Page 1
background image
As filed with the United States Securities and Exchange Commission on 2 November 2006
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 – for the year ended 30 June 2006
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-31615
Sasol Limited
(Exact name of registrant as Specified in its Charter)
Republic of South Africa
(Jurisdiction of Incorporation or Organization)
1 Sturdee Avenue, Rosebank 2196
South Africa
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
American Depositary Shares
New York Stock Exchange
Ordinary Shares of no par value*
New York Stock Exchange
*
Listed on the New York Stock Exchange not for trading or quotation purposes, but only in connection with the registration of
American Depositary Shares pursuant to the requirements of the United States Securities and Exchange Commission.
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the
period covered by the annual report:
622,866,948 ordinary shares of no par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes      No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes      No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes      No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes      No
background image
2
TABLE OF CONTENTS
Page
PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
9
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
10
ITEM 3.
KEY INFORMATION
11
3.A
Selected financial data
11
3.B
Capitalization and indebtedness
13
3.C
Reasons for the offer and use of proceeds
13
3.D
Risk factors
13
ITEM 4.
INFORMATION ON THE COMPANY
28
4.A
History and development of the company
28
4.B
Business overview
33
4.C
Organizational structure
97
4.D
Property, plants and equipment
98
ITEM 4A.
UNRESOLVED STAFF COMMENTS
110
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
111
5.A
Operating results
111
5.B
Liquidity and capital resources
163
5.C
Research and development, patents and licenses
168
5.D
Trend information
169
5.E
Off-balance sheet items
169
5.F
Tabular disclosure of contractual obligations
171
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
172
6.A
Directors and senior management
172
6.B
Compensation
178
6.C
Board practices
180
6.D
Employees
185
6.E
Share ownership
189
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
193
7.A
Major shareholders
193
7.B
Related party transactions
193
7.C
Interests of experts and counsel
194
ITEM 8.
FINANCIAL INFORMATION
195
8.A
Consolidated statements and other financial information
195
8.B
Significant changes
195
background image
3
Page
ITEM 9.
THE OFFER AND LISTING
196
9.A
Offer and listing details
196
9.B
Plan of distribution
196
9.C
Markets
196
9.D
Selling shareholders
196
9.E
Dilution
196
9.F
Expenses of the issue
196
ITEM 10.
ADDITIONAL INFORMATION
197
10.A
Share capital
197
10.B
Memorandum and articles of association
197
10.C
Material contracts
202
10.D
Exchange controls
202
10.E
Taxation
204
10.F
Dividends and Paying Agents
208
10.G
Statement by Experts
208
10.H
Documents on Display
208
10.I
Subsidiary Information
208
ITEM 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
209
ITEM 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
212
PART II
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
213
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
214
ITEM 15.
CONTROLS AND PROCEDURES
215
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
216
ITEM 16B. CODE OF ETHICS
216
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
216
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
217
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
218
PART III
ITEM 17.
FINANCIAL STATEMENTS
219
ITEM 18.
FINANCIAL STATEMENTS
220
ITEM 19.
EXHIBITS
H–1
GLOSSARY OF TERMS
H–3
LOCATION MAPS
M–1
background image
4
PRESENTATION OF INFORMATION
We are incorporated in the Republic of South Africa as a public company under South African Company
law. Our consolidated financial statements included in our corporate filings in South Africa were prepared in
accordance with International Financial Reporting Standards (IFRS), for the financial years ended 30 June 2002,
30 June 2003, 30 June 2004, 30 June 2005 and 30 June 2006.
For purposes of this annual report on Form 20-F, we have prepared our consolidated financial statements in
accordance with United States Generally Accepted Accounting Principles, or US GAAP. Our consolidated
financial statements for each of the financial years ended 30 June 2002, 30 June 2003, 30 June 2004, 30 June
2005 and 30 June 2006 have been audited by KPMG Inc., independent accountants.
As used in this Form 20-F:
• “rand” or “R” means the currency of the Republic of South Africa;
• “US dollars”, “dollars”, “US$” or “$” means the currency of the United States;
• “euro” or “€” means the common currency of the member states of the European Monetary Union;
• “GBP” means British Pound Sterling, the currency of the United Kingdom;
• “JPY” means Japanese Yen, the currency of Japan;
• “AUD” means Australian dollar, the currency of Australia.
We present our financial information in rand, which is our reporting currency. Solely for your convenience,
this Form 20-F contains translations of certain rand amounts into US dollars at specified rates. These rand
amounts do not represent actual US dollar amounts, nor could they necessarily have been converted into
US dollars at the rates indicated. Unless otherwise indicated, rand amounts have been translated into US dollars
at the rate of R7.76 per US dollar, which was the noon buying rate for customs purposes of the rand as reported
by the Federal Reserve Bank of New York on 29 September 2006.
All references in this Form 20-F to “years” refer to the financial years ended on 30 June.
Besides applying barrels (b) for reporting oil and gas reserves and production, Sasol applies the Système
International (SI) metric measures for all global operations. A ton or tonne denotes one metric ton equivalent to
1,000 kilograms (kg). Sasol’s reference to metric tons should not be confused with an imperial ton equivalent to
2,240 pounds (or about 1,016 kg). Barrels per day or bpd is used to refer to our oil and gas production.
All references to billions in this Form 20-F are to thousands of millions.
All references to the “group”, “us”, “we”, “our”, “the company”, or “Sasol” in this Form 20-F are to Sasol
Limited, its group of subsidiaries and its interests in associates and joint ventures. All references in this Form
20-F are to Sasol Limited or the companies comprising the group, as the context may require. All references to
“(Pty) Limited” refers to (Proprietary) Limited, a form of corporation in South Africa which restricts the right of
transfer of its shares, limits the number of members and prohibits the public offering of its shares.
All references in this Form 20-F to “South Africa” and “the government” are to the Republic of South
Africa and its government. All references to the “JSE” are to the JSE Limited (formerly known as the JSE
Securities Exchange, South Africa). All references to “SARB” refer to the South African Reserve Bank and all
references to “PPI” refer to the Producer Price Index, which is a measure of inflation in South Africa. All
references to “GTL” and “CTL” refer to our gas-to-liquids and coal-to-liquids processes, respectively.
Certain industry terms used in this Form 20-F are defined in the Glossary of Terms.
background image
5
Unless otherwise stated, presentation of financial information in this annual report on Form 20-F will be
under US GAAP. Our discussion of business segment results follows the basis on which management measures
business segment performance. Presentation of business segment results on a management basis differs from
results on a US GAAP basis in certain respects. For more information on the reconciliation of segmental
turnover and operating profit see Note 3 to our consolidated financial statements.
background image
6
FORWARD-LOOKING STATEMENTS
We may from time to time make written or oral forward-looking statements, including in this Form 20-F, in
other filings with the United States Securities and Exchange Commission, in reports to shareholders and in other
communications. These statements may relate to analyses and other information which are based on forecasts of
future results and estimates of amounts not yet determinable. These statements may also relate to our future
prospects, developments and business strategies. Examples of such forward-looking statements include, but are
not limited to:
•   statements regarding our future results of operations and financial condition and regarding future
economic performance;
•   statements regarding recent and proposed accounting pronouncements and their impact on our future
results of operations and financial condition;
•   statements of our business strategy, plans, objectives or goals, including those related to products or
services;
•   statements regarding future competition and changes in market share in the South African and
international industries and markets for our products;
•   statements regarding our existing or anticipated investments (including the GTL projects in Qatar and
Nigeria, the Arya Sasol Polymer Project, the potential development of two CTL projects in China
and other investments), acquisitions of new businesses or the disposition of existing businesses;
•   statements regarding our estimated oil, gas and coal reserves;
•   statements regarding future development in legal and regulatory matters, including initiatives for the
economic empowerment of historically disadvantaged South Africans;
•   statements regarding future fluctuations in refining margins and crude oil, natural gas and petroleum
product prices;
•   statements regarding the demand and the cyclicality of petrochemical product prices;
•   statements regarding changes in the manufacturers’ fuel pricing mechanism in South Africa and their
effects on fuel prices and our operating results and profitability;
•   statements regarding future fluctuations in exchange and interest rates;
•   statements regarding our plans in respect of the South African retail and commercial markets for liquid
fuels;
•   statements regarding our current or future products and anticipated customer demand for these products;
•   statements regarding acts of war, terrorism or other events that may adversely affect the group’s
operations or that of key stakeholders to the group; and
•   statements of assumptions underlying such statements.
Words such as “believe”, “anticipate”, “expect”, “intend”, “seek”, “will”, “plan”, “could”, “may”,
“endeavor” and “project” and similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying such statements.
background image
7
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and
specific, and there are risks that the predictions, forecasts, projections and other forward-looking statements will
not be achieved. If one or more of these risks materialize, or should underlying assumptions prove incorrect, our
actual results may differ materially from those anticipated in this Form 20-F. You should understand that a
number of important factors could cause actual results to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such forward-looking statements. These factors include
among others, and without limitation:
•   the outcomes in developing regulatory matters and the effect of changes in regulation and government
policy;
•   the political, social, fiscal regime and economic conditions and developments in the world, especially
those countries in which we operate;
•   our ability to maintain key customer relations in important markets;
•   our ability to improve results despite unusual levels of competition;
•   the continuation of substantial growth in significant developing markets, such as China;
•   the ability to benefit from our capital spending policies;
•   the capital cost of projects (including material, engineering and construction cost);
•   growth in significant developing areas of our business;
•   changes in the demand for and international prices of crude oil, petroleum and chemical products and
changes in foreign currency exchange rates;
•   gaining access to sufficient competitively priced gas reserves;
•   our success in continuing technological innovation and commercialization;
•   our ability to maintain sustainable earnings despite fluctuations in foreign exchange rates and interest
rates;
•   our ability to attract and retain sufficient skilled employees; and
•   our success at managing the risks of the foregoing.
The foregoing list of important factors is not exhaustive. When relying on forward-looking statements to
make investment decisions, you should carefully consider the foregoing factors and other uncertainties and
events. Such forward-looking statements apply only as of the date on which they are made, and we do not
undertake any obligation to update or revise any of them, whether as a result of new information, future events
or otherwise.
background image
8
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
We are a public company incorporated under the Company law of South Africa. All of our directors and
officers reside outside the United States, principally in South Africa. You may not be able, therefore, to effect
service of process within the United States upon those directors and officers with respect to matters arising
under the federal securities laws of the United States.
In addition, substantially all of our assets and the assets of our directors and officers are located outside the
United States. As a result, you may not be able to enforce against us or our directors and officers judgments
obtained in United States courts predicated on the civil liability provisions of the federal securities laws of the
United States.
A foreign judgment is not directly enforceable in South Africa, but constitutes a cause of action which will
be enforced by South African courts provided that:
•   the court which pronounced the judgment has jurisdiction to entertain the case according to the
principles recognized by South African law with reference to the jurisdiction of foreign courts;
•   the judgment is final and conclusive, that is, it cannot be altered by the court which pronounced it;
•   the judgment has not been prescribed;
•   the recognition and enforcement of the judgment by South African courts would not be contrary to
public policy, including observance of the rules of natural justice which require that the documents
initiating the proceeding were properly served on the defendant and that the defendant was given the
right to be heard and represented by counsel in a free and fair trial before an impartial tribunal;
•   the judgment was not obtained by fraudulent means;
•   the judgment does not involve the enforcement of a penal or revenue law; and
•   the enforcement of the judgment is not otherwise precluded by the provisions of the Protection of
Businesses Act, 99 of 1978, as amended, of the Republic of South Africa.
It is the policy of South African courts to award compensation for the loss or damage actually sustained by
the person to whom the compensation is awarded. Although the award of punitive damages is generally
unknown to the South African legal system that does not mean that such awards are necessarily contrary to
public policy. Whether a judgment was contrary to public policy depends on the facts of each case. Exorbitant,
unconscionable, or excessive awards will generally be contrary to public policy. South African courts cannot
enter into the merits of a foreign judgment and cannot act as a court of appeal or review over the foreign court.
South African courts will usually implement their own procedural laws and, where an action based on an
international contract is brought before a South African court, the capacity of the parties to the contract will
usually be determined in accordance with South African law. It is doubtful whether an original action based on
United States federal securities law can be brought before South African courts. A plaintiff who is not resident in
South Africa may be required to provide security for costs in the event of proceedings being initiated in South
Africa. Furthermore the Rules of the High Court of South Africa require that documents executed outside South
Africa must be authenticated for the purpose of use in South Africa.
background image
9
PART I
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable
background image
10
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable
background image
11
ITEM 3.
KEY INFORMATION
3.A
Selected financial data
The following information should be read in conjunction with “Item 5. – Operating and financial review
and prospects” and the consolidated financial statements, the accompanying notes and other financial
information included elsewhere in this annual report on Form 20-F.
The US GAAP financial data set forth below has been extracted from the audited consolidated financial
statements for the years ended and as at 30 June 2006, 30 June 2005 and 30 June 2004 which are included in
this Form 20-F and which have been prepared in accordance with US GAAP. The US GAAP financial
information for the two years ended and as at 30 June 2003 and 30 June 2002 has been extracted from audited
financial statements not included in this annual report on Form 20-F. The IFRS financial data set forth below for
the years ended as at 30 June 2006, 30 June 2005, 30 June 2004, 30 June 2003 and 30 June 2002 has been
derived from audited consolidated financial statements prepared in accordance with IFRS.
Year ended
30 June
30 June
30 June
30 June
30 June
30 June
1
2002
2003
2004
2005
2006
2006
restated
restated
restated
restated
(US$ in
(Rand in millions)
millions)
(except per share information and weighted average shares in issue)
Income statement data:
US GAAP
Continuing operations
Turnover
55,667
63,769
43,606
50,687
61,857
7,973
Operating profit
2
14,158
10,860
8,546
14,377
20,688
2,666
Income from continuing operations
2
9,368
7,193
5,376
9,611
14,159
1,825
Discontinued operations
Net (loss)/income from discontinued operations (including
fair value write-down), net of tax
(139)
108
(2,860)
(369)
Earnings attributable to shareholders
2
9,368
7,193
5,237
9,719
11,299
1,456
IFRS
Continuing operations
Turnover
59,590
64,555
44,999
52,497
63,850
8,228
Operating profit
3
14,671
11,767
9,136
14,383
20,732
2,672
Profit from continuing operations
3
9,743
7,762
5,949
9,836
13,909
1,792
Discontinued operations
Loss from discontinued operations, net of tax
(88)
(289)
(3,360)
(433)
Total profit
3
9,743
7,762
5,861
9,547
10,549
1,359
background image
12
Year ended
30 June
30 June
30 June
30 June
30 June
30 June
1
2002
2003
2004
2005
2006
2006
restated
restated
restated
restated
(US$ in
(Rand in millions)
millions)
(except per share information and weighted average shares in issue)
Per share information (Rand and US$):
US GAAP
Basic earnings/(loss) per share
15.29
11.81
8.58
15.83
18.22
2.35
from continuing operations
15.29
11.81
8.81
15.66
22.83
2.94
from discontinued operations
(0.23)
0.17
(4.61)
(0.59)
Diluted earnings/(loss) per share
14.99
11.61
8.54
15.65
17.93
2.31
from continuing operations
14.99
11.61
8.77
15.48
22.47
2.90
from discontinued operations
(0.23)
0.17
(4.54)
(0.59)
IFRS
Basic earnings/(loss) per share
15.84
12.59
9.50
15.37
16.73
2.15
from continuing operations
15.84
12.59
9.64
15.85
22.15
2.85
from discontinued operations
(0.14)
(0.48)
(5.42)
(0.70)
Diluted earnings/(loss) per share
15.53
12.39
9.40
15.11
16.42
2.11
from continuing operations
15.53
12.39
9.55
15.58
21.74
2.80
from discontinued operations
(0.15)
(0.47)
(5.32)
(0.69)
Dividends per share
4
450
450
450
540
710
92
Weighted average shares in issue (in millions):
Average shares outstanding—basic
612.5
609.3
610.0
613.8
620.0
Average shares outstanding—diluted (IFRS)
625.0
619.6
616.2
624.4
631.7
Average shares outstanding—diluted (US GAAP)
625.0
619.6
613.0
620.9
630.2
Balance Sheet data:
IFRS
Total assets
5
65,730
69,619
73,346
87,869
102,802
13,247
Total shareholders’ equity
2
31,315
33,518
35,029
43,533
52,352
6,746
Share capital
2,706
2,783
2,892
3,203
3,634
468
US GAAP
Total assets
62,493
67,905
68,765
80,428
93,888
12,099
Total shareholders’ equity
30,944
32,793
33,669
40,945
50,668
6,529
Share capital
2,772
2,842
2,976
3,814
4,414
569
1.
Translations into US dollars in this table are for convenience only and are computed at the noon buying rate of the Federal Reserve
Bank of New York on 29 September 2006 of R7.76 per US dollar. You should not view such translations as a representation that such
amounts represent actual US dollar amounts.
2.
In accordance with the adoption of SFAS 123(R), Share-based compensation, in 2006, the financial statement amounts for prior
periods presented have been adjusted to reflect the grant-date fair value of equity awards issued through the Sasol Share Incentive
Scheme.
3.
In accordance with the adoption of IFRS 2, Share-based payment, in 2006, the financial statement amounts for prior periods presented
have been adjusted to reflect the grant-date fair value of equity awards issued through the Sasol Share Incentive Scheme.
4.
Includes the final dividend which was declared subsequent to the balance sheet date and is presented for information purposes only.
No provision for this final dividend has been recognized.
5.
Restated for IFRS reporting purposes for the reclassification of certain transaction fees incurred in 2004 in raising finance.
6.
All financial statement amounts in the periods previously presented have been adjusted to reflect the presentation of Sasol Olefins &
Surfactants as discontinued operations.
background image
13
Exchange rate information
The following table sets forth certain information as published by the Federal Reserve Bank of New York
with respect to the noon buying rate of US dollars in terms of rand for the years shown:
Rand per US dollar for the year ended 30 June or the respective month
Average
1
High
Low
2002
10.20
13.60
8.23
2003
9.04
10.90
7.18
2004
6.88
7.80
6.17
2005
6.21
6.92
5.62
2006
6.41
7.43
5.99
2007
2
7.15
7.76
6.72
April 2006
6.08
6.17
5.99
May 2006
6.31
6.71
6.00
June 2006
6.97
7.43
6.63
July 2006
7.07
7.23
6.83
August 2006
6.95
7.20
6.72
September 2006
2
7.45
7.76
7.16
1.
The average exchange rates for each full year are calculated using the average exchange rate on the last day of each
month during the period. The average exchange rate for each month is calculated using the average of the daily
exchange rates during the period.
2.
Through 29 September 2006.
The rate on 29 September 2006 was R7.76 per US dollar.
3.B
Capitalization and indebtedness
Not applicable.
3.C
Reasons for the offer and use of proceeds
Not applicable.
3.D
Risk factors
Fluctuations in exchange rates may adversely affect our business, operating results, cash flows and
financial condition
The rand is our principal operating currency. However, a large part of our group’s turnover is denominated
in US dollars and some part in euro, derived either from exports from South Africa or from our manufacturing
and distribution operations outside South Africa. Also, a significant part of our turnover is determined by the
US dollar, as petroleum prices in general and the price of most petroleum and chemical products in South Africa
are based on global commodity and benchmark prices which are quoted in US dollars. Hence, a large part of our
group turnover is denominated in US dollars or influenced by the underlying global commodity and benchmark
prices which are quoted in US dollars. Furthermore, a significant part of our capital expenditure is also
US dollar-denominated, as it is directed to investments outside South Africa or constitutes equipment or plant
imported into South Africa. In our South African operations the majority of our costs are rand based and in our
European operations a large part of our costs are euro based. Accordingly, fluctuations in the exchange rates
between the rand and US dollar, the rand and the euro and the euro and the US dollar may have a material effect
on our business, operating results, cash flows and financial condition.
During the 2006 financial year the rand/US dollar exchange rate averaged R6.41 and fluctuated between
R5.99 and R7.43. This compares to an average exchange rate of R6.21 during the 2005 financial year,
fluctuating between R5.62 and R6.92. The rand exchange rate is impacted by various international and South
background image
14
African economic and political factors and we are unable to forecast whether the relatively stable performance
of the rand in the 2005 and 2006 financial years will continue in the foreseeable future. Subsequent to 30 June
2006 the rand has weakened significantly against the US dollar and euro.
In addition, although the exchange rate of the rand is primarily market-determined, its value at any time
may not be an accurate reflection of its underlying value, due to the potential effect of, among other factors,
exchange controls. For more information regarding exchange controls in South Africa see “Item 10.D –
Exchange controls”.
We use derivative instruments to protect us against adverse movements in exchange rates on certain
transactional risks in accordance with our group hedging policies see “Item 11 – Quantitative and qualitative
disclosures about market risk”.
Fluctuations in refining margins and crude oil, natural gas and petroleum product prices may adversely
affect our business, operating results, cash flows and financial condition
Market prices for crude oil, natural gas and petroleum products may fluctuate as they are subject to local
and international supply and demand fundamentals and factors over which we have no control. Worldwide
supply conditions and the price levels of crude oil may be significantly influenced by international cartels, which
control the production of a significant proportion of the worldwide supply of crude oil, and by political
developments, especially in the Middle East. Other factors which may influence the aggregate demand and
hence affect the markets and prices for petroleum products in regions which influence South African fuel prices
through the Basic Fuel Price (BFP) price formula (used for the calculation of the refinery gate price in South
Africa) and/or where we market these products, may include changes in economic conditions, the price and
availability of substitute fuels, changes in product inventory, product specifications and other factors. In recent
years, prices for petroleum products have fluctuated widely. For most of the 2006 financial year the crude oil
price fluctuated at levels above US$60 per barrel. See “Item 5 – Operating and financial review and prospects”.
A substantial proportion of our turnover is derived from sales of petroleum and petrochemical products.
Through our equity participation in the National Petroleum Refiners of South Africa (Pty) Limited (Natref)
crude oil refinery, we are exposed to fluctuations in refinery margins resulting from differing fluctuations in
international crude oil and petroleum product prices. We are also exposed to changes in absolute levels of
international petroleum product prices through our synthetic fuels and oil operations. Fluctuations in
international crude oil prices affect our results mainly through their indirect effect on the BFP price formula, see
“Item 4.B – Business overview – Sasol Synfuels” and “Sasol Oil”, as well as the impact on oil derived
feedstock. Prices of petrochemical products and natural gas are also affected by fluctuation in crude oil prices.
Fluctuations in the price of crude oil and petroleum products can have a material adverse effect on our business,
operating results, cash flows and financial condition.
We use derivative instruments to protect us against day-to-day US dollar oil price and rand to US dollar
exchange rate fluctuations affecting the acquisition cost of our crude oil needs. During the course of the 2006
financial year, we have again hedged a portion of our synthetic fuel production against falling oil prices in
respect of the 2007 financial year. See “Item 11 – Quantitative and qualitative disclosures about market risk”.
While the use of these instruments may provide some protection against short-term fluctuation in crude oil
prices it does not protect us against longer term fluctuations in crude oil prices or differing trends between crude
oil and petroleum product prices.
We are unable to accurately forecast fluctuations in refining margins and crude oil, natural gas and
petroleum products prices. Fluctuations in any of these may have a material adverse effect on our business,
operating results, cash flows and financial condition.
background image
15
Cyclicality in petrochemical product prices may adversely affect our business, operating results, cash
flows and financial condition
The demand for chemicals and especially products such as solvents, alkylates, fertilizers and polymers is
cyclical. Typically, higher demand during peaks in the industry business cycles leads producers to increase their
production capacity. Although peaks in the business cycle have been characterized by increased selling prices
and higher operating margins, in the past such peaks have led to overcapacity and supply exceeding demand
growth. Low periods in the business cycle are then characterized by decreasing prices and excess capacity,
which can depress operating margins and may result in operating losses. We believe that some areas within the
chemicals industry currently show overcapacity with the possibility of further capacity additions in the next few
years. We cannot assure you that future growth in demand will be sufficient to absorb current overcapacity or
future capacity additions without downward pressure on prices of chemical products. Such pressure may have a
material adverse effect on our business, operating results, cash flows and financial condition.
We may not be able to exploit technological advances quickly and successfully
Most of our operations, including the gasification of coal and the manufacture of synfuels and
petrochemical products, are highly dependent on the development and use of advanced technologies. The
development, commercialization and integration of the appropriate advanced technologies can affect, among
other things, the competitiveness of our products, the continuity of our operations, our feedstock requirements
and the capacity and efficiency of our production.
It is possible that new technologies or novel processes may emerge and that existing technologies may be
further developed in the fields in which we operate. Unexpected rapid advances in employed technologies or the
development of novel processes can affect our operations and product ranges in that it could render the
technologies we utilize or the products we produce obsolete or less competitive in the future. Difficulties in
accessing new technologies may impede us from implementing them and competitive pressures may force us to
implement these new technologies at a substantial cost. Examples of new technologies which may in the future
affect our business include the following:
•   The development and commercialization of non-hydrocarbon-dependent energy carrier technologies,
including the further development of fuel cells or the large scale broadening of the application of
electricity to drive motor vehicles. These may be disruptive to the use of hydrocarbon and refined crude
oil-derived fuels.
•   The development of improved fuels (and associated automotive technologies) from a crude oil base with
equivalent properties to that of Fischer-Tropsch derived fuels, which may erode the competitive
advantage of Fischer-Tropsch fuels.
•   The development by competitors of next generation catalysts in which catalyst performance is
manipulated, resulting in highly selective and high purity chemical products, which may render the use
of our mixed feed stream catalytic-based production processes uncompetitive.
We cannot predict the effect of these or other technological changes or the development of novel processes
on our business or on our ability to provide competitive products. Our ability to compete will depend on our
timely and cost-effective implementation of new technological advances. It will also depend on our success in
commercializing these advances in spite of competition we face by patents registered by our competitors. If we
are unable to implement new technologies in a timely or cost-efficient manner, or penetrate new markets in a
timely manner in response to changing market conditions or customer requirements, we could experience a
material adverse effect on our business, operating results, cash flows and financial condition.
Our GTL projects may not prove sufficiently viable or as profitable as planned
We are currently developing GTL projects in Qatar and Nigeria. In addition we are considering
opportunities for further GTL investments in other areas of the world. The development of these projects, either
background image
16
solely or through our joint venture with Chevron Corporation (Chevron), is a capital-intensive process and
requires us to commit significant capital expenditure and devote considerable management resources in utilizing
our existing experience and know-how, especially in connection with Fischer-Tropsch synthesis technologies.
See “Item 4.B – Business overview – Sasol Synfuels International”. This process and its products may also give
rise to patent risks in connection with the use of our GTL technology. See below, “Intellectual property risks
may adversely affect our products or processes and our competitive advantage”.
We consider the development of our GTL projects a major part of our strategy for future growth and
believe that GTL fuels will in time develop to become an efficient and widely used alternative and/or
supplement to conventional diesel fuel. In assessing the viability of our GTL projects, we make a number of
assumptions relating to specific variables, mainly including:
• access to sufficient competitively priced gas reserves;
• prices of crude oil, petroleum products and gas;
• fluctuations in the exchange rate of the US dollar against the rand;
• fluctuations in interest rates;
• fiscal dispensation in the countries in which we invest;
• capital cost of our facilities, including material, engineering and construction costs;
• various operating costs;
• technology and catalyst performance;
• conditions in the countries in which we invest, including factors relating to political, social and
economic conditions;
• availability of skilled workers to construct and operate the plants; and
• timely completion of projects.
Significant variations in any one or more of the above factors which are beyond our control, or any other
relevant factor, may adversely affect the profitability or even the viability of our GTL investments. Should we
not be successful in the implementation of our GTL projects, we may be required to write off significant
amounts devoted to them and we may need to redirect our strategy for future growth. In view of the resources
invested in these projects and their importance to our growth strategy, problems we may experience as a result of
these factors may have a material adverse effect on our business, operating results, cash flows and financial
condition and opportunities for future growth.
There are risks relating to countries in which we operate that could adversely affect our business,
operating results, cash flows and financial condition
Several of our subsidiaries, joint ventures and associates operate in countries and regions that are subject to
significantly differing political, social, economic and market conditions. See “Item 18 – Financial statements –
Note 3 – Segmental analysis” for a description of the extent of our operations in the main countries and regions
in which we operate. We are a South African domiciled company. The majority of our operations are located in
South Africa and 81% of our turnover from continuing operations is generated from our South African facilities.
Specific aspects of country risks that may have a material impact on our business, operating results, cash flows
and financial condition include:
background image
17
(a)    Political, social and economic issues
We have invested or are in the process of investing in significant operations in African, Southeast Asian and
Middle Eastern countries that have in the past to a greater or lesser extent experienced social, economic and
political uncertainty. More recently certain countries in which we operate have achieved greater social, political
and economic stability. Since 1994 South Africa, in particular, has experienced significantly improved social,
economic and political conditions.
(b)    The possible imposition of windfall taxes on our synthetic fuel operations
A task team was appointed by the South African Minister of Finance during May 2006 to investigate
possible reforms to the fiscal regime applicable to windfall profits in South Africa’s liquid fuel energy sector,
with particular reference to the synthetic fuel industry. A discussion document for public comment was released
in this regard. We have presented our submissions in writing to the task team and have made oral submissions at
the public hearings. We cannot predict whether this investigation will lead to amendments to the current fiscal
regime, which we are presently subject to.
(c)   Fluctuations in inflation and interest rates
Over recent years, the South African economy has had relatively low and stable levels of inflation and
interest rates. Should increases in these rates occur, our costs could increase and our operating margins could be
affected. High interest rates could also adversely impact on our ability to ensure cost-effective debt financing in
South Africa.
(d)   Transportation, water and electricity and other infrastructure
The infrastructure in some countries in which we operate, such as rail infrastructure and electricity and
water supply in South Africa, may need to be further upgraded and expanded and in certain instances possibly at
our own cost.
(e)   Unionized Labor
The majority of our employees worldwide belong to trade unions. These employees comprise mainly
general workers, artisans and technical operators. Although we have had minor labor disruptions in South Africa
during 2006 we have not experienced significant labor disruptions in recent years. We have constructive relations
with our employees and their unions, but we cannot assure you that significant labor disruptions will not occur
in the future.
(f)   Southern African regional issues
There have been some instances of social, political, and economic instability in some of the countries in the
Southern African region. Although we believe South Africa’s growing stature has increasingly separated it from
the effects of regional issues, such political or economic instability in neighboring countries could negatively
affect market conditions in South Africa.
(g)   Exchange control regulations
South African law provides for exchange control regulations which restrict the export of capital from the
Common Monetary Area, which includes South Africa, subject to South African Reserve Bank dispensation.
These regulations apply to transactions involving South African residents, including both natural persons and
legal entities. These regulations also affect our ability to borrow funds from non-South African sources for use in
South Africa or to repay these funds from South Africa and, in some cases, our ability to guarantee the
obligations of our subsidiaries with regard to these funds. These restrictions have affected the manner in which
we have financed our acquisitions outside South Africa and the geographic distribution of our debt. See
“Item 10.D – Exchange controls” and “Item 5.B – Liquidity and capital resources”.
background image
18
(h)
HIV/AIDS in sub-Saharan Africa
Based on the results of our voluntary counseling and testing program which had an 82% uptake amongst all
levels of the organization, we estimate that 7% of our South African workforce may be currently infected, with
the highest concentration of infections in our mining operations. This is less than the 10% to 15% initially
estimated during 2004. Based on an actuarial study, which excludes the positive impact of any prevention and
management intervention program, we estimate that, while the percentage of infected employees may not rise
significantly in the forthcoming years, there will be a significant increase in the number of AIDS-related
fatalities. See “Item 6.D – Employees”.
We incur costs relating to the medical treatment and loss of infected personnel, as well as the related loss of
productivity. We also incur costs relating to the recruitment and training of new personnel. We are not in a
position to accurately quantify these costs. Based on our actuarial models, we estimate that the impact of
HIV/AIDS on our payroll expenses should be less than 1% of our current payroll for our South African
employees by the year 2007. This calculation is based on the estimated financial impact on production resulting
from the projected prevalence of HIV/AIDS among our workforce, but does not take into account indirect costs
of productivity losses. We are investing human and financial resources to establish and maintain programs to
address the HIV/AIDS pandemic. In September 2002, we launched the Sasol HIV/AIDS Response Programme
(SHARP), which is our initiative to respond to the HIV/AIDS pandemic, on which we have spent a total amount
of approximately R22 million to June 2006. We are committed to the on-going funding of SHARP.
We cannot assure you that the costs we are currently incurring and will incur in the future in connection
with the HIV/AIDS pandemic will not have a material adverse effect on our business, operating results, cash
flows and financial condition.
