The LPG industry – a solution to SA’s energy poverty crisis?

Atose Aguele, Managing Director: Avedia Energy. Atose Aguele, Managing Director: Avedia Energy.

The benefits of liquefied petroleum gas (LPG) as an alternative to traditional biofuels have been widely documented. LPG is a safe, reliable and cost-effective alternative to conventional power supply – for both domestic and industrial use – yet only 3% of South Africans are currently using it as an additional source of energy. How can we increase LPG usage in the broader community and in so doing, help address South Africa’s energy poverty issues?

Atose Aguele, Managing Director at Avedia Energy, said,” LPG has been identified by the World Bank as the most environmentally friendly of all fossil fuels. An average South African household that switches to LPG for domestic cooking and heating, could save in excess of 120kg of firewood every year. In this country, LPG’s main competitor in the lower income market is paraffin, a fuel that has one of the highest carbon footprint of all fuels. Paraffin is also undesirable from a safety perspective – it is linked to thousands of deaths of mainly women and children each year around the world.”

One of the challenges of increasing usage of LPG in the broader community, especially in lower income areas, is the perception that it is pricey.

“People believe LPG is more expensive than paraffin, but in terms of energy consumption – comparing the calorific output of LPG with that of paraffin – LPG is actually cheaper. What is urgently required is relooking the packaging of LPG – smaller 3kg or 5kg bottles, as used in other emerging markets such as India, China and Brazil, will increase the uptake of LPG in these areas.”

“The price of LPG still needs to be brought down significantly, however. There is a huge disconnect between the international price of LPG and the local price. The maximum retail price in South Africa has been capped by the Department of Energy since 2010, and we currently have the fourth highest priced LPG in the world. At issue is the maximum refinery gate price (MRGP). The price of LPG is linked to the price of gasoline, which is at odds with what is happening internationally. We have been talking about the MRGP for years without any action being taken,” Aguele adds.

Another issue affecting pricing is the fact that value-added tax (VAT) is charged on LPG, but not on paraffin.

Aguele comments, “This is quite frankly, mystifying. To level the playing fields, the Department of Energy and all industry players need to lobby National Treasury to remove VAT on all LPG products – for both domestic and commercial use. In my view, Treasury would do better to introduce a very low surcharge which could be used for a cylinder fund to bring 3kg and 5kg bottles to the market and subsidise them to make them available to lower income individuals at no charge.”

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