1. Presentation to: PPC on Energy The LPGas Safety Association of Southern Africa 06 September 2006

2. 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

3. 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)

4. 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

5. 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

6. 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

7. 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

8. 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)

9. 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)

10. 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

11. 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

12. 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

13. 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)

14. LPGas Storage

15. 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

16. 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

17. 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)

18. 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

19. Questions THANK YOU

20. Addenda  Traditional Distribution Method  Refined Distribution Method  Planned Refinery Shutdowns  Comparisons

21. REFINERY END USER RETAIL Shops Over the counter DISTRIBUTOR/BRANCH City WHOLESALER Main Depot Cylinder Distribution Bulk Transport Rail - Road Bulk Storage Maintenance + MHI DEALER Towns Over the Counter Break Bulk + Bulk Delivery Bulk Storage + MHI Break Bulk Fill Cylinders Cylinder Delivery Fill Cylinders + Distribution SMME Over the Counter Fill Cylinders Road Delivery Cylinder Storeage + Road Delivery Traditional User Domestic + Commercial Industrial Refinery Gate Sasol Bulk Storage + MHI Fill Cylinders Road Delivery Traditional User Domestic + Commercial Industrial Bulk Delivery Cost Depreciation Safety Levy Wholesale 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 Distributor Receives LPG in Bulk DISTRIBUTORS, DEALERS and RETAILER Fig 4

22. REFINERY END USER RETAIL Shops Over the counter DISTRIBUTOR/BRANCH City WHOLESALER Main Depot Bulk Transport Rail - Road Bulk Storage Maintenance + MHI DEALER Towns Over the Counter Break Bulk + Bulk Delivery Break Bulk Fill Cylinders Cylinder Delivery Fill Cylinders + Distribution SMME Over the Counter Refinery Gate Sasol Bulk Storage + MHI Fill Cylinders Road Delivery Bulk Delivery Cost Depreciation Safety Levy Wholesale Price Jo’burg Main depot Low Income House Distribution IP Equivalent Price Low Income Spaza Cylinder Delivery BFP Sasol Differential Branch/Distributor Owning Cylinders SECONDARY CYLINDER BUSINESS SMME RETAIL Fig 2

25. 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)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)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)http://www.worldlpgas.com/v2/press.php?id=interview-0306