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Laggard costs


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Laggard costs

Photo of Terence Creamer

1st September 2023

By: Terence Creamer
Creamer Media Editor


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The cost of failing to keep pace with what is required economically and environmentally for energy sustainability should surely now be plain for all to see.

Besides the fiscal costs associated with ongoing Eskom bailouts, which more recently evolved into a R254-billion debt- relief package, the chronic power shortages carry indirect costs that dwarf the headline-grabbing diesel spend required to partially plug the supply gap.


South African Reserve Bank models estimate that the recent years of intense loadshedding are likely to have shaved between 0.7 and 3.2 percentage points from gross domestic product growth, while also undermining potential growth by reducing productive time and thus limiting the economy’s production capacity.

Every results presentation made by every CEO of a listed or unlisted company refers to the deleterious effects of the crisis. These range from an undermining of sales to manufacturers that are cutting back on production shifts to match with their available power, to the rise in input costs on the back of steep tariff hikes, the fall in consumer confidence and the shedding of jobs.


The costs also show up in the criminality that thrives in darkness, and in the growing health burden linked to South Africa’s highly polluted air, which is resulting in debilitating and expensive chronic lung conditions and thousands of premature deaths.

These costs are also not limited to the electricity sector, with Sasol recently impairing the liquid-fuels-linked assets at its integrated fuels and chemicals complex in Secunda by a whopping R36-billion.

While the group restated 2050 as the refinery’s useful life, Sasol’s failure to transition at a pace required to meet its decarbonisation commitments has resulted in a capping of Secunda’s post-2030 yearly output at 6.7-million tons; well below its historical yearly run rate of 7.5-million tons. The group is also having to warn shareholders to expect negative cashflows from its South African fuels business after 2030, which will be only partially offset by the chemicals business.

What’s more, the communicated downgrades and impairments assume that Sasol will prevail in its appeal of the National Air Quality Officer’s decision to decline its application to have its Secunda boilers regulated using a load-based emission limit for sulphur dioxide, rather than the prescribed concentration-based formula. Should the appeal fail – which it probably won’t, considering the extreme economic and social consequences – there would have to be a phased shutdown of Secunda.

Sasol’s transition is particularly complex, given its reliance on a coal-to-liquids production method developed for an entirely different era, when carbon budgets were not in prospect.

Nevertheless, the group began making serious energy transition strides only after a near cataclysmic mega- project misadventure in the US. Sasol is thus something of a transition laggard, which has resulted in risks that could, if not well managed, eclipse the opportunity it now has to use its unique asset base to emerge as a sustainable fuel leader.

There is no such excuse for South Africa’s electricity intransigence, with the trade-off between cheap and clean in that sector having evaporated nearly a decade ago.


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