In a show of market confidence, shares in Sasol surged more than 10% at one point on Tuesday as CEO Simon Baloyi sketched out a corporate reset marked by aggressive debt reduction and a pared-back emission reduction budget.
At the heart of Sasol’s cost-cutting plan is the discontinuation of the recycling of fine coal to its gasifiers and the environmental department’s decision to grant Sasol permission to deviate from conventional sulphur dioxide emission measurements at its prized Secunda facility.
The move cuts its emissions budget by more than 70%, or up to R18bn, much of which would flow towards paying down Sasol’s $4bn (R71bn) debt pile, which towers over its more than R50bn market capitalisation.
The decision by the government and Sasol — a strategic company woven into SA as an economic powerhouse and an environmental enigma — could raise eyebrows about the integrity of a decarbonisation strategy now operating in the shadow of financial pragmatism.
But the group, which previously forecast R15bn-R25bn climate spending, still maintained the target to reduce its global greenhouse-gas emission footprint 30% by 2030 even as it juggles its operational exigencies with escalating shareholder pressures. The targets were set in 2021.
In reaction, shares in Sasol, whose fortunes are intertwined with the National Treasury as the biggest taxpayer, jumped about 12% in afternoon trade before paring gains to end 8.9% ahead. It was the biggest one-day gain in about a year.
The stock has hardly moved over the past five years as it struggles to fully recover from the 2020 cash crunch after a pandemic-induced oil price crash whacked its already fragile, debt-laden balance sheet. Yet shareholders will share the pain of the plan by Baloyi, a Hammanskraal-born engineering graduate.
As part of his strategy to “protect shareholder value”, the company has also set a net debt target “sustainably below” $3bn as a prerequisite for reinstating dividends, eschewing the temptation to fund shareholder rewards with debt.
The company said it expected to resume paying dividends in the next two years. Under the previous policy, a dividend trigger had been a sustainable net debt level of below $4bn.
“This revised policy is considered a prudent step, better aligned with the prevailing volatility in the macroeconomic environment and Sasol’s commitment to maintaining a resilient balance sheet and ensuring sustainable future shareholder returns,” the company said.
A crucial element easing Sasol’s budgetary constraints is last year’s regulatory intervention. Sasol said the decision by the forestry, fisheries & environment department — to allow it to deviate from established regulations when measuring sulphur dioxide emissions at its Secunda synfuels facility — had gone a long way to giving it room to cut capex on its emission reduction road map (ERR).
Under the relaxed standards, permitted sulphur dioxide emissions from the boilers are now regulated on the alternative emission load basis from April 1 2025 to end-March 2030. This has allowed the group to optimise the number of boilers it turned down.
“Our ERR has been optimised and is a catalyst for our growth and transformation. The optimised ERR is still allowing us to meet our compliance obligations, reach our decarbonisation targets and maintain higher production levels as long as possible,” the company said.
Renewable ambitions
In a nod to evolving energy markets, Sasol is ramping up its renewable ambitions. The firm’s renewable energy target now exceeds 2GW — a leap from 1.2GW — with plans to displace coal-based electricity both internationally and in the broader SA grid.
Sasol is among SA’s largest energy consumers and is the country’s largest private producer of renewable energy for its own operations. Secunda alone consumes about 1.2GW, with total group demand reaching 1.5GW.
Its management sees converting this demand from coal to renewable energy as a major opportunity — not only to lower emissions but also to establish a large-scale renewable power business.
“If we shift our 1.5GW coal demand to renewables, we can make real progress. It opens the door to building a meaningful power business while cutting emissions,” said Sarushen Pillay, Sasol’s executive vice-president for business building, strategy & technology.
In a wide-ranging two-day briefing, Sasol also reflected on the ill-fated Lake Charles chemical project in the US, a venture that suffered cost-overruns and stretched Sasol’s debt to dangerously high levels.
Baloyi acknowledged that major investments, such as the Lake Charles project, would have benefited from stronger partnerships to help absorb cost overruns and share risk.
Baloyi said while listing the Lake Charles business remained an option, the immediate priority was to restore its performance and achieve earnings before interest, taxes, depreciation and amortisation of $1bn — a threshold that could make it viable for either a listing or other strategic transactions.
“Listing is not the only option. We could look at mergers & acquisitions, bringing in a partner or a staged approach,” said Baloyi.
Updated: May 20 2005
The story has been updated with Sasol’s share price.
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