Whether it’s due to something toxic in the water at Sasol’s glitzy R2bn global headquarters in Sandton, or just unbridled arrogance in its decision making, the petrochemical company can’t seem to stay out of trouble.
Investors are well aware, to their wincing dismay, of the disasters that befell the Lake Charles $12.9bn chemicals project in Louisiana — Sasol’s worst-ever blunder. The ethane cracker it built was the company’s most ambitious project, but it backfired spectacularly — leaving unprecedented levels of debt, sparking a share price rout and claiming the scalps of at least two CEOs.
On October 27 2014, when Sasol announced it would go ahead with Lake Charles, the share price was R550; today it is 80% lower, at R110. And the big losers are SA’s pension funds, which were almost uniformly invested in Sasol.
Only now, it turns out that the man who led Sasol into Louisiana — Canadian David Constable, who served as CEO between July 2011 and May 2016 — is still going to be closely involved in the project.
Back in 2014, Constable said Lake Charles would "enable future growth for decades to come". He boasted of the team’s "strong track record in project management‚ engineering‚ fabrication and construction of similar large-scale petrochemical complexes".
All of this was flawed. Not only did Lake Charles break the bank, exceeding the original $8.9bn price tag by $4bn when it was delivered late, it’s unlikely to ever make that money back after costs, given its projected internal rate of return of 7%-8%.
As for Sasol’s "track record", well, an independent review last year found there was "mismanagement" and poor oversight of the Lake Charles project management team, which had engaged in conduct that was "inappropriate, demonstrated a lack of competence and was not transparent".
It was after this report that the two joint CEOs who’d succeeded Constable — Steve Cornell and Bongani Nqwababa — left Sasol.
This week it emerged that the man who has just been named the new CEO of Sasol’s main contractor at Lake Charles, US engineering company Fluor, is none other than David Constable.
In some ways, it’s not the biggest surprise. Before his stint at Sasol, Constable worked for Fluor, which specialises in designing big ticket plants. His return to Fluor smacks of a contrived outcome in which Sasol shareholders, again, must be wondering how they ended up on the wrong side of an awful joke.
Disturbingly, one witness in a class action lawsuit that has been launched against Sasol over the Lake Charles debacle claims the petrochemical company received a contractually binding "change order" from Fluor as far back as February 2016, which confirmed that Fluor’s costs would be at least $11.7bn. If so, it would be a big deal, as this was far higher than the $8.9bn price that Sasol publicised at the time.
The investors suing Sasol say this was just one of many misrepresentations about Lake Charles — all of which will be fully ventilated when the case is finally heard in court next year.
Still, whatever happens in that lawsuit, the damage has been done. It’s hard to overstate the impact it has had on Sasol’s standing in the investment community, let alone the value destruction suffered by millions of pension portfolios.
Sasol, once seen as a stable performer, with strong cash flows from Secunda and Natref and no debt, is now a much more volatile option. Its crippling debt has made it a forced seller of 50% of the Lake Charles project, and it may yet have to ask shareholders for more cash.
And yet Sasol seems to feel it can do as it pleases with scant regard for long-suffering investors. Its recent annual report revealed that it will pay departing CEOs Cornell and Nqwababa R95.8m to leave. Cornell will get a R21.6m "mutual separation" payment, R11.6m in "other benefits" and R1.8m in "long-term incentives". Nqwababa will get R27.2m, including a R14.3m "mutual separation" payment.
Is this hubris? Or does Sasol not care that the money it so freely splashes around — both for Lake Charles, and for paying off former managers — belongs to its shareholders.
On November 20, Sasol will have to confront shareholders at its AGM. Expect fireworks.
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