Oil price a sharp blow

Finweek English Edition - - MARKETPLACE -

Sa­sol* up­dated the mar­ket on its Lake Charles eth­ane cracker plant in Louisiana. The is­sue re­mains that it planned the plant when the oil price per bar­rel was well over $100 and it is now half of that. Now the project is ex­pected to cost at least $11bn in­stead of the ini­tial planned amount of be­low $9bn. I have two is­sues: why didn’t Sa­sol man­age­ment also run lower oil price sce­nar­ios when mak­ing the de­ci­sion to go ahead? This seems to be a com­mon theme when large projects are planned – no­body ever truly con­sid­ers the down­side risks. Sec­ondly, ev­ery project seems to over­run; even when build­ing a mod­est home, the ar­chi­tect warns that cost over­runs could add 10% to 20% to the project. The same hap­pens with ev­ery large project and, again, man­age­ment should in­cor­po­rate these ex­pected over­runs into its mod­els. This project re­mains a risk for Sa­sol that may haunt it for years to come.

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