Sasol Limited History
Republic of South Africa
Telephone: (27) 11-441-3111
Fax: (27) 11-788-5092
Sales: $5.4 billion (2001)
Stock Exchanges: NASDAQ Johannesburg
Ticker Symbol: SASOY (NASDAQ)
NAIC: 325110 Petrochemical Manufacturing (pt); 212112 Bituminous Coal Underground Mining; 324119 All Other Petroleum and Coal Products Manufacturing (pt); 213113 Support Activities for Coal Mining; 211111 Crude Petroleum and Natural Gas Extraction; 325920 Explosives Manufacturing
Sasol Vision: To be a respected global enterprise, harnessing our talents in applying unique, innovative and competitive technologies to excel in selected markets in the energy, fuels, chemicals and related sectors in Southern Africa and worldwide.
- Iron and Steel Corporation (Iscor) is formed.
- South African Coal, Oil and Gas Corporation (Sasol) is formed.
- Sasol Limited is incorporated.
- Political activists attack Sasolburg plant.
- First democratic elections are held in South Africa.
- Sasol Chevron Holdings is formed.
Sasol Limited was formed in 1979 to hold the assets of the South African Coal, Oil and Gas Corporation (Sasol) and its subsidiaries. For years its principal product was synthetic fuel, a business that enjoyed significant government protection in South Africa during the apartheid years. The transition to democracy in the 1990s has forced the company to search for products that could prove more competitive in the global marketplace, and as of the new millennium Sasol is focusing primarily on its petrochemical business, as well as on efforts to convert natural gas into crude oil.
Origins and Growth: 1950-80
The South African Coal, Oil and Gas Corporation (Sasol) was established in 1950 as part of the process of industrialization that the South African government considered essential for its economic development and autonomy. The fact that South Africa had no domestic oil reserves made the country extremely vulnerable to disruption of supplies coming from outside, albeit for different reasons at different times. Although it was generally much more expensive to produce oil from coal than from natural petroleum, the political as well as economic importance of achieving as much independence as possible in this sphere was sufficient to overcome any objections. Early attempts to attract private capital, foreign or domestic, were unsuccessful, and it was only with state support that the project could start.
The first Sasol installation opened in 1955, but had to overcome initial technical problems that delayed successful operation for more than a year. Financial success was possible only because a system of tariff protection and subsidy operated. This was in addition to profits from the sale of byproducts of the process as feedstock for the production of other chemicals and, from 1966, Sasol's involvement in National Petroleum Refiners of South Africa (Natref), which refined imported petroleum. With the industry functioning, private finance became available, and Sasol was successfully privatized in 1979.
As international oil sanctions threatened South Africa's oil supplies and African nationalists targeted Sasol installations, the company remained in the domestic political foreground. Political considerations also became international. Opposition to the continued involvement of U.S. finance and technology in the undertaking, for example, led in 1986 to the withdrawal of the American multinational Fluor from its South African subsidiary, which had provided initial construction and engineering support for Sasol installations. This had no practical effect in South Africa, as Fluor's place was taken by a European consortium. Already a major industrial enterprise when it went into the private sector, Sasol continued to grow, maintaining and expanding its role not only as the supplier of an increasing proportion of South Africa's fuel requirements, but also as a major producer of explosives, polymers, fertilizers, and other chemicals, and as a provider of technical services at home and abroad.
Industrialization in South Africa After World War I
It was only after World War I revealed just how vulnerable to external events the South African economy was because of its reliance on imports, that substantial efforts were made to promote domestic industrial development. Earlier moves in that direction had been strongly opposed by the mining industry on the grounds that domestically produced goods would be more expensive than imports. There were some small-scale producers of consumer goods such as shoes and textiles but no attempts had been made to move beyond gold and coal mining to make use of some of the country's other varied and abundant mineral resources to establish an industrial economy. Between 1911 and 1916, some iron works using electric furnaces and scrap metal from the mines and railways operated, but were of no real significance.
