Johannesburg - Chemical and energy group Sasol yesterday confirmed that the costs of its multi-billion dollar Lake Charles Chemical Project had indeed risen by $2.1 billion (R28.49bn), but said it had taken steps to ensure that the project’s budget does not escalate further.
The company said a completed review of the project came in line with its preliminary findings that the project’s costs had escalated to $11bn.
When it made a final investment decision in 2014, the forecasted cost of the project was $8.9bn.
Sasol said yesterday that the costs rose due to higher site and civil costs ($750â million), an increase in engineering, procurement and construction management ($680m) and a higher total labour costs ($670m).
An increase in rain days was among the factors that drove up the site and civil costs. On the other hand, higher contractor wage rates compared to those at the time of final investment decision in October 2014 and an increase in contractor engineering hours contributed to the $680m increase in engineering, procurement and construction management costs.
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“Sasol has now completed its detailed review of the (Lake Charles Chemical) Project and has confirmed that a high degree of certainty exists over the updated capital cost estimated at $11bn,” Sasol said.
The Lake Charles Chemical Project consists of a world-scale 1,5 million ton per year ethane cracker, and six downstream chemical units which are currently under construction near Lake Charles, Louisiana, in the US, adjacent to Sasol’s existing chemical operations.
In June, Sasol first announced the revised budget of the project and said the capital expenditure has ballooned to $4.8bn.
News of the higher costs - alongside a warning that Sasol’s earnings for the year ended June would fall significantly - saw the group’s shares on the JSE shed more than 10 percent on June 6, the day of the announcement.
Sasol shares yesterday rose 0.25percent to close at R374.50 on the JSE.
Sasol joint chief executive Bongani Nqwababa, however, remained confident that the costs would not escalate further.
Nqwababa said Sasol has made project management changes including the deployment of experienced Sasol employees to oversee engineering, procurement and construction management to guard against further cost overruns.
Engineering
He said the project was 50’s percent complete.
“Engineering is about 85 percent complete, while the procurement of equipment is almost complete. The procurement of bulk material was about 65 percent,” said Nqwababa.
Sasol said the project’s first unit, the linear low-density polyethylene unit, was expected to achieve beneficial operation in the second half of 2018, followed by the ethane cracker and ethylene oxide and mono-ethylene glycol units later that year, with the low-density Âpolyethylene unit shortly thereafter.
Nqwababa said Sasol had a funding plan in place for the project which entailed a $4bn bank facility, $2.5bn cash resources and a $1.5bn revolving bank facility.
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