(i)    Transformation issues
In some countries our operations are required to comply with local procurement, employment equity,
ownership and other regulations which are designed to address country specific social and economic
transformation issues.
As a leading and patriotic South Africa-based company, we embrace and will engender or participate in
initiatives to bring about meaningful transformation to assist in correcting the imbalances and injustices of the
apartheid era. We consider these initiatives to be a strategic imperative and we acknowledge the risk of not
vigorously pursuing them or of them not succeeding and adversely impacting on the long-term sustainable
performance and reputation of our company. It is not currently known what additional costs or implications will
arise for us to comply with these transformation initiatives.
As part of an initiative of the government of South Africa to advance the participation of historically
disadvantaged South Africans in the country’s economy, in November 2000, we became party to an agreement
with the government and the liquid fuels industry, the Charter for the South African Petroleum and Liquid Fuels
Industry on Empowering Historically Disadvantaged South Africans in the Petroleum and Liquid Fuels Industry
(the Liquid Fuels Charter). The Charter deals with the following key matters:
•   participation in ownership and control in all facets of the industry by historically disadvantaged South
Africans;
•   addressing the skills gap in the industry;
•   employment equity; and
•   procurement from historically disadvantaged South Africans.
See “Item 4.B – Business overview – Sasol Oil” and “- Empowerment of historically disadvantaged South
Africans”.
background image
19
The Liquid Fuels Charter requires us, amongst other things, to ensure that historically disadvantaged South
Africans hold at least 25% equity ownership of our liquid fuels business by the year 2010. We entered into a
25% equity transaction with Tshwarisano LFB Investment (Pty) Limited (Tshwarisano), on 1 July 2006 and we
are now compliant with the equity ownership targets of the Liquid Fuels Charter. See “Item 8.B – Significant
changes”.
The financing arrangements for the Tshwarisano transaction are set out in “Item 5.A – Operating results –
Our operations are subject to various laws and regulations in the countires in which we operate” and “Item 8.B –
Significant changes”.
In October 2002, the government and representatives of South African mining companies and mineworkers’
unions reached broad agreement on a charter (the Mining Charter), designed to facilitate the participation of
historically disadvantaged South Africans in the country’s mining industry. The Charter’s stated objectives
include the:
•   expansion of opportunities for persons disadvantaged by unfair discrimination under the previous
political dispensation;
•   expansion of the skills base of such persons;
•   promotion of employment and advancement of the social and economic welfare of mining communities;
and
•   promotion of beneficiation of ore into higher value substances.
The Mining Charter, together with the scorecard to facilitate the interpretation of and compliance with the
Mining Charter, requires mining companies to ensure that historically disadvantaged South Africans hold at least
15% ownership of mining assets or equity in South Africa within 5 calendar years (i.e. by 2009) and 26%
ownership within 10 calendar years (i.e. by 2014) from the effective date of the Mineral and Petroleum
Resources Development Act which was on 1 May 2004. The Charter further specifies that the mining industry is
required to assist historically disadvantaged South Africans in securing finance to fund their equity participation
up to an amount of R100 billion within the first 5 calendar years after the implementation of the aforementioned
Act. Beyond this R100 billion commitment, the Mining Charter requires that participation of historically
disadvantaged South Africans should be increased towards the 26% target on a willing buyer-willing seller basis.
See “Item 4.B – Business overview – Sasol Mining” and “Empowerment of historically disadvantaged South
Africans”.
Various principles of the Mining Charter have been incorporated in regulations promulgated by the
Minister of Minerals and Energy under the new Mineral and Petroleum Resources Development Act with respect
to the South African mining industry. We have commenced a process to apply for the conversion of our existing
mining licenses under the new Mineral and Petroleum Resources Development Act. See below “New mining
legislation may have an adverse effect on our mineral rights”. When considering applications for the conversion
of existing mining licenses under the Mineral and Petroleum Resources Development Act, the Minister of
Minerals and Energy must take into account, among other factors, the applicant company’s compliance with the
Mining Charter. We have entered into a transaction with Eyesizwe Coal (Pty) Limited (Eyesizwe) for our mining
export activities which is expected to be effective in 2007. This venture will result in approximately an 8%
indirect black economic empowerment (BEE) equity ownership in Sasol Mining and together with other BEE
transactions under consideration by Sasol Mining would result in 15% BEE equity ownership by 2009 and 26%
by 2014.
In December 2004 the Minister of Trade and Industry issued certain draft Codes of Good Practice for
Broad-based Black Economic Empowerment for public comment pursuant to the Broad-based Black Economic
Empowerment Act of 2003. These codes are intended to provide businesses with guidance on implementing the
requirements of the Act. These Codes have been published for comments and we have commented on the Codes
and await publication in the South African Government Gazette.
background image
20
It is not currently known what additional costs or implications will arise for us to comply with the said Act
and other requirements of both the Liquid Fuels and Mining Charters or the Codes of Good Practice for Broad-
based Black Economic Empowerment and we cannot assure you that these costs or implications will not have a
material adverse effect on our shareholders or business operating results, cash flows and financial condition.
(j)    Engineering and construction contract costs
The increase worldwide in the sanctioning of large engineering and construction contracts has resulted in a
shortage of engineering and construction resources and strains in these industries. These have impacted on some
of our projects and have affected construction timing schedules and costs. Whilst higher international crude oil
prices may boost post-commissioning income streams and compensate for construction delays and higher capital
costs, these strains in the engineering and construction industries are nevertheless a cause for concern and may
impact on our project plans and growth ambitions.
(k)    Other specific country risks that are applicable to countries in which we operate and which may have a
material impact on our business include:
• external acts of warfare and civil clashes;
• government interventions, including protectionism and subsidies;
• regulatory, taxation and legal structure changes;
• the control of oil and gas field developments and transportation infrastructure;
• failure to receive new permits and consents;
• cancellation of contractual rights;
• expropriation of assets;
• lack of capacity to deal with emergency response situations; and
• the introduction of selective environmental and carbon taxes.
Some of the countries where we have already made, or other countries where we may consider making,
investments are in various stages of developing institutions and legal and regulatory systems that are
characteristic of parliamentary democracies. However, institutions in these countries may not yet be as firmly
established as they are in parliamentary democracies in South Africa, the United States and some European
countries. Some of these countries are also transitioning to a market economy and, as a result, experience
changes in their economies and their government policies that could affect our investments in these countries.
Moreover, the procedural safeguards of the new legal and regulatory regimes in these countries are still being
developed and, therefore, existing laws and regulations may be applied inconsistently. In some circumstances, it
may not be possible to obtain the legal remedies provided under those laws and regulations in a timely manner.
As the political, economic and legal environments remain subject to continuous development, investors in
these countries face uncertainty as to the security of their investments. Any unexpected changes in the political
or economic conditions in the countries in which we operate (including neighboring countries) may have a
material adverse effect on the investments that we have made or may make in the future, which may in turn have
a material adverse effect on our business, operating results, cash flows and financial condition.
New mining legislation may have an adverse effect on our mineral rights
The Mineral and Petroleum Resources Development Act came into effect on 1 May 2004. The fundamental
principle of the Act is that mineral resources are the common heritage of all South Africans and collectively
belong to all the people of South Africa. The Act provides that the right to prospect and mine, including the right
to grant prospecting and mining rights on behalf of the nation, be administered by the government of South
Africa which will have the right to exercise full and permanent custodianship over mineral resources.
background image
21
The Act requires mining companies, including our company, to apply for conversion of their existing
prospecting and mining permits. A wide range of factors and principles must be taken into account by the
Minister of Minerals and Energy when considering these applications. These factors include the applicant’s
access to financial resources and appropriate technical ability to conduct the proposed prospecting or mining
operation, the environmental impact of the operation and, in the case of prospecting rights, considerations
relating to fair competition. Other factors include considerations relevant to promoting employment and the
social and economic welfare of all South Africans and showing compliance with the provisions of the Mining
Charter for the empowerment of historically disadvantaged South Africans in the mining industry. See “Item 4.B
– Business overview – Regulation of mining activities in South Africa” and “– Empowerment of historically
disadvantaged South Africans”.
The Act also provides that a mining right granted under the Act may be cancelled if the mineral to which
such mining right relates is not mined at an optimal rate. Furthermore, royalties from mining activities will
become payable to the state under provisions contained in the “Mineral and Petroleum Resources Royalty Bill”.
This Bill was first published in March 2003 and has since been revised, with the final Bill was published on
11 October 2006. The Bill provides for a royalty rate of 1% on coal with an ash content of higher than 15% for
South African energy consumption and 3% on coal with an ash content lower than 15%. The royalty is revenue
based, payable bi-annually in arrears, and will take effect from 1 May 2009. The royalty will be deductible for
normal income tax purposes. It is the declared intent of the South African government not to disrupt operations
as a result of the introduction of the new legislation and we intend to undertake the appropriate actions in order
to ensure conversion of our existing prospecting and mining rights. However, we cannot assure you that we will
be successful in all our applications for conversion and that our rights on existing coal mine reserves will not be
affected, which could have a material adverse effect on our business, operating results, cash flows and financial
condition.
New legislation on petroleum and energy activities may have an adverse impact on our business,
operating results, cash flows and financial condition
The Petroleum Products Amendment Act became effective on 17 March 2006. This Act amends the existing
Petroleum Products Act, enacting provisions regulating a range of matters including the licensing of persons
involved in the manufacturing, wholesale and retail sale of petroleum products. As the Act and regulations to be
promulgated there under regulate matters pertaining to wholesale and retail sales of petroleum products, Sasol
Oil, Natref and Sasol Synfuels are currently in the process of applying for licenses for manufacturing and
wholesale and site licenses for our plants, wholesale activities and retail sites as required by the Act and
regulations. We cannot assure you that these licenses will be granted and if they are granted that the conditions
of the licenses will not have a material adverse impact on our business, operating results, cash flows and
financial condition. New retail site development could be delayed given the requirements under the new
regulations. See “Item 4.B – Business overview – Sasol Oil” and “- Regulation of petroleum-related activities in
South Africa”.
The Petroleum Pipelines Act became effective on 1 November 2005. The Act regulates petroleum pipelines
and storage and loading facility activities, including the construction and operation of petroleum pipelines and
the delivery of certain commercial services in connection with these pipelines and facilities. The Petroleum
Pipelines Act grants broad discretion to the Minister of Minerals and Energy to adopt different pricing
methodologies in connection with the setting of tariffs, which may prove advantageous for some competitors,
because of different market and geographic positions. The regulations pertaining to pricing methodologies have
not been issued yet, but the regulations that may be promulgated under the Act may affect our advantage due to
the location in the economic heartland of the country of our Natref refinery and our synfuels facilities at
Secunda. See “Item 4.B – Business overview – Sasol Oil” and “- Regulation of petroleum-related activities in
South Africa”. We have applied for licenses under the Petroleum Pipelines Act and the rules issued by the
National Energy Regulator of South Africa (NERSA) for our depots and related infrastructure and await the
issue of licenses. Notwithstanding continuous interaction and comments submitted in respect of regulations to be
issued under these statutes, we cannot assure you that the enactment of new legislation or the amendment of
background image
22
existing laws and regulations will not have a material adverse effect on our business, operating results, cash
flows and financial condition. Among the matters governed by the Petroleum Pipelines Act, of particular
significance to our business are issues relating to the discretion granted to the South African Minister of
Minerals and Energy with respect to the exercise of executive powers, the determination or approval of tariffs
and the issue of open access to pipelines and depots.
The Gas Act came into effect on 1 November 2005. The Act regulates matters relating to gas transmission,
storage, distribution, liquefaction and re-gasification activities. Although we negotiated a ten year regulatory
dispensation (8 years remaining until 2014) with the South African government covering the supply of
Mozambican natural gas to the South African market, we cannot assure you that the enactment of the Gas Act
and the appointment of the NERSA (appointed pursuant to the National Energy Regulator Act which became
effective on 1 November 2005) will not have a material adverse impact on our business, operating results, cash
flows and financial condition. See “Item 4.B – Business overview – Sasol Gas” and “- Regulation of gas related
activities in South Africa”.
The South African government issued guidelines relating to new fuel specifications, portions of which
came into effect in January 2006 and resulted in regulations being issued on 23 June 2006. These specifications
relate to the phasing out of lead from the petroleum products we manufacture, a reduction in the sulfur content
in certain of these products and a new national octane structure. The clean fuels introduction plans have been
successfully completed and in order to meet these new specifications we have made significant capital
investments at our manufacturing sites to modify our current petroleum production processes. It is as yet
uncertain what the final market demand will be for the various new products. Should the demand for particular
products outstrip our ability to manufacture them as a result of a delay in completing modifications to our plants
and/or anticipated demand projections being exceeded this could have a material adverse effect on our business,
operating results, cash flows and financial condition.
The guidelines regarding the importation and exportation of petroleum products were issued for public
comment on 23 June 2006. From the guidelines it can be concluded that there may be more flexibility afforded
to oil companies and wholesalers, including airline companies, to directly import petroleum products. No
protection will be granted to local and domestic manufacturers to satisfy their needs from local production
before imports are undertaken.
The Consumer Protection Bill was issued for public comment on 23 June 2006 and intends to establish
national norms and standards relating to consumer protection and prohibits certain unfair marketing and business
practices and to promote responsible consumer behavior.
It remains uncertain what the impact on our business will be when the guidelines and the Consumer
Protection legislation are passed. This could have a material adverse effect on our business, operating results,
cash flows and financial condition.
We may not be successful in attracting and retaining sufficient skilled employees
We are highly dependent on the continuous development and successful application of new technologies. In
order to achieve this, we need to maintain a focus on recruiting and retaining qualified scientists and engineers.
In the past, we have been successful in recruiting and retaining such personnel. We have also established certain
research and development facilities overseas. However, demand for personnel with the range of capabilities and
experience required in our industry is high globally and success in attracting and retaining such employees is not
guaranteed. The risk exists that our scientific, engineering and project execution skills base may be depleted over
time because of, for example, natural attrition and a shortage of people being available in these disciplines.
Failure to attract and retain people with the right capabilities and experience could negatively affect our ability to
introduce and maintain the appropriate technological improvements to our business and our ability to
successfully construct and commission new plants. This may have a material adverse effect on our business,
operating results, cash flows and financial condition.
background image
23
Intellectual property risks may adversely affect our products or processes and our competitive advantage
Our various products and processes, including most notably, our chemical, CTL and GTL products and
processes have unique characteristics and structures and, as a result, are subject to patent protection, the extent
of which varies from country to country. The expiry of a patent results in increased competition in the market for
the previously patented products and processes. In addition, aggressive patenting by our competitors may result
in an increased patent infringement risk.
A high percentage of our products can be regarded as commodity chemicals, some of which have unique
characteristics and structure. These products are normally utilized by our clients as feedstock to manufacture
specialty chemicals or application-type products. We have noticed a worldwide trend of increased filing of
patents relating to the composition of application-type products. These patents may create pressure on our clients
who market these application-type products which may adversely affect our sales to these clients. Patent-related
pressures may adversely affect our business, operating results, cash flows and financial condition.
We believe that our proprietary technology, know-how and trade secrets, especially in the Fischer-Tropsch
area, provide us with a competitive advantage. A possible loss of experienced personnel to competitors, and a
possible transfer of know-how and trade secrets associated therewith, may negatively impact this advantage.
Similarly, operating and licensing technology in countries in which intellectual property laws are not well
established and enforced may result in some transfer of our know-how and trade secrets to our competitors. This
may adversely affect our business, operating results, cash flows and financial condition.
Increasing competition from products originating from countries with low production costs may adversely
affect our business, operating results, cash flows and financial condition
Certain of our chemical production facilities are located in developed countries, including the United States
and Europe. Economic and political conditions in these countries result in relatively high labor costs and, in
some regions, inflexible labor markets, compared to others. Increasing competition from regions with lower
production costs, for example the Middle East and China, exercises pressure on the competitiveness of our
chemical products and, therefore, on our profit margins and may result in withdrawal of particular products or
closure of facilities. We cannot assure you that increasing competition by products originating from countries
with low production costs will not result in withdrawal of our products or closure of our facilities, which may
have a material adverse effect on our business, operating results, cash flows and financial condition.
Changes in consumer and safety, health and environmental regulations and legislation and public opinion
may adversely affect our business, operating results, cash flows and financial condition
Our products are required to comply with legislation relating to the protection of the environment, health
and safety of employees, the public and/or the end consumer, as well as customer needs. As these regulations
may grow stricter, we may be required in some cases to incur additional expenditure in providing additional test
data in order to register our products or to adjust the manufacturing processes for certain of our products,
including liquid fuels and chemicals, or even withdraw some of them, in order to be in a position to comply with
market needs or more stringent regulatory requirements. For example, compliance with the registration,
evaluation and authorization of chemicals (REACH) procedure proposed by the European Commission (EC)
may have significant cost implications as we may be required, among other things, to provide risk assessments
and apply for registration of our products. Similarly, public opinion is growing more sensitive to consumer
health and safety and environmental protection matters, and, as a result, markets may apply pressure on us
concerning certain of our products. Should we be required to comply with REACH requirements we may incur
significant additional costs. We may be required to withdraw from the market certain products which we
consider uneconomical given these additional costs of compliance or otherwise due to public opinion
considerations. These factors may have a material adverse effect on our business, operating results, cash flows
and financial condition.
background image
24
Our exploration, mining and production operations are required to conform to legislation relating to the
protection of the environment, health and safety of the workforce and/or neighboring communities. As these
regulations may grow stricter, we may be required in some cases to incur additional expenditure in order to
provide additional protection or to adjust specifications or manufacturing processes or transport and distribution
arrangements for certain of our operations or products. Should we make changes or incur such costs this may
have a material adverse effect on our business, operating results, cash flows and financial condition. More
specifically:
•   the National Environmental Management: Air Quality Act, in terms of which the Vaal Triangle area (in
which our Sasolburg operations are located) has been declared a Priority Area for purposes of
implementation of an emission reduction and management plan by the South African Department of
Environmental Affairs and Tourism. The Department is also in the process of setting ambient air quality
and emission standards, which will form the basis for a review of atmospheric emission licenses for our
operations in Sasolburg and Secunda. More stringent air quality standards may have significant cost
implications for us; and
•   the nature of some of our processes, like the gasification of coal to produce synthetic fuels and
petrochemicals, result in relatively high emission of carbon dioxide, a greenhouse gas. Although certain
countries in which we operate are exempt from greenhouse gas reduction targets set in terms of the
Kyoto Protocol, it is uncertain how any future developments in carbon dioxide restrictions will affect our
group.
We may face potential costs in connection with industry-related accidents or deliberate acts of terror
causing property damage, personal injuries or environmental contamination
We operate coal mines, explore for and produce oil and gas and operate a number of plants and facilities
for the storage, processing and transportation of oil, chemicals and gas related raw materials, products and
wastes. These facilities and their respective operations are subject to various risks, including, but not limited to,
fire, explosion, leaks, ruptures, discharges of toxic hazardous substances, soil and water contamination, flooding
and land subsidence, among others. As a result, we are subject to the risk of experiencing, and have in the past
experienced, industry-related incidents.
The terrorist attacks in the United States on 11 September 2001 and subsequent attacks in various parts of
the world demonstrated the increased risk posed by the threat of terrorism. Our facilities, located mainly in
South Africa, the United States and various European countries, as well as in various African countries, the
Middle East and Southeast Asia, are subject to the risk of experiencing deliberate acts of terror.
Industry-related accidents and acts of terror may result in damages to our facilities and may require
shutdown of the affected facilities, thereby disrupting production and increasing production costs. Furthermore,
acts of terror, accidents or our historical operations may cause, or may have caused, environmental
contamination, personal injuries, health impairment or fatalities and may result in exposure to extensive
environmental remediation costs, civil litigation, the imposition of fines and penalties and the need to obtain
costly pollution control technology.
We obtain insurance cover over our assets and against business interruption. We also obtain insurance to
limit certain of our exposures. In some cases we also have indemnity agreements with the previous owners of
acquired businesses which limit certain of our exposures to environmental contamination. As a result of the
terrorist attacks on 11 September 2001 and more recently hurricanes Katrina and Rita, our insurance costs and
deductibles (retained risk) have increased significantly. We are implementing a number of programs, including
on-the job safety training, in order to increase safety, and we closely monitor our safety, health and
environmental procedures. However, there can be no assurance that accidents or acts of terror will not occur in
the future, that insurance will adequately cover the entire scope or extent of our losses or that we may not be
found directly liable in connection with claims arising from these events.
In general, we cannot assure you that costs incurred as a result of the above or related factors will not have
a material adverse effect on our business, operating results, cash flows and financial condition.
background image
25
Failure to comply with safety, health and environmental and other laws may adversely affect our market
position and our business, operating results, cash flows and financial condition
We are subject to a wide range of general and industry-specific environmental, health and safety and other
legislation in jurisdictions in which we operate. Environmental requirements govern, among other things, land
use, air emissions, use of water, wastewater discharge, waste management and site remediation. These
regulations often require us to obtain and operate in compliance with the conditions of permits, licenses and
authorizations from the appropriate regulatory authorities. Compliance with these laws, regulations, permits,
licenses and authorizations is a significant factor in our business, and we incur, and expect to continue to incur,
significant capital and operating expenditures in order to continue to comply, in all material respects, with
applicable laws, regulations, permits and authorizations.
Failure to comply with applicable safety, health and environmental laws, regulations or permit requirements
may result in fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or
curtailing operations or requiring corrective measures, installation of pollution control equipment or other
remedial actions, any of which could entail significant expenditures.
We are also continuing to take remedial actions at a number of sites due to soil and groundwater
contamination. The process of investigation and remediation can be lengthy and is subject to the uncertainties of
site specific factors, changing legal requirements, developing technologies, the allocation of liability among
multiple parties and the discretion of regulators. Accordingly, we cannot estimate with certainty the actual
amount and timing of costs associated with site remediation.
In order to comply with these safety, health and environmental licenses, laws and regulations we may have
to incur costs which we could finance from our available cash flows or from alternative sources of financing. We
may be required to provide for financial security for environmental rehabilitation in the form of a trust fund,
guarantee, deposit or any other method as may be required by the regulations (not yet promulgated) under the
Petroleum Products Act in respect of the rehabilitation of environmental impacts. However, this is not required
in terms of the Petroleum Products Amendment Act and the regulations if a license applicant at the time of the
commencement of the Petroleum Products Amendment Act, held or was in the process of developing a site,
manufactured or wholesaled or retailed petroleum products. No assurance can be given that changes in safety,
health and environmental laws and regulations or their application or the discovery of previously unknown
contamination or other liabilities will not have a material adverse effect on our business, operating results, cash
flows and financial condition.
Whilst it is our policy that asbestos-containing materials will be phased out on a risk-based order of
priority, there are currently certain asbestos-containing materials at our facilities. In addition, our manufacturing
processes may utilize and result in the emission of substances with potential carcinogenic properties. We also
manufacture products which may contain carcinogenic components. Although we implement occupational health
and safety, product stewardship and other measures to eliminate or mitigate potential risks we cannot assure you
that no liabilities may arise as a result of the use or exposure to these materials.
In addition to undertaking internal investigations we are also subject to review from time to time by
government authorities on our compliance with, inter alia, tax, customs and excise duty, anti-trust laws and
regulations impacting our operations. Our product pricing structures are also reviewed from time to time by
regulatory authorities. Whilst it is our policy to conduct our operations in accordance with applicable laws and
regulations and we have established control systems to monitor such compliance, no assurance can be given that
these control systems will not fail or that some of our product pricing structures will not change in the future.
Failure to interpret correctly and comply with such laws and regulations and/or changes to our product pricing
and cost structures may have a material adverse impact on our business, operating results, cash flows and
financial condition.
background image
26
Our coal, crude oil and natural gas reserve estimates may be materially different from reserves that we
may actually recover
Our reported coal reserves are estimated quantities based on applicable reporting regulations that under
present and anticipated conditions have the potential to be economically mined and processed. Our proved
developed and undeveloped crude oil and natural gas reserves are estimates based on applicable reporting
regulations. There are numerous uncertainties inherent in estimating quantities of reserves and in projecting
potential future rates of coal, oil and natural gas production, including many factors beyond our control. In
addition, reserve/reservoir engineering is a subjective process of estimating underground deposits of reserves that
cannot be measured in an exact manner and the accuracy of any reserve estimate is a function of the quality of
available data and engineering and geological interpretation and judgment. Estimates of different engineers may
vary and results of our mining/drilling and production subsequent to the date of an estimate may justify revision
of estimates. Reserve estimates may require revision based on actual production experience and other factors. In
addition, several factors including the market price of coal, oil and natural gas, reduced recovery rates or
increased production costs due to inflation or other factors may render certain of our estimated proved and
probable coal reserves and proved developed and undeveloped oil and natural gas reserves uneconomical to
exploit and may ultimately result in a restatement of reserves. This may have a material adverse effect on our
business, operating results, cash flows and financial condition. See “Item 4.D – Property, plants and equipment”.
There is a possible risk that sanctions may be imposed by the US government as a result of our Iran
related activities
There are possible risks posed by the potential imposition of US economic sanctions in connection with
activities we are undertaking in the polymers field and considering in respect of a GTL opportunity (with respect
to which no investment decision has yet been made) in Iran. For a description of our activities in Iran see
“Item 4.B – Business overview – Sasol Polymers” and “Sasol Synfuels International”. The risks relate to two
sanctions programs administered by the US government that we have considered: the Iranian Transactions
Regulations (ITR) administered by the US Treasury Department Office of Foreign Assets Control (OFAC) and
the Iran and Libya Sanctions Act (ILSA) administered by the
US Department of State.
The ITR prohibit or restrict most transactions between US persons and Iran. The ITR, administered by
OFAC, do not apply directly to either Sasol or the group entities involved in activities in Iran, because none of
them would be considered a US person under these regulations. Nonetheless, because the group is a
multinational enterprise, we are aware that the ITR may apply to certain entities associated with the group,
including US employees, investors and certain subsidiaries.
We are taking measures to ensure that US employees, investors and certain subsidiaries of the group to
which the ITR applies will not violate the ITR as a result of their respective affiliations with the group. For
instance, to that end, we are taking measures to:
•   ensure that no US persons are involved in our Iranian activities, either as directors and officers, or in
other positions, including engineering, financial, administrative and legal;
   ensure that funds dedicated to projects in Iran will be kept segregated from general group funds;
•   ensure that no funds of US investors will be utilized in the projects by using separate bank accounts for
any funds directed to, or to be received from, these projects and monitoring the flow of funds to and
from these projects; and
•   separate the results of these businesses into separate legal entities.
By undertaking these steps, we believe that any risks posed by the ITR to US persons and entities affiliated
with the group will be mitigated. Nevertheless, we cannot predict OFAC’s enforcement policy in this regard and
it is possible that OFAC may take a different view of the measures described above. In such event, US persons
or affiliates associated with the group may be subject to a range of civil and criminal penalties.
background image
27
ILSA was adopted by the US government with the objective of denying Iran and Libya the ability to
support acts of international terrorism and fund the development or acquisition of weapons of mass destruction.
ILSA is now only applicable to Iran following the removal of sanctions imposed against Libya. ILSA grants the
President of the United States discretion in imposing sanctions on companies found to be in violation of its
provisions involving investment in the petroleum industry in Iran. Should the US government determine that
some or all of our activities in Iran are investments in the petroleum industry, as statutorily defined by ILSA, the
President of the United States may in his discretion impose, among other sanctions, restrictions on our ability to
obtain credit from US financial institutions, restrictions on our ability to procure goods, services and technology
from the United States or restrictions on our ability to make sales into the United States.
We cannot predict future interpretations of ILSA or the implementation policy of the US government with
respect to ILSA. Although we believe that our polymers project is not in the petroleum industry and we were
only involved in a feasibility study in connection with other activities in Iran, we cannot assure you that our
activities in Iran would not be considered investments as statutorily defined by ILSA or that the imposition of
sanctions on the company or other entities of the group would not have a material adverse impact on our
business, operating results, cash flows and financial condition.
The exercise of voting rights by holders of American Depositary Receipts is limited in some circumstances
Holders of American Depositary Receipts (ADRs) may exercise voting rights with respect to the ordinary
shares underlying their American Depositary Shares (ADSs) only in accordance with the provisions of our
deposit agreement (Deposit Agreement) with The Bank of New York, as the depositary (Depositary). For
example, ADR holders will not receive notice of a meeting directly from us. Rather, we will provide notice of a
shareholders meeting to The Bank of New York in accordance with the Deposit Agreement. The Bank of New
York has undertaken in turn, as soon as practicable after receipt of our notice, to mail to holders of ADRs voting
materials. These voting materials include information on the matters to be voted on contained in our notice of
the shareholders meeting and a statement that the holders of ADRs on a specified date will be entitled, subject to
any applicable provision of the laws of South Africa and our Articles of Association, to instruct The Bank of
New York as to the exercise of the voting rights, pertaining to the shares underlying their respective ADSs on a
specified date. In addition, holders of our ADRs will be required to instruct The Bank of New York how to
exercise these voting rights.
Upon the written instruction of an ADR holder, The Bank of New York will endeavor, in so far as
practicable, to vote or cause to be voted the shares underlying the ADSs in accordance with the instructions
received. If instructions from an ADR holder are not received by The Bank of New York by the date specified in
the voting materials, The Bank of New York will not request a proxy on behalf of such holder. The Bank of New
York will not vote or attempt to exercise the right to vote other than in accordance with the instructions received
from ADR holders. We cannot assure you that you will receive the voting materials in time to ensure that you
can instruct The Bank of New York to vote the shares underlying your ADSs. In addition, The Bank of New York
and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out
voting instructions. This means that you may not be able to exercise your right to vote and there may be no
recourse if your voting rights are not exercised as you directed.
Sales of a large amount of Sasol’s ordinary shares and ADSs could adversely affect the prevailing market
price of the securities
Historically, trading volumes and liquidity of shares listed on the JSE have been low in comparison with
other major markets. The ability of a holder to sell a substantial number of Sasol’s ordinary shares on the JSE in
a timely manner, especially in a large block trade, may be restricted by this limited liquidity. Sales of ordinary
shares or ADSs, if substantial, or the perception that these sales may occur and be substantial, could exert
downward pressure on the prevailing market prices for the Sasol ordinary shares or ADSs, causing their market
prices to decline.
background image
28
ITEM 4.
INFORMATION ON THE COMPANY
4.A
History and development of the company
Sasol Limited, the ultimate holding company of our group, is a public company. It was incorporated under
the laws of the Republic of South Africa in 1979 and has been listed on the JSE since October 1979. Our
registered office and corporate headquarters are at 1 Sturdee Avenue, Rosebank, 2196, South Africa, and our
telephone number is +27 11 441 3111. Our agent for service of process in the United States is Puglisi and
Associates, 850 Library Avenue, Suite 204, P.O. Box 885, Newark, Delaware 19715.
In 1947, the South African Parliament enacted legislation detailing the establishment of an oil-from-coal
industry in South Africa. This followed 20 years after the publication of a White Paper by Parliament, aiming to
protect the country’s balance of payments against increasing crude oil imports in view of the lack of domestic
crude oil reserves. As a result of this initiative, the South African government in 1950, through the Industrial
Development Corporation of South Africa Limited (IDC), a state-owned entity, formed our predecessor company
known as the South African Coal, Oil and Gas Corporation Limited to manufacture fuels and chemicals from
indigenous raw materials.
Construction work on our synthetic fuels plant at Sasolburg (Sasol One), in the Free State province, about
80 kilometres (km) south of Johannesburg, commenced in 1952, and in 1955, the original Sasol One production
units were commissioned. We supplied our first gasoline and diesel to motorists at Sasolburg in November 1955.
The operation of this plant was based on a combination of the German fixed-bed and the US fluidized-bed
Fischer-Tropsch technologies, together with German Lurgi coal gasification technologies for the synthetic
production of gasoline, diesel, other liquid fuels and chemical feedstock from coal.
During the 1960s, we became a major supplier of raw materials for the chemical industry. This included
products such as solvents for paints, butadiene and styrene for synthetic rubber and ammonia for nitrogenous
fertilizer. When our first naphtha cracker became operational in the mid-1960s, we added ethylene and propylene
for the plastics industry to our product portfolio.
In 1966, we completed construction of our first gas pipeline, which connected 250 industrial companies in
the greater Johannesburg area to pipeline gas.
In December 1967, Natref was incorporated and, at the same time, construction of the oil refinery
commenced at Sasolburg. The refinery was commissioned in February 1971. Currently, we, as the major
shareholder, and Total South Africa (Pty) Limited (Total), a subsidiary of Total S.A. of France, hold 63.64% and
36.36%, respectively, in Natref.
