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Introduction
sasol-limited, For truly global firms, trade is an important component of a business. Global firms have vast supply chains and capitalize on the specialities and expertise of different nations as well as opportunities for cost minimization in outsourcing or procurement of raw materials from different nations. Manufacturing or assembling facilities are often at a different location and thus trade becomes vital to business. It is thus imperative that trade regulations and considerations are given priority.
Sasol is one such global company operating from within South Africa. An energy and chemicals based company with a multitude of end products and diverse functions, company imports and exports all over the world. Sasol has important trade considerations to bear in mind to ensure continued operations and profitability. It is committed to making a social impact in Africa, Sasol Limited leveraging its natural resources to bring prosperity to the region.
About the company
At the beginning of the 1950s, the government of South Africa decided to start a program to extract and refine oil from South Africa’s vast coal reserves. Even though the reserves were of a poor quality but they still held economic potential. The company formed, South African Coal, Oil and Gas Corporation Sasol Limited, which later was named as Sasol Limited.
Sasol was established in Johannesburg and is registered in the country. It has gone on to become an international integrated company dealing in the energy and chemicals sector. The company became open to public trading and its stocks are traded over JSE in SA and on the NYSE in the US. Today Sasol is the world’s largest producer of motor fuel using coal as raw material. It mines gas from Mozambique’s Pande and Temane fields via an 865-kilometre pipeline, carrying it to its plant in Secunda. This plant manufactures synthetic fuels. It is also exploring more fields in adjacent concessions. (Sasol, 2013)
Sasol has large-scale international operations but the larger portion of its revenues is generated from its business in South Africa. It is thus a significant benefactor of the country, driving economic growth by supplying power, creating jobs and using untapped resources. The operations in South Africa are based on both import and export functions. Sasol exports an approximate amount of 3 million tons (Mt) of coal and one million Mt of bulk liquid chemicals, and 500 000 Mt of containerised chemicals, while importing about 3.5 million Mt of crude oil, clean petroleum products as well as other dry bulk cargoes every year. Sasol carries out these operations via the Transnet National Ports Authority (TNPA) and uses Natcos facilities. (Sasol, 2012)
Sasol is committed to benefiting its roots as it becomes a global name. To benefit South Africa, Sasol capitalizes on the local opportunities in Southern Africa and North America and identifies areas of growth early on. Its major focus as a responsible company is to create value sustainability.
Sasol involves over 32 400 people in 37 countries in its operations at all levels and maximizes their potential by leveraging their talent and skills. It relentlessly pursues research and development, innovating and refining technologies and then applying them on a commercial, large scale level, building facilities to manufacture its product base which include liquid fuels, chemicals, low carbon electricity etc..
Sasol recently revised its value chain based model to optimize its operations. It is now organized into three areas; Sasol Limited there are 2 upstream business units, 3 regional centers, and four strategic business units to deal with customers. The framework is held together place by fit-for-purpose functions.
Sasol is highly focused on innovation and accords this successful 6 decade journey of constant innovation to the talent of people and its technological advantage. Its methods, facilities and products, have evolved over its life and its contribution to South Africa has been immense.
Sasol Limited business model is profitable as it recognizes that the entire marketing mix is vital to the success of business. Not just does the innovative and more refined product and process drive growth and value, but also the consumer and its needs. As countries now struggle to secure the inflow of energy and chemicals for their growing needs, Sasol caters to these requirements. Sasol recognizes that for many countries owning rich resources of hydrocarbons, conversion of the said resources into liquid fuels and chemicals benefits the national economy and the socio economic outlook of the people. (Sasol, 2015)
Trade considerations
Macroeconomic considerations
Global economies, especially those of the importing nations, are an important trade consideration for Sasol Limited.
Port considerations
As an energy and chemicals based company with large export and import operations, Sasol is highly dependent on ports. Sasol is a lessee of Transnet National Ports Authority (TNPA) property and contributes a significant portion to its revenues. The contract provides Sasol with the “Natcos” facilities in Durban for storing its crude oil, petrol and diesel. Sasol is also a 63.64% equity stake holder in Natcos.
