Why ‘javelin throwing’ game at Lake Charles is dangerous for Sasol?
PRETORIA – In March 2020, the chief executive and president of Sasol Fleetwood Grobler and myself engaged in a conversation about how the company continues to flounder and also fails to provide a clear explanation about the circumstances pertaining to the Lake Charles Chemical Project in the United States.
It does not look like the company will be out of the woods in the near future due to its operations in the US.
At the time, Sasol’s stock had badly crashed by up to 47 percent and its market cap fell from R200 billion to just R30bn. My article on IOL titled “The making of a huge corporate scandal: Is Sasol’s imminent fall engineered?” postulated that the company engineered an unending crisis with the US project in order “to take the company out of South Africa, its assets abroad could have been long sold or earmarked to be sold to pre-identified individuals”.
The cost overruns for the project placed the company in serious financial hardship. Today Lake Charles has an estimated cost of $14bn (R221bn), up from $8.1bn in 2014.
In a light response to my article on Fleetwood dismissed the claims about possible economic shenanigans in the US project as nonsensical. He said my disquiet was “based on loosely referenced media reports, unsubstantiated conjecture.” He added that: “Furthermore, the notion that any company, including Sasol, would deliberately seek investment opportunities to willingly destroy shareholder value, is preposterous.”
Now, it is some seven months since the discussion happened and it appears that Fleetwood has not really kept his word of developing “a response strategy to stabilise the company, protect our balance sheet and preserve the interests of all our stakeholders” as well as to take the South African public into confidence concerning the company and its US blunders. Unfortunately, the company appears to be ill-prepared to disclose all the information pertaining to Lake Charles.
Problems at Sasol re-emerged in August 2020 when the company reported a full-year loss of R91.3bn as well as R112bn write-downs related to the Lake Charles project. The US business operations are like an albatross around Sasol’s neck. In October 2020, the company announced a plan to auction its $2bn stake in its US base chemicals business to LyandelBassell Industries to reduce its borrowings following a series of cost overruns and delays at Lake Charles.
The interest in Sasol emanates from the fact that the government’s exposure in the company was around 30.5 percent of its value, which is made up of a government minority of 8.5 percent plus the Public Investment Corporation (PIC) at 13.5 percent and the Industrial Development Corporation (IDC) at 8.5 percent. The PIC manages funds on behalf of the Government Employees Pension Fund (GEPF).
It is therefore noticeable how Sasol was smartly privatised.
What is concerning though is that as many as the country’s 1.3 million public servants face a bleak future since their jobs are under threat. Finance Minister Tito Mboweni is resolute in his plan to reduce the public service wage bill. Yet their pensions and other public funds are being misused in unpatriotic companies whose interest is to export wealth and continuously reduce their capital investments. They are not really bothered in helping to bring down unemployment and contributing to economic development and growth.
The question is: Who has the right to misuse public funds and who has not? Akin to Steinhoff saga, Sasol’s misappropriations and poor governance are outside the purview of the South African public. Now, it is important to lay bare how the “javelin throwing” game is at play and Sasol keeps denying in spite the glaring evidence that something big could be going on.
Lake Charles continues to be the epicentre of possible wrongdoing involving the company’s executives, past and present, and maybe others.
Going back to Sasol, a business daily reported that David Constable, an executive who was in charge of Lake Charles when it began massive cost overruns, is going to become chief executive of Fluor Corporation, which is “a lead contractor for the troubled US project”. In fact, Constable switched sides in 2019 when he first became a Fluor board member. Before joining Sasol, he had been employed by Fluor from 1982 to 2011.
The business daily claims that there is an impending class action suit against Sasol, Constable and four others by a group of disgruntled investors over Lake Charles. My article in March presumed that Sasol’s initiation of Lake Charles project was like “javelin throwing” – meaning that it was a way of taking South Africa’s wealth overseas. It looks as if Constable oversaw the destruction of shareholder value to make the US asset worthless.
Steadily, Sasol appears to have the intentions to finally strip its strategic assets under the guise of reducing its high debt. It is interesting that a former executive would move to a company that is directly involved with the Lake Charles project. What creates even greater suspicion of underhanded business that possibly includes Constable, Sasol, and Fluor Corporation.
Fleetwood and Sasol need to make public the details of the outstanding lawsuit against Sasol, Constable and four others by a group of disgruntled investors over Lake Charles. Furthermore, and in the interest of transparency, the company must disclose the reasons that led to the separation between Sasol and its former joint chief executives Bongani Nqwababa and Stephen Cornell in October 2019.
In the absence of activism from executives and shareholders, it is in the interest of the public to ask Sasol to up its game in making its problems and dealings in the US known. In that way, Fleetwood and his executive team would gain the trust of the public that would also feel the pinch should Sasol run into more problems.
Besides the pensions of public servants, the problems at Sasol could be affecting the IDC, which reported a whopping R3.8bn loss for the year in 2020. Considering that its shareholding at the petroleum company could soon be worthless, the state-owned development finance entity could be next in line to ask for a bailout from the National Treasury. The fiscus is already overburdened as a result of state-owned entities (SOEs) that are underperforming.
Si ya yi banga le economy!
Based in Pretoria, Siyabonga Hadebe is an independent commentator on socio-economics, politics and global matters.