The increased oil prices of the early seventies presented us with an opportunity to increase our synfuels
production capacity and assist in reducing South Africa’s dependence on imported crude oil. We commenced the
construction of Sasol Two in Secunda, 145 km southeast of Johannesburg in the Mpumalanga province, in 1976,
and in March 1980, this plant produced its first synthetic fuel. During the final construction phases of Sasol Two
in 1979, work commenced on the construction of our third synfuels and chemicals plant, Sasol Three, which was
completed in 1982. The virtually identical operations of Sasol Two and Sasol Three were merged in 1993 to
form Sasol Synthetic Fuels, now Sasol Synfuels.
Towards the time of the completion of the Sasol Three project, all our technical and research and
development services were consolidated into a new company, Sasol Technology. Since then, Sasol Technology
has been an important area of our activities, responsible for research and development, technology development
and commercialization, project management and specialist engineering skills.
In October 1979, Sasol Limited was listed on the JSE, and 70% of its share capital was privatized. We used
the proceeds from the private and public issue to acquire 100% shareholding in Sasol One and 50% shareholding
in Sasol Two and Sasol Three from the IDC. During 1983 we acquired the IDC’s remaining interest in Sasol
Two and the remaining interest in Sasol Three was acquired effective 1 July 1990. Subsequently, the interest in
our share capital held by the South African government through the IDC was further reduced to its current 7.8%.
background image
29
In 1982, our ADRs were quoted on the NASDAQ National Market through an unsponsored ADR program,
which was later converted to a sponsored ADR program in 1994. With effect from 9 April 2003 we transferred
our listing to the New York Stock Exchange (NYSE) from NASDAQ.
Our technology enabled us to enter the downstream production of higher-value chemicals, including
nitrogenous fertilizers and commercial explosives in 1983 and 1984, respectively, and also of solvents,
phenolics, waxes and alpha olefins.
During 1988 and 1989, we undertook the construction of a large polypropylene plant that incorporated
BASF gas-phase technology. Between 1990 and 1993, Sasol One underwent a R820 million renovation, during
which we discontinued the production of synfuels and increased the production of higher-value chemicals,
including ammonia, solvents, phenolics, paraffin and waxes.
Polifin Limited (Polifin) was established in Johannesburg in January 1994, as a joint venture with AECI
Limited (AECI), a South African listed chemicals and explosives company. The joint venture manufactured and
marketed monomers and polymers. In 1996, Polifin was listed on the JSE. In 1999, pursuant to a takeover offer,
we acquired Polifin’s remaining share capital from AECI and the public, delisted Polifin and subsequently it
became part of our chemicals portfolio and was renamed Sasol Polymers.
In June 1994, the first alpha olefins plant at Secunda was commissioned to produce 1-hexene and 1-pentene
for the international copolymers market.
In 1995, we founded Sasol Petroleum International (SPI) to undertake oil and gas exploration and
production in selected high potential areas in West and Southern Africa. SPI is active in South Africa, Gabon,
Equatorial Guinea, Nigeria and, most notably, in Mozambique. In 2000 and 2001, we signed agreements with
the government of Mozambique for the development of natural gas fields and the construction of a gas pipeline
transporting gas to the South African market. The construction of this pipeline was completed in 2004. We
introduced natural gas to the South African pipeline gas market as of 2004 and use natural gas as part of our
feedstock for our chemicals and synfuels operations in both Secunda and Sasolburg.
The Schümann Sasol International wax manufacturing and marketing venture was established in 1995 after
a merger of Sasol Waxes and the Hamburg-based Schümann wax operations. It produces paraffin and Fischer-
Tropsch waxes and operates in various countries. Effective 1 July 2002, we acquired from Vara Holdings GmbH
and Co KG the remaining third of the share capital of Schümann Sasol, for approximately 51.1 million euro
(approximately R521 million at actual rates), and this group of companies, now 100% owned, has been renamed
Sasol Wax.
By early 1999, Sasol Synfuels had commissioned the last of its eight new generation Sasol Advanced
Synthol (SAS) reactors at Secunda, and a ninth reactor was commissioned in 2001. The 1-octene plant, also at
Secunda, was commissioned in April 1999 by Sasol Alpha Olefins and commenced supply to The Dow
Chemical Company polyethylene plants in May 1999.
In recent years, we have been exploring opportunities through Sasol Synfuels International (SSI) to exploit
the Sasol Slurry Phase Distillate (Sasol SPD™) process technology for the production of high-quality,
environment-friendly diesel and other higher-value hydrocarbons from natural gas. In October 2000, we signed
agreements with Chevron for the creation of Sasol Chevron, a 50:50 global joint venture founded on GTL
technology. Sasol Chevron was formed in order to take advantage of the synergies of Sasol’s and Chevron’s
GTL strengths. Sasol has advanced Fischer-Tropsch technology and Chevron has extensive global experience
with respect to natural gas utilisation, product marketing and hydrotreating technology.
Sasol Chevron is currently involved in the development of a GTL project in collaboration with the Nigerian
National Petroleum Corporation (NNPC) and Chevron Nigeria Limited at existing oil and gas facilities at
Escravos in Nigeria. In April 2005, the engineering, procurement and construction contract for this project was
awarded to Team JKS, a consortium of the Japan Gasoline Corporation; Kellogg, Brown and Root (KBR), a
subsidiary of Halliburton and Italy’s Snamprogetti. SSI and Sasol Chevron continue to explore opportunities to
develop other GTL plants over the next decade.
background image
30
To promote the performance and environmental merits of cleaner synthetic fuels, Sasol Chevron co-
founded the Alliance for Synthetic Fuels in Europe (ASFE) with DaimlerChrysler, Renault, Royal Dutch Shell
and Volkswagen, which was launched in Brussels in March 2006.
In July 2001, we signed a joint venture agreement with Qatar Petroleum (Qatar Petroleum 51% and Sasol
49%) to establish Oryx GTL. The joint venture is constructing, on behalf of both venture partners, a GTL plant
based at Ras Laffan Industrial City to produce high quality synfuels from Qatar’s natural gas resources. The
inauguration ceremony of the ORYX GTL plant was held at Ras Laffan Industrial City in Qatar on 6 June 2006.
The plant is scheduled to commence operations during the second quarter of 2007.
We acquired Condea in March 2001 from German-based RWE-DEA AG for 1.3 billion euro (R8.3 billion).
Most of this business was subsequently hosted in Sasol Olefins & Surfactants with production facilities mainly
in the US, Europe and South Africa. In 2003, it was determined that we would continue to grow our chemical
businesses conditional upon projects leveraging our technology or securing integrated and highly cost-
competitive feedstock positions. We announced in August 2005 that we are considering the divestment of the
Sasol Olefins & Surfactants business excluding our comonomers activities in South Africa. The Sasol Olefins &
Surfactants business is not vertically integrated to our required standards; is not adequately linked to our
proprietary Fischer-Tropsch technology process and has not adequately provided the integration benefits which
we require. The financial impact of changes in the input costs of the business – together with current market-
place dynamics – exceeds the benefits of significant reductions that have successfully been achieved in the fixed
costs of the business and various other productivity improvements. After a review of valuations and bids received
from interested parties, which confirmed our valuation, it was necessary to write-down the net asset value of the
business to its fair value. By 30 June 2006, we had substantially completed most of the activities required to
prepare this business for sale and are presently in negotiations with potential buyers. It is envisaged that the
disposal of the Sasol Olefins & Surfactants business will be completed within the next 12 months, subject to
obtaining the relevant regulatory and other approvals. Until the business is sold, we remain committed to the
strategic and operational goals of Sasol Olefins & Surfactants and will continue to provide the business with the
support necessary to uphold its effectiveness and success.
In 2004 we initiated Project Turbo, our fuel enhancement project, intended to liberate further chemical
feedstock and enable concomitant investments by Sasol Polymers to expand its South African polymer
production capacity by more than 80%. The synfuels catalytic cracker (SCC) at Secunda is being commissioned
in four sections. The first three are currently being commissioned and the commissioning of the fourth section
commenced in June 2006. The SCC is expected to commence beneficial operation in October 2006.
Effective 1 January 2004, Sasol Oil entered the South African retail fuel market with the establishment of
its first Sasol-branded retail convenience center (service station). Sasol Oil also completed the acquisition and
integration of Exel Petroleum in a major step towards forming Sasol Oil. We now have 376, compared to 345 in
2005, Sasol- and Exel-branded retail convenience centres.
We announced on 16 March 2006 the first phase implementation of Sasol Mining’s broad-based
empowerment strategy through the formation of Igoda Coal (Pty) Limited (Igoda Coal), an empowerment
venture with Eyesizwe Coal (Pty) Limited (Eyesizwe), a black-owned mining company. Igoda Coal will
comprise the full value chain of Sasol Mining’s coal export business – the Twistdraai mine and beneficiation
plant at Secunda, the marketing and logistics components of its coal export business, and Sasol Mining’s 5%
shareholding in Richards Bay Coal Terminal.
In June 2006 we announced the signing of a co-operation agreement with a consortium led by Shenhua
Corporation of the People’s Republic of China to proceed with the second stage of feasibility studies to
determine the viability of an 80,000 barrels per day (bpd) CTL plant in the Shaanxi Province, about
650 kilometres west of Beijing in China and for another 80,000 bpd CTL plant in the Ningxia Hui Autonomous
region, about 1,000 kilometres west of Beijing.
background image
31
On 30 June 2006 we announced that our R1.45 billion broad-based black economic empowerment (BEE)
transaction, through partnership with Tshwarisano LFB Investment (Pty) Limited (Tshwarisano), was
successfully concluded following the prohibition by the Competition Tribunal of the proposed merger of our
liquid fuels business with Engen Limited, a South African subsidiary of Petroliam Nasional Berhad (Petronas).
In terms of the agreement, Tshwarisano has acquired a 25% shareholding in Sasol Oil effective 1 July 2006.
Since May 2000 we have undertaken share repurchases, which may be made at times and at prices deemed
appropriate by management and consistent with the authorization of the shareholders. No repurchases were
made during the year ended 30 June 2006. At 30 June 2006, a total of 60,111,447 shares, representing 8.8% of
the issued share capital of the company, had been repurchased since 9 May 2000 at an average price of R60.67
per share. At a general meeting held on 3 October 2006, shareholders approved that we acquire 60,111,477 Sasol
Limited shares held by our subsidiary, Sasol Investment Company (Pty) Limited. These shares were cancelled on
10 October 2006. Except for the related transaction costs, the repurchase and cancellation of these shares had no
effect on the consolidated financial position of the group. At the meeting of 3 October 2006, shareholders also
approved that we be granted the authority to acquire Sasol Limited shares by way of a general repurchase. We
may consider repurchasing additional shares on the open market.
As of 29 September 2006, we were the largest JSE listed South African domiciled company by market
capitalization (R174.8 billion), with total consolidated turnover from continuing operations of approximately
R61,857 billion in 2006. We employ approximately 27,933 people in our continuing operations.
Capital expenditure
In 2006 we invested approximately R13 billion, compared with R12 billion and R11 billion in respect of
2005 and 2004, respectively, in capital expenditure (on a cash flow basis excluding capitalized interest and
including projects and investments incurred by our equity accounted investees) to enhance our existing facilities
and to expand operations. Capital expenditure incurred on key projects to expand our operations includes:
30 June
30 June
30 June
Projects and investments
1
Business categories
2006
2005
2004
(Rand millions)
Project Turbo – low-density
polyethylene and polypropylene
Sasol Polymers
2,608
3,321
936
Oryx GTL and Escravos GTL
Sasol Synfuels International
1,734
1,245
1,235
Arya Sasol Polymers (Iran)
Sasol Polymers International Investments
1,590
823
295
2
nd
and 3
rd
Octene trains
Sasol Solvents
714
288
519
Sasol Oil distribution network
Sasol Oil
191
294
114
Mozambique Natural Gas
Sasol Gas and Sasol Petroleum International
38
244
2,077
Clean Fuels Project
Sasol Oil
215
Tar Naphta Phenolic Extraction
Other
105
Acrylic acid and acrylates
Sasol Solvents
740
15
th
Oxygen train
Sasol Synfuels
104
Other smaller projects
Various
820
722
1,771
7,695
7,257
7,791
1.
The amounts include business development costs and our group’s share of capital expenditure of equity accounted
investees. The amounts exclude borrowing costs capitalized. These amounts were approved by our board of directors
and are stated on a management reporting basis. We hedge all our major capital expenditure in foreign currency
immediately upon commitment of the expenditure or upon approval of the project.
background image
32
Key projects to address environmental matters and enhance existing assets during the 2006 year include:
30 June
30 June
Projects and investments
1
Business categories
2006
2005
(Rand millions)
Project Turbo – fuel enhancement
Sasol Synfuels
1,867
2,520
Clean fuels project
Sasol Oil
224
Mining renewal
Sasol Mining
171
177
Waste recycling facility
Sasol Synfuels
98
263
Reconstruction of the ethylene
plant (Unit 24) and the revamp
of the furnaces
Sasol Polymers
3
185
Other smaller projects
Various
2,968
2,018
5,331
5,163
1.
The amounts include business development costs and our group’s share of capital expenditure of equity accounted
investees. The amounts exclude borrowing costs capitalized. These amounts were approved by our board of directors
and are stated on a management reporting basis. We hedge all our major capital expenditure in foreign currency
immediately upon commitment of the expenditure or upon approval of the project.
In addition, we invested approximately R428 million in intangible assets (including investments made by
equity accounted investees), mainly in respect of software, patents and trademarks during the year. For a
discussion of the method of financing for our capital expenditures, see “Item 5.B – Liquidity and capital
resources – liquidity”.
Capital commitments
As at 30 June 2006, we had authorized approximately R34 billion of group capital expenditure, of which
we had spent R20 billion at 30 June 2006. Of the unspent capital commitments of R14 billion, R8 billion has
been contracted for. We expect to spend R9 billion in 2007, R5 billion in 2008 and the remainder in 2009 and
thereafter of our unspent capital commitments. For more information regarding our capital commitments see
“Item 5.B – Liquidity and capital resources – liquidity” and “Item 5.F – Tabular disclosure of contractual
obligations”.
We expect to spend approximately R7 billion of our capital commitments on projects in South Africa,
R5 billion in other African countries, R2 billion in the Middle East and the remainder on projects in other
regions.
background image
33
The following table reflects key projects approved and contracted which were not completed at
30 June 2006:
Total project
Scheduled
Project
Business categories
cost
operation date
(Rand in millions)
Syferfontein Kriel South Phase 2
Sasol Mining
310
June 2007
Mooikraal underground coal mine
Sasol Mining
229
June 2007
Project Turbo – fuel-optimization
Sasol Synfuels
5,369
October 2006
Black product site remediation
Sasol Synfuels
145
February 2015
Oryx GTL (Qatar)
Sasol Synfuels International
3,795
1
December 2006
Escravos GTL (Nigeria)
Sasol Synfuels International
9,778
2
December 2009
3
rd
Octene train
Sasol Solvents
2,087
September 2007
Project Turbo – polymers projects
– low-density polyethylene and
polypropylene
Sasol Polymers
9,381
June 2007
Arya Sasol Polymer (Iran)
Sasol Polymers International
Investments
4,881
3
April – June 2007
The amounts include business development costs and our group’s share of capital expenditure of equity accounted
investees.
1.
The project cost of US$489 million and has been translated at a rate of R7.76 per US$1.00 solely for the reader’s
convenience.
2.
Sasol provides risk-based financing for 50% of the capital expenditure on the Escravos GTL joint venture. The project
cost is under review. Sasol’s portion is not expected to exceed US$ 1.45 billion. Due to concurrent increases in
commodity values, this development is not expected to materially affect the returns of this project. This amount has
been translated at a rate of R7.76 per US$1.00 solely for the reader’s convenience.
3.
Sasol Polymers’ share of the estimated cost to establish the Arya Sasol Polymer production facilities is
494 million euro and has been translated at a rate of R9.88 per euro 1.00 solely for the reader’s convenience.
4.B
Business overview
Sasol is an integrated oil and gas company with complementary interests in coal, chemicals and the
international development of synthetic-fuel ventures based on our proprietary Fischer-Tropsch (FT) technology.
We mine coal in South Africa. Through Sasol Synfuels, we convert this coal, along with Mozambican natural
gas, into fuels and chemical feedstock through our FT technology.
We also have chemical manufacturing and marketing operations in Europe, Asia and the Americas.
Our larger chemical portfolios include polymers, solvents, waxes, phenolics and nitrogenous products.
We are advancing the divestiture process of Sasol Olefins & Surfactants business excluding its comonomers
activities in South Africa. The Sasol Olefins & Surfactants business has been presented in the financial
statements as discontinued operations.
The group explores for, and produces, crude oil offshore Gabon, refines crude oil into liquid fuels in South
Africa and retails liquid fuels and lubricants produced in our refinery and by Sasol Synfuels through a growing
network of retail service centers. Our liquid fuels business includes wholesaling in South Africa and overland
exports to several sub-Saharan African countries.
We produce natural gas in Mozambique for supply to customers and as feedstock for some of our fuel and
chemical production in South Africa.
We shall commission our first GTL plant in Qatar during 2007 and a second GTL plant is under
construction in Nigeria, for planned commissioning in 2010. These two GTL plants will incorporate our
proprietary Sasol SPD™ process.
background image
34
Our activities
The financial information presented to our Group Executive Committee (GEC), including the financial
information in the reportable segments, is presented based on IFRS. Since IFRS financial information is the
basis for segmental financial decisions, resource allocation and performance assessment, it forms the accounting
basis for segmental reporting that is disclosed to the investing and reporting public. The IFRS segmental
reporting information is reconciled to the amounts reported in our group consolidated financial statements,
prepared in accordance with US GAAP, for all years presented. We divide our operations into the following
segments (turnover percentages and amounts in terms of IFRS):
Continuing operations:
Sasol Mining. We mine about 46.2 million tons (Mt) a year of saleable coal at Sasolburg and Secunda for
our South African plants and export about 3.6 Mt of coal annually. Sasol Mining accounted for 2% of our
total external segmental turnover from continuing operations in 2006.
• Sasol Synfuels. We operate the world’s only large commercial-scale coal-based synfuels manufacturing
facility at Secunda. We produce synthesis gas through coal gasification and natural gas reforming, and
use proprietary Fischer-Tropsch technology to convert synthesis gas into synthetic fuel components,
pipeline gas and chemical feedstock. Sasol Synfuels accounted for 1% of our total external segmental
turnover from continuing operations in 2006.
background image
35
• Sasol Oil (previously Sasol Liquid Fuels Business). We manufacture and market liquid fuels at Secunda
and through our interest in the Natref refinery in Sasolburg (South Africa’s only inland crude oil
refinery). Liquid fuels include gasoline, diesel, jet fuel, bitumen and lubricants. Sasol Oil accounted for
5% of our total external segmental turnover from continuing operations in 2006.
• Sasol Gas. We distribute Mozambican-produced natural gas and Secunda-produced methane-rich gas to
customers in the Gauteng, Mpumulanga, Free State, and KwaZulu-Natal provinces of South Africa. We
have a 49% interest in Spring Lights Gas (Pty) Limited, an empowerment gas marketing company in
Durban, and a 75% interest in Republic of Mozambique Pipeline Investment Company (Pty) Limited
(Rompco), the owner of the Mozambican-South African gas pipeline. Sasol Gas accounted for 3% of our
total external segmental turnover from continuing operations in 2006.
• Sasol Synfuels International. We and our joint venture Sasol Chevron develop and implement
international ventures based on the Sasol SPD™ GTL process. We will bring our first international GTL
plant into production with Qatar Petroleum during the second quarter of 2007. These activities are only
expected to contribute to our total external segmental turnover in 2007. We also pursue opportunities
based on other hydrocarbons that could be beneficiated through our Fischer-Tropsch technology.
• Sasol Polymers. We operate plants at Sasolburg and Secunda and market ethylene, propylene,
polyethylene, polyvinyl chloride, chlor-alkali chemicals and mining reagents to a diverse South African
and international customer base. We also have an interest at Kertih, Malaysia in ethylene, propylene and
polyethylene production and marketing. Sasol Polymers accounted for 12% of our total external
segmental turnover from continuing operations in 2006.
• Sasol Solvents. We operate plants in South Africa and Germany and supply a diverse range of solvents
(including alcohols and ketones) and associated products through various business units, including an
acrylic acid and acrylates joint venture in South Africa with Mitsubishi Chemical Corporation and a
maleic anhydride joint venture in Germany with Huntsman Corporation. The comonomers division
previously included as part of Sasol Olefins & Surfactants is now included in Sasol Solvents. Sasol
Solvents accounted for 16% of our total external segmental turnover from continuing operations in 2006.
• Other. We are involved in a number of other activities in the energy and chemicals industries, both in
South Africa and abroad, which, among others, include international petroleum and gas exploration and
production, production of other chemical products, production of wax and explosive products as well as
technology research and development, and our financing activities. These activities accounted for 15% of
our total external segmental turnover from continuing operations in 2006.
Discontinued operations:
• Sasol Olefins & Surfactants. We manufacture and market surfactants and surfactant intermediates, as well
as monomers and inorganic specialty chemicals, mainly at plants in Germany, Italy, the United States of
America and South Africa, for customers across the globe. The Sasol Olefins & Surfactants business has
been disclosed as a discontinued operation and we expect to sell the business before the end of 2007.The
following tables present our total external turnover after the elimination of inter-segment turnover by
business operation and geographic market (in terms of IFRS, except where otherwise indicated):
background image
36
Sasol
Total
Sasol
Sasol
Sasol
Sasol
Synfuels
Sasol
Sasol
continuing
2006
Mining Synfuels
Oil
Gas
International
Polymers
Solvents
4
Other operations
(Rand in millions)
South Africa
204
631
29,598
1,663
5,936
1,092
3,721
42,845
Rest of Africa
19
2,643
98
846
158
1,227
4,991
Europe
1,313
107
2
15
88
4,317
2,438
8,280
Middle East and India
4
48
2
1,121
197
1,372
Far East
2
386
991
113
1,492
North America
136
1,829
1,067
3,032
South America
8
12
307
177
504
Southeast Asia and Australasia
8
267
670
389
1,334
Total segment
1,517
915
32,243
1,663
161
7,537
10,485
9,329
63,850
Adjustments to US GAAP
Equity accounting and reversal
of proportionate
consolidation
2
(1,993)
Turnover under US GAAP
1
61,857
Sasol
Total
Sasol
Sasol
Sasol
Sasol
Synfuels
Sasol
Sasol
continuing
2005
Mining Synfuels
Oil
Gas
International
Polymers
Solvents
4
Other operations
(Rand in millions)
South Africa
42
642
22,902
1,408
5,651
1,303
3,364
35,312
Rest of Africa
6
620
752
155
909
2,442
Europe
1,429
107
3
86
3,732
2,840
8,197
Middle East and India
16
28
880
173
1,097
Far East
358
1,145
116
1,619
North America
20
1,302
843
2,165
South America
11
7
217
136
371
Southeast Asia and Australasia
18
317
627
332
1,294
Total segment
1,471
820
23,525
1,408
7,199
9,361
8,713
52,497
Adjustments to US GAAP
Equity accounting and reversal
of proportionate
consolidation
2
(1,810)
Turnover under US GAAP
1
50,687
background image
37
Sasol
Total
Sasol
Sasol
Sasol
Sasol
Synfuels
Sasol
Sasol
continuing
2004
Mining Synfuels
Oil
Gas
International
Polymers
Solvents
4
Other operations
(Rand in millions)
South Africa
45
1,077
17,237
1,389
5,063
869
3,202
28,882
Rest of Africa
6
26
1,305
7
815
112
675
2,946
Europe
1,032
153
26
3,502
2,574
7,287
Middle East and India
21
48
848
216
1,133
Far East
6
178
940
124
1,248
North America
21
1,146
903
2,070
South America
7
14
187
132
340
Southeast Asia and Australasia
18
12
432
333
298
1,093
Total segment
1,083
1,329
18,554
1,389
7
6,576
7,937
8,124
44,999
Adjustments to US GAAP
Equity accounting and reversal
of proportionate
consolidation
2
(1,659)
Entities previously not
consolidated
3
266
Turnover under US GAAP
1
43,606
1.
For more information on the reconciliation of segmental turnover to the corresponding amounts prepared under
US GAAP, see “Item 5.A – Operating results – Reconciliation of segmental results to US GAAP” and Note 3 of
“Item 18 – Financial statements”.
2.
For the years ended 30 June 2006, 30 June 2005 and 30 June 2004, proportionate consolidation is applied with respect
to incorporated joint ventures for management reporting purposes. Under US GAAP, the equity method of accounting
is applied.
3.
Relates to Naledi Petroleum Holdings (Pty) Limited (included in the Sasol Oil segment) which was equity accounted
for management reporting purposes until 31 December 2003 and consolidated as a subsidiary with effect from 1
January 2004. However, under US GAAP it is consolidated as a subsidiary for all reporting years.
4.
The segment information has been adjusted for the reclassification of the comonomers division from Sasol Olefins &
Surfactants to Sasol Solvents.
Our strategy
We are active in the oil, gas and chemical sectors, primarily in integrated petroleum and chemical centers
of activity in Southern Africa and other countries where we can obtain competitive feedstock advantages. Our
core business is adding value to low-cost coal and gas feedstock through our unique Fischer-Tropsch synthesis
and other proprietary technologies for the production of fuel, fuel components and chemical feedstock.
Commercializing and expanding our Fischer-Tropsch GTL and CTL technology – We have made further
progress towards the drive to commercialize our GTL technology based on the Sasol SPD™ process in natural
gas-rich regions. The Sasol SPD™ process allows us to monetize underutilized gas resources by converting them
into ultra-low sulfur, high-performing diesel in line with global trends towards cleaner fuel and reduced
emissions to the environment.
• SSI and Qatar Petroleum inaugurated their 49:51 joint venture in respect of the Oryx GTL plant in Ras
Laffan, Qatar in June 2006. The plant with its capacity of 34,000 bpd is the world’s first commercial
scale Slurry Phase Fischer-Tropsch GTL plant outside South Africa, developed and built specifically to
produce GTL diesel and to a lesser extent, GTL naphtha and liquefied petroleum gas (LPG). The GTL
diesel will be used either as a fuel neat or as a blend stock.
background image
38
• Work on the Escravos GTL plant in Nigeria, a joint venture between NNPC and Chevron Nigeria
Limited is progressing according to plan. It is envisaged that the plant will be operational in 2009. With
its capacity of 34,000 bpd the Escravos GTL plant will produce GTL diesel, GTL naphtha and liquefied
petroleum gas utilizing Sasol licensed technology.
Following our progress in Qatar and Nigeria, other potential GTL options are also under review. These
options include a second GTL plant in Qatar and possible GTL investments in Algeria and Australia. We are not
progressing with a feasibility study on a potential GTL project in Iran, although this may change pending a
review of the political situation in Iran. The political situation in Iran is being monitored. If a stage-one
feasibility study is initiated it will, however, take up to two years before the investment merits of a potential
GTL project are precisely determined for consideration and scrutiny by the relevant risk assessment, governance
and investment decision-making bodies within the group, which will also take full cognizance of the political
situation prevailing in Iran at that time.
In support of this growth driver, our team of researchers continue to advance our second-generation GTL
technology, including our proprietary low-temperature Fischer-Tropsch Slurry Phase reactor and cobalt-based
catalysts.
We signed agreements in June 2006 enabling us to continue with feasibility studies for the potential
development of two CTL plants in China. We anticipate completing the feasibility studies during 2008 for the
two envisaged CTL plants in China. China has been able to sustain high levels of economic growth for more
than a decade, coupled with a growing demand for energy which outstrips the world average. With its vast coal
reserves, China offers a potential opportunity for us to commercialize our CTL technology. Potential CTL
opportunities in the United States and other coal-rich regions may also be considered.
Our researchers will continue to explore new opportunities to commercialize our competitive Fischer-
Tropsch synthesis technology for the beneficiation of coal and other hydrocarbon resources, including
environmentally friendly biomass.
Grow our integrated chemicals portfolio in selected areas – we will focus on organically growing our
chemicals portfolio either by:
• leveraging new chemical growth opportunities from our Fischer-Tropsch processes; or
• securing integrated positions with highly cost-competitive feedstocks.
Sasol Polymers remains an outstanding performer in our chemicals portfolio by focusing on continued
business optimization and benefiting from a buoyant demand for polyethylene, polypropylene and polyvinyl
chloride. As part of Project Turbo, this division is advancing the construction of two new polymer plants in
South Africa to increase our polymer capacity by about 80%. We intend to bring the two plants into operation
during 2007. Outside South Africa, our polymer business continues to gain momentum. In Iran, Sasol, through
Sasol Polymers International Investments is investing up to euro 494 million (our 50% share of the total capital
project) in a new polymer plant which is designed to produce one million tons of ethylene to be converted into
polyethylene, or exported as ethylene. This project is a 50:50 joint venture (called Arya Sasol Polymer
Company) between Sasol and the National Petrochemical Company of Iran, and comprise one ethane cracker for
producing polymer-grade ethylene and two polyethylene plants. The cracker start-up is currently targeted for
between April and June 2007, followed by commissioning of the two polyethylene plants soon thereafter.
Sasol Solvents continues to benefit from its status as a diversified producer and marketer of industrial
solvents. The breadth of our solvents product portfolio and international market presence covering all major
regions are competitive strengths of this business unit.
Substantial work has been undertaken to prepare the Sasol Olefins & Surfactants business for sale. Since
the start of the divestiture process in August 2005, international oil prices have increased significantly, which
represent fundamental changes in energy costs and their related impact on oil derived feedstock prices.
Irrespective of the negative impact of the increased feedstock costs on the Sasol Olefins & Surfactants business,
background image
39
the strategic rationale for considering the disposal of the business, as expressed in our initial announcement in
August 2005, remains relevant and valid. It is not backward integrated into the primary feed streams to our
required standards and is also not adequately linked to our proprietary Fischer Tropsch technology process.
Exploit upstream hydrocarbon opportunities – SPI has become a steady producer of natural gas in the
Temane field in Mozambique. We will continue to explore for additional natural gas reserves in and around the
Temane and Pande onshore fields as well as two offshore fields. Moreover, SPI remains a 27.75% partner in
Gabon’s offshore Etame oil field, where crude oil production is being sustained at about 18,000 bpd.
Sasol Gas continues to focus on growing the South African gas market following the successful
introduction of natural gas from Mozambique in 2004. At 30 June 2005 Sasol held a 100% interest in Republic
of Mozambique Pipeline Investments Company (Pty) Limited (Rompco), a company which operates and
maintains the cross-border pipeline that conveys natural gas from the Temane central processing facility to the
gas network at Secunda. On 1 July 2005, we sold a 25% interest in Rompco to South African Gas Development
Company (Pty) Limited (iGas), owned by the South African government), and realized a profit of R205 million.
Companhia Mocambicana de Gasoduto S.A.R.L (CMG), a company owned by the Mozambique government,
has taken steps to exercise its option to acquire a 25% interest in Rompco in 2007.
Continuing operations
Sasol Mining
Nature of the operations and principal activities
We have three South African coal mining operations:
• Secunda Mining Complex, consisting of four underground mines (Bosjesspruit, Brandspruit, Middelbult
and Syferfontein) at Secunda supplying 40.3 Mt of coal to Sasol Synfuels, its primary customer. A new
business portfolio supplying utility coal to Eskom Holdings Limited (Eskom), South Africa’s state-owned
power company, has been established and performed well during the year. In line with a supply
agreement, the company supplied 1.7 Mt of coal to Eskom power stations during 2006.
• Export Complex (situated in the Secunda Mining Complex), supplied by the Twistdraai mine at Secunda,
producing coal for the international market (export coal sales of 3.6 Mt) as well as a secondary product
(middlings), supplied to Sasol Synfuels.
• Sigma Mining Complex. The Mooikraal mine near Sasolburg was brought into operation shortly before
30 June 2006. It has been designed to supply utility coal to the group’s utility plants in Sasolburg at a
rate of about 1.9 Mt a year to replace the depleted Mohlolo underground operation and the Wonderwater
high-wall operation, which are undergoing final closure and rehabilitation.
