Sasol Ltd. (SOL), the world’s largest maker of liquid fuel from coal, will seek cost cuts as expenses increase in South Africa and will decide on how to proceed with an investment in Uzbekistan by the end of the year.
“Cost reduction is a specific target within our short-term incentive scheme and, accordingly, management continues to focus on controllable cost elements,” Sasol’s Chief Financial Officer Christine Ramon, said in a statement today. The average rand exchange rate to the U.S. dollar fell 13 percent in the nine months ended March 31, the company said.
In South Africa, Sasol said it faces uncertainty around the outcome of wage negotiations, potential electricity supply shortages, slower growth in consumer spending. Along with “timid global demand conditions,” these factors are likely to weigh on growth prospects in its domestic market, the Johannesburg-based company said.
Sasol said it is reviewing the economics of its FT wax-expansion project at Sasolburg in Free State province, where costs have increased 40 percent to 45 percent to 11.9 billion rand ($1.2 million) because of construction delays, civil unrest and a volatile macroeconomic environment. “There is a risk of potential impairment” on the venture, which produces synthetic wax, Sasol said.
Engineering studies on the gas-to-liquid plant Sasol is building with Uzbekneftgas in Uzbekistan are expected to be finished by the end of the year, the company said. “An investment decision for this project is, amongst others, dependent on appropriate project financing.”
After a review of the project, Sasol’s board approved reducing its share to 22.5 percent from 44.5 percent at the end of the design study phase. Different shareholding options are being considered, the company said. Sasol estimated the cost of the project in 2011 at $3.5 billion.
In Iran, Sasol is progressing with the sale of its stake in the Arya Sasol Polymers Company, where the process has been slower than anticipated, the company said. The devaluation of Iran’s rial may have a further negative impact on earnings.
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