IT’S NOT JUST LAKE CHARLES
Had investors seen a 2014 Werksmans report, questioning Sasol’s ability to deliver megaprojects, the Lake Charles fiasco might have been less surprising
ow long, the joke goes, would it take Sasol to create a R170bn company? Just a year: give it a R340bn company, ask it to build a disastrous, deadlinedefying project in Louisiana, and wait. For the millions of SA pensioners who indirectly own shares in Sasol, still the seventh-largest SA company with a primary listing on the JSE, it’s an offcolour joke. But it’s on-point nonetheless.
Officially, Sasol’s project in question is known as the Lake Charles Chemicals Project. Unofficially, it’s known as the “late Charles” project, given that it’s a year past its original deadline. Worse, Sasol is set to spend 45% more on it than the $8.9bn first predicted in 2014, causing its return on the project to tumble below its cost of capital.
That, in a nutshell, is why Sasol’s share price has halved in a year, gobbling the returns of pension funds managed by the likes of Allan Gray, Investec and Sanlam.
Of course, had you considered Sasol’s track record in earlier megaprojects, you wouldn’t have been entirely surprised by its Louisiana dawdle.
Take, for example, the disaster of its Fischer-tropsch Wax Expansion Project in Sasolburg, the town created on the south bank of the Vaal River six decades ago.
Back in 2010, Sasol first launched the project, which aimed to double the country’s production of hard wax, which is used in things like adhesives, inks, paints and coatings. The cost was pegged at R8.4bn, and both phases were due to be finished by 2014.
By 2013, things had gone awry. Costs ballooned to R11.9bn due to “construction delays, civil unrest and a volatile economy”. That year, Sasol took a R2bn “impairment” on the project, and CEO David Constable spoke of “some costs and schedule issues we’re dealing with”.
A year later, in 2014, a report was written by law firm Werksmans, and given to Constable, which has never seen the light of day. But that report was scathing about Sasol’s execution of megaprojects.
For example, it spoke of how information about the
HSouth Korea’s Lotte Chemicals built an ethane cracker right next to Sasol’s project, in half the time