To sustain its business, Sasol relies on this lease and it becomes an important trade consideration. Sasol is particularly dependent on the ports of Richards Bay and Durban. Tariffs applied here and the efficiency of the ports can have significant impact on the running of Sasol’s operations as well as its cost structure, and therefore profitability. These ports affect the South African economy at large as well which is the business environment Sasol functions in.
The import and export supply chain is managed through vital lease contracts where TNPA lessees provide services. These lessees include Richards Bay Coal Terminals, Island View Storage, Transnet Port Terminals, Vopak, ITS and others. These services come at a cost which affects Sasol’s profitability. Sasol’s scales of operations and its contribution to TNPA revenues does give it the benefit of being in a negotiating position where tariffs are concerned but it remains an important consideration.
The costs considerations discussed here include direct and indirect costs. The total direct and indirect cost is estimated at around R280 million per year. The direct costs are for the operational services provided by these lessees while the indirect costs include port dues, other costs of ships that carry Sasol cargoes and these are recovered in freight costs or prices of the delivered products. The costing of logistics impacts the costing structure of the goods and must not go high enough to be unfit for the market or to significantly cut margins. Sasol is an international player in the market and it must remain competitive to do business. It cannot charge above the prevalent prices lest it is driven out of the market. It must also be extra vigilant in maintaining its profitability and continuity to achieve its larger goal of growing the African market.
(Sasol, 2012)
Infrastructure considerations
Sasol is not only affected by port costs but also their efficiency. As a lack of infrastructure will seriously hinder the trade prospects of the company, Sasol is a strong and vocal advocate of TNPA decision to expand infrastructure before the demand catches up and damage control, hasty measures have to be taken. In this regard, Sasol is willing to except that fair costs associated with infrastructure development will fall in its lot. However, in its future strategic planning and forecasted costs, this will emerge as a significant concern. (Sasol, 2012)
Sasol Limited is around the world’s largest manufacturer of motor fuel using coal and it gets its gas from Mozambique’s Pande and Temane fields. This gas is transported via a 865 kilometer pipeline to the plants making synthetic fuels in Secunda. Thus functioning is largely dependent on infrastructure and so will continued growth be. Thus the expansion of facilities at the port becomes vital as import is also necessary to obtain more and more gas.
The department of energy recognizes that there is a shortage of infrastructure needed for imports.
“We have very limited gas infrastructure”, Wolsey Barnard, the acting director general of the said department. The department will expand infrastructure in the next 24 to 30 months. (Bloomberg, 2015)
To understand the impact of infrastructure development on Sasol’s operations and exports, consider the 2009 withdrawal of 35 licenses for future growth areas in the North West Province, Mpumalanga Province, and KwaZulu-Natal by Sasol. The projects that were marked for inclusion included include Omnia, Impala Platinum, Anglo Platinum, Transvaal Sugar Limited, Sea View Industria, and Sappi Umkomaas. The areas were supposed to be for development of infrastructure facilities but the planned development was not undertaken during the five-year period allowed for it in a regulatory agreement referred to in Section 36 of the Gas Act.
“Gas availability, pipeline capacity, customer needs and commercial drivers are some of the factors determining the viability of new pipeline gas projects,” said Sasol Limited spokesperson Jacqui O’Sullivan. (Swanepoel, 2009)
Licenses for Gas
To carry out its operations, Sasol needs to secure licenses and this is an important consideration for trade. Though Sasol has not faced trouble securing these licenses in an environment where economic development is a top priority, it must keep the licensing conditions in view.
Sasol must include historically disadvantaged South Africans in its activities, must get approved its Cost Allocation Manual by the Energy Regulator and submit its Regulatory Report, allow an outside third party to use uncommitted capacity of pipelines on fair prices and conditions, and allow them reasonable changes in routing, size, capacity, and costs and allow them to benefit from any cost reductions, and share in all costs of transmission. Sasol must also allow for a business arrangement with the facilities of gas providers, transmitters, storage firms, distributing units, reticulators and consumers, allow third parties to use uncommitted storage capacity and share in any costs to change capacity.