In 1922 a blast furnace was built in Newcastle, Natal, and a steelworks at Vereeniging, Transvaal, but it was with the formation of the Iron and Steel Corporation (Iscor) in 1929 that the foundations of an industrial economy were firmly laid. It rapidly became clear that development would be hampered by the fact that there were no known petroleum reserves in the country. In addition to the fact that Afrikaners--people of Dutch origin--were moving increasingly into the world of finance previously dominated by Britons, more immediate political considerations also came to the fore.
South Africa in the 1920s and 1930s experienced serious political, economic, and social problems as more and more poor white Afrikaners, unable to secure even a minimal living in the agricultural sector, sought work in towns--work that was in conspicuously short supply. In 1925 the Pact Government--a coalition of the South African Labour Party representing skilled, primarily British workers, and the National Party representing strongly anti-British Afrikaner nationalists--moved away from the policy of laissez-faire, making it possible to impose protective tariffs on imports. By protecting and promoting domestic industries, the move was expected to create more jobs. Other policies were put in place to ensure that as many new jobs as possible would go to white rather than black workers.
Although there was considerable debate about direct government involvement in manufacturing, government finance of essential infrastructure had never been seriously questioned. The railway network had been built and continued to be run as a nationalized enterprise, and in 1922 the Electricity Supply Commission (ESCOM) had been set up to provide electricity for the entire country. By the time Iscor was formed, although some mining financiers were beginning to show some interest in investing in industrial development, domestic risk capital was not easily available, and there was a growing aversion to allowing foreign capital to increase its hold on the economy. Many Afrikaner nationalists, including members of the government, did not feel that they could trust British or other foreign capitalists to be sufficiently loyal to South Africa to operate such a fundamentally important industry in the true interests of the country. The growing number of Afrikaner financiers wanted a share in the profits of industrialization, but, having to build on a predominantly agricultural capital base, did not have the large amounts of finance needed. State-provided capital was considered preferable, all the more with regard to the conversion of coal to oil, as private sector efforts to raise the necessary initial funds came to naught.
Deriving Oil from Coal: The Late 19th and Early 20th Centuries
Research into the possibility of converting coal into oil had been going on in Europe for many years. Some of the scientific basis for the process was discovered at least as early as 1875, with further major progress reported in 1890. There was particular interest in the development of a commercially viable process in Germany where, in 1913, Friedrich Bergius (who would share in the 1931 Nobel chemistry prize for his work in this field) first patented an effective means of producing a substance similar to oil by liquefying coal and increasing its hydrogen content under pressure--hydrogenation.
Continued German interest in the search for an economical means of producing oil from coal led, in 1923, to the discovery of an alternative process based on gasifying rather than liquefying coal. Franz Fischer and Hans Tropsch at the Kaiser Wilhelm Institute for Coal Research at Mulheim developed a process in which synthesis gas--sometimes referred to as water gas--produced from coal was combined with hydrogen in the presence of a catalytic agent under controlled temperature and pressure conditions.
In a free market climate, the comparatively high cost of synthetic fuels made them totally uneconomical. World War II had reinforced concern about South Africa's economic vulnerability. The government was now much more interested in the establishment of a coal-to-oil capability than it had been when the idea was first mooted in the 1920s.
Initially there was greater interest and hope in the development of the production of oil from shale deposits than from coal. With the help of German experts, the possibility of exploiting the torbanite deposits at Ermelo was extensively explored. The South African Torbanite Mining and Refining Company (Satmar) was formed in 1932 "to refine and market indigenous petrol obtained by blending petrol from oil shale, alcohol from maize and molasses, and benzol from Iscor." These shales were capable of producing 20-100 gallons of oil per ton, but the company could only operate profitably by refining imported crude oil to supplement the shale operations.
