Sasol lifts tempo on SA regulatory debate

[miningmx.com] – SASOL lifted its full-year dividend about 9% which translates into a 4% yield – not bad considering the appreciation in the petrochemical firm’s share price, up 11% in 12 months.

Over the longer term, investors have also been served well. Sasol, which has had ADRs listed in New York for 10 years this year, has increased its market capitalisation five-fold over that period.

In the capital intensive, global energy market Sasol has punched its weight, and over the last few years, spent capital jostling with the big boys in the upstream US gas market as it seeks to diversify its traditional South African and southern African base.

Have these developments created the perception that Sasol is leaving the home fires to burn out?

Operationally, no. As the group was anxious to communicate at its year-end results presentation earlier this week, group profitability – up a quarter – was underpinned by its South African energy components. Synfuels output was up 4% and profitability 28% higher.

In the political stakes, however, Sasol feels talk of offshore expansion has perhaps weakened its hand as it plays poker with the South African government over carbon taxes and other issues the firm’s shareholders find troublesome, such as the lack of regulatory certainty in the country.

CEO David Constable, a Canadian, is now keen to emphasise the firm’s local roots. “Sasol needs to tell its story better in South Africa,’ he says. “We do a lot in South Africa. We run a tight ship; we pay R32bn in direct and indirect taxes,’ he says.

There’s also some R137m in skills development, R627m in socio-economic uplift, and R20bn in capital expenditure in the 2013 financial year, equal to 59% of total capital allocation that Constable says will continue. So no divestment.

He then adds, however, that the nationalisation of Canada’s Petro-Canada in Alberta from where Constable hails, was an unmitigated disaster.

“The government almost ran the company into the ground,’ he says, adding it didn’t have the depth of management to run a company of that complexity. “Government should focus on health care, infrastructure. That is the appropriate place to focus on,’ he adds.

It was a curious comment to make but is suggestive of his frustration. Is it now that Constable is seeing what it takes to operate in the South African regulatory and political environment?

Responding to questions at the year-end results, he complained about the lack of regulatory uncertainty in South Africa.

“The regulatory framework must stay in place; we need certainty for investors to come into South Africa. What that certainty means, rolling out the red carpet for international investors.’

That’s about as outspoken as Constable has been in his short tenure at Sasol. But the issue that gets his goat the most seems to be the National Treasury’s proposed carbon tax: a R120 per tonne impost that hits Sasol the hardest of nearly all of South Africa’s smokestack companies.

“We definitely support a lower carbon economy, but don’t think the current tax proposal is appropriate way,’ he says, adding that South Africa is prematurely aiming at a carbon emissions tax some six or seven years earlier than is likely globally.

“We want to be very careful to support the government, but we must go into it with eyes open,’ says Constable.