If you’re planning to raise a second bond to buy your next tank of fuel, you will not be overjoyed to know that coal-to-liquid giant Sasol is making over R100-million a day in profit.
An industry analyst familiar with Sasol’s cost structure says that the company, because its assets are largely depreciated, has low running costs. He calculates these, including the cost of coal, at $35 a barrel.
Oil this week was trading at $125 a barrel, somewhat off its recent highs of $135, but Sasol is at present pumping about $100 a barrel or thereabouts in profits.
Its giant Secunda plants produce the equivalent of 160 000 barrels of crude a day, meaning that its profits have been topping R100-million a day.
This is a nice chunk of money, but with analysts, notably Goldman Sachs, predicting that oil will go to $200 a barrel in the near future, Sasol’s daily profit could top R200-million.
Sasol was the subject of a Treasury-inspired probe between 2006 and 2007 as it is widely seen to have benefited generously from taxpayer subsidies when oil prices were low.
Oil prices were considerably lower when the probe was launched in January 2006 ($59) and completed in February 2007 ($54). In August last year, when Finance Minister Trevor Manuel announced that no special or windfall taxes would be imposed on synthetic fuel producers, oil was trading at $68 a barrel.
Pump prices in South Africa went up again this week, by 50c a litre for unleaded. Gauteng motorists are now paying R9,96 a litre for petrol and R10,86 for diesel, according to the Shell website.
Internationally, governments are struggling with how to respond to high oil prices which have led to protests in the United Kingdom, France, Austria, Denmark, Holland, Spain, Portugal and Belgium. Protesters have included fishermen, truckers and farmers.
There are both calls for new windfall taxes and for tax cuts to facilitate new exploration and for the exploitation of oil fields which are not economic even at present stratospheric prices.
French president Nicolas Sarkozy has slapped a tax of $312-million (R3,7-billion) on Total, the money to be used to help pay heating costs of €200 (R2 400) per household. Sarkozy also proposed that the European Union revisit value-added tax (VAT) on fuel.
Since these taxes are charged at a percentage of the fuel price rather than the flat R1,27 a litre in South Africa, tax receipts have been booming as the price of fuel has escalated.
In France, tax accounts for as much as 70% of the price of fuel, which is about R18,20 a litre at present.
Sarkozy said the French government was earning an additional €150-million to €170-million (R1,8-billion to R2-billion) in VAT receipts every three months as a result of the explosion of fuel prices.
But a change to the VAT regime requires the support of all 27 European Union members, most of whom disagree strongly with Sarkozy, saying that oil producers would simply respond to lower VAT by putting up prices.
Not too long back I heard a Russian oil industry executive explain taxation policy on BBC World, but did not catch his details. He explained it very simply: ‘Government takes everything over $25 a barrel.”
Vladimir Putin, speaking to the Russian parliament last month when he took over the job of prime minister, struck a similar note: ‘Revenues of oil companies are not small. However, we are taking a large chunk of these revenues (about 75% to 80%) into the budget in the form of taxes and export duties.”
These revenues have reportedly allowed Putin to build a $160-billion stabilisation fund. While petrol prices in Russia, at $3,68 a gallon (R7,50 a litre), are not too dissimilar to those of the United States, income tax for residents is a low 13%.
Manuel said that the windfalls investigation into synthetic fuel profits followed the rise of oil from an average of $29 in 2003 to $60 a barrel in the third quarter of 2005.
The task team recommended the imposition of a windfall tax on existing synthetic fuel producers, the introduction of an incentive regime for investments in the production of liquid fuel from indigenous raw material (synthetic fuel and biofuel), a possible progressive tax regime for upstream oil and gas producers and a tax on captive supplies by Sasol to the inland market.
The Treasury, however, said that, as a matter of policy, it did not want to encourage a backward-looking tax policy. It said: ‘We note the complex nature of the delineation between cyclical and structural windfall profits in the synthetic liquid fuels industry.
‘Secondly, we hold Sasol to its commitment to significantly expand its synthetic fuel production capacity in support of the national interest in terms of fuel security and macroeconomic stability.
‘And lastly, given the broader tax policy objectives, we recognise the need for fiscal certainty for the liquid fuels industry.”
It said that it was government’s view that the imposition of a windfall tax on existing synthetic fuel producers was not appropriate.
The analyst who calculated Sasol’s cost of manufacturing the crude oil equivalent of a barrel of oil from coal, estimates the costs of its mooted 80 000 barrels a day Mafutha plant at $70 a barrel. This is at a capital cost of $100-billion.
Add the $35 to cover coal and operating expenses and the total cost is $105 a barrel.