Sasol Reviewing Refinery Upgrade, Sale Due to Cleaner Fuel Law

(Bloomberg) -- Sasol Ltd., the South African manufacturer of oil and chemical products, is looking at options including the possible sale of a refinery due to the country’s pending cleaner fuel standards.

The company has been conducting a review on the 150,000-barrel-a-day Secunda plant and 108,000-barrel-a-day Natref refinery, which it owns with Total SA. Together the facilities represent more than a third of the country’s fuel refining capacity.

South Africa announced the Clean Fuels II policy in 2012 that would require lowering sulfur levels in gasoline and diesel. The rules have not yet been implemented. The South African Petroleum Association has requested a cost recovery mechanism to enable the industry to recoup charges for upgrading plants to match the new guidelines.

At Secunda, a synthetic-fuel plant that uses coal as a feedstock, “we’ve found a relatively affordable way forward in terms of clean fuels,” Sasol co-Chief Executive Officer Bongani Nqwababa said at a results presentation. The plan still needs to meet board approval before details are released.

Natref, which Sasol owns 64 percent of and Total the remainder, “is a more difficult case," Nqwababa said.

"We’ve considered options, from big capital expenditure to more affordable expenditure to using it as an inland depot to closure,” he said. “For this to be sustainable and affordable we need recovery, but we do not only want to focus on recovery we want to see what are the lowest cost options.”

A sale of Natref will be considered if it is the most economic option, Chief Financial Officer Paul Victor said in an interview. A decision is expected by the end of the year.

Earnings Dip

Sasol on Monday reported that full-year profit fell. Earnings per share dropped 6 percent to 36.03 rand ($2.46) for the period ending June 30. Power supply outages that affected fuel production as well as a labor strike earlier in the year hurt operations, the company said.

The Lake Charles Chemicals Project in the U.S., which will expand Sasol’s global chemical business, is 88 percent complete and remains at an estimated $11.1 billion. The first three manufacturing units are expected to start by the end of December.

Sasol forecast capital expenditure, which could change as a result of exchange rate volatility and other factors, is 38 billion rand for 2019 and 30 billion rand for 2020.

“Our focus remains firmly on managing factors within our control, including volume growth, cost optimization, effective capital allocation, focused financial risk management and maintaining an investment grade credit rating,” the company said.

To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Helen Robertson, Liezel Hill

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