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Mar 17, 2006

Sasol plans R8,5bn capital expenditure in next six months

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© Reuse this Synfuels and chemicals company Sasol expects to spend R8,5-billion on capital projects in the next six months, the bulk of which will be in South Africa, Sasol CE Pat Davies has revealed.

Announcing an 86% increase in attributable earnings to R7,3-billion in the first half to December 31, 2005, Davies said that Sasol had spent R6,1-billion on capital projects in the period, 77% of it on projects in South Africa.

He expected to spend another R8,5-billion in the second half of the year.

Sasol planned to nurture and grow its South African assets, particularly its synfuels business, which it would like to see growing by 20% in the next ten years and had plans to achieve that, Davies said – but he was also excited about the company’s gas-to-liquids activities in Qatar, was upbeat about coal-to-liquids in China and would be visiting India this month, also on the coal-to-liquids potential. If one took only 10% of the coal reserves of China and converted those into oil-equivalent, it would equal the world’s proven oil reserves, he said.

China, thus, had all the oil it needed and South Africa the technologies to turn that coal into oil equivalent, which made the Chinese as excited about the coal-to-liquids prospect as Sasol was.

What was envisaged were 80 000-bpd-size plants, two at that size giving China Secunda-type capacity.

The company was undertaking two prefea- sibility studies in the US, encouraged by the US’s new Energy Policy Act.

Southern Gabon exploration continued to do well, but exploration in Equatorial Guinea was under review.

At home, the polymers project, Turbo, was suffering both internal-rate-of-return reduction and schedule pressure, costs hit by currency effects and lateness mainly the result of under-performance of engineering and construction contractors, for whom there were more jobs globally than there was capacity to carry out assignments.

Sasol had slipped its Turbo schedule, the bene-ficial operation of the two polymers plants shifting out the polyethylene plant to the third quarter and the polypropylene plant to the fourth quarter of this calendar year.

The cost of the polymers plant had risen to $9,1-billion and the total cost of Project Turbo, including the fuels portion, had risen to R14,3-billion, 7% higher than the numbers last revealed.

Overall, the cost was up 17% when the original cost estimate was compared to the current cost.

It was cold comfort that the cost surge was in line with global trends, a study of large projects showing overspends of 30% or more being common and schedules overshot by 30%.

Davies described Sasol’s gas effort in Mozam-bique as “a great business”, the company already being in a position to accommodate up to 183-million gigajoules a year, up from the current 120-million.

Sasol would also be exploring offshore, for which an environmental-impact study was in place. It had received approval from the Nigerian government to enter a second deep-water block, which already had a significant oil discovery.

“We are in a world that is energy hungry; oil prices are high and people are concerned about energy security,” Davies said.

That put Sasol in a “very sweet spot” because Sasol was producing the same automotive fuels that were in such high demand and Sasol was able to satisfy that need without having to use expensive crude oil, but far cheaper feed-stocks, such as coal and natural gas.

Davies said Sasol was disappointed by the Competition Tribunal’s prohibiting its merger with Engen and the consequent ruling out of the impowered Uhambo joint venture. It was in discussions with Petronas and its empowerment partners as to the way forward and would be making an announcement in the near future.
Edited by: Martin Creamer
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