ICCC ends assessment into claims on gas

Business

THE Independent Consumer and Competition Commission concluded a competition investigation and assessment into a complaint by a retailer against a distributor of household liquefied petroleum gas for having exclusive agreements with its direct retailers.
ICCC in a statement said the assessment of this complaint was based on its investigation and the information available to it showed that:

  • LPG is a flammable mixture of hydrocarbon gases (either made out of propane or butane). Domestic LPG usage amounts to 4 per cent of the current household population in the country, especially in the urban and semi-urban areas.
  • There are two producers of LPG in Papua New Guinea: Puma Energy PNG Ltd through its Napa Napa Refinery produces LPG, as a petroleum bi-product which it supplies it to its subsidiary Puma gas for on-sale to users; ExxonMobil produces LPG through its LNG Project. However, it only exports it to the international market.
  • Origin PNG Ltd had been the only supplier of household LPG with nearly 100 per cent market share before 2015. Origin imports its LPG from Australia and conducts its business in Port Moresby, Lae, Rabaul, Mt Hagen, Goroka and Alotau.
  • Trugas entered the LPG market in 2015. Trugas operates in Port Moresby, Lae and Mt Hagen and also has agents nationwide. Trugas imports household LPG from the Middle East and South-East Asia.
  • Puma Gas entered the LPG market in 2016. Puma Gas operates in Port Moresby, Lae, Goroka, Wewak, Alotau and Rabaul.
  • Currently, it is estimated that Origin’s market share has reduced to 90 per cent, with Trugas having 8 per cent and Puma 2 per cent of the Papua New Guinea market.
  • Despite Origin having the largest market share among the three suppliers of LPG, Origin does not necessarily have market power in the LPG distribution market. Since the entry of Trugas and Puma Gas, the price of household LPG declined by almost 20 per cent.

A small but significant and non-transitory increase in price (SSNIP) test, applied by the ICCC shows that if Origin increases the price of its LPG between 5-10 per cent, this will result in a sufficient number of households switching to or purchasing more of Puma Gas and -Trugas LPG;

  • The LPG business is capital intensive as it requires huge capital investment and involves high sunk costs.
    According to Origin, Trugas and Puma Gas, the main barriers to entry are the high levels of infrastructure costs, market distribution, high transport costs and low level of adoption of LPG by consumers, at least under the current circumstances; and,
  • The ICCC has so far identified two potential suppliers who are likely to enter the market.

Hence, the ICCC views the LPG market as a growing and competitive market in terms of investment and pricing (wholesale and retail).
“The barriers of entries are determined by the market structure,” it said.
“ICCC views that there are no serious competition concerns that may arise from a distributor having agreements with its direct retailers, as the market is growing and competitive.
However, they will continue to monitor the dynamics of the market going forward to ensure the benefits of the LPG market are not stifled to the detriment of current and future uses.”

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