During 2006 total production was 46.2Mt of coal, compared to 47.7Mt in the previous year. The decrease
in production resulted from coal purchases from Anglo Operations (Pty) Limited (Anglo Operations) for supply
to Sasol Synfuels and the introduction of natural gas at Sasolburg. Saleable production volumes vary each year
according to inter-segment demand and export capacity.
background image
40
Operational statistics
2006
2005
2004
(Mt, unless otherwise stated)
Sigma Mine
1.6
2.6
6.2
Secunda Mines
44.6
45.1
46.2
Total production
46.2
47.7
52.4
Saleable production from all mines
1
44.5
45.5
50.4
External coal purchases from Anglo Operations
3.1
Sales to Sasol Infrachem, Sasolburg
1.7
3.0
6.8
Sales to Sasol Synfuels, Secunda
40.3
39.4
40.2
Additional South African market sales
2.1
0.5
0.5
Export sales (primarily Europe)
3.6
3.6
3.6
Total sales including exports
47.7
46.5
51.1
Production per shift of continuous miner (mining production machine)
(t/cm/shift)
1,674
1,561
1,707
1.
Saleable production equals our total production minus discard and includes both product sold and movements in
stockpiles.
Strategy
An analysis of the challenges facing our mining operations and a review of our strategy culminated in the
determination of the following six key strategic themes:
• Mining Charter compliance;
• Safety, health and environment (SH&E);
• Continuous improvement;
• Business and reserve optimization;
• Product and market optimization and logistics; and
• Winning with people.
Mining Charter compliance
Economic empowerment of historically disadvantaged South Africans. We pursued a rigorous BEE strategy
formulation process, followed by a partner selection process, resulting in the selection of Eyesizwe as our
preferred strategic BEE partner in our coal export operations. We announced in March 2006 the first phase of the
implementation of Sasol Mining’s broad-based BEE strategy through the formation of Igoda Coal, Sasol
Mining’s 65:35 empowerment venture with Eyesizwe.
As a result of this transaction, BEE equity ownership in Sasol Mining’s operations will indirectly comprise
about 8%. We are now expediting plans to advance the second phase of our broad-based BEE ownership
strategy, pursuant to which we intend to achieve a 26% BEE equity ownership by 2014, in compliance with the
Mining Charter.
These future BEE ventures will further assist operational capacity building in the mining sector. We intend
to create a new, sustainable BEE entity, which will be involved in selected mining operations. This entity
preferably, will include a women’s group and other broad-based stakeholders drawn from historically
disadvantaged groups in South Africa. We expect to finalise our next BEE equity ownership deal in the year
ahead.
background image
41
The submission of applications for the conversion of Sasol Mining’s Secunda “old order” mining rights
were provided to government. This submission provides detail and information on how stated objectives of the
Mining Charter will be addressed as well as plans on how to achieve the targets. See “Item 3.D – Key
information – Risk factors – New mining legislation may have an adverse effect on our mineral rights” and
“Item 4.B – Business overview – Regulation – Empowerment of historically disadvantaged South Africans”.
Safety, health and environmental
The recordable case rate (recordable case rate (RCR) is the standard international measure for reporting
work-related injuries and illnesses and other safety incidents resulting in injury) for 2006 was 0.93 compared to
1.51 for 2005, and the lost work day case rate for 2006 was 0.25 compared to 0.24 for 2005. Safety is of critical
importance and various interventions have and are being implemented in order to improve Sasol Mining’s safety
performance. This includes entrenching safety as a key value at Sasol Mining, in line with the group’s focus on
safety. A process to improve safety-related behaviors was implemented two years ago and will be fully
implemented at all our mining operations by the end of the 2008 calendar year.
With regards to safety and health, the underground dust levels at locations with mechanical miners have
decreased to 3.42 milligrams per meters cubed (mg/m
3
) from 3.63mg/m
3
in 2005. This measurement is still well
below the legal limit of 5mg/m
3
.
In addition all the mining operations have a legally required Environmental Management Program, as well
as an internationally recognized Environmental Management System (ISO 14001). They are individually audited
at least annually.
Continuous improvement
Through a process of consultation with all role players, a “Sasol Way” of operating was designed,
supported by a tracking tool for monitoring progress and sustainability. This process will be implemented
throughout all the mining operations during the next eighteen months.
In keeping with recent trends, we continue to advance our mechanical productivity, measured by the
average number of tons produced by one continuous miner in one eight-hour shift (t/cm/shift). Since launching a
dedicated productivity-improvement program seven years ago, Sasol Mining has increased its continuous miner
productivity by 108%, while also sustaining a general trend during this period of lowering its recordable injuries.
Machine productivity increased by 7% during the year from 1,561 t/cm/shift to 1,674 t/cm/shift.
Business and reserve optimization
A business planning process has been established which allows for integrated planning from the strategic
level to life-of-complex planning, ten year budgets and short-term planning. During 2006 the business has
operated soundly within the context of this business plan. The business plan is focused to continuously operate
the mines in the most cost effective manner whilst also focusing on reserve optimization.
Product and market optimization and logistics
The changes in both the demand pattern at the Sasolburg petrochemical complex (only utility coal required)
and the supply sources at the Secunda Mining Complex (less Twistdraai coal produced and more coal purchases
from Anglo Operations) have necessitated more focus to ensure stability in the coal blends supplied to our
internal customers (Sasol Synfuels and Sasol Infrachem). Different computerized blending models have been
developed and implemented to manage coal quality and coal blends of products supplied to customers.
background image
42
Winning with people
Talent management and succession planning processes within the company are entrenched and we continue
to experience year on year improvements in people productivity. The relationship with all our union stakeholders
is good. We achieved 38% representation of historically disadvantaged South Africans (HDSAs) from first line
supervisory to senior management levels. The introduction of an additional 67 women in core business was
successfully completed. Currently we have over 100 women in core business and are well on our way towards
achieving targets set by the Mining Charter and relevant legislation. Overall progress towards the achievement of
employment equity and Mining Charter targets is satisfactory. Current retention challenges in skilled,
professional positions are mainly due to a national growth in the requirements for these skills. Strategies to
mitigate these challenges including, targeted recruitment, fast-tracking of professional growth of employees and
increased artisan and miner learnership are yielding favorable outcomes, resulting in lower voluntary labor
turnover for Sasol Mining as against the mining industry in general and continuous inflow of skilled employees
from internal development. With increased economic growth in the country, Sasol Mining will continue to seek
and implement innovative ways to attract and retain talented people within the company.
Principal markets
We extract and supply coal mainly to our synfuels and chemical plants under terms and conditions which
are determined on an arm’s length basis. We export approximately 8% of the Secunda Mining Complex’s
production. In 2006, external sales, primarily exports, amounted to 3.6 Mt, compared to 3.9 Mt in 2005. In a
volatile market, US dollar export prices decreased by 7%, while the rand weakened by 3%. This resulted in a net
decrease in the rand export coal price of 4%.
Marketing opportunities for coal in both the international and domestic utility market are being explored. It
is our intention to increase our presence in the international market over the ensuing decade. This is currently
constrained by our throughput entitlement at the Richards Bay Coal Terminal, South Africa’s predominant coal
export outlet. The planned expansion of this terminal has been delayed and its timing is uncertain.
Seasonality
The demand for inter-segment coal is consistent throughout the year. The demand for coal in Europe, the
international market in which Sasol Mining is most active, is consistent throughout the year. Variations in
tonnage from season to season in the export market are therefore limited.
Marketing channels
Sasol Mining has appointed a limited number of agents in Europe to represent the company, each with their
own specific geographic markets. These agents operate on a commission basis and are authorized to act as
intermediaries only. All sales require approval of Sasol Mining before they may be concluded with the customer.
background image
43
Property, plants and equipment
Sasol Mining operates six mines for the supply of coal to Sasol Synfuels, Sasol Infrachem (utility coal
only) and the external market. The annual production of each mine, the primary market to which it supplies coal
and the location of each mine are indicated in the table below:
Mining activities
Mine
Market
Location
2006
2005
2004
Production (Mt)
Bosjesspruit
Sasol Synfuels
Secunda
7.8
7.7
8.2
Brandspruit
Sasol Synfuels
Secunda
8.2
8.3
8.4
Middelbult
Sasol Synfuels
Secunda
9.3
8.0
8.5
Syferfontein
Sasol Synfuels
Secunda
8.8
7.1
6.8
Twistdraai
Export/Synfuels
1
Secunda
10.5
14.0
14.3
Sigma/Mooikraal
Sasol Infrachem
Sasolburg
1.6
2.6
6.2
46.2
47.7
52.4
1.
The middlings product from the export beneficiation plant is supplied to the Synfuels market.
Beneficiation Plant
A coal beneficiation plant is operated at Secunda to enable coal export to the international market. The
design capacity of the plant is 10.5 Mt throughput per annum. The plant feedstock is supplied by Twistdraai
mine via overland conveyor belts of approximately 22 kilometres.
Sasol Synfuels
Nature of the operations and principal activities
Sasol Synfuels operates a coal and gas-based synfuels manufacturing facility which, on the basis of our
knowledge of the industry and publicly available information, we believe to be the world’s only large
commercial-scale facility of this type. Based at Secunda, we produce syngas primarily from low-grade coal with
a smaller portion of feedstock being natural gas. The process uses advanced high temperature Fischer-Tropsch
technology to convert syngas into a range of synthetic fuel components, as well as industrial pipeline gas and
chemical feedstock. We produce most of South Africa’s chemical and polymer building blocks, including
ethylene, propylene, ammonia, phenols, alcohols and ketones. We operate the world’s largest oxygen production
facilities (according to Air Liquide, the French industrial gas company), currently consisting of 15 units. As a
result, we also have the capacity to recover high volumes of two noble gases, krypton and xenon.
We obtain our coal feedstock requirements from Sasol Mining and purchase natural gas feedstock from
Sasol Gas.
Strategy
The primary strategic objectives of Sasol Synfuels are:
• to maintain all-round operational excellence (including safety performance);
• to maintain a motivated and skilled human resources base;
• to position itself strategically for long-term growth in a complex and evolving environment; and
• to continuously reduce the environmental footprint of our operations in Secunda.
background image
44
Major growth opportunities exist for us in domestic and international markets. Sasol Synfuels is partnering
with Sasol Technology, Sasol Oil and key chemical businesses in a feasibility study for a phased 20% increase in
production over the next 10 years. The envisaged first-phase growth of 10% would be based on higher
throughput of natural gas and thereafter on higher throughput of coal. The latter coal-based growth phase would
require new-generation coal gasification technology. Sasol Synfuels envisages complementing the current low-
temperature Lurgi coal gasifiers with high-temperature gasifiers, mostly to improve plant efficiency and reduce
emissions to the atmosphere. High-temperature gasifiers produce carbon monoxide, which – along with
hydrogen – can be used to produce synthesis gas instead of being emitted to the atmosphere. The additional
volumes of reaction hydrogen would be sourced from natural gas.
Working in partnership with Sasol Oil and Sasol Technology, we met the new mandatory South African
fuel specifications which were implemented on 1 January 2006. Besides terminating the production and
marketing of leaded fuel and introducing lead replacement fuel for older vehicles, we have introduced diesel
with a substantially lower sulfur content – a reduction from 3,000 parts per million (ppm) to 500ppm. Project
Turbo, the fuel-optimization and polymer-expansion project entered the final stage during the last quarter of the
year. As part of the fuel-optimization portion of the project, we commenced with the commissioning of the
synfuels catalytic cracker (SCC) in August 2006. Project Turbo has necessitated the rerouting of almost one-
million cubic meters a year of fuel precursors produced by Sasol Synfuels to the SCC, where they are now being
converted into higher-octane fuel, as well as ethylene and propylene. As a result of starting up the SCC, we have
a different end-product ratio because our fuel volumes will decrease slightly as some of the fuel streams will be
converted into polymer feedstock. In the longer term, however, our growth plans will offset the Project Turbo-
related reduction in fuel volumes and the negative impact on unit cost. We expect that in addition to delivering
the new fuels solution for 2006, this project will also address most of the envisaged more stringent fuel
specifications which are expected to be mandated in future years.
Various safety initiatives have yielded positive returns, with our RCR decreasing by 50% from 1.31 in 2005
to 0.65 in 2006 for Sasol Synfuels employees.
Principal markets
The company sells fuel components to Sasol Oil, and methane-rich gas is sold to Sasol Gas. Chemical
feedstocks are processed and marketed by Sasol and its joint ventures, including Merisol. Unrefined ethylene
and propylene are purified by Sasol Polymers’ monomers division at Secunda for the downstream production of
polymers. Ammonia is sold to the fertilizer and explosives industries, including Sasol Nitro, our nitrogenous
products division.
The inland South African market for liquid transportation fuels continues to grow, as do many of the major
markets for the group’s main chemical businesses.
Property, plants and equipment
Specific product volumes
2006
2005
2004
(% of total production)
Liquid and gaseous fuels
65
64
66
Petrochemical feedstock
25
25
20
Carbon plus nitrogenous feedstock for fertilizers and explosives
8
8
11
Specialized cokes, creosote and related carbon and tar products
2
3
3
We have procured a preventative maintenance program, which we continue to benchmark against those of
leading international energy and chemical companies. The planned March 2006 shutdown was postponed to
September 2006 to accommodate the complex scope of the work required for Project Turbo. Greater energy
efficiency is also being pursued through new programs aimed at reducing overall unit cost, improving
environmental performance and assuring the reliability of electricity supply. This is particularly important at a
background image
45
time when Sasol Synfuels are pursuing significant expansion plans. Sasol Synfuels have been given the go-ahead
to commence work in the year ahead for the development of a 100 to 350-megawatt power-generation plant at
Secunda. This facility will use waste-gas streams as an energy source to reduce costs and environmental impact.
Overall production integrity and reliability remained at high levels throughout the year despite four
unplanned shutdowns. Ongoing programs are followed to improve plant reliability, availability and efficiency of
operations. One of the year’s key initiatives was the formation of a dedicated operational improvement team to
support Synfuel’s pursuit of operational excellence.
Sasol Synfuels continued to advance a series of major environmental projects as part of a wider group
initiative in South Africa to reduce our environmental footprint and enhance operational efficiency. We are
partnering with Sasol Nitro to build a R638 million sulfuric acid plant at Sasol Synfuels and an ammonium
sulfate facility at Sasol Nitro. The acid plant will use hydrogen sulfide and offtake gas from the Rectisol plant as
feedstock. Sasol Nitro will convert a large percentage of the sulfuric acid into ammonium sulfate, an important
fertilizer ingredient.
We are also focusing on opportunities to reduce volumes of low-level volatile organic compounds (VOCs),
as well as emissions of sulfur oxides (SOx) and nitrous oxides (NOx). Conceptual studies are progressing with a
view to reduce emissions significantly below the VOC, SOx and NOx limits prescribed by South Africa’s more
stringent new legislation, the National Environmental Management: Air Quality Act.
We completed further environmental cleanup projects with a combined cost of R175 million. In the year
ahead, besides the sulfur-reduction investments associated with building plants for producing sulfuric acid and
ammonium sulfate, Sasol Synfuels expects to invest a further R86 million to improve environmental
performance.
Sasol Oil
Nature of the operations and principal activities
Sasol Oil encompasses the established liquid fuels and lubricants marketing, distribution, commercial and
retailing interests, including the Exel business, our shareholding in the Natref refinery, and the acquisition of fuel
components and the fuel blending and storage facilities at Sasol Synfuels in Secunda. Products include gasoline,
diesel, jet fuel, fuel alcohol, illuminating paraffin, liquefied petroleum gas, fuel oils, motor and industrial
lubricants and bitumen. Sasol Oil also encompasses crude oil procurement, shipping and refining, as well as
final product supply to, and trading with, other oil companies operating in Southern Africa.
Strategy
On 6 February 2004, it was announced that Sasol Limited and Petronas were in discussions concerning the
combination of Sasol’s liquid fuels business and Petronas’ South African liquid fuels businesses, Engen, in a
joint venture to create a leading South African liquid fuels business. On 23 February 2006, despite earlier
approval by the European Commission, the proposed joint venture was prohibited by the Competition Tribunal
in South Africa as it ruled that it would have had anti-competitive effects on the industry. Since the ruling, Sasol
Oil has reviewed and re-aligned its strategy and has also appropriately structured the organization and
management team to drive the revised strategy.
In order to ensure the achievement of our commitment given in terms of South Africa’s Liquid Fuels
Charter and the advancement of BEE we planned to attain the equity commitment through the
above mentioned joint venture transaction. The ruling by the Competition Tribunal delayed such realization,
however, on 1 July 2006 we realized this commitment when Tshwarisano acquired a 25% shareholding in
Sasol Oil. This transaction has facilitated the meeting of the 25% BEE ownership target in compliance with the
Liquid Fuels Charter. See “Item 4.B – Business overview – Regulations – Empowerment of historically
disadvantaged South Africans”.
background image
46
Principal markets
Liquid fuels marketed
2006
2005
2004
Total liquid fuel sales (million m
3
)
9.61
9.60
9.32
Fuel and bitumen exports (million m
3
)
0.8
0.8
0.7
Natref refinery operational statistics
1
2006
2005
2004
Crude oil processed (million m
3
)
3.09
3.18
3.11
White product yield (% of raw material)
89.3
89.5
90.7
Total product yield (%)
97.1
97.9
99.4
1.
Data based on our 63.64% share in Natref.
Our 63.64% share of Natref’s production represents about 12% of South Africa’s total liquid fuels demand.
In addition, 25% of South Africa’s fuel demand is met from components produced at Sasol Synfuels in Secunda.
Our main wholesale customers in the South African liquid fuels market include Engen, BP, Chevron, Shell and
Total. These companies, amongst others, currently purchase part of their liquid fuels requirements for the South
African market from us through short to long term supply agreements. The process of concluding supply
agreements with smaller emerging oil companies is progressing as well.
Raw materials
Natref obtains approximately 55% of its crude oil requirements from the Middle East (of the purchases
from the Middle East approximately 12,000 bpd of crude oil is purchased from Naftiran Intertrade Company
Limited of Iran and approximately 20,000 bpd of crude oil is purchased from Saudi Arabia) through crude oil
term contracts and the balance at spot prices from West Africa and other sources. Crude oil is landed at Durban
and is transferred to the refinery through a 670 kilometer pipeline owned by Petronet, a subsidiary of Transnet,
which is a state-owned pipeline company.
Marketing channels
The Natref refinery at Sasolburg and our facilities at Secunda are located in the economic heartland of
South Africa, where an estimated 63% of the country’s white products are consumed. We currently supply
approximately 9.1 million m
3
of white products per year to the South African market. Fuel export volumes
decreased from 636,033m
3
in 2005 to 269,003m
3
in 2006 owing to planned and unplanned refinery and plant
shutdowns at Sasolburg and Secunda.
Since the expiry of the Main Supply and Blue Pump agreements at the end of December 2003, we have
concluded individual supply agreements with the main and emerging oil companies operating in South Africa.
These agreements, differing in duration, cover the supply of liquid fuels, including gasoline, diesel, liquefied
petroleum gas, jet fuel and illuminating paraffin. Over the last 12 months we have been able to supply our
committed volumes in terms of the supply agreements, albeit under very challenging circumstances. Our
supplies from Natref and Synfuels have been interrupted because of plant and/or refinery instability. We were
only able to comply with our supply obligations by importing refined petroleum products. Even though Natref
and Synfuels have been stable over the last period, it is envisaged that the importation of refined petroleum
products will continue because of planned plant shutdowns.
We have an empowerment venture with Namibia Liquid Fuels (Pty) Limited, to supply 50% of Namibia’s
white product requirements (about 500,000 m
3
a year) for at least three years as from 1 January 2005.
background image
47
We have an existing agreement with the government of Lesotho and have entered into a major new supply
agreement with the government of Swaziland for the supply of white product requirements. We have secured
11 retail service stations in Lesotho increasing our total market share from 19% to 36% to supplement our
commercial market presence in that country.
In the commercial sector, we are targeting four primary business sectors for the marketing and supply of
fuels and lubricants: the mining industry, the transport industry, reseller/distributors and government
organizations. Our marketing of products, such as our low-sulfur Sasol turbodiesel™, has promoted our sales in
both the commercial and retail markets.
In the retail sector we have successfully developed new, or converted existing, service stations, growing
from 345 to 376 Sasol Convenience Centers and Exel-branded service stations as at 30 June 2006, in line with
our dual-branding approach, which supports two distinctive but complementary marketing strategies.
We retain our competitive advantage in direct sales marketing on a commercial basis in the industrial and
related energy markets because of the notably low sulfur content of our fuel oils and special distillate fuels.
We maintain our belief that independent access to the retail and commercial markets has strategic,
competitive and growth advantages and we intend to improve our position in the South African fuels market in
this respect. The previous restrictions on our direct sales to the South African market have been removed
creating opportunities to increase our fuel production and sales through access to the retail and commercial
markets. We do, however, envisage that local and national regulatory requirements will delay the approval
of sites.
Property, plants and equipment
Natref is a technologically advanced refinery, highly efficient in refining heavy crude oil into gasoline,
diesel and other white products. It is South Africa’s only inland crude oil refinery, as the other three crude oil
refineries are located along the country’s shores. Its inland location does not allow the refinery easy access to the
bunkers fuel market, as is the case for coastal refineries. Therefore, Natref focuses on the production of refined
distillate fuels and only produces a small percentage of fuel oil and bitumen. It is designed to upgrade relatively
heavy crude oil with a high sulfur content (sour) to yield about 90% white petroleum products. Crude oil
selection and degree of upgrade are ultimately dictated by refinery configuration and overall economics. Other
products of the refinery include commercial propane, jet fuel, different grades of bitumen and fuel oils.
While we operate the refinery, Total participates in its management with veto rights in respect to a number
of corporate actions, including, among others, increasing or reducing Natref’s share capital, amending Natref’s
Memorandum and Articles of Association and the rights attaching to its shares, appointing directors to serve as
executive officers and determining directors’ remuneration.
Under the terms of an agreement concluded between Total and Sasol, Total has the option to purchase up to
13.64% of the ordinary shares in Natref from Sasol at fair market value upon the occurrence of certain events.
Since December 2003 Total had two opportunities to increase its shareholding in Natref to 50%, the first being
the termination of the Main Supply Agreements and the second the proposed transaction between Sasol and
Petronas which was prohibited by the Competition Tribunal. On both occasions Total decided not to exercise its
option to increase its shareholding in Natref.
During 2006 we have invested in the Natref refinery to meet new fuel specifications. This project was
completed in October 2005. The project objectives to discontinue the addition of lead additive to gasoline
and produce diesel that contains less than 500 ppm of sulfur were both achieved within the approved budget of
R531 million. The impact of this has been that Natref’s refining capacity is reduced to 89% of previous capacity.
In addition, new processing units will have to be built to meet the further evolution of South African required
fuel specifications (required for the control of exhaust emissions from road-going vehicles in South Africa) by
the earliest in 2010 and restore the reduced capacity of the refinery, which will require a substantial investment.
background image
48
The overall refinery availability amounted to 92% due to a 3.5% unplanned availability. Of the unplanned
shutdowns the most significant were outages of the crude distillation unit and a power failure. A major
turnaround of the crude distillation unit and catalytic reforming units is planned for the 2007 financial year that
will result in net budgeted availability, excluding unplanned downtime to reduce to 94% as opposed to 96% for
the 2006 financial year.
Petronet, which transfers synthetic fuel components from Secunda to Natref, in Sasolburg, purported to
terminate the agreement to transfer these components with effect from 1 January 2005. After evaluating various
technical options, agreement was reached with Petronet to continue with the transfer of synthetic fuel
components to Natref. Modifications to the pipeline have now been effected in order to ensure that the transfer
of synthetic fuel components can take place whilst allowing Petronet to also use the line for other products.
Sasol Gas
Nature of the operations and its principal activities
Established in 1964, originally as the South African Gas Distribution Corporation Limited (Gascor), Sasol
Gas operates a 2,084 km pipeline network. Sasol Gas is a shareholder in ROMPCO and Spring Lights Gas (Pty)
Limited (Spring Lights Gas). Sasol Gas operates and maintains the 865 km transmission pipeline from the gas
fields in Mozambique to Secunda in South Africa on behalf of ROMPCO under a contractual agreement.
The first pipeline was constructed in 1966 to distribute gas produced from coal to approximately
250 industrial customers in the then Witwatersrand area. We expanded our network to more than 800 kilometres
of distribution pipelines by 1977. During 1996 we concluded an agreement with Petronet to utilize the Lilly
pipeline in order to expand our network to the geographical area of KwaZulu-Natal. Our network has reached
1,350 kilometres of distribution lines after the expansion to the Pretoria geographical area in 1997. Based on the
availability of methane-rich gas in Secunda we developed the industrial markets of Secunda, Witbank,
Middelburg and developed the KwaZulu-Natal market down to the Durban South Area.
As part of the Natural Gas Project for the development, production and transportation of natural gas
from Mozambique, ROMPCO was established as the owner of the Mozambique to Secunda gas transmission
pipeline (MSP).
Initially, ROMPCO was wholly owned by Sasol Gas. Pursuant to the ROMPCO Shareholders’ Agreement
the South African and Mozambican governments nominated shareholders, namely the South African Gas
Development Company (Pty) Limited (iGas) and Companhia de Moçambicana de Gasoduto (CMG) were
afforded a deferred option to purchase in aggregate up to 50% of the shareholding in ROMPCO. With effect
from 1 July 2005, iGas exercised its option and purchased 25% of the shares in ROMPCO. A profit of R205
million was realized on this transaction. CMG is finalizing its financing arrangements for the exercise of its
option to acquire a 25% interest in ROMPCO. CMG submitted a conditional offer to purchase on 26 June 2006,
subject to the approvals of the respective financing institutions and the guarantor. These approvals have been
obtained subsequent to 30 June 2006. We anticipate this transaction will be finalized before the end of second
quarter of 2007. The business risk profile of the particular investment will not be adversely affected as a result of
the exercise of the option. On the contrary, the exercise of the option would positively affect the political risk
profile of the investment in ROMPCO and
the MSP.
As part of Sasol Gas’ commitment to BEE, Sasol Gas has formed a joint venture company and contributed
its business rights to market pipeline gas in the Durban South area to Spring Lights Gas which is now entering
its fourth year of successful commercial operations with increased operating profit on the previous year. A BEE
company, Coal Energy and Power Resources, holds 51% of the shares and Sasol Gas the balance. During the last
quarter of 2006 the shareholders signed an amendment to the existing shareholders agreement to negotiate a new
supply agreement to expand the Spring Lights Gas marketing area to the remainder of KwaZulu-Natal.
background image
49
Since 1996 Sasol Gas has been using Petronet’s Lilly pipeline for the transportation of gas to the KwaZulu-
Natal market. In April 2005 we renewed the gas transportation agreement to continue the use of the pipeline for
a duration of 17 years (until 2022), with an option to extend the agreement for a further three years.
Strategy
Sasol Gas follows a growth strategy which it believes will enable us, as part of the “Sasol Pipeline Gas
Value Chain”, to add value to its stakeholders through the marketing of pipeline gas from various gas sources in
Southern Africa as it becomes available.
The medium term goal, “Zero harm when growing from 96 million gigajoules per annum (MGJ/a) to
141 MGJ/a by June 2008”, has been set and internally communicated to ensure alignment in objectives of the
original Natural Gas Project aimed to supply 120 MGJ/a natural gas for 25 years with a ramp-up period of four
years to June 2008 as well as supply 21 MGJ/a methane-rich gas to the KwaZulu-Natal and Secunda, Witbank
and Middelburg markets.
Although the strategy focuses on volume growth, it takes diligent cognizance of safety, profit margin,
infrastructure capacity, customer focus and stakeholder relationships.
We play an important role in monetizing Sasol’s natural gas reserves in Mozambique and our growth
strategy provides an incentive for further gas exploration by Sasol Petroleum International. Sasol Gas also adds
value to methane-rich gas produced by the Synfuels plant in Secunda through the marketing of the gas.
The majority of the volume growth is expected to come from sales to Sasol Synfuels and the external coal
alternative market. The latter includes the wider definition of all applications of coal (e.g. power generation and
cogeneration) and not only in boilers for steam generation. Growth opportunities in the high value markets,
where the energy alternatives include liquefied petroleum gas, fuel oil and other oil products, especially through
organic growth from existing customers, are regarded as being equally important.
Targeted geographical expansion is essential to provide access to new markets. It is also expected that for
the remainder of the ramp-up to the full 120 MGJ/a natural gas, Sasol Synfuels will utilize additional gas. This
increase in the planned gas consumption during the ramp-up period will have a positive impact not only on Sasol
Gas and Sasol Synfuels, but also on the overall economics of the Natural Gas Project.
Due to the nature of the coal alternative markets, it takes longer to penetrate such markets. Signing new
customer contracts encompasses the negotiation of long term commitments, gas supply contracts and capital
allocations. Large projects, such as co-generation, require significant time to be developed as it is integrated into
the customer’s production facility through the supply of electricity and steam utilities.
The long-term strategy is to increase the natural gas market to 240 MGJ/a over the next 15 years. Should
further exploration activities in Mozambique by SPI be successful the second phase expansion of the supply
infrastructure would enable a total of 240 MGJ/a to supplied to markets in South Africa and Mozambique
commencing 2012.
Principal markets
We market methane-rich gas, produced by Sasol Synfuels and natural gas produced from the gas fields in
Mozambique. In the energy market, our marketed gas competes with crude oil-derived products, electricity and
coal in various industries, such as ceramics, glass, metal, manufacturing, chemical, food, paper and pulp and a
number of other sectors.
The pipeline gas segment in the energy industry in South Africa is still in its infancy. It is expected that the
market will grow further as a result of the introduction of natural gas from Mozambique in 2004. The current
supply of 106 MGJ/a of pipeline gas has increased from 53 MGJ/a in 2004. Compared to developed countries,
South Africa is a small consumer of natural gas as a percentage of its total energy requirements. This presents us
with opportunities to increase sales of environmentally preferred natural gas. Environmental and technological
background image
50
trends together with new environmental legislation are expected to entice customers to convert to gas as a
substitute for environmentally less desirable energy sources. During 2006 natural gas volumes sold reached
88 MGJ and methane-rich gas volumes 18 MGJ.
Sasol Gas supplies 49 MGJ/a of gas to 541 industrial and commercial customers in the provinces of
Mpumalanga, Gauteng, KwaZulu-Natal, North-West and the Free State. Besides marketing pipeline gas to these
customers, natural gas is also supplied as feedstock to Sasol’s facilities in Sasolburg and Sasol Synfuels in
Secunda.
Raw materials
The natural gas purchased in Mozambique is transported by ROMPCO. Methane-rich gas is purchased
from the Sasol Synfuels facility in Secunda pursuant to a gas supply agreement. Sasol Synfuels has been
supplying methane-rich gas to us since 1994. We have recently renewed the gas supply agreement which is
effective as from 1 July 2006. Methane-rich gas is transported through Petronet’s Lilly pipeline and distributed
via our own pipelines to customers in the Kwazulu-Natal area as well as via our own pipelines to customers in
the Secunda, Witbank and Middelburg area.
Property, plants and equipment
The Mozambique to Secunda Pipeline The 865 km Mozambique to South Africa natural gas pipeline starts
from the natural gas central processing facility at Temane in Mozambique and ends at the pressure protection
station in Secunda in South Africa. The instantaneous peak capacity of the pipeline is 136 MGJ/a with an
average of 120 MGJ/a.
Inland Distribution Network The Gauteng network is fed from Secunda at a pressure of 4,500 kPa.
The network is operated at a pressure of 3,350 kPa and lower and the capacity of the distribution network
is 80 MGJ/a. These pipelines supply the various low pressure distribution areas as well as some customers
directly. Where these lines enter the various distribution areas, a pressure reduction station reduces the pressure
to 625 kPa.
Secunda, Witbank and Middelburg Distribution Network Sasol Synfuels produce and supply methane-rich
gas to Sasol Gas. This is fed into the Secunda-Witbank-Middelburg pipeline to feed the customers and users in
Mpumalanga province. The normal maximum operating pressure for this pipeline is 3,000 kPa. The capacity of
this distribution network is 10 MGJ/a.
KwaZulu-Natal Network The same methane-rich gas as supplied to Witbank and Middelburg is compressed
and fed into the Petronet transmission pipeline to feed our customers and users in the KwaZulu-Natal Province.
The operating pressure of the pipeline is 5,300 kPa. The maximum operating pressure of the pipeline
is 5,900 kPa and the capacity of the network is 20MGJ/a.
Sasol Synfuels International
Nature of operations and principal activities
Based in Johannesburg and formed in 1997, SSI, our technology marketing and support subsidiary, is
responsible for developing and implementing international business ventures based on our Fischer-Tropsch
synthesis technology. SSI initiates and develops new ventures from project conception through to venture
implementation. We expect that, in time, it will participate fully in supporting those ventures and the marketing
of their products after commercial start-up.