Sasol Limited must also consider that the construction and operation licences granted would be exclusive for a given time frame of validity and the trading license granted will be determined by the Gas Regulator. Furthermore, an exclusive geographic area will only be allocated if Sasol is able to supply present and future potential consumers energy at competitive prices and it must be supplied to everyone in the area who requests it. Prices will also be determined by the Gas Regulator where there is inadequate competition as contemplated in Chapters 2 and 3 of the Competition Act, 1998 (Act No. 89 of 1998). Additional services of advice about the safe and efficient use, handling and storage of gas must be given. Sasol must also commit to maintaining its facilities in a fully operative mode and the time to operation must be determined beforehand. Finally, Sasol must consider the regulation that the Gas Regulator is entitled to complete information disclosure as needed. (Sasol Gas, 2014)
Prices of crude oil
Global crude oil prices are another consideration for trade. Gas prices too ride on the back of these crude oil rates and they are linked. When crude oil prices fall, as they have done in recent times, due to an excess of supply in the global market following shale oil discovery in the U.S., it is wiser to restrict trade. Production cannot be slowed down in the short term but storage capacities can be increased till prices are restored.
In 2014, Sasol’s profitability suffered a minor blow when average Brent crude oil prices took a hit of around 19%. The average Brent price was US$89/barrel (6months ended 31 December 2014) in sharp contrast with US$109,83 in the same period last year, a high rate that had become the new norm and that investment firms had not even predicted. (PRNewswire, 2015)
Forex risk
Internationally trading organizations are frequently affected by Foreign exchange risk. This is a result of fluctuation in currency rates as the local currency weakens or strengthens as compared to the dollar. Sasol’s profitability in 2014 increased due to a 9% weaker average rand/US dollar exchange rate.
(PRNewswire, 2015)
Social Impact
Sasol Limitedz gives back tremendously to the African community and has left a large social footprint.
The Economic Empowerment Rating Agency rated Sasol 9.13 out of 15 in skills development, with a full score in Enterprise development and socio economic development. (Empowerdex, 2014)
Sasol contributes to the national fiscus. In 2014 the company put in US$3.2 billion in taxes and US$128 million in socio economic uplift; a total of US$8.6 billion in taxes and US$274 million in socio economic uplift over the last 3 years. (Sasol, 2014)
Unlocking Africa’s potential
Sasol’s greatest social contribution has been to unlock Africa’s potential through its business operations. Sasol faced many challenges in its attempts like a severe lack of infrastructure facilities and the dearth of skills locally available. However, recognizing that the continent does have a potential for significant investment, Sasol commenced its operations hoping to bring prosperity to the region.
Africa has a good six hundred million people without access to basic electricity and power and their lives have been submerged in darkness, labor being manual and there being no prospects for industrial growth in their localities. There is a rising demand for electricity that needs to be catered to. Given the abundantly present hydrocarbon resources, Africa’s problem can be rectified. International energy companies can play a significant role in Africa by unlocking its potential and catering to its local demand, affecting lives in a large way. Power is an economic enabler and through providing power, long term growth and prosperity can be achieved. (Sasol, 2014)
Sasol Limited has been one such company working relentlessly to create a social impact. It has high graded its portfolio and has focused its energies on upstream and downstream expansion as well as development thus fulfilling its growth plans in Africa. Sasol has especially been successful in its efforts in Africa because of its strategic advantages. It has experienced staff accustomed to the African market, a strong distribution network to reach a widespread area, and strategic alliances with in country partners. These advantages are leveraged to allow growth. (Sasol, 2015)
21st Africa Oil Week/Africa Upstream Conference
Sasol sponsors a conference to recognize and celebrate the efforts made for local development in Africa, the Africa Oil Week/Africa Upstream Conference. The 21st conference took place in Cape Town.
During the week, at the 3rd Global Women’s Petroleum & Energy Club African Business Breakfast, the BDM at Sasol, Nici Jordaan, said “It made me appreciate the role we can play in empowering women so that they are better able to uplift, not only their family, but the broader community.” The conference also recognized that Africans are the beneficiaries of the exploration in Africa.
Sasol Exploration and Production International Senior Vice President, Ebbie Haan, stated that “Africa’s rising is a reality,” and that, “Our expertise in commercializing technologies that beneficiate resources, including natural gas, to produce much-needed liquid fuels, high-value chemicals and low-carbon electricity, serves to promote regional growth, development and stability.” (Sasol, 2015)
Social Investment
Sasol has done a significant amount of direct social investment apart from the social impacts of its operations. It has used its large trade based revenues to do more for the communities from where it derives its resources and business.
