Photo: Supplied. Sasol lowered estimated returns at its $11 billion Lake Charles chemicals project in the US and said it’s disputing a revised tax bill in South Africa.

Johannesburg - Sasol lowered estimated returns at its $11 billion Lake Charles chemicals project in the US and said it’s disputing a revised tax bill in South Africa.

Sasol, the world’s biggest producer of liquid fuel from coal, projects an internal rate of return of 7 percent to 8 percent at Lake Charles, which will convert ethane into plastics and other products.

The range is based on “conservative” ethane prices and compares with a previous estimate of about 8 percent, co-Chief Executive Officer Steve Cornell told reporters on a call Monday.

The company reran the numbers after “limited structural changes” to the market since February, when it last published long-term IRR estimates, it said in an earlier statement. Sasol’s weighted average cost of capital for the project is 8 percent.

The return estimate is lower “because of the views in the industry primarily around polyethylene margins pushing it down,” Cornell said. The cracker still remains cost competitive and is at the lower end of the cost curve for ethylene producers, according to the company.

Sasol, which on Monday reported full-year earnings that beat analyst estimates, said last year the cost of the project in Louisiana had escalated by almost 25 percent, prompting the company to make cuts elsewhere.

Capital expenditure at Lake Charles reached $7.5 billion as of June 30 and the project is on schedule and in budget, the company said Monday.

Tax Exposure

Sasol said it is disputing a revised assessment by the South African Revenue Service for 2013 and 2014 that could result in a “potential tax exposure” of 11.6 billion rand ($880 million). The company submitted an objection and has resolved with SARS to suspend payment, it said.

Sasol’s earnings excluding one-time items for the year through June fell 15% to 35.15 rand per share. That beat the 34.66 rand average of analyst estimates compiled by Bloomberg. Profit was hurt by a stronger rand and lower oil price, the company said.

Sasol benefits when the rand is weaker because most of its products are sold in dollars, while its costs are mainly in the South African currency. The rand strengthened by 11% against the dollar over the 12-month period.

Sasol expects the rand to trade in a range of 13 rand to 14.50 rand per dollar in the current financial year, it said in the statement. Average Brent crude oil prices are seen at $45 to $55 a barrel.

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