BY BONNIE MODIAKGOTLA
With no commercial production of liquefied petroleum gas (LPG) in Botswana, it has been found that gas importers are not only critical in the supply chain but they can also influence prices, reveals Competition Authority.
Ernest Bagopi – the investigations and research analysis manager at the antitrust body – led the study into Botswana’s LPG market, focusing on key market players that include importers, distributors and retailers. Data gleaned from the report shows that the local supply chain is made up of five main LPG importers that primarily source the gas from South Africa, 10 distributors and approximately 450 retailers.
Bulk gas imports are secured from suppliers abroad, and then these are unloaded into the domestic market through distributors, which are mostly owned by the importers. Moreover, some importers sell directly to consumers, thus playing dual role in the supply chain, the report found. In addition, some importers have long-standing agreements with specific distributors that own numerous retail points.
“This may lead to competition between importers, distributors and retailers in the downstream market. This phenomenon can also be seen at retail level, since some distributors also own retailers. With the market being highly concentrated and dominant firms being integrated along the supply value chain, this may facilitate infringements, such as margin squeeze, refusal to deal, excessive pricing and price fixing,” read part of the report.
Due to dependence on gas imports, the research paper says the retail price is subject to the import price, and as a result, the LPG price in Botswana is highly tied to dynamics in South Africa. The researchers advise that it is “prudent to monitor LPG trends in South Africa to ensure that local market reactions are warranted and not caused by firms distorting market forces with the intent to escalate the price.”
In a startling discovery from the LPG study, it was revealed that upon the entrant of Tswana Gas, a citizen owned LPG importer, the existing dominant players EasiGas, Quick Gas and Afrox Botswana reacted by cutting the gas price. However, it was also found that some unregistered distributors and some other retailers benefitted from the price cut but did not pass the low costs to customers, maintaining the old costly prices.
Findings from the report show that Afrox Botswana and Easi Gas dominate the LPG market, with each company commanding 45 percent of market share. The two importers have more presence across the country compared to the other three gas companies that are yet to expand their base operations.
Another key finding was that the country’s LPG market was highly concentrated, with a concentration ratio of 94 percent by the top three firms ÔÇô which is significantly higher than the international threshold for a high market concentration of 70 percent.
The researchers suggest that the market shows signs of a highly oligopolistic market, which is characterised by high barriers to entry and possible levels of coordination between firms as a result of low levels of competition.
The report has also found out that gas prices in Botswana are higher than the regional average, with country coming second to Zambia as the most expensive country in the region.
The study has recommended an investigation into the LPG market to determine the prevalence of abuse by dominant firms, including collusive practices that involves market allocation and price fixing.