In Mozambique alone the company invested more than US$13 million on corporate social investment projects to positively impact the socio economic conditions of the local population and has created a legacy that it not time bound but has long term positive impact. The larger portion and the real focus of this social corporate investment was the development of infrastructure facilities in the Mozambique region. 67% of the projects carried out have been infrastructure based projects. Sasol has kept local considerations a top priority and has closely collaborated with the government and local authorities to better understand the needs on the area in question. The projects thus revolve around the truly needed infrastructure in the area including schools, health clinics, water boreholes and water systems. (Sasol, 2014)
These projects are not just social works but have long term goals as well that relate to Sasol’s trading functions. As the government’s mission also states, the aim is to leverage the natural resources of the area to aid the socio economic development of the people of the area. The projects carried out lead to skills development which will involve the local communities in the operations in the area. As mentioned above, the dearth of skilled labor in Africa was a major concern for Sasol. Thus Sasol aims to rectify this problem by generating this skilled labor and making a social impact.
As the government report highlights, the Organization for Economic Co-operation and Development (OECD) believes that at least fifty percent of the economic growth observed in developed countries in the last decade can be accounted for by education and skill development. It is with this view that Sasol invests in these projects and provides for and maintains schools and associated and necessary projects for the well being of the people.
Specific examples can be found of these projects and their impacts observed. One such example is that of a bursary program, which was initiated in collaboration with the Mozambican Ministry of Mineral Resources (MIREM). This program aims to mentor, train and develop the potential of 30 students per year, to specifically study geology, petroleum, drilling and reservoir engineering so that they can contribute directly to the development of these areas from the resources of their own locality and benefit the community they so closely understand. (Sasol, 2014)
Sasol also has a ‘learnership program’ to develop artisans. This fast track program develops the much hunted artisans and trains them in the areas of electric, instrument based, and mechanical production. The program was initiated in 2011 and the first batch of artisans was appointed at the CPF in 2014.
Sasol also collaborated with universities to develop students at the professional learning level. Sasol helped in building the required value adding capabilities at universities in Mozambican. (Sasol, 2015)
Adding value through in-country monetization
Perhaps Sasol’s largest contribution to the African community is to monetize its abundant resources which did no good to the community before. This in country monetization means that the community can finally benefit from its resources via job creation, in flow of revenues and the end products, especially electricity. Capitalizing on these economic opportunities is a two way benefit. Local development and economic growth, both direct and indirect through power would not be possible otherwise. It is even more important that a local company that truly cares about the country and not an exploitative outsider carry out this capitalization so that the maximum return is within the country.
Furthermore, capitalizing on Gas has other advantages and does not harm the environment as much. Gas gives out 40% lower carbon dioxide than alternatives like coal while producing the same amount of energy. It is thus a cleaner fuel and it can also be used in combination with renewable energy resources, like wind or solar power and this can provide a more constant and undisrupted electricity supply to the grid. (Sasol, 2015)
About the natural gas project in Mozambique
The Pande and Temane gas fields had been untapped for decades due to the market constraints and lack of infrastructure facilities. The political outlook of the country too hindered the project. Sasol however, decided to tap into this resource and utilize it effectively, creating a lasting social impact.
Sasol proposed a US$1.2 billion natural gas project. This project entailed the cleaning and processing of the gas from the two fields. A 120 MGJ/a central processing facility (CPF) was made in Temane and the deliverables were transmitted via an 865 km pipeline (capacity: 120 to 240 MGJ/a) that joined Sasol’s gas distribution network.
The project led to the advancement of a favorable investment climate and also facilitated the cooperation between the governments of Mozambique and South Africa as they negotiated a general Bi-lateral Agreement on Natural Gas Trade. Trade was thus developed and a Gas Commission was set up to watch over the cross border trade. The agreement has long term benefits for the countries including harmonization of regulatory requirements, improved taxes and customs duty policies, and coordination on safety and environmental protection, thus creating economic opportunities. In the new environment created by this project, exploration and production sector developed in Mozambique.
