Transnet and Sasol have opted to settle their long-running legal dispute about pipeline tariffs, with the former set to pay the latter nearly R5bn, almost all the budget it needs to fund its recently revised downwards emissions reduction road map.
The settlement, approved by Transnet’s board on Friday, came just a day after the cash-strapped state-owned freight and rail group received a R51bn government guarantee to support the entity’s capital investment programme and to enable it to meet its debt obligations.
To raise cash, Transnet has also said it will auction assets in its residential property portfolio.
The timing of the settlement suggests that Transnet will tap into the guarantee to settle the expansive dispute.
Sasol, which has recently launched a revamped strategy to get back on a growth path, said on Friday that in terms of part of the agreement between it and Transnet it would receive the settlement amount before the end of next month.
Transnet confirmed the settlement agreement, ending the long-drawn dispute, which has cost millions of rand in legal fees. The settlement was reached on May 18, and secured board approval on Friday.
Sasol, led by Simon Baloyi, had the upper hand before the settlement discussion after the high court last year ordered Transnet to pay Sasol R6.2bn, inclusive of interest, with TotalEnergies set for a R2.3bn windfall.
Timeous
Transnet had initially approached the Supreme Court of Appeal to appeal against the high court decision, a course it has now abandoned after the out-of-court settlement.
Transnet’s statement made no mention of its dispute with TotalEnergies, suggesting either that negotiations are under way or the dispute is live.
For Sasol, the windfall is timeous as the group embarks on an aggressive cost-cutting exercise over the next three years to pay down debt, to be able to resume dividend payouts.
The petrochemical major last week said that at the heart of its 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 more than $4bn (more than R71bn) in debt, which towers over its more than R55bn market capitalisation.
The dispute between Sasol and Transnet has its roots in 1967 when the apartheid regime sought to protect energy security amid international sanctions. Coastal refineries could not meet inland demand, prompting the government to establish an inland refinery in Sasolburg.
An agreement with TotalEnergies and Sasol ensured fair transport costs for crude from the coast to the inland refinery.
In 1991, the agreement was amended, allowing Transnet to increase tariffs by no more than the weighted average cost for refined petroleum products from the coast to the inland market.
But in 2008, Transnet breached this variation agreement, raising the tariff by more than 10% and again in 2011 when it hiked it by more than double, prompting Sasol and TotalEnergies to launch a legal challenge.
Sasol’s victory against Transnet might be short-lived as it battles the SA Revenue Service over a R3bn tax dispute linked to its Isle of Man treasury unit. The company, which is appealing against a high court ruling, has already set aside the amount in case it loses.
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