Mthombo vs Mafutha

As with many South Africans who have investments in insurance or retirement schemes, I own Sasol shares. I therefore put on my investor hat for a meeting with Benny Mokaba, an executive director at Sasol who, among others things, is the company’s Mafutha champion.

This is the Sasol 4 project, an 80 000 barrel-a-day coal-to-liquid (CTL) plant to be built either in Limpopo or the Free State.

Mokaba is the kind of guy any shareholder would want to have championing his or her company. First, he has the right kind of experience, having held top positions at both Shell and the giant Sapref refinery in Durban.

But second, and most importantly, he is passionate about the company and its technology. For him, a giant new CTL facility is a ‘logical no-brainer”.

As Mokaba sees it, we live in an age of escalating oil prices and increasing energy insecurity, not to mention ‘peak oil”—the idea that the world’s oil reserves have peaked and are already, or soon will be, in a state of inexorable decline.

But South Africa has enough coal reserves, Mokaba says, that if stated in the terms of crude oil equivalent, we are an oil power bigger than Kuwait, perhaps even approaching Iran.

Sasol’s plants at Secunda, he says, save R20-billion a year on the balance of payments, employ 7 000 in mining and 14 000 at the plants. These operations pay R5-billion in tax annually, while nurturing and developing the skills pool in this industry.

The Secunda plants are also the source of a range of chemicals, solvents, waxes and base oils, which conventional refineries cannot produce.

Mokaba reckons that as he has been involved with both conventional and CTL refining he is well placed to judge which is the best investment now that the country has run out of refining capacity.

Truth be told, Mokaba is of the opinion that we need both. But, though he sees new CTL facilities in ‘no-brainer” terms, it is clear he is more than a little peeved that Sasol’s proposed new plant is running into opposition. He says he is surprised by the ‘scepticism”, even ‘cynicism”, which Mafutha elicits.

As the interview progresses I find myself taking off my investor hat and putting on my taxpayer’s hat. It’s mainly that less and less detail becomes available.

It is clear that Sasol is looking for state support of some kind, but it is not clear at all what this might be.

On the day of our interview oil was trading at a new record—$113 a barrel. The cars I had ducked to cross the road to get to the interview had petrol in their tanks costing R8,91 a litre. Sasol’s share price was also at a lofty R443 compared with R100 just four years ago.

Sasol’s latest share price capitalises the company at R278-billion.

With this sort of money and given the company’s prospects, you’d think it could just issue a prospectus, issue shares and raise the R60-or-so-billion needed for Mafutha. Why should state support be needed for such a no-brainer?

But I don’t want to make light of a big investment and clearly you want to have the state on your side for such a massive undertaking.

For Mokaba, the ball, or balls, are in government’s court. He says Sasol has been talking to the relevant ministries, trade and industry, minerals and energy, environment and the presidency, as well as the Industrial Development Corporation, already a Sasol shareholder.

Government’s point man is Nhlanhla Gumede, the director of hydrocarbons at minerals and energy. As he tells it, the balls are in Sasol’s court. Trade and industry is waiting to hear what incentives, if any, Sasol intends accessing.

Minerals and energy is waiting for a manufacturing licence application. There will also have to be a formal application to water affairs for water. Tax concessions, if there are any, will have to be discussed with the treasury.

It is understood that such tax discussions are taking place. Spokesperson Thoraya Pandy responded to questions by saying tax policy is announced only once a year in Parliament during the annual budget.

Gumede is bullish on both the PetroSA and Sasol initiatives. He says Mafutha will be designed to maximise diesel output to match the growing demand for diesel for transport use.

He says one issue is the large amounts of carbon dioxide emitted at Secunda (it is reportedly the largest single source of carbon dioxide on the globe). ‘What is government’s view on carbon capture?” he asks, adding that carbon capture could influence the economics of the project.

Earlier I asked Mokaba about carbon emissions. His reply indicated that he was not fussed as Sasol was in control of its carbon emissions and was working on ways to put them to better use.

Mokaba didn’t want to talk about the price of oil at which Mafutha will be profitable. Most analysts agree now that the days of cheap oil are gone forever and some even predict that oil will cost as much as $200 a barrel in the not-too-distant future.

But what happens if the pundits are wrong and oil collapses back to, say, $40 a barrel, while Mafutha costs, say, $60 a barrel? Will the state be asked to intervene? Will we be back to the days when the risk is for the taxpayer, the reward for the private investor?

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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