Umsebenzi Online, Volume 19, Number 7, 23 March 2020
Voice of the South African Working Class
In this Issue:
Sasol should be socialised!
The
Government Employees Pension Fund (GEPF) and Industrial Development
Corporation (IDC) lost in total more than R200 billion in this month’s
crash of Sasol, reported the Business Report on 15 March 2020. The GEPF
is managed, as an investment fund, by the Public Investment Corporation
(PIC), while the IDC is a state development finance institution (DFI).
The combined loss of workers and public funds occurred through 13.5% and
8.5% stakes held in Sasol by the GEPF and the IDC respectively. The
landslide loss did not occur at Eskom or any SOE – it occurred, on the
contrary, in a privatised company.
The
silence of the private profit sector, its business associations and
political and ideological agents, such as the DA, “expert” or “analyst”
“notice me” and hangers-on, is deafening. The sycophantic supporters of
privatisation are instead calling for more privatisation, divestment of
the state in SOEs, and other neoliberal measures. The working class has
to unite in defence of public property rights and for the SOEs to be
turned around to thrive. Below the excerpt of the editorial from the
forthcoming African Communist (Issue 202, 1st & 2nd Quarter 2020) deals with the failure of the privatised company, the crash of Sasol, and the way forward, socialisation!
- Umsebenzi Online
Sasol should be socialised!
African Communist editorial | Red Alert |
In
just one single day in mid-March this year, Sasol lost 45,6% of its
share price, with R76-billion of shareholder equity being wiped out in
one week. In an attempt to reassure its shareholders, creditors and the
markets more generally, Sasol put out a statement valuing its
underlying assets at R23,3-billion. That’s no small sum, but it
represents a huge collapse in value for this synthetic fuel company that
was worth more than R400-billion just six years ago.
The
immediate cause of the mid-March collapse was the impact of the
Covid-19 pandemic on global oil demand and the stand-off between two of
the world’s major oil producers, Saudi Arabia and Russia. The oil price
dropped to around $US35 a barrel. This is close to what the SACP (and
others) have long assumed to be the cost to Sasol of producing oil from
coal – a cost which, until now, Sasol has kept a closely guarded secret
for reasons we will elaborate below.
But
behind Sasol’s March 2020 troubles lies another story, and behind that
story lies yet another. Before the advent of Covid-19 and the oil price
collapse, Sasol was already in major trouble.
But let’s first travel back 14 years.
In
February 2006 the SACP Central Committee put out a statement welcoming
then Minister of Finance Trevor Manuel’s announcement that he was
setting up a task team to investigate the possibility of imposing a
windfall tax on Sasol. The announcement was, in principle, an important
step forward in the campaign that the SACP had been leading for some
years for the socialisation of Sasol and its huge accumulation of
profits.
Sasol
was established in 1950 as a public entity. It was subsidised from the
fiscus for many years to cover the difference between the global price
of oil which hovered around $25 a barrel and Sasol’s cost to produce oil
from coal (which we long assumed to be around $35). This arrangement
was a key part of the strategic intervention of the apartheid regime to
ensure that South Africa’s industrial development was not entirely at
the mercy of external oil producers (and later, of course, oil
sanctions). This strategic intervention was successful. Today Sasol
still supplies around 35% of South Africa’s petrol needs.
Following
the global oil price shock of 1973, in which OPEC countries
collectively combined to limit production and drive up the global price,
oil prices soared. Sasol became immensely profitable as it sold (as it
still does) its oil on the South African market at the same price as
imported oil. In 1979 Sasol was privatised and sold at a discount to
established South African monopoly capital.
But
through the 1980s and 1990s and 2000s the global price of oil,
sometimes moving above $100 a barrel, was way above Sasol’s production
cost. Over many decades, the South African economy and general public,
not just car owners, but taxi and bus commuters, farmers using tractors
and food transporters have been subsiding mega-profits for Sasol’s
private share-holders – paying at the pump for Sasol petrol as if it
were imported all the way from the Middle East.
It
is in this context that the SACP has called for the return of Sasol to
public ownership and, as a first step, for a variable “windfall tax” to
be imposed on Sasol for any time the global oil price tracks
significantly above the $35 a barrel – the amount that we believed was
the cost to Sasol for producing oil from coal. We also argued that this
windfall tax could be the basis of a South African sovereign wealth
fund.
So,
in 2006 as the oil price hovered around $60, the central committee
welcomed Trevor Manuel’s announcement that he was finally establishing a
task team to look at the windfall tax proposal. Sasol’s executives went
ballistic. “The company is concerned that its ability to reinvest
profits into its operations will be compromised if a windfall tax is
imposed,” it proclaimed. Sasol CEO at the time, Pat Davies, made veiled
threats about “re-thinking” its local investment plans.
To
its credit, in 2007 Manuel’s task team, after detailed consideration,
brushed aside this howling and strongly recommended a windfall tax on
Sasol.
Instead,
however, and inexplicably Treasury reached a “gentleman’s” agreement
with Sasol – in exchange for not imposing the windfall tax, the company
committed to investing some of its mega-profits in a new coal-to-oil
plant in Limpopo (the so-called Mafutha project).
In
2012, with the global oil price around $120 a barrel, Sasol’s net
profit for the year was R24-billion, but there was still no Mafutha!
Then in 2013, Sasol announced a R200-billion investment in a gas to
liquid plant, not in Limpopo, but in faraway Louisiana, USA.
Even the conservative Business Day journalist
David Gleason was outraged: “Born courtesy of taxpayers…South Africa’s
biggest company and world leader in various critical energy
technologies is investing ever more deeply in the US than it is here.
This may be the right thing for the company, but is it right for the
country?”
Gleason
was right, but he was also wrong – the decision to disinvest massively
into the US has now proven to be a disaster for Sasol and its
shareholders. The Louisiana project has run years over schedule and
billions over budget. Sasol’s debt has ballooned and creditors are
nervous. Before the Covid-19 outbreak, before the oil price collapse,
Sasol was
in trouble. It joins a list of former pillars of the apartheid economy
that disinvested out of South Africa and that have now run into
trouble. Old Mutual burnt its fingers in London, Anglo American is a
pale shadow of its past, SA Breweries got eaten up, Woolworths is
limping from its Australian ventures.
And
now to add further insult to our injury, Sasol has put out a statement
reassuring its creditors and investors that even at $28 a barrel, the
company can cut it. The blighters! All these years they have kept their
cost of producing oil from coal a deep secret, disguising from the South
African public the actual amount we have been subsidising mega profits
over decades.
The
wealth and world-class technical capacities of Sasol need to be
socialised and harnessed for the overall development of our country. A
windfall tax in 2007 would have been an important step forward in that
direction. The task of socialisation has become a whole lot more
complex, but no less critical.
- This is an excerpt of the editorial from the forthcoming African Communist, Issue Number 202, 1st & 2nd Quarter 2020
Mar 23
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