Sasol takes R35bn impairment hit at its Secunda operations

Chemicals and energy giant Sasol on Monday lost more than R9bn in value after it told investors it will impair more than R35bn in its Secunda liquid fuels plant in Mpumalanga, which has attracted the attention of authorities for its high emissions.

The group’s stock shed 5.3% to R254.50 after it said the business is facing “mounting external and internal pressures” as a combination of operational challenges and a volatile global economic landscape hurt it.

It said the full impairment of the Secunda plant would be done in the year that ended in June.

“The impairment is mainly as a result of the increase in the weighted average cost of capital rate on the back of higher global interest rates and its associated impact on the cost of debt, higher feedstock cost assumptions and a revised production profile based on the emission reduction road map (ERR),” the company said.

“Sasol has made notable progress with the implementation of its ERR despite mounting external and internal pressures on the business. Optimisation of the ERR is ongoing and there are a number of technology and feedstock solutions being evaluated. However, the maturity thereof needs to be progressed before it can be incorporated in the impairment assessment.”

The national air quality officer in July rejected Sasol’s request to measure the sulphur dioxide emissions from its Secunda boiler plant in an alternative manner, putting the petrochemical giant at risk of violating the country’s air quality laws and facing legal consequences.

The rejection raises questions about the sustainability of Sasol, which said in its 2022 annual report that noncompliance with the minimum emissions standards could have a “material adverse impact” on its business and lead to fines, criminal charges or being asked to cease operations.

Sasol plants have until April 2025 to comply with the Air Quality Act’s minimum emission standards, which was introduced in 2010 and modified multiple times since 2017.

Sasol has appealed the decision.

The company also flagged another R900m impairment on Essential Care Chemicals’ cash-generating unit in Sasol China while reporting the reversal of the full impairment processed in 2019 on the tetramerisation cash-generating unit CGU in Lake Charles in the US of R3.6bn.

The group, which is expected to release its results next week, said a “notable” improvement in its operational performance was realised in the second half of the 2023 financial year.

Sasol expects its adjusted earnings before interest, tax, depreciation and amortisation (ebitda) for the year under review to fall by 2%-16% from the prior year.

“Business performance was further impacted by the underperformance of state-owned enterprises in SA, which have constrained our supply chains and resultant sales volumes.”

khumalok@businesslive.co.za