Working in partnership with Sasol Technology, SSI continues to explore for new opportunities to
commercialize Sasol’s competitive Fischer-Tropsch synthesis technology for the beneficiation of coal and other
hydrocarbon resources, including biomass.
background image
51
The Sasol SPD™ process
Exploiting our long and extensive experience in the commercial application of Fischer-Tropsch technology,
we have successfully developed a Fischer-Tropsch-based SPD™ process for converting natural gas into high-
quality, environment-friendly diesel and other liquid hydrocarbons. The GTL process consists of three main
steps, each of which is commercially proven. These include:
• the Haldor Topsøe reforming technology, which converts natural gas and oxygen into syngas;
• our Slurry Phase Fischer-Tropsch reactor, which converts syngas into hydrocarbons; and
• where possible, the Chevron Isocracking™ technology, which converts hydrocarbons into particular
products, mainly diesel, naphtha and LPG.
Currently we believe, based on our knowledge of the industry and publicly available information, that on a
worldwide basis we have extensive experience in the application of Fischer-Tropsch technology on a commercial
scale, with Shell being the only other company with significant experience in this field. Given the increasing
discovery of extensive natural gas reserves, especially in remote regions, our Sasol SPD™ process can be
applied with significant commercial and efficiency advantages in various parts of the world. The transportation
of fuels in liquid form is easier and cheaper than the transportation of gas. As a consequence, our technology has
evoked interest from countries and companies with extensive natural gas reserves as an appealing alternative for
exploiting these reserves. In recent years, we have been actively promoting our Sasol SPD™ technology and are
examining several projects with a view to commencing commercial application at new GTL plants.
The Sasol SPD™ process converts natural gas into diesel and other liquid hydrocarbons which are
generally more environment-friendly and of higher quality and performance compared to the equivalent crude
oil-derived products. In view of product specifications gradually becoming more stringent, especially with
respect to emissions, we believe that the option of environment-friendly GTL fuels will become more appealing
in time. However, the construction of GTL facilities and the production of GTL fuels require significant capital
investments, at least during their initial stages, as is usually the case with the application of new technologies.
GTL fuels can be used with optimized engines for best performance, although they can also be utilized with
current compression ignition engines. We also expect that GTL diesel may be suitable as a cost-competitive
blend stock for conventional diesels, thereby enabling diesel producers to improve the quality of their existing
diesel formulations without investing substantially in sophisticated new plants and infrastructure. We anticipate
the combined factors of GTL diesel’s superior characteristics and the prevailing market conditions in developed
economies will enable GTL products to initially command premium prices for either niche applications or as a
blend stock for upgrading off-specification products.
The Sasol Chevron joint venture
In June 1999, SSI and Chevron Corporation, agreed to create a global alliance Sasol Chevron (SC) in order
to identify and implement ventures based on the Sasol SPD™ process as part of our strategy to exploit our
Fischer-Tropsch technology and to develop and commercialize the GTL process. We believe that there are
considerable synergies between the two companies, which will enable the alliance to accelerate both the
implementation of GTL ventures and the development of markets for the new products, to be produced from the
ventures that will be established. We finalized and implemented our global joint venture in October 2000.
SC and SSI continue to be involved in exploratory discussions and feasibility studies with some of the world’s
gas-rich countries, including Qatar, Nigeria, Algeria and Australia, with the view to develop GTL plants over the
next decade.
background image
52
Increasing cost challenges
Our GTL ventures have not been spared the general challenges experienced by the industry caused by the
sharp increase in commodity prices and hence project cost. Because of the fortunate timing of the project award
and planning of orders for the major equipment our GTL project in Qatar has experienced only a limited impact
on cost. The GTL project in Nigeria has been more exposed, but we are working closely with all stakeholders to
deal with these challenges. We believe that these actions will be sufficient to address all known challenges. Both
projects are however showing robust economics, partly as a result of the positive impact of higher crude oil
prices.
Working closely with Sasol Technology’s Fischer-Tropsch process innovation teams at Sasolburg and
Johannesburg, SSI and SC are involved in an ongoing program aimed at further improving competitiveness by
lowering the capital and operating costs of future GTL plants.
We are confident that notwithstanding the cost challenges faced by the industry as a whole our technology
package still supports a very competitive GTL value proposition.
The Qatari GTL project
We have formed a joint venture with Qatar Petroleum (QP), Qatar’s state-owned energy company, the Oryx
GTL venture, in respect of the joint development of a 34,000 bpd GTL plant at Ras Laffan Industrial City in
Qatar. We hold 49% in this venture, with QP holding 51%. Since the project commenced in March 2003 a
dedicated Sasol management team has been established in Qatar.
In November 2002 we jointly appointed 15 banks as lead arrangers to provide the US$700 million non-
recourse debt financing for the venture. QP and SSI awarded the lump-sum, turnkey engineering, procurement
and construction (EPC) contract to the multinational, French-based engineering company, Technip, in December
2002. The EPC contract became effective in March 2003 after finalization of the financing agreements. The EPC
contract is being executed from Technip’s operations in Rome. Sasol Technology design engineers and project
managers are managing the technology, engineering and project management portfolios for SSI and QP.
Site work for the construction of the Oryx GTL plant began in September 2003. Civil engineering work,
including pipe laying, was completed by mid-2005. Most major pieces of long-lead-order equipment, including
the two low-temperature Fischer-Tropsch Slurry Phase reactors fabricated in Japan, Haldor Topsøe autothermal
reformers, a Chevron Isocracking™ unit and the compressors arrived at Ras Laffan in phases during 2005. The
inauguration of the plant took place on 6 June 2006. The commissioning of the plant has been delayed to the
second quarter of 2007 following damage during early commissioning to a supporting utility system. Most of the
Oryx GTL diesel will be marketed to customers in Western Europe, where much of this ultra-low-sulfur diesel
will most likely be used as blend stock for higher-sulfur diesel derived from conventional oil refining.
In March 2004, SC and QP announced plans to expand the Oryx GTL plant in order to increase its capacity
to about 100,000 bpd. In support of these plans, SC and QP signed a memorandum of understanding for the
expansion project that would add a further capacity of about 66,000 bpd. This expansion is still under review
and will partly depend on the timely availability of natural gas.
Escravos GTL (EGTL)
SC is participating in the development of a 34,000 bpd GTL plant, at Escravos in the Niger Delta region of
southern Nigeria. EGTL is a joint venture between the Nigerian National Petroleum Corporation and Chevron
Nigeria Limited, two companies with established petroleum production interests at Escravos. In April 2005 the
EPC contract for this project was awarded to Team JKS. Site preparation was completed and plant construction
commenced earlier this year and start-up of the EGTL facility is expected in the 2009 calendar year.
background image
53
Early-stage investigation of potential GTL projects
QP and SC have agreed to evaluate the opportunity of developing an integrated GTL project, at Ras Laffan,
Qatar, with a capacity of about 130,000 bpd. SC has completed a feasibility study that will be presented to QP
for their support.
SC and Chevron Australia completed a joint pre-feasibility study for a GTL facility in Australia. SC is to
engage with Chevron Australia to agree on progressing with a feasibility study.
SC has continued with discussions regarding the upstream and downstream aspects of a potential Algerian
GTL project.
Coal beneficiation study for China
SSI and its Chinese partners are reviewing two coal-rich sites: one in Shaanxi Province at a site about
650 kilometers west of Beijing; and another in Ningxia Hui Autonomous Region at a site about 1,000 kilometers
west of Beijing. We have already established at Beijing a CTL project office with an initial complement of
10 specialists.
Working in partnership with the National Development Reform Commission of China and two potential
joint-venture partners, Shenhua Corporation and Shenhua Ningxia Coal Limited, SSI recently completed the pre-
feasibility studies for these CTL plants. The outcome of these pre-feasibility studies conducted during 2005 and
2006 was favorable.
Agreements were signed at Cape Town in June 2006 for the potential development of two CTL plants in
China. In terms of these agreements, SSI and the Chinese partners will complete feasibility studies for the
envisaged development of two CTL plants in China during 2008.
Our comprehensive feasibility studies will be based on CTL plants each with an 80,000 bpd capacity.
Should the investment decision be made to proceed with these projects, the plants could be brought into
operation as early as 2012/2013. The estimated capital cost for each plant is currently approximately
US$ 5 billion to US$ 6 billion.
Early-stage investigation of potential CTL projects
SSI has initiated engagement with key stakeholders to evaluate the potential for a CTL project in India.
This has resulted in the decision to open a representative office, likely in Mumbai, with an initial complement of
six specialists.
Sasol in association with two large US based energy companies has completed the pre-feasibility studies
undertaken in response to the passing of the US Energy Policy Act of 2005, which aims to combat growing
energy problems. A decision to progress to a full feasibility study is expected during the first half of 2007
calendar year.
Catalyst facility
To support our plans to globally develop and exploit our GTL technology, Sasol Technology developed a
cobalt catalyst for application in the Sasol SPD™ reactor to be utilized in future GTL plants. We entered in to a
co-investment agreement with BASF Catalyst during 2002 to manufacture proprietary advanced cobalt catalyst.
The first cobalt catalyst production facility with a current production capacity of 675 Mt per annum was
commissioned at De Meern in the Netherlands and has since been producing and stockpiling catalyst for our
Nigerian and Qatari GTL plants. We are currently undertaking engineering studies for the second catalyst plant
in the Netherlands.
background image
54
Sasol Polymers
Our polymer-related activities are managed in two separate entities, Sasol Polymers a division of Sasol
Chemical Industries Limited and Sasol Polymers International Investments (Pty) Limited (Sasol Polymers
International Investments) a subsidiary of the Sasol Investment Company. Sasol Polymers International
Investments manages our offshore operations.
Nature of the operations and its principal activities
In Sasol Polymers we produce ethylene by separating and purifying an ethylene-rich mixture supplied by
Sasol Synfuels and by cracking of ethane. Propylene is produced by depropanizing a propylene-containing
Fischer-Tropsch stream supplied from the Sasol process. The ethylene is polymerized into low density
polyethylene (LDPE), linear low density polyethylene (LLDPE) and the propylene into polypropylene. We
operate a fully integrated chlor-alkali/polyvinylchloride chain. Ethylene and chlorine, which arises from on-site
chlor-alkali plants, are reacted to produce vinyl chloride monomer and then polymerized to polyvinylchloride
(PVC). Caustic soda, hydrochloric acid, soda hypochlorite and calcium chloride are other chlor-alkali products
which are produced.
We are a major South African plastics and chemicals operation with a vision of being a world-class
producer and supplier of quality monomers, polymers, chlor-alkali chemicals and mining reagents.
Our South African operation was formed from the Polifin group of companies, which was previously a
joint venture between Sasol and AECI. In 2000 Sasol purchased AECI’s shareholding. Polifin was divisionalized
in Sasol Chemical Industries Limited.
In South Africa Sasol Polymers has five operating businesses:
• Monomers;
• Polypropylene;
• Polyethylene;
• Vinyls; and
• Chemicals.
We have a 60% interest in Peroxide Chemicals (Pty) Limited, a joint venture with Degussa Africa (Pty)
Limited, a manufacturer and supplier of organic peroxide chemicals and a 50% interest in DPI Holdings (Pty)
Limited, a joint venture with Group Five Limited, a manufacturer of PVC pipes and components for the building
industry. Our board approved the disposal of interest in DPI Holdings (Pty) Limited to Dawn Limited for a
consideration of R51 million. The transaction was approved by the South African Competition Tribunal and
became effective during October 2006.
In Sasol Polymers International Investments we manage the following international investments:
• Our 12% shareholding in Optimal Olefins (Malaysia) Sdn. Bhd. (with Petronas of Malaysia and The
Dow Chemical Company of the USA), a manufacturer of ethylene and propylene. Optimal Olefins
operates a 600 kilotons per annum (ktpa) ethane/propane cracker.
• Our 40% shareholding in Petlin (Malaysia) Sdn. Bhd. (with Petronas of Malaysia), a manufacturer and
supplier of LDPE. A 255 ktpa tubular plant is operated by Petlin (Malaysia).
• Our 50% shareholding in Arya Sasol Polymer Company in Iran with Pars Petrochemical Company, a
subsidiary of the National Petrochemical Company, a manufacturer and supplier of ethylene (1,000 ktpa),
LDPE (300 ktpa), and medium and high density polyethylene (300 ktpa). The facilities are under
construction and are expected to be ready for operation between April and June 2007.
• A 40% share in Wesco China Limited (with Rhine Park Holdings), a polymer distributor in China and
Taiwan.
background image
55
Strategy
To direct resources and activity within Sasol Polymers and Sasol Polymers International Investments, we
have two strategic ambitions:
• to lead the sub-Saharan African market with the existing product portfolio; and
• to expand through alliances and thereby to become a bi-regional business operating across the Indian
Ocean Rim.
In addition to the investment in the Petlin and Optimal Olefins plants in Malaysia and the recent
enlargement of the PVC/vinyl chloride monomer plants to 200 ktpa, two major expansions in pursuit of these
strategic ambitions have been undertaken and are nearing completion:
• in South Africa, Project Turbo is being implemented to upgrade gasoline blend components by Sasol
Synfuels at Secunda. This project will also result in increased ethylene and propylene feedstock and
hence expansions of production and purification plants have taken place in Secunda and Sasolburg.
Consumption of the additional ethylene and propylene will be in-house by means of a new tubular
reactor LDPE plant of 220 ktpa using ExxonMobil technology at Sasolburg; enlargement of the existing
Univation linear low density polyethylene (LLDPE) plant to 150 ktpa; and a new 300 ktpa Innovene
polypropylene plant at Secunda. Except for the polypropylene plant which is still under construction, all
other plants have achieved successful start-up and will consume monomers from Sasol Synfuels’ new
selective catalytic cracker at Secunda; and
• in Iran a complex comprising 1,000 ktpa of ethylene in an ethane-fed cracker, 300 ktpa of LDPE using
Sabtec technology, and 300 ktpa medium density polyethylene using Basell’s Lupotech G technology are
under construction.
Our South African plants will be able to continue to supply the growing needs of the South African
polymer markets for the immediate future in terms of PVC and LLDPE and for the medium to long term in
terms of LDPE and polypropylene.
Substantial investments in plant and equipment, technologies and skills have been made to achieve a
leading domestic market position in all core businesses.
Principal markets
Over the past three years between 83% and 86% of Sasol Polymers’ revenue has been earned from sales
into the South African market.
We are the sole polymer producer of PVC, LDPE and LLDPE in South Africa and hold the leading share of
these markets. Our main competition is in the form of polymer imports from Asian and Middle Eastern
producers. We supply 160 ktpa of ethylene and 100 ktpa of propylene under contract to The Dow Chemical
Company’s plastics operation in Sasolburg, South Africa, by pipeline for the production of HDPE and
polypropylene, respectively. We compete directly with The Dow Chemical Company in the polypropylene
market, where we hold 50% of the South African market. Caustic soda is sold into the pulp and paper, minerals
beneficiation and soap and detergent industries in South Africa. We hold a 40% share of the caustic soda market.
Another merchant supplier, NCP Chlorchem, has a 24% market share, the Mondi Paper Company produces
caustic soda for its own use (6% of demand) and a 30% shortfall exists in the South African market which is
serviced through imports.
We are the sole local producer of liquid cyanide which is sold to local gold producers. The major user of
calcium cyanide for the reworking of goldmine sand deposits ceased operation in March 2005, and the cyanide
assets were reconfigured to produce only sodium cyanide. Declining gold production in South Africa is the main
cause for reduction in sales of sodium cyanide in the past year.
background image
56
Currently, we export polymers from our South African operations, 29% is sold into West Africa (Nigeria,
Angola, Ivory Coast, Senegal and the Democratic Republic of Congo); 23% is sold into China; 21% into East
Africa (Tanzania, Uganda and Kenya); 19% into Southern Africa (Zimbabwe, Zambia, Malawi, Mozambique
and Swaziland) and 8% into Western Europe with Spain being the largest market. Product from the Petlin plant
in Malaysia is sold into Malaysia, India, China, Australia, and New Zealand.
Seasonality
Global polymer demand does not show any marked annual seasonality although higher demand tends to
arise in the third quarter as converters stock up for the December holiday period.
The global polymer industry is, however, cyclical in terms of margins given the large capital investment
and the size of plants. The duration of a typical cycle is seven years and margins can vary from low trough
conditions to extreme peak conditions. During tight supply/demand periods, which usually coincide with
increases in economic activity as measured by gross domestic product, margins may increase disproportionately
with high peaks. In time margins reduce as investment is stimulated or as demand dissipates. It may happen that
too much capacity is installed which results in collapsed margins.
Raw materials
Feedstock for ethylene and propylene in South Africa is purchased from Sasol Synfuels at market-priced
fuel-alternative values. The mechanism for determining the fuel-alternative value is based on the Basic Fuel
Price. With the recent volatility in the oil price and refinery margins, our feedstock costs have put severe strain
on margins particularly as Far East polymer prices, though high in dollar terms according to historical norms,
have not fully responded to the increase in the oil-based costs of production. Salt used in our production process
is imported from Namibia and Botswana at US-dollar denominated prices.
Feedstock for Sasol Polymers International Investments’ joint venture cracker in Malaysia (Optimal
Olefins) is purchased from Petronas at a set price, unrelated to oil, that escalates annually in line with US
inflation rates. Petlin (Malaysia) buys its ethylene feedstock from Optimal Olefins at market related prices. Arya
Sasol (Sasol Polymers International Investments joint venture in Iran) will buy its feedstock, ethane, from the
Pars Petrochemical Company at a set price, unrelated to the oil price. In times of high oil prices this provides a
competitive advantage to the operations in Malaysia and Iran, compared to crude oil based producers.
Marketing channels
Our sales in South Africa are made directly to customers using our own marketing and sales staff. Sales
offices are located in Johannesburg, Durban and Cape Town. Account Managers are responsible for management
of our relationship with customers. Sales administration staff manage order processing, logistics and payment
collections.
For exports, an international trading business was established to sell directly into Southern Africa and
through distributors and agents into East and West Africa, the Far East, Europe and South America. No
infrastructure currently exists in the export markets with all administration and logistics arranged from the
Johannesburg office.
background image
57
Property, plants and equipment
The following table summarizes the installed production capacities of each of our main product areas.
Production capacity
Product
South Africa
Malaysia
1
(ktpa)
(ktpa)
Ethylene
456
72
Propylene
520
11
LDPE (Poly 1)
100
LDPE
220
102
LLDPE
150
Polypropylene
220
Ethylene dichloride
160
Vinyl chloride
205
PVC
200
Chlorine
145
Caustic soda
160
Cyanide
40
Hydrochloric acid
90
Calcium chloride
10
1.
Includes our attributable share of the production capacity of equity accounted investees.
The 100 ktpa autoclave LDPE plant at Sasolburg (Poly 1) will be closed down as part of Project Turbo in
which a new 220 ktpa tubular LDPE plant has been built.
Sasol Solvents
Nature of the operations and its principal activities
We manufacture and globally market a range of primarily oxygenated solvents to various industries. These
are used in the manufacture of paints, inks, coatings, adhesives, pharmaceuticals, cosmetics, fragrances and other
applications. In addition to their solvent applications, a number of these products serve as intermediates for the
production of downstream chemicals. We believe that the breadth of our product portfolio is a competitive
advantage, compared to more limited portfolios of some of our competitors in the global solvents market.
Strategy
The Solvents strategy (Optimize – Perform – Grow) supports the overall group strategy.
The comonomers business unit which formed part of the Sasol Olefins & Surfactants business was
incorporated into Sasol Solvents for reporting purposes as a result of the proposed divestiture of Sasol Olefins &
Surfactants. The alpha-olefin comonomers, 1-pentene, 1-hexene and 1-octene, are manufactured at facilities in
Secunda as an integral part of Sasol’s synfuels process. The proposed divestiture of the Sasol Olefins &
Surfactants business has also led to certain organizational changes. These changes have not had a significant
effect on the strategy of our solvents business.
Sasol Dia Acrylates is a joint venture with Mitsubishi Chemical Corporation of Japan. The integrated, four-
plant facility produces acrylic acid used captively for the production of glacial acrylic acid, butyl acrylate and
ethyl acrylate from feedstock produced by the group. This facility underscores our commitment to expand our
chemical portfolio by adding value to chemical feedstock we produce.
Sasol Huntsman is a joint venture with Huntsman Corporation of the United States. This joint venture
operates a 55 ktpa maleic anhydride production facility in Moers, Germany.
background image
58
Principal markets
In 2006, we sold approximately 1.58 Mt of products worldwide. We manage our global business from
offices in Johannesburg, South Africa and Hamburg, Germany. We operate thirteen regional sales offices and
seven storage hubs in South Africa, the Asia-Pacific region, the Middle East, the United States and Europe.
Our competition varies depending on the products and includes a number of major international oil and
chemical companies. In the market for ketones, our main competitors are ExxonMobil, Shell Chemicals and
Ineos. In the alcohols market, our main competitors are BP Chemicals, Shell Chemicals, The Dow Chemical
Company, Celanese and Equistar. In the market for acetates and acids, our main competitors include Celanese,
Eastman and BP Chemicals.
The comonomers produced by our operations in South Africa are used by third parties in the manufacture
of polyethylene plastics, which end up in applications such as shrink-wrap film, woven plastic bags and refuse
bags. The main competitors include Ineos, Shell and Chevron.
Marketing channels
We utilize a number of distributors worldwide as an extension of our sales and marketing force to enable
increased market penetration for end-use customers.
Property, plants and equipment
Production capacity
Product
Facilities location
Total
1
(ktpa)
Ketones
333
Acetone
South Africa
175
MEK
South Africa and Germany
130
MiBK
South Africa
28
Glycol ethers
80
Butyl glycol ether
Germany
80
Acetates
60
n-Propyl acetate
South Africa
10
Ethyl acetate
South Africa
50
Mixed alcohols
South Africa
181
Pure alcohols
860
Methanol (C
1
)
South Africa
140
Ethanol (C
2
)
South Africa and Germany
285
n-Propanol (C
3
)
South Africa
45
Isopropanol (C
3
)
Germany
225
n-Butanol (C
3
)
South Africa
150
iso-Butanol
South Africa
15
Acrylates
94
Ethyl acrylate
South Africa
26
Butyl acrylate
South Africa
60
Glacial acrylic acid
South Africa
8
Comonomers
275
C5-C8 alpha olefins
South Africa
275
Other
South Africa and Germany
28
1.
Consolidated nameplate capacities excluding internal consumption, including our attributable share of the production
capacity of equity accounted investees.
background image
59
Approximately 75% of our production capacity is at sites in South Africa and 25% in Germany. The South
African production facilities are located at Secunda, Germiston and in Sasolburg. The German production
facilities are located at Herne, Marl and Moers in the Ruhr area.
Completion of an additional Methyl Iso-butyl Ketone (MiBK) train using improved Sasol technology which
will increase capacity by 30 ktpa is planned for the middle of 2008. The estimated expenditure amounts to
R250 million. A number of small de-bottlenecking projects will also be implemented.
A significant portion of our South African product is derived as a co-product of the synfuels process at
Secunda and certain products are synthesized from chemical feedstock. Ethanol, isopropanol and methyl ethyl
ketone (MEK) are synthesized from ethylene, propylene and butene, respectively, at the German plants. In South
Africa, butanol and acrylic acid are synthesized from propylene.
Certain of our products result from the downstream conversion of primary chemicals to higher value-added
derivatives, including:
• MiBK from acetone;
• ethyl acetate from ethanol;
• propyl acetate from propanol and acetic acid;
• ethyl and butyl acrylates from acrylic acid and the corresponding alcohols; and
• ethylene glycol butyl ethers from butanol and ethylene oxide.
We manufacture comonomers, 1-pentene, 1-hexene and 1-octene, at Secunda, South Africa. Market demand
for these products has been strong and, combined with the recent shutdown by a major competitor of a
US production plant, the supply/demand balance is healthy and is expected to remain so for the foreseeable
future.
Other activities
Sasol Wax
Nature of the operations and its principal activities
We produce and market wax and wax-related products to commodity and specialty wax markets globally.
We manufacture crude oil-derived paraffin waxes, as well as synthetic waxes produced on the basis of our
Fischer-Tropsch technology. Sasol Wax has its head office in Hamburg and employs 970 people globally.
The overall volume of products marketed by the business amounts to 822 ktpa, of which 27% are products
derived from the Fischer-Tropsch process. The main product portfolio includes paraffin waxes, both fully refined
and semi-refined, produced and marketed in various grades, as well as Fischer-Tropsch-based synthetic waxes
which include the Fischer-Tropsch-derived hard wax, the Fischer-Tropsch-derived medium wax and liquid
paraffins in the carbon range C
5
through C
20
. Various specialty blends of waxes are also produced and marketed.
We continue to develop niche markets for higher-value specialty waxes, such as those used by the food,
cosmetics, pharmaceutical, construction-board and adhesive industries. Demand for our liquid paraffins for
environmentally preferred drilling fluids has been growing in the Gulf of Mexico following the introduction of
more stringent US Environmental Protection Agency specifications for drilling fluids and other oilfield
chemicals. We produce, as a result, about 106 ktpa of wax emulsion at facilities in Germany, Austria and the
United Kingdom.
Strategy
Our strategy is to beneficiate synthesis gas (South Africa) and slack wax (Hamburg) to create value added
products marketed globally. We are a unique and important player in the wax market, having a product portfolio
sought after by customers in more than 100 countries.
background image
60
Principal markets
The division markets its products globally, but its main markets are in Europe and the United States. In
both Europe and the United States, approximately 50% of paraffin waxes are sold to candle manufacturing
companies and the balance is sold to numerous industries, including rubber and tire, cosmetics, adhesives and
surface coatings industries and for use as a drilling fluid. Fischer-Tropsch-derived hard wax production is sold
predominantly in the United States and Europe, and also in Asia. Fischer-Tropsch-derived medium waxes and
paraffin waxes produced in South Africa are predominantly sold to the candle industry in South Africa.
The overall world market for waxes is estimated at about 3,300 ktpa and our main competitors in the
market are the Chinese producers China Oil and Sinopec. In specialty wax markets our main competitor
is H and R Wax Company.
Marketing Channels
Marketing is mostly done by own resources in all geographical areas where we operate. Primary marketing
areas are the United States and Europe, but we also market our products in Latin and South America, Southern
Africa, the Middle East, North Africa, Asia, and Australia. Distributors and agents are used but operate under
direct guidance from our marketing team.
Property, plants and equipment
The main production assets are located in Hamburg, Germany; Sasolburg and Durban, South Africa and
Richmond, California, United States.
Our plant in Hamburg has a production and blending capacity for paraffin wax of 300 ktpa. It purchases
slack wax feedstock from numerous lube-oil-producing refineries predominantly in Western Europe and from
Eastern Europe and Africa. We initially de-oil slack waxes to fully or semi-refined quality and fully hydrogenate
all final products. Subsequently, various product blends are produced. Products are sold either in liquid bulk or
in solidified form. This operation has a trading activity of about 100 ktpa.
Our plant in Sasolburg operates Fischer-Tropsch-based technology for the production of synthetic waxes. It
used coal-derived syngas as feedstock, which was converted to Mozambican natural gas as from July 2004. We
own and operate a wax plant integrated into the Engen refinery in Durban, South Africa. This plant produces
wax blends predominantly for the South African and other African candle industries. The production capacity of
the South African wax plants amounts to 240 ktpa of Fischer-Tropsch-derived products, of which 70 ktpa are
hard waxes, 80 ktpa medium waxes, 30 ktpa waxy oils and 60 ktpa liquid paraffins.
We also operate a major candle factory located in Johannesburg with a capacity of up to 30 ktpa, which
represents approximately 40% of the South African candle industry market.
In the United States, our wholly owned subsidiary Sasol Wax Americas, Inc. (formerly Moore and Munger
Inc.), based in Shelton, Connecticut, is engaged predominantly in trading activities, both in Fischer-Tropsch-
derived and paraffin waxes. Sasol Wax Americas, Inc. holds a 50% share in the Lux International Corporation
wax business based in Richmond, California. The total product manufactured and traded by Sasol Wax
Americas, Inc. in the United States amounts to approximately 100 ktpa.
Production capacity
Product
Facilities location
Total
(ktpa)
Paraffin wax
Germany
300
FT Hard wax
South Africa
70
FT Medium wax
South Africa
80
Waxy oils
South Africa
30
Liquid Paraffins
South Africa
60
Semi-refined paraffin wax
South Africa
30
Specialty wax blends
Germany, United States
80
Wax emulsion
Europe
100
background image
61
Sasol Nitro
Nature of the operations and its principal activities
We manufacture and market ammonia, fertilizers, commercial explosives and related products. The division
also markets ammonia, sulfur and specialty gases produced by other entities in the group. All our production
activities are located in South Africa. We focus on supplying the Southern African market with selective exports
of fertilizers, ammonium nitrate-based explosives and explosives accessories.
Our product portfolio includes:
• ammonia;
• nitric acid;
• ammonium nitrate solution;
• sulfuric acid;
• hydrogen;
• phosphoric acid and phosphate derivatives;
• various grades of fertilizer;
• explosives-grade ammonium nitrate;
• various packaged explosives; and
• explosive accessories – non-electronic initiation systems.
Strategy
Having completed a period of consolidation and exiting from non-core businesses in the past 3 years, the
business is now well positioned to achieve growth. In the short-term (1-3 years) growth will be achieved mainly
through expansion of our current business. Over the longer-term (3-5 years) growth will be achieved through
development of new business. Long-term plans include inter alia, a biodiesel plant and an ammonium sulfate
plant.
Principal markets
Approximately half of our total ammonia production is used to produce ammonium nitrate-based fertilizers
and explosives. The remaining production is sold mainly to other South African explosives and fertilizer
manufacturers with small quantities made available for industrial usage in chemical manufacture and mineral
beneficiation.
The Sasol group is the only producer of ammonia in South Africa. Sasol Nitro produces half of this
ammonia and is the sole supplier to the market. Approximately 4% of South Africa’s ammonia requirement in
2006 was imported. Omnia and AECI are our two major customers for ammonia and compete in the downstream
fertilizer and explosives markets. We have entered into market-related contractual arrangements with these
customers.
Marketing channels
The combined impact of a drastic increase in the South African maize surplus at the end of the previous
planting season and sustained low prices for maize had a significant negative impact on maize plantings for the
2005/2006 season and thereby also the demand for fertilizers in Southern Africa.
background image
62
The South African explosives market remains very competitive and prices are amongst the lowest
worldwide. Explosive products are supplied mainly to the Southern African market, with exports of explosives
grade ammonium nitrate mainly to Australia. Some quantities of cartridged explosives are also exported to other
African countries.
The market for explosive accessories in South Africa is significant with large quantities of detonators
required for extensive mining activities. Demand for products from Sasol Dyno Nobel (Pty) Limited, a joint
venture, reached record levels, mainly as a result of growth in niche markets. This business is poised for
further growth. The acquisition of the remaining 40% of Sasol Dyno Nobel (Pty) Limited for a consideration
of US$ 31 million (approximately R213 million) was approved on 30 August 2006.
Property, plants and equipment
Our 330 ktpa ammonia plant in Sasolburg uses natural gas as feedstock. The plant also produces hydrogen
that is sold to the oil and metal refining industries in South Africa. We also derive 330 ktpa of ammonia as a by-
product from coal gasification in Secunda.
Sasol Nitro operates two nitric acid plants. The smaller 315 ktpa unit in Sasolburg is linked to a
downstream ammonium nitrate plant. The ammonium nitrate produced in Sasolburg is used mainly for the
production of explosive grade low-density ammonium nitrate. The 470 ktpa nitric acid plant in Secunda supplies
a downstream ammonium nitrate plant linked to a 500 ktpa granulation facility that produces limestone
ammonium nitrate and various other grades containing nitrogen, phosphorus and potassium. Ammonium nitrate
for industrial use is sourced from both sites.
In Phalaborwa, adjacent to the phosphate rock mine of Foskor Limited (Foskor), Sasol Nitro operates a
325 ktpa phosphoric acid plant, of which 100 ktpa capacity has been mothballed since 2004 due to adverse
market conditions. Sasol has been toll manufacturing phosphoric acid for Foskor since September 2005 and a
longer term tolling deal is awaiting approval from the South African Competition Commission.
Sasol Nitro also manufactures bulk explosives at various mining sites and cartridged explosives in Secunda
and Ekandustria.
Sasol has exited the manufacture of electronic initiation systems. A sale of the electronic initiation systems
plant in Cape Town to Orica Limited was signed in June 2006.
Production capacity
Product
Facilities location
Total
(ktpa)
Ammonia
1
South Africa
660
Sulfur
South Africa
205
Granular and liquid fertilizers
South Africa
700
Fertilizers bulk blending
South Africa
300
Phosphates
2
South Africa
375
Explosives
South Africa
300
1.
Includes volumes produced by Sasol Synfuels.
2.
