Oct 26, 2012
Sasol a target for nationalisation, windfall taxBack
Africa|CoAL|Consulting|Petrochemicals|Resources|Sasol|South Africans|Sustainable|Africa|Australia|South Africa|Coal-to-liquids Technology|Mining|Petrochemicals|Petrochemicals Giant|Service|Angel Gurr|Indaba|Trevor Manuel|Xavier Prevost|Operations|Subsidy|Coal-to-liquids Technology
© Reuse this
He believes, however, that this view is biased, as the Sasol of today is not the same company that operated during the apartheid years. Instead, it is an independent, profitable organisation that provides many opportunities for South Africa, despite the perception held by some that it is exploiting South Africa’s mineral resources.
Sasol was established by the South African government in 1950 to commercialise coal-to-liquids technology.
“South Africa was in danger of running out of fuel, owing to economic blockades and sanctions because of its apartheid policy,” Prevost explains.
It was an emergency measure to ensure South Africa would become sustainable as a fuel-producing country. To ensure this, all other fuel producers were obliged to buy a certain percentage of Sasol’s fuel and mix it with their own.
When Sasol became profitable, government withdrew its subsidy and allowed Sasol to freely compete and produce, resulting in the company becoming the successful petrochemicals giant it is today.
Prevost states that, as a result of its history, size and profitability, the petrochemicals group is continuously singled out by factions in the African National Congress (ANC) and other political parties and organisations that are in favour of Sasol being nationalised or subjected to a windfall tax.
Windfall Taxes and Nationalisation
Starting four years ago, and mirroring similar dynamics in many other minerals-hosting countries, a faction of the ANC has been vociferously calling for the nationalisation of South Africa’s mines. Government, however, did not approve the idea as it would cause an outcry from mining companies and investors and result in an economic debacle, Prevost explains.
However, amid continuous calls for the nationalisation of mines, government believes it should be reaping more benefits from the mining industry, which is extracting South Africa’s mineral wealth and profit- ing from it.
Government has, therefore, mooted the implementation of windfall and royalty taxes on mining firms.
“Mining is a source of wealth for many millions of South Africans. Mines benefit workers and their families, service providers and the communities surrounding their operations.
The mining industry is the main contributor to South Africa’s economic growth,” Prevost emphasises.
The idea of a windfall tax was first mooted by Australia and, while it has been discussed and investigated by many countries, it has never been implemented, he notes.
“Currently, this is only a proposal that has been presented by the Department of Mineral Resources but it could become a reality in future,” he states.
In February, a study commissioned by the ANC rejected mine nationalisation but favoured higher taxes and royalties.
The report is expected to be adopted as policy by the ANC in December, after it was tabled at the organisation’s five-yearly policy indaba in late June. This followed its raising in early February at a meeting of the party’s national executive committee, Business Day reported, without revealing its source.
The ‘State Intervention in the Minerals Sector’ report warns against “asset grabs” by the State because such a policy would be unconstitutional and contravene bilateral trade agreements, and government could also not afford to buy mining stakes.
Meanwhile, a task team appointed by the South African National Treasury to investigate the possibility of levying a windfall tax on Sasol, concluded in 2007 that the company should not bear additional taxes against its windfall gains.
The outcome of the study was followed by a statement from former Finance Minister Trevor Manuel in that same year, declaring that, regrettably, a windfall tax on Sasol should have been imposed when it had announced an 86% increase in first-half attributable earnings from the previous year, 2006.
However, in July 2008, the spectre of the possible imposition of windfall taxes on South African resource companies was brought to the fore again in a new economic assessment of the country by the Organisation for Economic Cooperation and Development (OECD).
The 140-page study, which was jointly released by OECD secretary general Angel Gurría and Manuel at a function in Johannes- burg in July 2008, indicated that a case could be made for the tightening of fiscal policy to sustain a budget surplus as a safeguard against macroeconomic instability.
“Over the longer term, there may be a case for introducing a fiscal rule, or a more systematic way of capturing commodity price windfalls,” the study concluded.
However, Prevost states that, if Sasol is subjected to a windfall tax, its profits will be severely curtailed.
“On the one hand, this will give more money to government, but at the same time it will cut down on its tax revenue as mines pay tax on profits.”
He emphasises that, while government feels it should receive more revenue from the mining sector, extra taxation is likely to destroy the opportunity to create more wealth from this sector for South Africans.
Edited by: Chanel de Bruyn© Reuse this Comment Guidelines (150 word limit)
Other Energy News
Recent Research Reports
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
This Week's Magazine
South Africa remains an important manufacturing and export platform for Ford Motor Company, says executive chairperson Bill Ford. However, he adds that other countries on the continent are “becoming interesting”, and that the US carmaker is casting its net wider for...
Germany’s Max-Planck-Society (MPG) and the Max-Planck-Institute for Radio Astronomy (MPlfR) are investing €11-million (about R150-million) into South Africa’s MeerKAT radio telescope array programme. The money will be used to design, build and install S-band radio...
Infrastructure spend in sub-Saharan Africa will grow from $70-billion in 2013 to $180-billion by 2025, says PwC capital projects and infrastructure Africa leader Jonathan Cawood. This is one of the findings of PwC’s Capital Projects & Infrastructure report on East...
Private-owned defence and aerospace manufacturer Paramount Group and the Ichikowitz Family Foundation unveiled its Anti-Poaching Skills and K9 Training Academy in Magaliesburg last month.
The inclusion of Bluetooth to provide sub-three meter accuracy and heightened functionality for users is one of the ways to change existing wireless networks into engagement networks. An engagement network differs from common wireless networks in that it enables the...