Cape Town - Major household gas suppliers like Afrox and Easigas say it is too early to judge the effects of new liquid petroleum gas (LPG) price regulations on retailers, but many retailers themselves say they have been badly hit by the profit margin caps.
Some dealers claim the profit margin of R1.20/kg imposed by the department of energy is not economically viable for them, and they will be forced to either stop selling the gas or reduce their staff. Retailers at the coast can charge no more than R15.69/kg for LPG, and in Gauteng no more than R17.27/kg.
Strand Gas owner Phil Swiegers said he would have to weigh up whether to retrench six of his workers as he could not afford them at the permitted retail profit margin of R1.20/kg.
On Wednesday he lost two clients who regularly bought gas from him for further distribution in smaller towns, because at the new prices it no longer made financial sense for them to deal in gas.
Swiegers said he heard from his supplier about the new pricing only on Tuesday evening, the day before the regulated prices became effective.
Earlier this week the department said talks about price regulations had started as far back as 2006, and retailers were given enough time to prepare for them.
Swiegers believes pricing regulations damage the LPG industry. He feels too little information has been distributed, and the situation is confusing. His business is in the Strand on False Bay in zone 2A, where LPG is supposed to be sold at R15.78/kg, compared with R15.69/kg in zone 1A, which extends from Cape Town to Kuils River.
With a permitted profit margin of R1.20/kg after deduction of VAT, gas dealers in zone 1A have to buy the product at R12.56/kg from wholesale distributors. With a maximum price of R5.49/kg at the refinery gates, this means that middlemen between the refinery and the retail sales points make a gross profit of about R7/kg, compared with the retailers' R1.20.
Neil Robb, a gas dealer in Paarl, said that when he went to buy gas supplies on Thursday he still had to pay his wholesale supplier the old price.
Gas supplier African Oxygen [JSE:AFX]
declined to say whether it was satisfied with the permitted profit margin for wholesalers, as the company is in a closed period ahead of its interim financial results.
Easigas said that the full impact of price regulations would be seen only later, and Totalgaz MD Chris Okonmah could not be reached for comment.
- Readers are finding it difficult to reach the department of energy's special phone number for reporting over-pricing. The number published on Thursday is incorrect. The correct number, according to the department, is 012 444 4444 in Gauteng and 021 427 1018 in the Western Cape.