In collaboration with Anglo-Transvaal Consolidated (Anglo-Vaal), Satmar acquired the South African rights to the Fischer-Tropsch process. Tenders were invited for the construction of the necessary plant, but capital was not forthcoming. As late as 1938 the South African government continued to hope that the possibilities of deeper drilling might yet lead to the discovery of oil or that Ermelo's torbanite could be made to produce oil economically. Coal-to-oil schemes were still considered uneconomical, but the government did agree that it made sense to test South African coal in both the Bergius hydrogenation and the Fischer-Tropsch gasification processes.
Government Economic Initiatives in the 1940s and 1950s
After World War II, shales still produced only small quantities of oil, natural petroleum still could not be found, and coal-to-oil conversion looked increasingly attractive. In 1947 a regulatory licensing framework was established for anyone interested in moving in that direction. The only applicant was Anglo-Vaal, which acquired a license in 1949 and elaborated a scheme, initially estimated to cost £13 million, for the opening-up of a new coal mine to ensure a steady supply for a Fischer-Tropsch plant with an annual output capacity of 260,000 tons, including 76 million gallons of motor fuel.
By early 1950, having spent some £400,000 in preliminary work, Anglo-Vaal sought government support in the form of a guarantee of £16 million debentures to be issued by the Industrial Development Corporation (IDC), which had been set up by the government in 1942 to help finance industry. After considerable debate, the IDC was allowed to provide the necessary funds or guarantees, with additional support from American banks. By 1955, the fully mechanized Sigma colliery was ready to supply 7,600 tons of coal daily, 3,200 tons of which were to be gasified in Lurgi generators to produce some three million cubic meters of gas for the Fischer-Tropsch plant, which was expected to produce 55 million gallons of motor fuel and 16 million gallons of other products annually. Some of these products--ammonia, tar, phenols, and creosote--were byproducts of gasification, while others--alcohols, acetone, and paraffin waxes--were produced in the Fischer-Tropsch units. Over the years, that process proved extremely versatile. By varying temperature, pressure, and the catalytic agents used, a wide range of organic compounds could be synthesized, making it important for the chemical industry throughout the world. Byproducts were also important for the South African undertaking, but it was only in that country that the process had been used extensively to produce fuel.
In what was to become known as Sasol I at Coalbrook--subsequently Sasolburg--two Fischer-Tropsch units operated. One used a fixed bed catalyst of the kind the Germans had employed during the war and was provided by the German firm Argbeit-Gemeinschaft Lurgi und Ruhrchemie (Arge). This process, based on a well tried and tested technique, operated without difficulty. The second unit, a fluid bed system, had been developed and installed by the American firm of M.W. Kellogg. This had never before operated on an industrial scale, and created technical difficulties which were not resolved until 1957. The original estimated cost of £13 million had risen to £18 million by the time IDC support was sought, and actual costs by the time the system was functioning were significantly more than £40 million. The integration of the fixed and fluid bed systems was expected to produce considerable economic and technical advantages. The difficulties experienced in bringing the fluid bed unit onstream meant that any such benefits were slower to materialize than anticipated. Over the years, however, research and development led to the emergence of a unique production technique, ultimately to be known as the Sasol-Synthol process.
With underlying government support in the form of a tariff on imported petroleum and a sliding price scale for Sasol's own produce geared to world petroleum prices, Sasol was able eventually to show profits. At the time of its formation, hope that it could be profitable in its own right, without artificial protection, was not without justification. In addition to the greater efficiency expected from and finally achieved by process integration, the five units installed by Arge had the same capacity as 75 of the smaller units used in wartime Germany. Considerable immediate savings were made in the amount of equipment and instrumentation required. Less tangible, but nonetheless important, was the widespread belief that American oil reserves were nearing depletion. Supplies from the Middle East were thought to be at risk because of the fear of Soviet influence.
Toward a Post-Apartheid Economy: 1964-94
South Africa did not experience any difficulty in importing the crude oil it needed, although the means by which this was done, and the prices paid, were at times shrouded in secrecy. Strong international pressure to restrict supplies began to have an impact in 1964, when Kuwait banned all petroleum exports to South Africa. OPEC followed suit in 1973. Iran was South Africa's major supplier until the revolution of 1979 and the National Iranian Oil Company (NIOC) had a 17.5 percent share in Natref when it was formed. The French firm Elf Aquitaine (later to become Total Fina Elf S.A.) was also a major shareholder, but Sasol was in control with 52.5 percent. After the revolution, NIOC tried unsuccessfully to sell its shares, which were in effect absorbed in South Africa, Sasol's Natref holding rising to 63.63 percent.
