PETROL AND GAS: The giant Sasol synthetic fuels processing plant in Secunda, South Africa, is the largest such plant in the world.
PETROL AND GAS: The giant Sasol synthetic fuels processing plant in Secunda, South Africa, is the largest such plant in the world.

Government subsidies result in higher fuel costs

By Dineo Faku Time of article published Oct 14, 2020

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JOHANNESBURG - Coal-based fuels produced by petrochemicals giant Sasol’s Secunda plant received about R8billion in government support during 2019.

New research by the International Institute for Sustainable Development (IISD) found that the government’s subsidies not only resulted in higher fuel costs for consumers, but they also helped to prop up Sasol, one of the world’s biggest polluters.

IISD experts said Sasol benefited from market price support (MPS) policies, with carbon tax exemptions contributing the lion’s share of the support.

Sasol generated R95.22bn in South Africa and the 2019 MPS estimate of R1.55bn implied that about 1.63percent of the revenue was due to the MPS provided by the fuel pricing mechanism the, IISD said.

It said if the R42.18bn revenue generated by Sasol’s energy division was taken into consideration, the percentage of MPS was even higher, at about 3.68percent.

“In other words, for every litre of synfuel a consumer buys at a fuel pump, approximately 5percent of the cost provides MPS for Sasol,” the report said.

The IISD said Sasol received a further subsidy of more than R6.5bn due to exemptions from the Carbon Tax Act that permitted the group to emit 302 megatons of carbon dioxide equivalent between 2016 and 2020. Under these exemptions, Sasol pays no tax on more than 90percent of its emissions.

The experts recommended that the Carbon Tax Act, which was promulgated in 2019, be enforced by 2020 to adhere to the “polluter pays” principle, saying this should apply fairly to all companies operating in the liquid fuel industry that have previously been exempted from a carbon tax, including Sasol.

IISD policy adviser Mostafa Mostafa said the subsidies distorted the market and locked in coal consumption in the transportation sector.

“South Africa’s reliance on coal is already badly polluting local air in several cities. Subsidising Sasol adds to the pollution burden and hurts consumers,” said Mostafa.

Sasol has been under pressure to reduce gas emissions.

The company yesterday noted the research, saying it would study it further and that it had published its second Climate Change Report in August detailing its position on all matters pertaining to climate change.

A group spokesperson said a full year’s carbon tax liability ranged from R700million to R1.1bn, starting in 2020, depending on how much the group emitted.

The group said through section 12L of the Income Tax Act and its energy efficiency programme, which had no bearing on its carbon tax liability, Sasol may qualify for a tax incentive until December 2022.

“This benefit is not taken into account when determining the annual carbon tax liability. Sasol has to date claimed section 12L allowances in excess of R16.3bn,” it said.

The IISD’s senior policy adviser, Richard Bridle, said the subsidy would provide much greater benefits to the public if it were spent on policies that are aligned with social or economic priorities, such as improving public transport, targeting support at vulnerable groups, or simply reducing the price of fuel.

“Because of the way fuels are priced in South Africa, consumers are forced to prop up Sasol every time they fill up their tank,” said Bridle. “It doesn’t matter if you take a taxi, a bus, or drive your own car, for every R100 that you spend on synfuel, R5 goes to Sasol. Synfuels make up around 30percent of all gasoline sold in South Africa.”

BUSINESS REPORT

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