South African Chemical Giant to Exit Mozambique’s Market

By  |  June 29, 2020

African chemical giant, South African Synthetic Oil (Sasol) is exiting the Mozambique market after six years in operation. In what could signify a dwindling fortune for the 70-year-old petrochemical producer, it is currently at a depressed status following the collapse in oil and chemical prices worldwide.

 In 1925, anxiety rocked the African country when German technology, the Fischer-Tropsch process dominated the petroleum industry. It was later on vilified for its incapability to serve on a commercial-scale prompting the authorities to set up a natural resource low grade-coal, Sasol. This was highly embraced and touted as a tool for job creation, as well as lowering the import bill and reducing dependence on foreign supplies of crude oil.

The plant which is about 75 miles (160 kilometres) southeast of Johannesburg produces fuels, gases, and lubricants from coal. The company is facing numerous technicalities and have been hit by sustainability drawbacks. Its decision to desert the Republican of Mozambique Pipeline Company (ROMPCO) was informed by what it termed as “high debt levels and lower demand due to COVID-19 pandemic.”

It has witnessed an exponential rise in debts and the bid is aimed at dodging the rights issue of close to ZAR 35 Bn (USD 2 Bn). This was attributed to its Lake Charles Chemicals Project (LCCP) in Louisiana that went wrong.

Mozambique’s national development strategy, an economic blueprint envisages a negative impact on its market as a result of this motive. This is after South Africa’s Nedbank was put as a key cog by Sasol to manage the sale of its assets.

The country’s economic caucus and Mozambique’s gas master plan thinktanks added that the 175 megawatts (MW) capacity gas to a power plant at Ressano Garcia, on the border between South Africa and Mozambique, would suffer a major blow. As per reports, Deloitte consulting company is tasked to spearhead the sale of all Sasol’s accumulated 49% stakes.

Sasol’s woes started in 2017 when the LCCP, United States of America (USA) based project ran into headwinds. The low-density polyethylene (LDPE) had control weaknesses. These flaws amounted to its collateral damage in January 2020 after a raging inferno engulfed and consumed part of the pet project.

The firm’s trust was deeply dimmed by this happenstance coupled with ailing management issues that saw the joint Chief Executive Officer (CEO) stepping down. This was largely blamed on its shares which are down at 54% and trading flatly since the beginning of the year.

Delay of the release of financial results for the year 2019 painted a picture of a limping company. This blew out of proportion in June 2020 when it downsized workers and scaled-down operations. It also implored lenders to waive their debts and relax the payment terms.

Some 37.75% of its investments in West Africa are also under sales after it announced a vacation plan. Part of this includes 27.75% in Etame Marin Permit Offshore Garbon, operated by VAALCO Energy whereas 10% is consolidated in a 33,000 barrel per day gas-to-liquids project in Nigeria.

Feature image courtesy: Sasol via Facebook

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