Includes 100 ktpa mothballed capacity at Phalaborwa.
background image
63
Sasol Infrachem
Nature of the operations and its principal activities
Sasol Infrachem is the sole supplier of utilities and services to various Sasol businesses units (Sasol
Polymers, Sasol Solvents, Sasol Wax and Sasol Nitro) as well as external businesses in Sasolburg. We operate
and maintain the autothermal reformer (ATR) which reforms natural gas into synthesis gas on behalf of Sasol
Gas. Sasol Infrachem is also responsible for managing the group’s corporate affairs related to the Sasolburg and
Free State regions.
From July 2005 we converted from coal gasification to natural gas reforming at Sasolburg. The
environmental benefits of converting from coal to natural gas are being realized through a substantial reduction
in emissions to air (including hydrogen sulfide, carbon dioxide, NOx and volatile organic compounds).
Strategy
Our vision is to see all businesses prosper in Sasolburg. Our competent and committed people provide a
pace-setter platform for gas, utilities and site support services.
Our strategic ambition is to ensure a competitive advantage through reliable supply, cost competitiveness,
specialized knowledge and expertise in services, infrastructure and utilities.
Property, plants and equipment
Production capacity
Product
Facilities location
Total
Steam
South Africa
2 000 tph
Electricity
South Africa
176 MWh
Water
South Africa
100 Ml/day
Merisol
Nature of the operations and its principal activities
Merisol is a joint venture company formed in 1997 by the merger of Sasol Phenolics with the phenolics
activities of Merichem Company, based in Houston, Texas. The joint venture partners each own 50% of Merisol.
Merisol has a strong presence in the global market for natural phenolics and cresylics with manufacturing
facilities in Houston, Sasolburg and Oil City, Pennsylvania. Merisol has an interest in the production of synthetic
meta, para-cresol through a 50:50 manufacturing joint venture with Sumitomo Chemicals. Merisol also has a
20:80 venture (Merisol holding 20%) with Chang Chun of Taiwan for the production in Sasolburg of ortho-
cresol novolac, a precursor to high-performance epoxy resins used for encapsulating memory and processor
chips. Merisol is the supplier of ortho-cresol feedstock to this plant.
Natural phenolics are products related to phenol, which are derived as by-products of coal gasification, coal
carbonization and certain petroleum refining processes and are recovered for purification and separation. Merisol
manufactures the pure products, phenol, ortho-cresol, meta-cresol and para-cresol, and a diverse range of
blended products, consisting of mixtures of phenol, cresols, xylenols and other phenol derivatives. These blends
are known collectively as cresylic acids. Both the Sasolburg and Houston plants produce phenol- and ortho-
cresol and cresylic acids. The Houston plant uses proprietary separation technologies to produce high-purity
meta, para-cresol and pure meta-cresol and para-cresol, making Merisol one of the few producers of these
products in the world.
background image
64
Principal markets
Merisol markets its products worldwide through sales offices in the United Kingdom, Hong Kong, the
United States and South Africa. Markets are served from product inventories held in Rotterdam, for the
European market, in Houston, for the US market and in Taiwan and Sasolburg for most other markets.
The pure products, phenol, ortho-cresol, meta-cresol and para-cresol, are sold in competition with
synthetically produced equivalents. Merisol is relatively small in the global phenol market, but strong in the
South African market and in selected niche markets elsewhere.
Merisol supplies major shares of the cresol and cresylic acids global markets for:
• ortho-cresol, where the main competitors include General Electric, Lanxess, Nippon Steel Chemicals,
Rütgers Chemicals and Deza;
• meta-cresol, where the main competitors include Lanxess, Honshu Chemical and Sumitomo Chemicals;
• para-cresol, where the main competitors include Degussa, Konan Chemical, Atul Chemicals and various
Chinese producers;
• high purity meta, para-cresol, where the main competitors include Mitsui Chemicals, Lanxess and
Sumitomo Chemicals; and
• wire enamel solvents where the main competitors are Rütgers-Chemicals, Deza, C-Chem and Mitsui
Chemicals.
Merisol derives about 80% of its turnover from the North and South America, Europe and Far East markets
and the balance from other regions.
Property, plants and equipment
Merisol’s Sasolburg plant uses feedstock from our coal gasification activities at Secunda. Merisol
completed the first and major part of its R400 million project to expand and improve feedstock recovery and
processing operations. This part of the investment includes a new Sasolburg plant to extract and refine additional
volumes of Secunda tar acids, to enable Merisol to grow with future market demand and compensate for the
decrease of other feedstock globally. These additional volumes are further processed at the Houston plant.
Following the successful completion of the new Sasolburg plant, the Houston operations are now in the final
stage of being rationalized and streamlined to reduce costs.
Merisol owns a butylation plant at Oil City, Pennsylvania, producing di-butyl para-cresol and meta-cresol
from meta, para-cresol and pure para-cresol feedstock made by Merisol at its Houston plant.
Production capacity
Product
Facilities location
Total
(ktpa)
Phenol
South Africa, United States
45
Ortho-cresol
South Africa, United States
15
Meta-cresol and para-cresol
United States
16
Pure meta,para-cresol
United States
30
Cresylic acids and xylenols
South Africa, United States
28
High-boiling tar acids
United States
4
Butylated products
United States
13
background image
65
Sasol Petroleum International
Nature of the operations and its principal activities
Mozambique
Our natural gas extraction and processing activities on the Temane reservoir have been fully operational
since the first quarter of calendar year 2004. Current gas production levels (at 75% of the design capacity) are
very much in line with original expectations at the time of project approval.
The development of the Pande reservoir, with associated trunk and gathering lines to the gas processing
plant has been initiated, and is scheduled for completion by the end of the 2007 calendar year. This is the second
stage of development of the business and will bring gas production to 100% of design capacity.
Whilst the Mozambican government has been a 30% partner in the gas field development since inception,
they have now also acquired an interest in the gas processing plant. With effect from 1 April 2006, the effective
ownership structure of the current business in Mozambique is 70% Sasol Petroleum Temane Limitada (SPT),
25% Companhia Moçambicana de Hidrocarbonetos, SARL (CMH) and 5% International Finance Corporation.
Sufficient additional gas reserves exist in the Temane and Pande reservoir areas to support a 50% expansion
of the capacity of the current Mozambican business.
Onshore exploration activities continue, with some 1,000 km
2
of seismic surveys having been completed
during 2005, and good progress having been made with the environmental impact assessment that is required to
allow seismic surveys to be conducted in the Offshore Block 16/19 area during 2007. These exploration
activities are aimed at further expansion of gas reserves in support of market opportunities that have been
identified, both in South Africa and in Mozambique.
Gabon
In Gabon, we hold a 27.75% interest in the Etame marine block with the operator, Vaalco Gabon (Etame)
Inc. (28.07%) and other members of the consortium. Exploration efforts resulted in the discovery of the Etame
oil field in 1998. The field went on stream in 2002 at an average rate of 15,000 bpd. During 2006, the field
produced oil, at an average rate of 18,500 bpd. The last development well, Etame-6-Horizontal, came on stream
in July 2005. The field is currently producing from one vertical and three horizontal wells.
During the year, the Gabonese Government approved development plans for the Avouma field and agreed
that the Ebouri field was commercially viable. Both discoveries were made in the previous year. The Avouma
field is currently under development with the first oil expected to be produced by the end of the 2006 calendar
year. It will be tied back to the Floating Production Storage and Off-take (FPSO) vessel on the Etame field. This
will contribute significantly to the flow of oil from the block. The development plans of the Ebouri field are
nearly completed and will be submitted to the Gabonese government for approval during 2007. The field is
expected to be on stream by the end of the 2007 calendar year. The Gabonese government also approved a three
year extension of the exploration rights covering the acreage that is not yet producing. A large three dimensional
seismic survey will obtain a better understanding of a large structural closure.
In the Dussafu marine block offshore Gabon, we hold a 50% interest and are the operator. Our partners,
Premier Oil BV and Perenco s.a., hold 25% each.
In 2004 a dry hole was drilled but prospectivity remains on the block. Three dimensional seismic data on
the block was acquired during the year and will be incorporated into existing information with the aim to define
a location to drill a second exploration well. We are still deciding whether to enter the next exploration phase.
background image
66
Equatorial Guinea
In Equatorial Guinea, we currently hold a 10% interest in Block L with Chevron (45%), Amerada Hess
(25%), and Tullow Oil (20%). We secured a farm-out agreement with Petrobras which when fully ratified by all
partners will reduce our interest to 5%. The Banyan L-2 well was drilled in 2006 and was a dry hole. The
partners are currently considering the remaining prospectivity of the block prior to the end of the current
exploration period in October 2006. This block carries no outstanding obligations in the current exploration
phase.
Nigeria
Through our relationship with Chevron we have gained entry into some highly prospective exploration
acreage in Nigeria. We have been offered a 5% interest in the OPL 214 permit. The farm-in has received all of
the necessary approvals and is currently being finalized. A successful exploration well was drilled in 2005 and
follow up drilling is being planned. We currently hold a 3.75% interest, after all approvals were received in June
2005, in the OPL 249 permit. The license includes part of the Bonga-SW/Aparo field on which a development
plan has been presented to the government for consideration. Appraisal drilling was completed on the N’siko
discovery and the development plan is in preparation. We have accepted a 6% interest in the OPL 247 permit.
The farm-in has received all of the necessary approvals but still awaits Nigerian governmental ratification.
A further opportunity to take up a 5.1% interest in Block 1 of the Nigeria/Sao Tome Principe joint development
zone has been accepted and government approval has been received. The partners are concluding internal
agreements to make this entry effective.
South Africa
We are a 10% partner in a prospecting sub-lease agreement, in Block 3A/4A, offshore of South Africa’s
West Coast. During the year, and as provided for in the 2005 farm-out agreement between Sasol and
BHP Billiton, operatorship of the block was transferred to BHP Billiton upon commencement of the second
exploration period. BHP Billiton also concluded a farm-out agreement for a 30% participating interest with the
South African State Oil Company, PetroSA. Reprocessing of three dimensional seismic data has been completed
by BHP Billiton.
Our strategy
Our strategic focus is on finding, developing and operating gas and oil opportunities. We continue to be a
gas feedstock supplier to the group’s South African businesses and the gas markets. We are aligning ourselves to
be a gas feedstock supplier to the group’s international GTL opportunities. In addition, we are striving to
become the centre of excellence within the group for enhanced oil and gas recovery uses for carbon dioxide.
Principal markets
Mozambique
Other than royalty gas provided to the Mozambican government, all gas produced is exported to South
Africa. The Mozambican government is dedicating royalty gas for use in the vicinity of the processing plant in
Temane as well as developing the gas market in the capital city, Maputo. The natural gas condensate produced in
the gas processing plant is currently exported via the port of Maputo to the Western European market, where it is
used as a fuel blend stock.
Gabon
Oil production from operations is sold on the open market.
background image
67
Equatorial Guinea and Nigeria
There is currently no production as the projects are in the exploration, appraisal or early development
stages. Oil production from their future operations will be sold on the open market.
Marketing channels
Mozambique
In the ongoing business, all natural gas is sold on a long-term sales contract to Sasol Gas, for marketing in
the South African market. In the future it is foreseen that we will enter into a long-term sales agreement with a
single Mozambican entity that will purchase some of the additional gas volume that will become available from
the proposed expansion of the current operations for use in Mozambique.
Natural gas condensate has, up to now, been marketed in the international spot market by Sasol Oil. In the
future, it is foreseen that Sasol Petroleum Temane will enter into a long-term condensate sales agreement with an
international commodity trading organization.
Gabon
An annual sales contract is typically entered into based on a competitive bidding process and prices are
linked to international prices at time of sale.
Property, plants and equipment
Mozambique
Our gas processing facilities in Mozambique are located some 700 km north of the capital, Maputo.
Ownership is shared with the Mozambican government through CMH (25%) and the International Finance
Corporation (5%).
Gabon
The production occurs through a dedicated FPSO vessel. This is moored offshore at the site of the field.
Sasol Technology
Nature of the operations and its principal activities
Sasol Technology acts as the technology partner to all the business units through launching and helping to
sustain the Sasol growth initiatives. Sasol Technology aims to provide functionally driven support across
geographic boundaries through its research and development, new business development, engineering and
project management and plant technical support.
Strategy
The strategy for Sasol Technology is based on four pillars:
• to direct Sasol’s technology future;
• to position and structure Sasol Technology for short, medium and long-term performance and delivery;
• to ensure a sustainable execution capacity to deliver on business ventures; and
• to ensure meaningful work for the people allowing them and the company to excel and grow.
background image
68
Sasol Technology, as the technology partner in the group, is fully committed to the growth objectives by
working together with the business units and taking responsibility for the long-term research and development of
technology improvements as well as developing new technologies. Through engineering and project execution
activities Sasol Technology demonstrates its commitment to the delivery of functional plants to our business
partners for their operation. Technical support works on an integrated basis with the business units’ operations
personnel to improve the profitability throughout the group.
The constraints that Sasol Technology experiences are related to available resources and capacity. These
constraints are manageable at this stage but are foreseen to become more problematic over the following years.
Strategic plans are being developed to address these issues.
Research and development
The central research and development division in Sasolburg, South Africa employs over 500 people who
focus on fundamental research, while the decentralized divisions focus on product applications. A phased
expansion and modernization program of the Sasolburg research facility was implemented with the aim to:
• enhance infrastructure through enabling the installation of new pilot-plants to expand operational
efficiency and flexibility;
• allow the relocation, upgrading and full integration of existing pilot plants;
• install modern process control systems; and
• improve the information generated.
This program was initiated after the completion of a comprehensive exercise to benchmark the structure,
equipment and performance of the research and development facilities against those of other international
organizations. The enhanced facilities will allow the opportunity to commercialize new and improved
petrochemical processes more effectively.
The central research function has a full suite of state-of-the-art pilot plants to support both current and the
development of future technologies.
Research activities are also conducted through external alliances and research collaborations with over
100 research institutions, consortia and universities worldwide. In addition, strong emphasis is placed on
training; as a result of this at least 20 of the employees from South Africa are at any given time studying abroad
in a continuing effort to ensure top level in-house research competency.
Fundamental research activities
Noteworthy Sasol technology research and development successes over the past decade include the
development of the Slurry Phase and Advanced Synthol reactors, the development of the proprietary cobalt
catalyst, the low temperature Fischer-Tropsch process, recarburized carbon, ethylene tetramerization and the
1-heptene to 1-octene conversion process.
A significant part of the research focuses on supporting the CTL and GTL technologies and associated
products. This includes research on coal gasification and gasification products, syngas conversion through the
application of Fischer-Tropsch synthesis and research relating to adding value to Fischer-Tropsch-derived
products. Catalysis research includes the development of both iron- and cobalt-based proprietary Fischer-
Tropsch catalysts. Sasol Technology has progressed in developing the second generation of the integrated Sasol
SPD™ process to convert natural gas into a clean-burning synthetic fraction of diesel and other premium-grade
products. In time, we plan to integrate some of the experience gained from operating the Nigerian and Qatari
GTL plants into the new-generation Sasol SPD™ process. Sasol Technology is also investigating chemical
expansion opportunities based on GTL plants. In particular, the fuel products of the GTL plants can be diverted
towards the production of chemicals. As was the case with chemical production at Secunda, unique beneficiation
technologies are being developed.
background image
69
The wide range of products in our product portfolio requires extensive research on product work-up and
beneficiation, including separation and purification processes and new product development. Among other
carbon-based products and cresylic acids require adaptation of technology to meet product needs. Research has
been carried out on cresylic acids, another gasification by-product, on behalf of the Sasol joint venture with
Merisol, relating to purification of various associated products and adding value to certain feed streams.
Over the years, a strong competency has been developed in purification in order to extract high value alpha
olefins from Fischer-Tropsch products. This has helped to successfully develop purification processes for
1-pentene, 1-hexene, 1-heptene and 1-octene products, which allow the application of these products as
comonomers in polymers. Ongoing studies include those dedicated to the commercial viability of exploiting
metathesis and other processes to convert odd-number alpha olefins (such as 1-pentene and 1-heptene) into even-
numbered counterparts (such as 1-hexene and 1-octene), which are in far greater demand. Sasol Technology is
also focused on improving hydroformylation as an alternative process for producing specialty alcohols from
olefins. Sasol Technology has also been successful at increasing the purities of hexene and octene comonomers
to enable their optimal application with new-generation polyolefin catalyst systems. In order to benefit from the
projected demand growth in global markets for 1-hexene and 1-octene, we are investigating various potential
production routes, including ethylene trimerization and ethylene tetramerization.
Research is also focused on the reduction of the Sasol operations’ environmental footprint which includes
water treatment and purification. In this regard, special attention is given to water utilization, given the location
of some of the current and future plants in semi-arid areas. An integrated approach is being followed toward
optimization of current processes focusing, among others, on energy efficiency, emissions and water utilization.
End of pipe solutions include technology such as microbial treatment processes and desalination technology,
which has already been tested and implemented.
Continued focus is on identification and implementation of new technologies, to help reduce production
cost. This includes research focusing on the application of catalytic distillation in various new and existing
processes.
Renewable and alternative fuels are fast becoming important for future competitive strategies. Sasol
Technology is investigating biodiesel and fuel cells. We are experimenting with the formulation and performance
of biodiesels derived from soya beans as well as from Fischer-Tropsch applied on biomass derived syngas. We
expect that Sasol will be able to produce high-quality biodiesels based on renewable resources for potential use
as a future fuel blend stock.
We have implemented techniques such as computational chemistry and will embark on using combinatorial
chemistry during 2006, on a smaller scale, in order to improve productivity and speed up technology
development efforts.
Front end engineering and technology management
All front end engineering and technology integration and management is performed by specialist Sasol
Technology teams taking the ideas from our research and development teams and engineering them into a
commercial proposition for exploitation by the group.
The conceptual and basic design, engineering management and plant commissioning of projects is
undertaken on a integrated basis with the business unit leveraging with external technology suppliers and
contractors.
Project execution and engineering
Sasol Technology is responsible for the project engineering and project management of the major capital
projects in the group. The involvement is currently focussed in South Africa as well as Qatar for the execution
and handover of the plants. Delivery of smaller projects and shutdowns are also undertaken.
background image
70
African Amines
African Amines is a 50:50 joint venture of Sasol and Air Products. It manufactures, purchases and sells
alkylamines, principally for use in explosives, water-treatment chemicals and agricultural chemicals. Its products
range includes:
• mono-methylamine;
• di-methylamine;
• mono-ethylamine; and
• iso-propylamine.
African Amines has production facilities in Newcastle, Kwa-Zulu Natal, in South Africa. This location
makes African Amines an efficient and cost-effective supplier to markets in Australasia, South America, the
Asia-Pacific region and the Indian subcontinent. African Amines tends to be less competitive in the main ports of
Europe and the United States due to the density of local producers serving those markets.
Discontinued operations
Sasol Olefins & Surfactants
We announced our intention to consider the divestiture of the Sasol Olefins & Surfactants business subject
to fair value being received. Substantial work was undertaken since the announcement to prepare the business
for sale including:
• issuance of the Information Memorandum on 22 May 2006 to interested parties inviting them to
participate in the auction process to acquire the business;
• completion of vendor due diligence regarding finance and tax, safety, health and environmental, human
resources and market/industry considerations; and
• evaluation of indicative bids received on 16 June 2006 and inviting certain interested parties to
participate in the next round of bidding.
All of this work was substantially completed by 30 June 2006.
The income statement has been restated for all periods to exclude Sasol Olefins & Surfactants from
continuing operations and report these results as a single line item. In the 2006 balance sheet the assets and
liabilities of Sasol Olefins & Surfactants have been classified as held for sale.
Nature of the operations and its principal activities
Sasol Olefins & Surfactants comprises four business units:
• Alkylates and surfactants;
• Alcohols and surfactants;
• Inorganic specialties; and
• Monomers.
Alkylates and surfactants
The main products of the business unit are paraffins, olefins (including poly-internal olefins), linear
alkylbenzene (LAB) and their surfactant derivatives such as paraffin sulfonate and linear alkylbenzene sulfonate
(LAS). LAB is the feedstock for the manufacture of LAS, an essential surfactant ingredient for the detergents
industry. Paraffins (n-paraffins) and n-olefins are produced mainly as feedstock for the production of LAB and
oxo-alcohols. A portion of this business unit’s products are used internally for the production of downstream
surfactants.
background image
71
Alcohols and surfactants
The business unit produces a diversified portfolio of linear and semi-linear alcohols of carbon range
between C
6
and C
22+
. Nonionic and anionic surfactants enhance the product portfolio, as well as some surfactant
intermediates such as ethylene oxide, alkyl phenols and alkanolamines. The diversity of this product portfolio is
supported by the wide range of raw materials (petrochemical, oleochemical and coal-based), technologies and
manufacturing facilities used. A portion of the alcohols production is consumed internally to produce surfactants
and specialty plasticizers.
Inorganic specialties
This business unit produces mainly alumina products both as co-products from the Ziegler units (together
with alcohol) as well as in dedicated production units. The alumina is upgraded by means of a variety of
technical processes to adapt the product characteristics, in some cases to highly specialized products. This
business unit also produces zeolites in a production facility in Italy.
Monomers
The business unit produces ethylene in the United States at our ethane-based cracker in Lake Charles,
Louisiana.
Strategy
Our strategy has been to extract the maximum value from vertical value chain integration, and horizontal
integration by being present in both the major value chains in surfactant manufacture and technical and site
integration benefits from the three major producing countries, Germany, Italy and the United States. Furthermore
the business has fostered strong relationships with customers and has leveraged this to provide additional value
chain benefits by developing and supplying differentiated and specialty products. A challenge for the business
has remained the increasing and fluctuating raw material/feedstock pricing associated with crude oil and energy
prices.
Principal markets
The bulk of the production from the alkylates and surfactants business unit would end up as surfactants,
either produced internally or by other parties having acquired the intermediates from us. The bulk of these
surfactants in turn end in detergents or industrial or institutional cleaning products. The main competitors
include: ExxonMobil, Shell and Petresa in n-paraffins; Huntsman, Petresa and ISU in the LAB market; and
Stepan, Huntsman and Cognis in the LAS market.
Although a substantial portion of the alcohols and surfactants business unit products also end up in
detergents and industrial and institutional products, these products also find wide application in industries such
as metalworking, flavors and fragrances, personal care, cosmetics, plastic additives, textiles and agriculture. The
main competitors include Shell and Cognis.
Aluminas from the inorganic specialties business unit are used in a broad range of applications, including
catalyst support, raw material for ceramics, coatings and polymer additives. Competitors on aluminas include
Akzo Filtrol and BASF Catalyst. Zeolites are used as softening components in detergents. There are numerous
competitors in zeolites.
Ethylene is sold to plastic manufacturers in the US Gulf Coast region and is used internally to manufacture
alcohols. There are numerous competitors in the United States ethylene market.
background image
72
Seasonality
There is very little seasonality associated with our products or the markets in which they participate.
Cyclicality of this business is more related to the general chemical investment cycle, which impacts the supply
side of the market equation. Many of the markets that we serve typically follow global and regional gross
domestic product and are therefore impacted more by macro-economic factors.
Raw materials
The main raw materials and feedstocks used in this business are kerosene, benzene, ethane, ethylene and
aluminum (all purchased externally). The price of most of these materials are related to crude oil and energy
pricing and the prices would follow the crude oil and energy pricing reasonably closely. Over the past 4 years
these crude oil and energy prices have been increasing steeply and have been quite volatile.
Marketing channels
Over 90% of the products produced by Sasol Olefins & Surfactants are sold directly to end-use customers
by our sales and marketing personnel. A limited number of distributors are used and are primarily centered in
Europe. Approximately 60% of the total sales by Sasol Olefins & Surfactants are conducted under annual and in
some cases multi-year contracts.
Property, plants and equipment
The following table summarizes the production capacity for each of our main product areas.
Production capacity
Product
Facilities location
Total
(ktpa)
Ethylene
United States
455
C
6+
alcohol
United States, Europe, South Africa
625
Inorganics
United States, Europe
170
Paraffins and olefins
United States, Europe
990
LAB
United States, Europe
550
Surfactants
United States, Europe, Far East, Middle East
1,000
background image
73
Legal proceedings and other contingencies
Litigation in respect of continuing operations
Fly Ash Plant Sasol Synfuels is in legal proceedings with regard to the operation of a plant in Secunda.
Ashcor has claimed damages of R313 million relating to its inability to develop its business and a projected loss
of future cash flows. We believe the prospect of future loss is reasonably possible with the loss unlikely to
exceed R10 million.
Nationwide Poles The South African Competition Commission received a complaint against Sasol Oil
(Carbo-Tar division) in April 2003. The complaint was referred by the plaintiff to the South African Competition
Tribunal. The Competition Tribunal found against Sasol that during the period of the complaint Sasol was a
dominant firm whose conduct met the test required in establishing prohibited price discrimination. The company
filed a notice of appeal and the appeal was heard by the Competition Appeal Court during September 2005.
Likelihood of loss is remote as the Competition Appeal Court found in favor of Sasol.
Nutri-Flo Nutri-Flo filed a complaint in 2002 alleging that Sasol Nitro was engaged in price
discrimination, excessive pricing and exclusionary pricing. In November 2003, Nutri-Flo made an urgent
application to the Competition Tribunal to obtain an interdict preventing Sasol from implementing a new price
list. In this application Nutri-Flo again filed a complaint on grounds similar to those specified above. In addition
it was alleged that Sasol, Kynoch and Omnia are acting as a cartel in fixing prices in the fertilizer industry.
Nutri-Flo subsequently withdrew its application. However, the South African Competition Commission has
investigated the complaint and in May 2005, referred the matter to the Competition Tribunal, alleging findings of
price fixing, prevention/lessening of competition, abuse of dominance and exclusionary conduct. The
Competition Commission requested the Competition Tribunal to impose the maximum administrative penalty in
terms of the South African Competition Act. Sasol took the matter on review to the South African Competition
Appeal Court. The court ruled against Sasol in April 2006 and the matter must consequently be heard by the
Competition Tribunal. Sasol has filed an exception to the referral of the complaint to the Competition Tribunal
on the basis that it is vague and does not disclose a clear contravention of the Competition Act. On the basis of
the pleadings in their current form, we believe the likelihood of a finding of unlawful conduct is remote. In the
event that the Competition Commission amends the referral, our current assessment may require review. For this
reason, it is currently not possible to make an estimate of the contingent liability (whether arising out of
penalties that may be imposed by the Competition Tribunal or civil lawsuits that may arise in the event of a
finding of unlawful conduct).
Sasol Wax On 28 and 29 April 2005 the European Commission conducted an investigation at the offices of
Sasol Wax International AG and its subsidiary Sasol Wax GmbH, both located in Hamburg, Germany. A parallel
investigation is being conducted by the US Department of Justice. On 28 April 2005 Sasol Wax Americas Inc.
received a subpoena for information from the United States District Court regarding its wax sales activities. The
investigations in the US and the European Union arise from alleged anticompetitive behavior among industry
members in the paraffin wax industry. Sasol Wax is co-operating with the competition authorities in the US and
in the European Union in order to clarify this issue. At this point of the investigation it is not possible to assess
the financial implications or inherent risk. A reliable estimate of the amount of the possible penalty cannot be
made, since the determination thereof is at the sole discretion of the antitrust authorities.
Profert Profert filed a complaint against Sasol in August 2004 alleging that Sasol Nitro refused to supply
Profert, that discriminatory pricing towards Profert in sales of LAN was committed and that Sasol is engaged in
exclusionary conduct to exclude Profert from the fertilizer market. In May 2006, the South African Competition
Commission referred the complaint to the South African Competition Tribunal alleging that Sasol, AECI and
Kynoch have entered into agreements dividing the LAN market in order to make Sasol the exclusive supplier,
that Sasol is engaged in conduct that favors Kynoch in supply arrangements to the exclusion of other suppliers,
and that Sasol is committing discriminatory pricing against Profert. The Competition Commission requested the
Competition Tribunal to impose the maximum administrative penalty in terms of the South African Competition
Act. Sasol filed a reply to the referral of the complaint on 4 August 2006. The Competition Commission has not
background image
74
yet replied to Sasol’s submission. Preparations for the hearing are proceeding. On the basis of the pleadings in
their current form, we believe the likelihood of the Competition Tribunal imposing a penalty is remote. In the
event that the Competition Commission amends its referral, our current assessment may require review. For this
reason, it is currently not possible to make an estimate of the contingent liability (whether arising out of
penalties that may be imposed by the Competition Tribunal or civil lawsuits that may arise in the event of a
finding of unlawful conduct).
Sale of Phosphoric Acid production assets In June 2004, Foskor increased its phosphate rock price to such
an extent that Sasol indicated that it would shut down the operations in Phalaborwa. Sasol and Foskor then
entered into an agreement in terms of which Foskor would purchase the Phalaborwa plant. For the period that
this intended sale was under assessment by the regulatory authorities, the parties entered into an agreement that
Foskor would supply phosphate rock at its cost and Sasol would toll manufacture phosphoric acid for Foskor.
The toll manufacturing agreement commenced on 1 September 2005. In October 2005, the South African
Competition Commission issued a recommendation that the proposed merger be prohibited and referred the
matter to the South African Competition Tribunal. The parties abandoned the merger in June 2006 and notified
the Competition Commission that they intend to enter into a new toll manufacturing agreement for a period of
4 years. The Competition Commission has not expressed any view on whether the intended transaction would
amount to a merger or not. The parties intend to finalize the terms of a new toll manufacturing agreement and to
notify the Competition Commission of the provisions of such agreement. Views that may be expressed by the
Competition Commission will be taken into consideration prior to implementation of the new agreement.
The Competition Commission is also investigating whether the current toll manufacturing agreement (that
commenced in September 2005) amounts to pre-implementation of a merger without the required approval by
the Competition Tribunal and/or if there were any other unlawful agreements between Foskor and Sasol relating
to the proposed sale of the phosphoric acid assets. If the matter is ultimately referred to the Competition
Tribunal and the parties are found to have implemented a merger without the necessary Tribunal approval, the
parties could be faced with penalties of up to 10% of the turnover of their relevant businesses. We believe the
likelihood of the finding of unlawful conduct to be remote. In the event that the Competition Commission refers
the matter to the Tribunal, our current assessment may require review. For this reason, it is currently not possible
to make an estimate of the contingent liability.
Other From time to time Sasol companies are involved in other litigation and administrative proceedings in
the normal course of business. Although the outcome of these proceedings and claims cannot be predicted with
certainty, the company does not believe that the outcome of any of these cases would have a material effect on
the group’s financial results.
Litigation in respect of discontinued operations
The EDC pipeline litigation Sasol North America (Sasol NA) has numerous separate pending cases which
originated as a result of a 1994 rupture of the ConocoPhillips ethylene dichloride (EDC) pipeline connecting
Conoco’s dock to Sasol NA’s vinyl chloride monomer plant in the United States. Plaintiffs are seeking
compensatory and punitive damages as a result of alleged exposure to EDC. As of 30 June 2006 there is a class
action and 13 lawsuits pending, brought by approximately 500 plaintiffs. Plaintiffs allege various personal
injuries resulting from exposure to EDC while employed as contractors of ConocoPhillips to clean up the EDC
or to perform other projects on the ConocoPhillips refinery where the rupture occurred. The plaintiffs seek
recovery of unspecified compensatory and punitive damages. Sasol NA has successfully obtained substantial
insurance cover for costs to be incurred in connection with this litigation. Previous settlements for approximately
US$10 million of which Sasol NA’s share was US$3 million were made in 2003. While the cases are being
vigorously defended the likelihood of financial loss in the future is probable. The loss is unlikely to exceed the
amount of US$3 million for previously settled cases.
Under the Asset and Share Purchase agreement with RWE-DEA AG for the acquisition of Condea, the
costs in respect of the EDC pipeline cases are reimbursable by RWE-DEA AG less insurance and tax benefits.
background image
75
Sulfur dioxide litigation During January 2003 Sasol NA and ConocoPhillips refinery released a quantity of
sulfur dioxide into the environment as a result of a power outage in the ConocoPhillips Lake Charles refinery.
Lawsuits were filed against ConocoPhillips and Sasol NA has since been added as a defendant. At 30 June 2006
more than 600 lawsuits had been filed on behalf of more than 20,000 plaintiffs. ConocoPhillips and Sasol NA
jointly defended the lawsuits and Sasol NA’s liability for defense and settlement costs has been limited by
agreement. Sasol NA has paid the “cap” as per the agreement and therefore we believe the prospect of future
loss in this matter is remote, with no future loss expected.
