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Introduction
SHRM. For truly global firms, trade is an important component of business. Global firms have vast supply chains and capitalize on the specialties 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.SHRM. 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, 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. These reserves were of a poor quality but they still held economic potential. SHRM. The company formed, called, South African Coal, Oil and Gas Corporation Limited, later became Sasol.
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 a 865 kilometer 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. SHRM. It is thus a significant benefactor of the country, driving economic growth through 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) SHRM.
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.SHRM
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; 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’s 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.SHRM
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, SHRM 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.
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 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 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…
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