0.49 12.43 - 10.52 - Jun-06 3.71 0.36 5.19 5.54 0.38 4.06 5.89 0.27 8.91 0.52 13.05 0.62 11.19 0.67 Jul-06 3.96 0.25 5.61 5.96 0.42 4.21 6.37 0.48 9.82 0.91 13.68 0.63 11.90 0.71

Aug-06 4.27 0.31 6.10 6.45 0.49 4.27 6.65 0.28 10.35 0.53 14.48 0.80 12.68 0.78 Sep-06 Estimate

Oct-06Nov-06Dec-06

Jan 06 - Aug 06 57% 1.55 70% 2.52 38% 1.44 36% 2.73 21% 2.56 26% 2.58

Jan 05- Aug 06 114% 2.27 145% 3.61 110% 3.00 49% 4.79

Regulated Prices Free Market Prices

LIH PRICE CALCULATION - Cape TownDec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06

CEF Published IP Retail (R/L) 5.21 5.18 5.23 5.28 5.36 5.62 5.89 6.37 6.65 Conversion Factor 1.05414 1.05414 1.05414 1.05414 1.05414 1.05414 1.05414 1.05414 1.05414

IP Equivalent LPG Price (R/L) 5.49 5.46 5.51 5.57 5.65 5.92 6.21 6.71 7.01 Density Factor 0.555 0.555 0.555 0.555 0.555 0.555 0.555 0.555 0.555LPG Equivalent Price VAT Icl 9.90 9.84 9.93 10.03 10.18 10.67 11.19 12.10 12.63 LPG Equivalent Price VAT Exl 8.68 8.63 8.71 8.80 8.93 9.36 9.81 10.61 11.08 Less R 2.00 6.68 6.63 6.71 6.80 6.93 7.36 7.81 8.61 9.08 LIH Retail + VAT 7.62 7.56 7.65 7.75 7.90 8.39 8.91 9.82 10.35

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?id=04)

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?id=interview-0306)