Yellow Rock litigation In July 2005 Sasol NA received notice of a suit filed by Yellow Rock LLC alleging
over US$1 million in damages and seeking an injunction that would require Sasol NA to remove its ethylene
from Salt Storage Dome 1-A in Sulfur, Louisiana near the Lake Charles Chemical Complex. The suit alleges
that in 2004 the Dome 1-A was leaking ethylene and caused the “blow out” of an oil and gas exploration well
being drilled by Yellow Rock. An integrity assessment of the well performed by an independent consultant in
early 2005 concluded that the Dome 1-A was not leaking. While these results were conveyed to Yellow Rock
and were approved by the Louisiana Department of Natural Resources, it did not deter the filing of suit. We
believe the prospects of future events confirming a loss are therefore remote.
US hearing loss cases There are presently approximately 160 hearing loss cases pending in the Sasol NA
business. These claims for occupational hearing loss in Louisiana are not covered by workers compensation. The
likelihood of loss is considered reasonably possible as these claims will be settled. The range of expected future
loss through settlement is estimated to be between US$ 800,000 and US$ 1,150,000.
Environmental Orders
The group is subject to loss contingencies pursuant to numerous national and local environmental laws and
regulations that regulate the discharge of materials into the environment or that otherwise relate to the protection
of human health and the environment in all locations in which it operates. These laws and regulations may, in
future, require the group to remediate or rehabilitate the effects of its operations on the environment. The
contingencies may exist at a number of sites, including, but not limited to, sites where action has been taken to
remediate soil and groundwater contamination. These future costs are not fully determinable due to factors such
as the unknown extent of possible contamination, uncertainty regarding the timing and extent of remediation
actions that may be required, the allocation of the environmental obligation among multiple parties, the
discretion of regulators and changing legal requirements.
The group’s environmental obligation for continuing operations accrued at 30 June 2006 was
R2,268 million compared to R2,161 million in 2005 (R238 million and R158 million was accrued for 2006 and
2005 respectively for our discontinued operations). Included in this balance is an amount accrued of
approximately R395 million (R134 million for our discontinued operations) in respect of the costs of
remediation of soil and groundwater contamination and similar environmental costs. These costs relate to the
following activities: site assessments, soil and groundwater clean-up and remediation, and ongoing monitoring.
Due to uncertainties regarding future costs the potential loss in excess of the amount accrued cannot be
reasonably determined.
Under the agreement for the acquisition of Sasol Chemie, we received an indemnification from
RWE-DEA AG for most of the costs of remediation and rehabilitation of environmental contamination existing
at Condea Vista Company located in the United States on or before 1 March 2001.
Although the group has provided for known environmental obligations that are probable and reasonably
estimable, the amount of additional future costs relating to remediation and rehabilitation may be material to
results of operations in the period in which they are recognized. It is not expected that these environmental
obligations will have a material effect on the financial position of the group.
As with the oil and gas and chemical industries generally, compliance with existing and anticipated
environmental, health, safety and process safety laws and regulations increases the overall cost of business,
including capital costs to construct, maintain, and upgrade equipment and facilities. These laws and regulations
have required, and are expected to continue to require, the group to make significant expenditures of both a
capital and expense nature.
background image
76
September 2004 Accident Trust
On 1 September 2004 the lives of ten employees and contractors were lost and a number of employees and
contractors were injured during an explosion that occurred at our Secunda West ethylene production facility.
Since January 2006, the Company, Solidarity, the Chemical, Energy, Paper, Printing, Wood and Allied
Workers’ Union and an attorney representing the unions have been in negotiations to find a mechanism to pay
compensation to the dependants of people that died or were physically injured in the accident to the extent that
they had not been previously compensated in terms of existing policies and practices. It was agreed to establish
an independent trust, the September 2004 Accident Trust, to expeditiously make ex gratia grants to persons who
were physically injured in the 1 September 2004 explosion at our Secunda West ethylene production facilities
and to the dependants of persons who died in that accident. The September 2004 Accident Trust was registered
on 29 June 2006. Qualifying victims of the accident have been invited to submit applications for compensation.
These grants will be calculated in accordance with the applicable South African legal principles for the harm and
loss suffered by them as a result of the accident to the extent that they have not already been compensated.
The Company will fund the September 2004 Accident Trust to pay the ex gratia grants. Whilst accepting
social responsibility, the Company has not acknowledged legal liability in creating the trust. As at 30 June 2006
it is believed that a loss contingency exists and that it is probable that the future claims will be received from the
dependents of the deceased or from those physically injured and to whom ex gratia grants will be made.
No accrual has been made as at 30 June 2006 as the amount of the loss cannot be reliably estimated. The future
payments are dependent on the number of applications submitted to the Trust, the independent findings of each
application and the calculation of the grants based on the applicable South African legal principles. It is believed
that the possible loss is unlikely to exceed R20 million.
Regulation
The majority of our operations are based in South Africa, but we also operate in numerous other countries
throughout the world. In South Africa, we operate coal mines and a number of plants and facilities for the
storage, processing and transportation of raw materials, products and wastes related to coal, oil, chemicals and
gas. These facilities and the respective operations are subject to various laws and regulations that may become
more stringent and may, in some cases, affect our business, operating results, cash flows and financial condition.
Empowerment of historically disadvantaged South Africans
The Liquid Fuels Charter
In November 2000, following a process of consultation, the Minister of Minerals and Energy and
representatives of the companies in the liquid fuels industry, including Sasol Oil, signed the Liquid Fuels Charter
setting out the principles for the empowerment of historically disadvantaged South Africans in the South African
petroleum and liquid fuels industry.
The Liquid Fuels Charter requires liquid fuels companies, including Sasol Oil, to ensure that historically
disadvantaged South Africans hold at least 25% equity ownership in the South African company holding their
liquid fuels assets by the calendar year 2010. It also envisages methods of measuring progress by requiring
participants in the industry to meet targets set in connection with transformation of ownership. In addition, the
Liquid Fuels Charter requires that historically disadvantaged persons be given preferred supplier status, where
possible, in the procurement of supplies, products, goods and services, as well as access to use and ownership of
facilities.
Sasol and Exel’s BEE transaction
One of our major BEE transactions was the establishment of Exel in November 1997 as a 22.5% minority
shareholder. At the time of the merger with Sasol Oil, Exel was a model empowerment enterprise 77.5% owned
and controlled by HDSAs. With the help of Sasol, through the secondment of specialized personnel, the
background image
77
provision of technical support and training, and other support services, Exel evolved rapidly from a zero base to
establishing 195 retail fuel stations by December 2003. By that time, Exel had won 4% and 7% of the
competitive South African liquid fuels retail and commercial markets, respectively. Exel recorded an operating
profit (before interest and tax) of almost R8 million in 1998. Five years later, the company posted an annual
operating profit of more than R100 million. Subsequently Sasol Oil acquired the entire shareholding of Exel
with the empowerment partners obtaining a 2% interest directly in Sasol Oil.
Sasol and Tshwarisano BEE transaction
It is our fundamental objective to comply with the terms of the Liquid Fuels Charter. We have therefore
facilitated a transaction with our BEE partner in the form of Tshwarisano.
It was initially envisaged and announced that Tshwarisano would have acquired a 12.5% shareholding in
the former proposed joint venture if the Competition Tribunal had approved the proposed merger of our liquid
fuels business with Petronas’ South African liquid fuels business. Pursuant to the Competition Act of 2000, the
Competition Tribunal prohibited the merger on 20 February 2006.
By agreement as a result of the proposed merger not occurring, Tshwarisano has acquired a 25%
shareholding in Sasol Oil effective 1 July 2006.
BEE policies
As from 1 July 2006, Sasol Oil will meet the 25% BEE ownership target with Tshwarisano holding 25% of
the shares in Sasol Oil with BEE policies as follows:
• procuring goods and services, on a preferential basis, from HDSAs;
• progressing employment equity in our businesses, with focus on employment equity, capacity building,
training and development;
• facilitating the development of small, micro and medium-sized enterprises and focusing on training,
entrepreneurship and broadening the dealer mix; and
• advancing social upliftment objectives and nation-building.
Employees
In keeping with the spirit of the Liquid Fuels Charter, as well as the Employment Equity Act, we have set
employment equity targets. This requires that advantageous treatment be given to HDSAs in aspects of
employment such as hiring and promotion. Employment Equity targets are set out and reviewed periodically to
ensure that they are met. Special training and mentorship programs are in place to create a work environment
that is suited to the successful nurturing of HDSA staff.
Procurement
Procurement is a crucial element of BEE as set out in the Liquid Fuels Charter, as well as in other industry
charters and government policy. BEE procurement affords smaller industry players the opportunity to participate
meaningfully in the sector. As prescribed in the Liquid Fuels Charter, HDSA companies are accorded preferred
supplier status as far as possible.
Sasol Oil has established a BEE procurement policy, an enhanced procurement governance model and
unique strategies to stimulate growth in its BEE spend.
Corporate social investment
We focus on facilitating the socioeconomic development of the communities in which we operate, through
partnerships with key stakeholders in these communities.
background image
78
Social investments are presently channeled into five main areas:
• education (particularly in math and science);
• job creation and capacity building;
• health and welfare;
• arts, culture and sport development; and
• environment.
The Mining Charter
In October 2002, the government and representatives of South African mining companies and
mineworkers’ unions reached broad agreement on the Mining Charter, which is designed to facilitate the
participation of HDSAs in the country’s mining industry. The Mining Charter’s stated objectives include the:
• expansion of opportunities for persons disadvantaged by unfair discrimination under the previous
political dispensation;
• expansion of the skills base of such persons;
• promotion of employment and advancement of the social and economic welfare of mining communities;
and
• promotion of beneficiation, or the crushing and separation of ore into valuable substances or waste within
South Africa.
The Mining Charter, together with a scorecard which was published on 18 February 2003 to facilitate the
interpretation of and compliance with the Mining Charter (the scorecard), requires mining companies to ensure
that HDSAs hold at least 15% ownership of mining assets or equity in South Africa within five calendar years
and 26% ownership within ten calendar years from the enactment of the new Mineral and Petroleum Resources
Development Act (MPRD Act) which came into force on 1 May 2004. The Mining Charter further specifies that
the mining industry is required to assist HDSAs in securing finance to fund their equity participation up to an
amount of R100 billion within the first 5 calendar years after the coming into force of the aforementioned Act.
Beyond this R100 billion commitment, the Mining Charter requires that participation of HDSAs should be
increased towards the 26% target on a willing-seller willing-buyer basis at fair market value
Various principles of the Mining Charter have been incorporated in regulations promulgated by the
Minister of Minerals and Energy under the MPRD Act with respect to the South African mining industry. These
regulations came into force on 1 May 2004.
The scorecard provides a method of indicating the extent to which applicants for the conversion of their
mineral rights under the MPRD Act have complied with the provisions of the Mining Charter. It is intended that
the entire scorecard would be taken into account in decision making. Notes attached to the scorecard provide
guidance in interpreting the objectives of the Mining Charter.
On 16 March 2006 we announced the implementation of the first phase of Sasol Mining’s broad-based
BEE strategy through the formation of Igoda Coal, an empowerment venture with Eyesizwe Coal, a black-
owned mining company. Igoda Coal will be one of South Africa’s largest empowered coal export companies.
Eyesizwe Coal will own 35% of Igoda Coal, while Sasol Mining holds the remaining 65%. Igoda Coal will
become fully operational as a statutory business entity and take transfer of the relevant mining area from Sasol
Mining once the transfer of the mining rights have been effected. It is expected that the transaction will become
effective in 2007.
As a result of this transaction we will obtain credit towards equity ownership targets. It has been announced
that we will further expedite plans to advance the second phase of Sasol Mining’s broad-based BEE ownership
strategy. This strategy will see Sasol Mining achieve full compliance with the Mining Charter’s 2009 and 2014
targets for BEE ownership, respectively, through conversion of its mining rights.
background image
79
The Restitution of Land Rights Act
Our privately held land and mineral rights could be subject to land restitution claims under the Restitution
of Land Rights Act 1994. Under this Act, any person who was dispossessed of rights in land in South Africa as a
result of past racially discriminatory laws or practices is granted certain remedies, including, but not limited to:
• restoration of the land claimed with or without compensation to the holder;
• granting of an appropriate right in alternative state-owned land to the claimant; or
• payment of compensation by the state or the holder of the land to the claimant.
If land is restored without fair compensation, it is possible that a constitutional challenge to the restoration
could be successful. Once a land claim has been lodged with the Commission on Restitution of Land Rights, the
rights of any person in respect of such land are restricted in that he may not perform certain actions relating to
the land, including, but not limited to, selling, leasing or developing such land, without the consent of the
Commission. The Commission is obligated to notify the land owner of such a claim lodged or any other party
which might have an interest in a claim. All claims had to have been lodged with the Commission by
31 December 1998. Although this was the final date for filing claims, many claims lodged before the deadline
are still being reviewed and not all parties who are subject to claims have yet been notified. We have not been
notified of any land claim that could have a material adverse effect on our rights to any of our significant
properties.
The Restitution of Land Rights Amendment Act became law on February 2004. Under the original Act, in
the absence of a court order, the power of the Minister for Agriculture and Land Affairs to acquire or expropriate
land for restitution purposes is limited to circumstances where an agreement has been reached between the
interested parties. The Act would entitle the Minister to expropriate land in the absence of agreement. Such an
expropriation could be for restitution or other land reform purposes. Compensation payable to the owner of the
land would be subject to the provisions of the Expropriation Act 63 of 1975 and section 25(3) of the
Constitution which provides, in general, that compensation must be just and equitable.
Broad-based Black Economic Empowerment Act
The South African Department of Trade and Industry introduced the Broad-based Black Economic
Empowerment Act (the Act). The Act’s stated objectives are to:
• promote economic transformation in order to facilitate meaningful participation of black people in the
economy;
• achieve a substantial change in the racial composition of ownership and management structures in new
and existing enterprises;
• increase the instance of ownership and management of communities, workers and collective enterprise
cooperatives in new and existing enterprises;
• promote investment programs that lead to broad-based and meaningful participation by black people in
the economy in order to achieve sustainable development and general prosperity; and
• develop rural communities and empower local communities by enabling access to economic activities,
land, infrastructure, ownership and skills.
The Act establishes a Black Economic Empowerment Advisory Council (the Council) to advise the
President on BEE. In terms of the Act, the Minister of Trade and Industry may issue codes of practice on BEE,
which may include:
• the interpretation and definition of BEE;
• qualification criteria for preferential purposes for procurement and other economic activities;
background image
80
• indicators and weighting to measure BEE;
• guidelines for stakeholders in the relevant sectors of the economy to draw up transformation charters for
their sectors;
• the development of a system of reporting on the implementation of BEE; and
• any other matter necessary to achieve the objectives of the Act.
The Act provides that every organ of the State must take into account any relevant code of practice issued
pursuant to the Act in determining qualification criteria for the issuing of licenses and other authorizations
pursuant to any law and in developing and implementing a preferential procurement policy.
The Minister of Trade and Industry may propose regulations under this Act.
Codes of good practice for broad-based black economic empowerment (the Codes)
Draft codes of good practice were issued for comment by the Minister of Trade and Industry in December
2004 pursuant to the Act mentioned above. These draft codes are in the process of being amended so as to
provide further clarity as to the organization of the Codes.
Progress to date includes the publishing of Phase 1 of the Codes in November 2005, which includes the
following:
• Code 000: Framework for the Measurement of Broad-based BEE;
• Code 100: Measurement of the Ownership Element of Broad-based BEE; and
• Code 200: Measurement of the Management and Control Element of Broad-based BEE.
Additional draft codes were also issued for public comment in December 2005 as Phase 2 of the Codes.
This phase of the Codes provides further clarity on Codes 000, 100 and 200 referred to above and set out in
Codes 300 to 1000 outlining measurement of employment equity, skills development, preferential procurement,
enterprise development, the residual element, any sector codes and qualifying small enterprises.
Pursuant to the published codes and draft codes, private sector enterprises are urged to apply the principles
contained in the Codes when implementing broad-based BEE initiatives. In interactions with public entities and
organs of state, it is considered essential that the private sector applies these principles to ensure full recognition
for their efforts. Furthermore, it is considered desirable that the private sector also apply these principles in their
interactions with one another.
Stakeholders are encouraged to align any legislation properly enacted prior to the Act, which imposes BEE
objectives, with the Act and the Codes. This will apply specifically to the Liquid Fuels Charter as contained in
the Petroleum Products Amendment Act and the Mining Charter as contained in the Mineral and Petroleum
Resources Development Act which shall remain in force unless amended, substituted or repealed. Alignment of
all such legislation, over time, will reduce any residual uncertainty.
Regulation of mining activities in South Africa
The Minerals Act
For the period up to 30 April 2004, all mineral rights, encompassing the right to prospect and mine, were
held, either privately or by the government of South Africa. Ownership of private mineral rights was held
through title deeds and constitutes real rights in land, which are enforceable against any third party. Prospecting
and mining were regulated by the Minerals Act and South African common law. The Minerals Act regulated the
prospecting for and the optimal exploitation, processing and utilization of minerals, in addition to imposing
reclamation requirements on prospecting and mining operations. The Act required that anyone undertaking
prospecting or mining operations had to compile an environmental management program and to provide for the
environmental impact of the proposed prospecting or mining activities. This program had to be approved by the
background image
81
relevant Director of Mineral Development. The Minerals Act has subsequently been repealed by the
implementation of the Mineral and Petroleum Resources Development Act (Act 28 of 2002), which came into
effect on 1 May 2004.
Under the Minerals Act, we owned all the coal rights for the properties over which we have mining
authorizations, except for small tracts of land at Secunda, which were owned by the government of South Africa
and for which we have obtained the government’s consent to mine in consideration for the payment of a royalty
per ton of coal mined from those properties.
The Mineral and Petroleum Resources Development Act (MPRD Act)
The fundamental principle of the MPRD Act is the recognition that the mineral resources of the country are
the common heritage of all South Africans and therefore belong to all the people of South Africa. The Act vests
the right to prospect and mine, including the right to grant prospecting and mining rights on behalf of the nation,
in the state, to be administered by the government of South Africa. Thus, the state is the guardian of all mineral
rights and has the right to exercise full and permanent custodianship over mineral resources.
The MPRD Act imposes significantly more stringent environmental obligations on mining activities than
the repealed Minerals Act. However, it contains transitional arrangements for existing operations. Under these
transitional provisions, the environmental management programs will continue in force, as the Department of
Minerals and Energy (DME) introduces the more stringent requirements of the MPRD Act.
The MPRD Act adopts the environmental management principles and environmental impact assessment
provisions of the National Environmental Management Act. The MPRD Act addresses the allocation of
responsibilities for environmental damage, pollution and degradation and imposes rehabilitation obligations. It
significantly extends the scope of liability of directors who may be jointly and severally liable for any
unacceptable negative impact on the environment, advertently or inadvertently caused by the company. It also
allows the state to take remedial action and claim costs. It maintains the requirement for an environmental
management program for all mining operations, but with more detailed specifications than under the Minerals
Act, and prohibits the carrying out of mining activities before the approval of the program. When rehabilitation
is required, it is not limited to the land surface. We were in material compliance with the repealed Minerals Act,
and we expect to continue to be in compliance with the new legislation.
Mining rights
Transitional provisions are included in the MPRD Act, which phases out privately held mineral rights held
under the repealed legislation. The transitional provisions contemplate three types of rights:
(a)   mineral rights in respect of which no prospecting permit or mining authorization has been issued
and/or no prospecting or mining activities are taking place;
(b)   mineral rights in respect of which prospecting permits have been issued and prospecting is taking
place; and
(c)   mineral rights in respect of which mining authorizations have been issued and mining is taking place.
The rights described in these three categories are defined as Old Order rights. Under category (a), the
holders of privately-held mineral rights had to apply for a prospecting or mining right in their own names to
replace their existing mineral rights by 30 April 2005. Under categories (b) and (c), any prospecting permit or
mining authorization granted under the previous legislation would continue to be valid for a maximum period of
two and five calendar years from enactment, respectively. After the lapse of the one-year period referred to in
category (a) and the respective periods in categories (b) and (c), the mineral rights will cease to exist. Within
these periods, the holders of mineral rights and prospecting permits or mining authorizations, in order to
continue with their mining or prospecting operations, must apply for a new prospecting right or mining right in
respect of category (a) and for conversion to new prospecting or mining rights in respect of categories (b)
and (c).
background image
82
Under the Act, prospecting rights will be granted for an initial maximum period of five calendar years, and
could be renewed once, upon application, for a period not exceeding three calendar years. Mining rights will be
valid for a maximum period of thirty calendar years, and could be renewed, upon application, for further
periods, each not exceeding thirty calendar years. Provision is made for the grant of retention permits, which
would have a maximum term of three calendar years and could be renewed once, upon application for a further
two calendar years.
A wide range of factors and principles will be taken into account by the Minister of Minerals and Energy
when considering these applications. These factors include the applicant’s access to financial resources and
appropriate technical ability to conduct the proposed prospecting or mining operation, the environmental impact
of the operation and, in the case of prospecting rights, considerations relating to fair competition. Other factors
include considerations relevant to promoting employment and the social and economic welfare of all South
Africans and showing compliance with the provisions of the Mining Charter for the empowerment of HDSAs in
the mining industry.
Part II of the Regulations promulgated under the MPRD Act relate to the social and labor plan that must
accompany any application for a mining right. The Mining Titles Registration Amendment Act (Act 24 of 2003)
and regulations have been implemented simultaneously with the implementation of the MPRD Act. It provides
the mechanism to give effect to the provisions of the MPRD Act, in particular with regard to the registration of
rights under that Act. Draft regulations under this Bill have also been published for comment.
Sasol Mining held various prospecting permits or mining authorizations with respect to our existing mining
operations, which are now being classified as old order rights. We have commenced with the process to apply for
conversion of our existing mining and prospecting rights into new order rights and for any new licenses Sasol
Mining may require under the MPRD Act. It is the declared intent of the South African government not to
disrupt operations as a result of the introduction of the new legislation. When considering applications for the
conversion of existing mineral rights under the MPRD Act, the Minister of Minerals and Energy must take into
account, among other factors, the applicant company’s compliance with the Mining Charter. We intend to
undertake any appropriate action required to ensure conversion of our existing mineral, prospecting and mining
rights under the MPRD Act.
The act provides that a mining right granted under the Act may be cancelled if the mineral to which such a
mining right relates is not mined at an optimal rate.
Furthermore, royalties from mining activities will become payable to the state under provisions contained
in the Mineral and Petroleum Resources Royalty Bill. This Bill was first published in March 2003 and has since
been revised, with the final Bill being published on 11 October 2006. The Bill provides for a royalty rate of 1%
on coal with an ash content of higher than 15% for South African energy consumption and 3% on coal with an
ash content lower than 15%. The royalty is revenue based, payable bi-annually in arrears to the state, and will
take effect on 1 May 2009. The royalty will be deductible for normal income tax purposes.
Regulation of pipeline gas activities in South Africa
The Gas Act
The Gas Act came into effect on 1 November 2005 as proclaimed by the President. The Gas Act regulates
matters relating to gas transmission, storage, distribution, liquefaction and re-gasification activities. Among its
stated objectives are:
• promoting the efficient development and operation of the respective facilities and the provision of
respective services in a safe, efficient, economically and environmentally responsible way;
• promoting companies in the gas industry that are owned or controlled by HDSAs;
• promoting competition and investment in the gas markets; and
• securing affordable and safe access to gas services.
background image
83
The Gas Act provides for the powers of the National Energy Regulator of South Africa (NERSA) regarding
pipeline gas, whose powers include the issuance of licenses for a range of activities including:
• the construction, conversion or operation of gas transmission, storage, distribution, liquefaction and re-
gasification facilities; and
• trading in gas.
NERSA has the authority to determine maximum prices for distributors, reticulators and all classes of
consumers where there is inadequate competition as contemplated in the South African Competition Act.
NERSA may impose fines not exceeding R2 million a day, if a licensee fails to comply with its license
conditions or with any provisions of the Gas Act.
The National Energy Regulator Act
The National Energy Regulator Act came into operation on 15 September 2005 as proclaimed by the
President. The National Energy Regulator Act provides for the establishment of a single regulator to regulate the
piped gas, petroleum pipeline and electricity industries and for the functions and composition of the energy
regulator.
On 1 November 2005 NERSA, pursuant to the National Energy Regulator Act, came into existence by the
appointment of the four full-time regulators, of which one is the designated chief executive officer of NERSA.
The Regulator consists of nine members, including four full-time members and five part-time members.
Although the full-time members of NERSA are appointed for specific portfolios (gas, electricity and petroleum
pipelines), NERSA will operate as a collective and decisions will be made on a collective basis.
According to Section 35 of the Gas Act license applications for existing business activities had to be
submitted to NERSA within six months from the effective date of the Gas Act (2 May 2006) by any person
owning or operating gas facilities or trading in gas. Accordingly, ROMPCO submitted an application for the
operation of a gas transmission facility whilst Sasol Gas submitted license applications for the operation of
distribution facilities as well as for trading in gas.
All the license applications have been compiled in accordance with the Gas Act and the rules published by
NERSA. In accordance with the rules, the applications were advertised, inviting objections within a 30-day
period. Thereafter NERSA has 60 days to consider the objections and responses thereon in order to decide on
the granting of the licenses. As the regulations under the Gas Act have not been promulgated yet, Sasol Gas
envisages that the decision on granting of the licenses should be concluded during the first quarter of the 2007
calendar year.
The Mozambique Gas Pipeline Agreement (Regulatory Agreement)
This agreement entered into between the Minister of Minerals and Energy of South Africa, the Minister of
Trade and Industry and our company in connection with the introduction of natural gas by pipeline from
Mozambique into South Africa is incorporated into the Gas Act through the reference thereto in Section 36 of
the Act. The Gas Act provides that the terms of the agreement bind the Gas Regulator for a period until 10 years
after natural gas is first received from Mozambique (26 March 2004). From the date of the conclusion of the
agreement, the terms of the agreement relating to the following matters constitute conditions of the licenses to
be issued to Sasol Gas and ROMPCO under the Gas Act:
• our rights and periods granted in respect of transmission and distribution of gas;
• third party access to the transmission pipeline from Mozambique and to certain of our pipelines;
• tariffs we charge for gas;
• our obligation to supply customers, distributors and reticulators with gas; and
• the administration of the agreement.
background image
84
As part of the Gas Act, the Mozambique Gas Pipeline Agreement forms part of the legislation and as such
it may be susceptible to the same legislative processes generally applicable to changes in legislation.
The Gas Regulator Levies Act was signed into law on 15 January 2003 and came into effect on
1 November 2005. It provides for the imposition of levies by the Gas Regulator on the amount of gas delivered
by importers and producers to inlet flanges of transmission or distribution pipelines. These levies will be used to
meet the general administrative and other costs of the gas regulation activities of NERSA and the functions
performed by NERSA in this regard. In terms of the Act, NERSA has submitted a budget to the Minister of
Minerals and Energy, which after approval by the Minister in conjunction with the Minister of Finance, will be
relayed into a levy charged as a per gigajoule levy on the volumes of gas transported. The regulations published
under the Gas Act for comment specifically precludes the recovery by licensees of such levies from their
customers.
Regulation of petroleum-related activities in South Africa
The Petroleum Products Amendment Act
This Amendment Act, which became effective on 17 March 2006, amends the existing Petroleum Products
Act by enacting provisions regulating a range of matters including the licensing of persons involved in the
manufacturing, wholesale, holding or development of sites, and retail sale of petroleum products. The
Amendment Act prohibits licensed wholesalers from holding retail licenses, except for training purposes. As the
Amendment Act and regulations to be promulgated thereunder regulate business activities conducted by Sasol
Oil, Natref and Sasol Synfuels, they are currently in the process of applying for manufacturing licenses in
respect of our plants, wholesale licenses in respect of our wholesale activities and site licenses for our retail
sites. We cannot assure you that these licenses will be granted. It should be noted that, as a person conducting
the aforesaid activities at the commencement of the Amendment Act, Sasol Oil and Sasol Synfuels are entitled to
the issue of such licenses if they are found to be in compliance with all legal requirements in force for the
operation of their respective activities. However, new site developments could be delayed given the requirements
under the new regulations.
The Petroleum Pipelines Act
This Act, which was signed by the President of South Africa on 31 May 2004 and became effective on
1 November 2005, among other things, establishes a petroleum pipelines authority as custodian and enforcer of
the regulatory framework applicable to petroleum pipelines.
Among the stated objectives of the Petroleum Pipelines Act are:
• promoting competition and limiting anticompetitive practices within the scope of the regulated activities;
• promoting the efficient, sustainable and orderly development, operation and use of pipelines, marine
offloading facilities and storage facilities from a national and industry-specific perspective;
• ensuring the safe, efficient, economic and environmentally responsible transport and storage of crude oil
and petroleum products;
• promoting fair and equitable access to pipelines, offloading and storage facilities and related commercial
services; and
• promoting companies in the petroleum pipeline industry that are owned or controlled by HDSAs.
The Act provides that no person may construct, or operate, a petroleum pipeline, loading facility or storage
facility without a license issued by the authority. It enables the authority to impose conditions to such licenses
relating, inter alia, to:
• pipelines being licensed for crude oil or petroleum products, or both;
• interested parties being allowed to negotiate changes with licensees in the proposed routing, size and
capacity of proposed pipelines;
background image
85
• shippers to be provided access to pipelines and capacity to be shared among users in proportion to their
needs and within commercially reasonable and operational constraints; and
• tariffs to be set by the authority for pipelines, and approved by the authority for loading and storage
facilities.
The Act enables the authority to expropriate land in accordance with section 25 of the Constitution if a
licensee is unable to acquire such land by agreement with the owner and the land is reasonably required for
facilities which will enhance South Africa’s petroleum pipelines infrastructure. The Act authorizes the South
African Minister of Minerals and Energy to promulgate regulations and we cannot assure you that the
application of the provisions of the Act, or the promulgation of regulations in terms thereof, will not have a
material adverse effect on our business, operating results, cash flows and financial condition.
We have submitted applications for the issue of licenses for our depots and related infrastructure and
currently await their issue.
The Petroleum Pipelines Levies Act
The Petroleum Pipelines Levies Act, No. 28 of 2004, empowers the National Energy Regulator to impose
levies on petroleum transported by petroleum pipelines. The proposed levy will be based on the amount of
petroleum, measured in liters, delivered by importers, refiners and producers to inlet flanges of petroleum
pipelines and must be paid by the person holding the title to the petroleum immediately after it has entered the
inlet flange.
The levy is intended for the purpose of meeting the general administrative and other cost of the Authority
and the functions performed by the National Energy Regulator.
Any levies intended to be imposed by the Authority must be published for representation by stakeholders
and must be approved by the Minister of Minerals and Energy, with the concurrence of the Minister of Finance.
Levies lapse five years after their imposition and the Minister must approve a re-imposition of levies.
To date no levies have been imposed, although their imposition is imminent.
Safety, health and environment
We are committed to zero harm to people, facilities and the environment. Our safety, health and
environment (SH&E) performance is driven by the quest for continuous improvement that will help us achieve
our vision of being a world class company.
Our combined mining, fuels and chemical operations are subject to numerous local, national and regional
safety, health and environmental laws and regulations in Southern Africa, Europe, the United States, the Asia-
Pacific region, the Middle East and the Indian subcontinent. Our global operations, including marketing and
logistics, are also affected by international environmental conventions.
We focus on our safety, health and environmental responsibilities through our SH&E policy, strategy and
minimum requirements and are committed to ensure that we operate under safe working practices, safeguard
against accidents and avoid harm to people and the environment in all our businesses.
Safety, health and environmental laws and regulations affect a wide spectrum of our group activities. These
statutory requirements often require permits or licenses to be obtained for the use of natural resources such as
water, and for the operation of our facilities and the disposal of our waste products. They also prescribe
minimum standards for the safety and health of our employees. They impose restrictions on the types and
quantities of emissions that can be released into the environment, and also regulate issues of product safety,
waste generation, management and ultimate disposal. It is our expectation that these laws and regulations will
become more stringent in the future.
background image
86
Safety, health and environment policy and management systems
We have developed a systems-oriented approach towards the management of these issues. We have moved
from a division-based safety, health and environment management policy to a structure directed on a group basis.
We are committed to sustainable development and legal compliance being the minimum requirement for all our
operations. Matters of safety, health and environment are treated as critical business issues. Planning of safety,
health and environmental issues includes the setting of targets, performance measurement, reporting and review.
