AG drills into R6bn Sasol deal

Auditor General Shauket Fakie has called for documents that deal with the government’s financial arrangements with Sasol.

The fuel-from-coal giant, on which taxpayer support was lavished in the past, has been at the centre of controversy as oil prices have jumped dramatically in recent months and continued to trade at these much higher levels.

A key issue, as reported last week by the Mail & Guardian (“Govt’s gift to Sasol”), is whether Sasol will be called to repay subsidies paid to it when oil prices were low. These amount to R6-billion since 1989, of which about R50-million has been repaid.

Fakie has called for two vital documents: a ministerial directive that governed the relationship between Sasol and the government after 1995, and a report by auditors Arthur Andersen for the Liquid Fuels Industry taskforce, a body set up under the National Economic Development and Labour Council umbrella to investigate the industry.

Then energy minister Pik Botha, who was the responsible minister at the time of a Cabinet decision to phase out protection for Sasol, says press cuttings show “there was not a single word about repayment of a single cent. There was not a word by media, government or any minister about repayment.”

The Cabinet used recommendations in the Arthur Andersen report as a basis to determine new, lower levels of protection for Sasol.
It noted what was the general understanding of the relationship between the government and Sasol at the time, that Sasol’s synthetic fuel business was protected if the oil price fell below $23 a barrel. Payments from the equalisation fund ensured revenues of $23 a barrel for Sasol even if the oil prices were lower.

“When the derived price of crude oil exceeds $28,70, 25% of all income above this level is forfeited until the cumulative benefit of protection enjoyed since July 1989 is repaid in full,” the report said.

It noted that R3,7-billion had been paid to Sasol through the equalisation fund by March 1995.

The report recommended that Sasol’s tariff levels, designed to give it a 10% return on assets, could be cut as Sasol was significantly more profitable than this. It made no recommendation on the issue of repayment.

Botha keeps media reports on his activities and found several from December 1995 that reported on the phasing out of protection to Sasol.

The reports, most dated December 7 and 8 1995, follow a Cabinet meeting on December 6. Botha said the reports were quite clear.

The Cabinet decision was to implement the Arthur Andersen recommendations, with some modifications. Sasol’s MD at the time, Paul Kruger, was quoted saying the tariff cuts would cost Sasol R3,4-billion over the phase-out period. Kruger said new technology would avert the consequences of the tariff loss.

“We agreed harsher cuts than Arthur Andersen recommended,” said Botha. He quoted a report that said the cuts would save the fiscus R1-billion during the next financial year.

Botha said there was a commitment from Sasol to develop 150 000 jobs in downstream industries in the Secunda area.

The Ministry of Minerals and Energy said there is no formal agreement between the government and Sasol on this issue, but rather a ministerial directive. The contents of the directive have not been made public.

The Democratic Alliance’s Hendrik Schmidt says he has written to Sasol requesting a copy of agreements it has with government regarding its protection. The DA will take the issue up with the standing commitee on public accounts.

Former energy minister Pik Botha says he “is not in on any deal”. Botha was reacting to a caption under his picture on the front page of the M&G that said “in on the deal”. Botha said he left politics in 1996 after discussions with Sasol that had led to the phasing out of its tariff protection over a four-year period. “I had nothing to do with implementation and am not in any deal whatsover.”

Kevin Davie

Kevin Davie

Kevin Davie is M&G's business editor. A journalist for more than 30 years, he has worked in senior positions at most major titles in the country. Davie is a Nieman Fellow (1995-1996) and cyberspace innovator, having co-founded SA's first online-only news portal, Woza, and the first online stockbroking operation. He is a lecturer at Wits Journalism. In his spare time he can be found riding a bicycle, usually somewhere remote. Read more from Kevin Davie

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