The oil crises of 1974 and 1978 provided a substantial boost for Sasol, higher world prices not only enabling it to increase prices, but also making the cost of production closer to, or even lower than the world oil price. At the end of 1979, for example, Sasol's production cost was estimated to be about $30 per barrel at a time when world spot prices were about $10 per barrel higher. Although such differentials were not sustained, prospects in the 1970s were sufficiently good to lead Sasol to embark on the construction of a second installation, Sasol 2, at Secunda in 1976. By the time this installation came onstream in 1980, work had already begun on Sasol 3, also at Secunda. This third unit came onstream in 1982. Still based on the Fischer-Tropsch process, the new plants, like Sasol 1, were capable of producing a range of chemicals as well as synthetic fuel.
In 1979 it was decided to take Sasol public, with 70 percent of its shares being placed on the market. Initially, some R 490 million were raised by private placement of shares, with another 17.5 million shares made available to the public. South African institutional investors, pension funds, and large companies took the lead. Small investors were attracted by promises of preferential allocation treatment, and foreign investors were particularly interested because they were allowed to make their purchases using the financial rand, while dividends would be paid at the ordinary commercial exchange rate. At the time, the financial rand was at a discount in excess of 30 percent as against a more normal rate of about 12 percent. The public issue was more than 30 times oversubscribed. Foreign investors did not do as well as they hoped out of the allocation.
In 1983, on the basis of the expanded capacity provided by Sasol 2 and 3, Sasol Limited was able to begin moving beyond the provision of feedstock for the country's chemical industry into the production of fertilizers and various specialty chemicals. Existing producers did not welcome this competition.
Still a relative newcomer to the industry, Sasol was nonetheless part of the general effort to increase South African specialty chemical output. In addition to saving substantial amounts of foreign exchange by reducing reliance on imports, Sasol also planned to produce for export. In 1990, major investment plans were approved for the company to expand production of a range of products that would contribute to this end.
In relations with its workers, Sasol was facing, like most other South African enterprises, increasing pressure from African trade unions for improvements in pay, working conditions, and housing. A nine-day strike in 1989, for example, was resolved by the payment of a food allowance for African workers not living in hostel accommodation. More serious industrial action in 1987 resulted in Sasol's being criticized by the Industrial Court for using "rough and ugly tactics" in dealing with a strike by members of the Chemical Workers' Industrial Union. The company was, the court held, more interested in forcing capitulation than in negotiating a financial settlement. A subsequent appeal, however, found the company's actions justified.
Apart from specific trade union issues, Sasol was also a major target for political activists seeking to put pressure on the South African government to bring the apartheid system to an end. In June 1980, for example, there was a well-coordinated attack on Sasolburg, showing evidence of detailed knowledge of the plant and its weak security points. Bombs placed in the offices at Fluor, then constructing Sasol 2 and 3, were defused only a short time before they were set to explode.
During this period Sasol placed considerable emphasis on research and development, which had been the platform for considerable technological advance. On this basis it not only built up its manufacturing base within South Africa, but also provided technical services abroad. Most notable was technical support for some U.S. gas companies and general consultancy for a gasification plant in North Dakota, successfully commissioned in 1984.
By the beginning of the 1990s the company was calling for the expansion of synthetic fuel production in South Africa. It turned to government and other industries to provide the large amount of capital required, but it was not forthcoming.