Sasol is the only operator monetizing these resources despite gas discoveries in the Rovuma basin offshore northern Mozambique. Its contribution to the local government over the first decade was above US$616 million and the commitment was US$3 billion. (Sasol, 2015)
A New Era for Sasol
Sasol has created a new era of sustainable development. The gas industry established by Sasol has played a huge role in determining the energy mix of the region. In 2011, the CPF was expanded to 183 MGJ/a of natural gas and the additional capacity was used as feedstock for the first permanent gas-to-power plants in South Africa (Sasolburg) and Mozambique (Ressano Garcia). This improved energy security for the region and thus the investment climate. Furthermore, greenhouse gas release went down due to the project with carbon release down by 40%. South African natural gas markets opened up in the domestic and industrial sectors. The government of Mozambique was given the added benefit of using royalty gas in cash or kind and the amount allowed was increased to 9%. Apart from this, 25MGJ/a of the 2011 expanded capacity was used to cater to the market in the country. (Sasol, 2014)
SHE Policy
Sasol’s Safety, Health and Environment (SHE) policy eliminate danger and minimize risk, reduce adverse impacts on the environment, and make operations more efficient while taking care about the safety and wellbeing of the people. This is attained by seeking out likely risks and extenuating them, keeping goals, following up and documenting the progress, and using internationally competitive management systems. The policy also hopes to achieve targets by relentlessly working to innovate and implement greener technology, supervising the welfare of the employees, applying a life cycle technique to all products, handling crisis situations speedily and finally by improving policies and learning from precedents. SHE trains all employees in these practices. (Sasol, 2012)
Enterprise and Supplier Development
Sasol’s Enterprise and Supplier Development function (ESD) works to develop and nurture entrepreneurship in the country as Sasol recognizes the role entrepreneurship plays in an economy. ESD works to:
Develop Suppliers
To ensure that the supply chain remains competitive and diverse, BEE suppliers are given support to develop. This is achieved via business development initiatives, betterment of technology and innovation, and financial assistance for their growth via the established fund, Sasol Siyakha Trust.
Incubate Business Services
Sasol established the Chem City Business Incubator (CBI) in Sasolburg in the Free State. The incubator is meant to incubate black suppliers for the supply chain and to extend business help to SMMEs located in the Vaal Triangle. By doing this, the incubator becomes a support system for local entrepreneurs and develops the locality.
Make the Chem city Eco-Industrial Park:
The Park is a 172 hectare facility in Sasolburg. It is especially allocated to light, medium and heavy industry and is accessible to any business/ industry wishing to start-up their operations in the area. The stands are fully serviced and they are for lease and sale. This too helps develop business in Africa.
The ESD is aligned with key national priorities such as the Industrial Policy Action Plan; the National Growth Plan; broad-based black economic empowerment (BBBEE); and Millennium Development Goals.
These efforts to develop suppliers and enterprises create thousands of jobs. (Sasol, 2015)
Inzalo Foundation
The Sasol Inzalo Foundation is a foundation that aims to economically empower the black people of Africa. It was established as part of BEE. The effect of the BEE equity transaction was the handing over of 10% shares of Sasol to black people from designated groups and the forming of Inzalo by allocating1.5% of Sasol’s shares to the Sasol Inzalo Foundation.
Inzalo is essentially a public benefit organization. Its governance is done by a nominated panel. The aim of the organization is to improve science, technology, engineering and maths (STEM) education at all levels. (Salsol, 2015)
Trade Theories
Traditional Theory of Trade
The traditional trade theory states that nations trade due to their competitive advantages and each transfers its best products to the others. It also includes the Hecksher-Ohlin Theory that nations have a comparative advantage due to factor endowments like capital and labor. (Deraniyagala, n.d.)
According to the Hecksher-Ohlin Theory, Sasol should be intensive both in capital and labor in order to succeed in trade. However, as observed, there is a dearth of skilled labor in Africa. Although Sasol is taking steps to develop the potential of the people in the area, the steps are not enough. Sasol should consider giving grants for education in its Inzalo program rather than simply supporting schools. Poverty may be a major hindrance to education yet and more student s should be brought to school.
New Theory of Trade
According to the new theory of trade, similar countries trade more than different ones. While the traditional theory said that comparative advantages drive…
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