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!
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.