After Apartheid: 1994-2001
As the apartheid system was being dismantled in the early 1990s, Sasol was searching for ways to remain competitive in the emerging free market economy. Deregulation and the end of government protection made it clear that the company would no longer be able to survive on the profits from its synthetic fuel business. In 1993 synthetic fuel still accounted for 41 percent of the company's profits, much of which were in the form of government subsidies. The government's plan to gradually phase out these subsidies--which amounted to R 1.1 billion annually--by 1997 left the company little choice but to focus more intently on products that could be competitive in the global economy.
The most obvious solution involved the expansion of the company's petrochemical business. In many respects, chemicals made far more business sense: International demand was far higher, and specialized chemicals could sell for nearly $1,000 a ton in the free market, compared to $200 per ton of synthetic fuel. With significantly lower operating costs, Sasol had a distinct edge over its European competitors. The key, however, was gaining a foothold in previously unexplored global markets. To this end, the company entered into a number of strategic partnerships with overseas corporations in the mid-1990s. These agreements included deals with Merichem for the production of phenolics and with DHB for the manufacturing of explosives. In 1995 Sasol joined forces with the German chemicals firm Schumann, giving the joint company control over one-fifth of the international wax market, and its 1998 acquisition of AECI made it the third largest producer of explosives in the world.
By 1995, chemical production accounted for 31 percent of the company's operating profits, with income from chemical exports reaching nearly $400 million, more than double the figure for the previous year. In spite of this shift toward petrochemicals, however, Sasol remained committed to developing an economically viable synthetic fuel throughout the 1990s. Much of the company's efforts remained focused on the possibilities of coal. By 1995 Sasol had succeeded in lowering the operating costs of its synthetic fuel reactors significantly, and it became conceivable that its product might become competitive with standard crude oil. At the same time, Sasol began exploring the possibilities of alternative forms of fuel conversion, most notably natural gas. In 1999 the company entered into a $1 billion agreement with Chevron to construct a natural gas processing plant in Nigeria, with the eventual goal of producing synthetic crude oil at the rate of 30,000 barrels a day. By 2000 the joint venture emerged into a new company, Sasol Chevron Holdings, dedicated to establishing similar natural gas-to-oil refineries around the world.
Clearly, Sasol was finding its way quite well as it took its first steps into the global economy. Investors were not blind to the company's potential; Sasol's stock price rose 50 percent between 2000 and 2001, prompting the Dow Jones World Sustainability Index to name it the second best performer of the year. While Sasol was still feeling its way in the post-apartheid economy at the beginning of the new millennium, it had every reason to feel confident that its past success in South Africa was going to translate into future success worldwide.
Principal Subsidiaries: Sasol Oil (Pty) Ltd.; Sasol Technology (Pty) Ltd.; Sasol Chemical Industries Ltd.-Operations Division; Sasol Mining (Pty) Ltd.; Sasol Synthetic Fuels (Pty) Ltd.; Sasol Petroleum International (Pty) Ltd.
Principal Divisions: Sasol Alpha Olefins; Sasol Fertilizers; Sasol Fibres; Sasol Fuel Oil; Sasol Solvents; Sasol Carbo-Tar; Sasol Ammonia; Sasol Akrylo; Sasol Minchem; Sasol Mining Explosives (SMX); Sasol Gas; Sasol Engineering Division; Sasol Amsul; Sasol Synfuels International (Pty) Limited.
Principal Competitors: ChevronTexaco Corporation; Galp Energia, S.G.P.S., S.A.; Royal Dutch/Shell Group.
- Ashurst, Mark, "Sasol Rides Out Upheaval in South Africa," Financial Post (Toronto), May 7, 1996.
- Mallet, Victor, "Chevron, Sasol Join for Gas-to-Liquid Fuel Project," Financial Times (London), June 10, 1999.
- Rich, Motoka, "New Role for Sanctions-Beaters Sasol: South Africa's Oil-from-Coal Concern Leads Way in Chemicals Industry Revamp," Financial Times (London), December 13, 1996.
- Rutherford, Stuart, "Glug! Glug! Down It Goes," Financial Mail (South Africa), September 25, 1998.
Source: International Directory of Company Histories, Vol. 47. St. James Press, 2002.