In order to ensure that our safety, health and environmental performance is aligned with our group targets
and objectives, corporate governance and other audits are carried out regularly. All of our businesses are required
to track their performance and furnish quarterly reports to their respective operating boards to the Group
Executive Safety, Health and Environment Committee and to the group Risk and Safety, Health and
Environment Committee. At the highest level, the Risk and Safety, Health and Environment Committee of the
Sasol Limited Board considers the major risks and liabilities, progress on our internal indicators of performance
and any major incidents and events of non-compliance. For information regarding our Group Executive Safety,
Health and Environment Committee and the Risk and Safety, Health and Environment Committee of the Sasol
Limited Board, see also “Item 6.C—Board practices”. Similar reports are also required to address significant
division-specific issues. We use the findings emanating from corporate governance and other audits to
implement improvement measures.
Our businesses are required to manage their safety, health and environmental risks in line with
internationally accredited management systems. On environmental management systems, we are well on the way
towards our group target of achieving ISO (International Standards Organization) 14001 certification for all our
businesses. The ISO 14001 standard is an internationally accepted standard for the development and
implementation of environmental management systems. Certification to the standard entails regular audits by an
independent, accredited third party auditor. We have also set OSHAS 18001 and Process Safety Management
(based on the US Occupational Safety and Health Administration and other Sasol requirements) as additional
minimum corporate requirements, including a behavioral safety program for all Sasol businesses. These systems
and programs are being implemented and good progress has been made.
Health and safety
Safety. In the 2006 year we regrettably lost 4 workers, including contractors. Sasol Mining experienced
three fatalities – two underground and one on surface which resulted in the unfortunate deaths of two contractors
and one employee. In the other unfortunate incident a contractor fell from scaffolding during construction at
Secunda and died as a result of his injuries.
Sasol appointed DuPont Safety Resources (DuPont), an internationally reputable safety consultancy, in
November 2004 to undertake a comparative safety review of its selected South African operations against
international best practices in the areas of leadership, organization, and operational and process safety. The
results from this intense focus of safety resulted in an overall improved safety performance with Sasol achieving
an all time low recordable case rate of 0.7. DuPont performed a second review during March 2006 to determine
progress with the implementation of actions as a result of the first review recommendations. The review report
highlighted the fact that while there are still many improvement opportunities, Sasol has made good progress.
The results, if measured by injury statistics, are clearly visible. Details of the second DuPont Safety Review are
available on our website (www.sasol.com).
The performance of our United States and European operations have been excellent. All facilities are in the
best quartile of performance in the chemical industry.
Emissions. Because of the nature of some of our processes, including coal gasification for the production of
petrochemical products, our operations generate relatively high carbon dioxide emissions. Our coal gasification
operations are situated in South Africa, which is classified as a developing country in terms of the Kyoto
Protocol and though we are largely exempt from the emissions reduction targets required under the Protocol we
background image
87
have implemented a successful project to replace coal as a feedstock with natural gas at our Sasolburg chemical
operations. Sasol is also committed to reducing greenhouse gas emissions. We support the voluntary Energy
Efficiency Accord championed by the South African Department of Minerals and Energy.
We monitor and measure ambient air quality around our SA plants. In Lake Charles in the United States, we
also are part of an authority-led initiative to monitor ambient air concentrations, in order to identify and address
proactively major risks for community health in a timely manner. In addition, our operations in the United States
have reduced reported emissions under the Toxic Release Inventory by over 80% since reporting began in 1987.
As expected, our hydrogen sulfide odors from coal gasification, which were within statutory limits, were
eliminated when natural gas replaced coal as a feedstock at our Sasolburg operations. Significant efforts are also
being made to reduce hydrogen sulfide emissions emanating from the Secunda operation. The sulfur recovery
plants are being upgraded to reduce levels of hydrogen sulfide emissions and improved monitoring and control
equipment will also be addressed as part of this long-term project. Sasol also conducted an international audit
focusing on air pollution management at our South African operations. Findings and recommendations made
during the audit are being incorporated into current improvement and business plans.
Water. Water use is increasingly becoming a source of concern, not only in mining, but in all our
operations, in particular in South Africa, Qatar and other arid countries. A series of water treatment and saving
programs and projects were introduced or are currently under way to address relevant challenges in all of our
operations. We have progressed significantly in the research and development of managing the water-related
impacts of our mining activities.
Our project team of internal and external experts in mining, geohydrology, geochemistry, water and waste
treatment is currently committed to researching innovative and cost-effective solutions to further reduce our
impact on the environment.
The long-term supply of water to the Secunda complex (up to 2030) has been assured by the Vaal River
Eastern Sub-System Augmentation Project (VRESAP). The Trans-Caledon Tunnel Authority was mandated by
the Minister of Water Affairs and Forestry of South Africa to fund and implement the VRESAP project to meet
the growing demands of Eskom and Sasol in the Mpumalanga region. Construction of the VRESAP pipeline is
currently in progress and completion is expected in the last quarter of 2007 calendar year.
Fires, explosions and releases. The manufacture of petrochemicals involves using high volumes of
flammable substances, often under high pressure and at high temperatures. Hence, managing the risk of fires,
explosions and releases of hazardous substances is essential for us. In the course of our operations, we
experienced a number of fires, explosions and releases of hazardous chemical substances, the most significant
being an explosion that occurred at Sasol Polymers on 1 September 2004. We have taken steps to reduce the
frequency and severity of these events, and do not expect any other past fires, explosions or releases to have a
material effect on our results or operations.
Our operations in the United States are conducted in accordance with the requirements of the Occupational
Safety and Health Administration Process Safety Management and US Environmental Protection Agency
(US EPA) Risk Management Program regulations. Through the application of these regulations, we implement a
thorough safety management process designed to minimize the risks of accidents and releases of hazardous
substances.
In addition, since 11 September 2001, assessing and improving the security of chemical operations in the
United States has become an important focus. Our Baltimore and Lake Charles plants have since evaluated plant
security programs and made changes in procedures and physical security measures. As a member of the
American Chemistry Council, Sasol NA has also adopted a Security Code of Management Practice, which
requires that we conduct a security vulnerability analysis to identify areas in which additional security measures
are necessary, and have a management system in place for other aspects of plant, distribution and cyber security.
background image
88
All Sasol sites have identified and quantified their major risks with regards to major fires, explosions or
releases. Risk mitigation plans are in place.
We maintain a comprehensive insurance program, to address identified risks.
Land remediation and rehabilitation. Because of our chemicals and fuels processes, we have particular
legacy and current risks that we have addressed or are currently addressing. We are consolidating our regional
strategies to form a group-wide strategy to address potential liabilities associated with land remediation and
rehabilitation.
Our gas pipelines are buried underground in order to reduce long-term impacts. We implemented this
approach for the Mozambique natural gas project, for which we used World Bank guidelines for environmental
impact assessment studies.
The decommissioned Klipspruit cyanide factory has been satisfactorily rehabilitated and negotiations are
underway for the Johannesburg Metro Council to take over the land for future development.
Waste. Potential risks associated with waste are a priority for us. Historical legacies are addressed in
accordance with relevant legal requirements, and cleaner production techniques are implemented to address
future risks. Where we acquire new plants, the attendant risks are identified and the necessary indemnities
sought from the sellers. Where we have not secured such indemnities, we are confident that such risks and
attendant liabilities will not have a material adverse effect.
The Natural Gas Conversion Project has had significant impact on the reduction of waste produced,
specifically with regards to tar and oil waste, and ash at our operations in Sasolburg. The ash dump presently has
a negative growth rate due to ash sales for brick making.
The South African Waste Discharge Charge System for the controlled discharge of effluent to a water body
will be implemented by the Department of Water Affairs and Forestry over the next two to three years. The
financial impact to Sasol has yet to be quantified, but could be substantial. Waste and waste water effluent
minimization projects are receiving specific attention.
Asbestos. We have a strategy for the risk-based phase-out of asbestos, which is being implemented by our
operations. We have implemented a policy to ensure that new sources of asbestos are not procured in the
construction of new facilities worldwide. Asbestos is removed and disposed of under strict regulatory
requirements as plant modifications are made or as necessary for maintenance.
South Africa
Environmental regulation
The Constitution of the Republic of South Africa provides the framework for the environmental legislation
in South Africa. Section 24 of the Constitution enshrines the right of all citizens to an environment that is not
harmful to their health and well-being and provides individuals with a right to the protection of the environment.
It further provides that these rights can be enforced through reasonable legislative and other measures to prevent
pollution and degradation, to promote conservation and to secure an ecologically sustainable development.
Further constitutional provisions provide relevant rights of enforcement, including class actions. A number of
laws and regulations address specific issues relating to the protection of the environment. The following includes
an analysis of some of these laws, which may be relevant to our operations.
National Environmental Management Act. The National Environmental Management Act provides for
cooperative environmental governance and coordination of the environmental functions of the government. The
Act regulates environmental authorization requirements compliance and provides for enforcement measures
including provision for fines up to R5 million. The Act principally imposes a duty of care on persons who have
or may pollute or degrade the environment and other responsible parties to take reasonable measures to prevent
and remediate environmental damage, protects workers refusing to undertake environmentally hazardous work
background image
89
and provides for control over emergency incidents. It promotes access to environmental information, protects
whistleblowers and allows for private prosecution and class actions. The Act was recently amended to include
provisions and requirements for environmental authorizations and impact assessments. Provisions in this regard
under the Environment Conservation Act were repealed. Section 24G was also added to the Act, providing for
retrospective applications in respect of activities undertaken in contravention of the law. Consideration of
applications is subject to payment of a fine, up to R1 million.
National Environmental Management: Biodiversity Act. This Act, deals with various issues relating to
biological diversity including its management and conservation.
National Environmental Management: Protected Areas Act. This Act provides for the declaration of
conservation areas. Of particular significance is that it provides for the expropriation of private land, including
servitudes, in the interests of conservation. We have not been notified of any action that could have a material
adverse effect on our rights to any of our significant properties.
Mineral and Petroleum Resources Development Act. This Act makes provision for the effective
management of impacts associated with mining activities. An environmental management program (EMP) must
be compiled, approved by the Department of Minerals and Energy, and regularly reviewed. The EMP is required
to cover potential environmental as well as socio-economic impacts. The Act further requires the making of
financial provision for the rehabilitation or management of negative environmental impacts.
Water protection
The National Water Act provides for the equitable allocation of water for beneficial use, sustainable water
resource management and the protection of the quality of water resources. The Act establishes water
management procedures and protects water resources through the licensing of various uses of water. It also
includes provisions for pollution prevention, remediation requirements and emergency incidents. The
Department of Water Affairs and Forestry is currently implementing a Waste Discharge Charge System, which
may have a significant impact on operational costs.
A significant part of our operations, including mining, chemical processing and others, require use of large
volumes of water. South Africa is generally an arid country and prolonged periods of drought or significant
changes to current water laws could increase the cost of our water supplies or otherwise impact our operations.
In this regard, the Department of Water Affairs and Forestry is implementing a Pricing Strategy aimed at
allocating the appropriate price for the use of water, which may have a significant impact on operational costs.
Further initiatives in this regard include the National Water Resource Strategy and the National Water Resource
Allocation Strategy, aiming to ensure the equitable distribution of water.
Air protection
The National Environmental Management: Air Quality Act has recently been promulgated, enabling the
Department of Environmental Affairs and Tourism to set ambient air quality and emission standards, declare
Priority Areas for the purposes of implementation of Air Quality Management Plans, and prepare for the review
of atmospheric emission licenses. It is expected that this Act will impose stricter standards on air quality
management in South Africa, through the adoption of internationally accepted ambient and emission standards
and that this will result in significant capital and operational costs. The Department of Environmental Affairs and
Tourism recently declared the Vaal Triangle as a Priority Area.
Some of our processes in South Africa, especially coal gasification, result in relatively high carbon dioxide
emissions. South Africa is considered a developing country in terms of the Kyoto Protocol and, accordingly, it is
largely exempt from the emissions reductions required. We are taking measures to reduce our emissions,
amongst which has been the use of natural gas from Mozambique as of 2004 in lieu of coal, which is reducing
sulfur dioxide emissions and hydrogen sulfide odors from gasification operations in the Sasolburg region. We
also monitor air emissions at our plants to measure ambient air quality. The Department is also finalizing
ambient air quality standards. Compliance with these standards will require significant capital expenditure.
background image
90
Waste and hazardous substances
Environment Conservation Act. The Environment Conservation Act establishes a licensing framework for
the establishment, operation and closure of any waste disposal site. The Department of Environmental Affairs
and Tourism is currently finalizing a National Waste Management Implementation Programme, to be supported
by the Waste Management Bill, still to be drafted. The Bill is expected to cover solid waste management and
incorporate the principles of the Basel Convention on the trans-boundary movement of waste.
Hazardous Substances Act. The Hazardous Substances Act provides for the control and licensing of
substances that may cause injury, ill-health or death to human beings by reason of their toxic, corrosive, irritant,
strongly sensitizing or flammable nature.
Other environmental legislation
The National Road Traffic Act and its regulations regulate the transportation of dangerous goods and
substances. The Act provides specifications for road tankers, labeling, duties of responsible persons,
compatibility of multi-loads, driver training and hazardous substance documentation. The National Railway
Safety Regulator Act provides for similar regulation in respect of rail transport.
The Explosives Act consolidates the laws relating to the manufacture, storage, sale, transport, importation,
exportation and the use of explosives and imposes an authorization requirement for the manufacture and storage,
as well as for the import, export and sale of explosives.
The Fertilizers, Farm Feeds, Agricultural Remedies and Stock Remedies Act regulates the registration,
importation, sale, acquisition, disposal or use of fertilizers, among other products.
Health and safety regulation
Occupational Health and Safety Act. The Occupational Health and Safety Act covers a number of areas of
employment activity and use of machinery in South Africa, excluding mining activities. The Act imposes various
obligations on employers and others to maintain a safe workplace and minimize the exposure of employees and
the public to workplace hazards and establish penalties and a system of administrative fines for non-compliance.
Mine Health and Safety Act. The principal objective of the Mine Health and Safety Act is to protect the
health and safety of persons at mines by requiring that employers and others ensure that their operating and non-
operating mines provide a safe and healthy working environment, determining penalties and a system of
administrative fines for non-compliance and giving the Minister of Minerals and Energy the right to restrict or
stop work at any mine and require an employer to take steps to minimize health and safety risks at any mine.
Compensation for Occupational Injuries and Diseases Act. The purpose of this Act is to provide for
compensation for disablement caused by occupational injuries or diseases sustained or contracted by employees
in the course of their employment, or for death resulting from such injuries or diseases. The Act is administered
by the Minister of Labor, through a Director-General who manages a compensation fund to which employers
contribute, directly or indirectly. Where indirect contributions are made, these contributions are made to a mutual
association, which acts as the insurer in respect of claims against the employers. All employers, with the
exception of those in national, provincial and local government, are required either to register under the Act or to
be fully insured against related liabilities.
Occupational Diseases in Mines and Works Act. This Act relates to the payment of compensation in respect
of certain diseases contracted by persons employed in mines or at locations where activities ancillary to mining
are conducted. Any mine (including the Sasol Mining operations) at which risk work takes place is deemed to be
a controlled mine in respect of the employees for whom the employer is required to make payments to the fund
for occupational diseases, in order to meet relevant claims. Persons who are employed in controlled mines are
required to have a certificate of fitness, which must be renewed from time to time.
For further information, see “Item 6.C—Board practices—The risk and safety, health and environment
committee”.
background image
91
Germany
In Germany, we operate a number of plants and facilities for the storage, processing and transportation of
chemical feedstock, products and wastes. These operations are subject to numerous laws and ordinances relating
to safety, health and the protection of the environment.
General environmental care
The lack of a general environmental code in Germany means that no guideline legislation is available for
general environmental care. In terms of the Act on the Assessment of Environmental Impacts, the environment
impact assessment (EIA) is an instrument of preventative environmental care that is legally binding. This has
been introduced in existing public procedures for the licensing of, or considerable amendment to, certain
projects of relevance to the environment, including chemical facilities. The EIA is based on the cooperation
between the environmental authorities and the parties intending to carry out the project.
The Environmental Information Act guarantees everyone’s access to official environmental information.
Issues relating to general environmental care are addressed by the environmental provisions of the Regional
Planning Act and other specific and planning law designed to ensure environmental soundness, as well as by the
Environmental Liability Act, which provides for liability in the case of environmental risks. Where human life or
health is disturbed and where emissions have entered the soil, water or the air, the owner of a facility is liable,
even if he or she is not at fault and irrespective of whether the damage was caused as a result of a hazardous
incident or during normal operations. Damage resulting from force majeure is excluded from liability. The right
to the restoration of the previous state also extends to nature and the landscape. Installations that pose a
particular risk to the environment must have provisions for sufficient cover, an obligation which may be met by
arranging liability insurance.
Criminal law provisions are included in the Act to Combat Environmental Crime, which targets a range of
polluting activities, including water, soil and air pollution, environmentally damaging waste disposal and noise.
It also addresses licensing of the operation of installations and the handling of hazardous substances and goods
and particularly serious environmental offences.
Specific environmental protection legislation
Emission control. The guideline legislation to protect humans and the environment from air pollution and
noise pollution is the Federal Emission Control Act. This Act and the ordinances promulgated under it provide
the framework for environmental protection and the technical safety of installations. It provides for licensing for
installations that are particularly susceptible to causing harmful environmental impacts, including chemical
facilities or mineral oil refineries.
Regulation of hazardous substances. Provisions for the protection of humans and the environment against
the harmful effects of hazardous substances and preparations are provided in the Chemicals Act, the related
ordinances on the Prohibition of Certain Chemicals and the Hazardous Incidents Ordinance. New substances are
subject, as laid down in European law, to a registration and notification obligation before they can be brought
onto the market. Old substances that have been on the market since 1981 are assessed on the basis of relevant
European regulation. Hazardous substances and preparations must be classified, labeled and packed in line with
their hazardous properties, their manufacture, marketing and use may be prohibited or limited.
The Chemicals Act is complemented by the Plant Protection Act of 14 May 1998 and the Fertilizers Act, as
well as by legislation on animal feedstuffs and human foodstuffs and by substance-related provisions in other
areas of care of the environment. This also includes the provisions concerning the environmental impacts of
genetic technology under the Genetic Technology Act.
background image
92
Avoidance, recovery and disposal of waste. The Closed Substance Cycle and Waste Management Act
regulates the avoidance, recovery and disposal of waste. The aim of the Act is to promote an economy based on
closed substance cycles, thus conserving resources, and to guarantee the environmentally sound disposal of
waste. Wherever waste cannot be avoided, recovered or used to produce energy, it must be removed from the
cycle and, as a matter of principle, be disposed of within Germany in a way that is not detrimental to the
common good. Under law, waste is defined as a tangible item, which falls under one of the legally determined
categories of waste, and which the owner is getting rid of, desires to get rid of or must get rid of.
The Waste Transportation Act regulates the transport of waste into, out of or through the area of application
of the Act and creates the basis for the establishment of a solidarity fund to finance the return of waste exported
illegally.
Water protection. The guideline legislation in the field of water protection is the Federal Water Act. This
requires everyone to exercise adequate care when carrying out measures which may have an impact on a water
body so that water pollution or any other negative effect on water is prevented. Surface waters and groundwater
are, as public utilities, subject to a public management and utilization code, which leaves the allocation of users’
rights at official discretion.
The Waste Water Charges Act complements the Water Management Act and authorizes an annually rising
waste water charge linked to the toxicity of the discharged waste water. Water legislation promulgated by the
Federal States goes beyond merely the enforcement of the framework of federal law to determine administrative
procedures and regulate issues of private water law.
Water protection is also addressed directly or indirectly by substance-related provisions in other laws,
including the Chemicals Act, the Fertilizers Act and the Waste Avoidance and Waste Management Act. They also
comprise provisions through which water is indirectly protected via the soil and the air.
Soil protection. The protection and care of soil as an environmental medium and part of the ecosystem is
promoted by a range of environmental provisions, primarily the Federal Soil Protection Act. Soil protection
measures, preventative or remedial, aim at avoiding or reducing substance inputs into the soil, or removing
already existing soil damage, and at addressing the extensive land consumption caused by soil sealing.
Health and safety
The Health and Safety at Work Act provides for protection of the health and safety of employees. It places
the employer under a duty to assess hazards at the workplace, to take appropriate preventive measures, and to
instruct employees about measures used. The employer must take precautions for especially hazardous areas and
situations and provide preventive occupational healthcare. This Act is complemented by the Safety at Work Act,
which places employers under a duty to appoint appropriately qualified officers to support them in occupational
health and safety matters, including ergonomic workplace design. Also, the Mining Act contains stipulations
regarding the health protection of mine workers and is complemented by a special ordinance treating this topic.
Italy
In Italy, we operate a number of plants and facilities for the storage and processing of chemical feedstock,
products and wastes. These operations are subject to numerous laws and ordinances relating to safety, health and
the protection of the environment.
General environmental care
On 28 April 2006 a new Environmental Decree (Legislative Decree 152/2006) came into force, regulating
the most important environmental matters, including authorizations, emissions, water management, wastes and
remediation and environmental damages. The effectiveness of the authorization chapter has been postponed to
the beginning of the 2007 calendar year, and the environmental damage section will come in force in the 2008
calendar year. Nonetheless, the company is liable for damages caused to the environment under general and
special rules.
background image
93
European Directive 96/61/CE (Integrated Pollution Prevention and Control) provides that companies must
obtain an integrated authorization for all environmental impact. This directive has already been implemented in
Italy but has not yet taken effect. Sasol Italy is preparing the documentation required to be compliant with the
directive.
Specific environmental protection legislation
Emission control. Environmental protection and the technical requirements licensing of all installations
from which emissions emanate is now regulated by Legislative Decree 152/06, section 5.
Regulation of hazardous substances. Legislative Decree 52/1997 implemented in Italy the EU Directive
relevant to classification, packaging and labeling of dangerous substances. Legislative Decree 65/2003
implemented the EU Directives relevant to classification, packaging and labeling or dangerous preparations.
New substances are subject, as laid down in European law, to a registration and notification process before they
can be brought onto the market. Old substances that have been on the market since 1981 are assessed on the
basis of relevant European regulation. Hazardous substances and preparations must be classified, labeled and
packed in line with their hazardous properties; their manufacture, marketing and use may be prohibited or
limited.
Avoidance, recovery and disposal of waste. Legislative Decree 152/06, part 4 incorporates the principle of
‘polluters pay’ and further provides for cradle to the grave liability for wastes.
Water protection. Legislative Decree 152/2006, part 3, defines the authorization procedure and discharge
limits, in order to protect surface and underground water. Surface water and groundwater are, as public utilities,
subject to a public management and utilization regulation which leaves the allocation of users’ rights at official
discretion.
Soil protection. The protection and care of soil as an environmental medium and part of the ecosystem is
promoted by Legislative Decree 152/06, which essentially follows the Ministerial decree 471/1999 with some
simplification as far as documentation is concerned. Soil protection measures, preventative or remedial, aim at
avoiding or reducing substance inputs into the soil, or removing already existing soil damage. The Legislative
decree sets forth both the acceptable limits and the rules for monitoring communication and reclamation.
Health and safety
The Health and Safety at Work Legislative decree 626/1994 provides for protection of the health and safety
of employees. It places the employer under a duty to assess hazards at the workplace, to take appropriate
preventive and protective measures, and to instruct employees about risks and relevant measures. The employer
must take precautions for especially hazardous areas and situations and provide preventive occupational
healthcare.
United States
Environmental compliance
Sasol NA and Merisol are subject to numerous federal, state, and local laws and regulations that regulate
the discharge of materials into the environment or that otherwise relate to the protection of human health and the
environment. As with the chemical industry, generally, compliance with existing and anticipated environmental,
health, safety, and process safety laws and regulations increases the overall cost of business, including capital
costs to construct, maintain, and upgrade equipment and facilities. These laws and regulations have required, and
are expected to continue to require, Sasol NA and Merisol to make significant expenditures of both a capital and
expense nature. Environmental compliance expenditures for our interest in Merisol and Sasol NA’s
manufacturing sites for the next 5 years are estimated to range from US$9 million to US$13 million per year.
background image
94
Under the agreement for the acquisition of Condea, the whole of RWE-DEA AG’s chemical business which
we renamed Sasol Chemie, we received indemnities from the seller, RWE-DEA AG, for most of the costs of
operational compliance with respect to conditions existing on or before 1 March 2001. These indemnities
expired on 1 March 2006.
The Louisiana Department of Environmental Quality (LDEQ) in 2000 issued to Sasol NA four violations of
state and federal air emission laws and regulations. These allegations assert violations of air-based reporting and
record-keeping requirements, as well as minor exceedance of permitted air emissions. Sasol NA settled the
LDEQ air enforcement action in 2006 for a penalty of US$ 50,000 and performance of a Beneficial
Environmental Project valued in the settlement at US$ 165,000.
The Baltimore Plant received Clean Air Act Section 114 and RCRA Section 3007 information requests
from the US EPA in 2006. The Baltimore Plant also received notices of violations in 2006 from US EPA with
respect to compliance with spill control and countermeasures and hazardous waste regulations, but no penalties
were assessed.
Remedial action
Active and former manufacturing sites. Sasol NA has been investigating and the remediation soil and
groundwater contamination at the Lake Charles chemical complex (LCCC) and Baltimore plant sites resulting
from historical operations under orders issued by LDEQ and the Maryland Department of the Environment
(MDE). The Vinyl Chloride Monomer (VCM) Plant which was sold to Georgia Gulf in 1999 is also subject to
US Resource Conservation and Recovery Act (RCRA) corrective action requirements. The Baltimore Plant is
monitoring the natural attenuation of hydrocarbon contaminants in the groundwater and regularly reporting to
MDE and is not being actively remediated. The current costs of monitoring the Baltimore Plant site and the
VCM Plant site and any foreseeable remediation costs are not expected to be material.
In addition to Sasol NA’s operating sites, Sasol NA also has retained liability to Georgia Gulf Corporation
for the remediation of four manufacturing operations sold in November 1999 and located in Mansfield,
Massachusetts, Aberdeen, Mississippi, Jeffersontown, Kentucky, and Oklahoma City, Oklahoma. The Mansfield
site, which is still owned by Sasol NA, has been extensively investigated and remediated since 1991, and the
remediation of groundwater and an area of soil contamination is ongoing. The Aberdeen plant site has also been
investigated under several orders issued by state authorities, and several areas of contamination have been
remediated. Property to the west of the Aberdeen plant was purchased in 2002 and part of the plume migrating
off-site was delineated and contained on-site during 2003. Further investigations of part of the Aberdeen site are
still being performed and the need for further remediation is currently being investigated.
Under the agreement for the acquisition of Sasol Chemie, most of Sasol NA’s costs of the remediation
contamination from historical operations at its active and sold sites are being indemnified by RWE-DEA AG,
and will continue to be indemnified until at least 1 March 2023 in respect of Lake Charles and Baltimore, and in
perpetuity in respect of the Mansfield, Aberdeen, Jeffersontown, and Oklahoma City sites. In addition to
indemnities from RWE-DEA AG, Sasol NA also has indemnities from some of its predecessors— British
Petroleum for Mansfield and Reichhold Chemical for Jeffersontown—for contamination resulting from those
companies’ operations at the sites. Sasol NA does not expect costs to address contamination at these sites to have
a material effect on operations or results.
Calcasieu Estuary CERCLA Site. In June 1999, Sasol NA and other Calcasieu Parish industry members
received letters from USEPA making demand under Section 107 of the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA) for past costs and future remedial investigation, remediation, and
restoration costs associated with the Calcasieu Estuary. The Calcasieu Estuary, which includes the Calcasieu
River and several major tributaries in the vicinity of Lake Charles, Louisiana, has received releases and
discharges from Parish industry since the 1930s. Bayou Verdine has historically received releases and discharges
from the Conoco Lake Charles Refinery beginning in the 1940s and from the LCCC beginning in the 1960s. The
“Bayou Verdine Area of Concern” is one of the areas of concern of the Calcasieu Estuary CERCLA Site.
background image
95
In 1999 and 2000, ConocoPhillips and Sasol NA completed a voluntary joint remedial investigation of
Bayou Verdine under the oversight of state and federal authorities. In 2001, ConocoPhillips and Sasol NA
completed ecological and human health risk assessments of Bayou Verdine and in 2002 performed an
Engineering Evaluation and Cost Analysis (EE/CA) of removal actions for Bayou Verdine under an
Administrative Order on Consent (AOC) with USEPA.
Beginning in October 2002, ConocoPhillips and Sasol NA performed a sediment removal action for a
relatively small area of elevated EDC concentrations located near the confluence of Sasol NA’s West Ditch and
Bayou Verdine. The West Ditch Project was completed in July 2003 at a cost to Sasol NA of about
US$ 2 million. To date, no third party claims have been filed in connection with the West Ditch Project.
The EE/CA also recommends removal actions for the “Main Channel Area” of Bayou Verdine.
ConocoPhillips and Sasol NA intend to perform the Main Channel Removal Action under a Consent Decree
which will be negotiated in 2005 and 2006. Under a Consent Decree, ConocoPhillips and Sasol NA hope to
resolve all of the government’s CERCLA claims against the companies in connection with the Calcasieu Estuary
and will receive protection against CERCLA contribution claims by other “Potentially Responsible Parties”
against the companies. An agreement in principle has been reached with US EPA and the resource trustees
concerning the scope of Main Channel and natural resource restoration projects and the amount of past agency
response costs to be reimbursed by Sasol NA and ConocoPhillips. Sasol NA will pay 10% of these costs.
Sasol NA’s total estimated liability for its share of Bayou Verdine and the Calcasieu Estuary CERCLA Site
is about US$ 1.7 million. Under the agreement for the acquisition of the Condea group (now renamed Sasol
Chemie), 80% of Sasol NA’s Estuary-related remediation costs are expected to be indemnified by
RWE-DEA AG, and will continue to be indemnified until 1 March 2023.
Mozambique
In Mozambique, Sasol operates a processing plant and associated facilities for the extraction, processing
and transportation of natural gas. The Central Processing Facility has been in operation since 18 February 2004.
These operations are subject to numerous Mozambican laws and regulations as well as World Bank requirements
and best practice standards.
Environmental, health and safety regulations. The Ministry for the Coordination of Environmental Affairs
(MICOA) was created in 1994 to coordinate environmental affairs in Mozambique. In 1995, the Ministry drew
up a National Environmental Management Program, which is a policy document outlining the priorities for
environmental management and sustainable development in Mozambique. This program contains a National
Environmental Policy, a proposal for Framework Environmental Legislation and Environmental Legislation and
an Environmental Strategy.
The Framework Environmental Law was enacted in July 1997. The aims of the Environmental Law are to
provide a legal framework for the use and correct management of the environment and its components and to
assure sustainable development in Mozambique. The Law is applicable to all public or private activities that may
directly or indirectly influence the environment. It requires licensing of activities that are liable to cause
significant environmental impacts. The granting of an environmental license is subject to the preparation and
approval of an appropriate level of environmental impact study and management plan. Over the last year, new
environmental legislation has been enacted, namely the Regulation on Environmental Quality and Effluent
Emissions Standards (June 2004) and the Regulation on Environmental Impact Assessment Process (December
2004), the latter revoking the 1998 regulation. In terms of environmental protection and safety, the Petroleum
Act No. 3/2001 requires that holders of exploration and production rights conduct petroleum operations in
compliance with environmental and other applicable legislation.
In 2004 the Mozambican operations were certified in terms of ISO 14001 and ISO 9001. Sasol Petroleum
Temane Limitada, our Mozambican subsidiary, received OHSAS 18001 certification during January 2006.
background image
96
We are currently involved in de-mining and seismic activities inside the exploration area. These activities
are governed by best practice environmental management approaches and periodic reports on environmental
performance are submitted to MICOA. The seismic lines are aligned so that they avoid dwellings and no
resettlement, temporary or permanent, is foreseen. Compensation due to affected community members as a
result of these activities is being undertaken under the Resettlement and Compensation Procedures for the
Natural Gas Project, approved by the Mozambican Ministerial Project Liaison Committee in early 2003.
During the year, we signed agreements with the Mozambican government for two off-shore blocks in the
Indian Ocean. Seismic activities are due to start on these blocks following a detailed Environmental Impact
Assessment (EIA) process. To ensure an open and transparent process, Sasol will promote wide and active
public consultation and engagement with all identified stakeholders. This will be governed by the new EIA
Regulations, as will the planned expansion aimed at the de-bottle necking of the gas processing and transporting
facilities of the Natural Gas Project.
Mineral Rights. Petroleum activities are regulated by the provisions of the Law Regulating Petroleum
Activities. The National Directorate of Coal and Hydrocarbons administers and regulates petroleum operations
on behalf of the government. The Mozambique government encourages the exploration and development of the
country’s hydrocarbon potential within a certain defined project framework.
In accordance with the constitution of Mozambique, the land and the natural resources of the soil and the
subsoil of the territorial waters and continental shelf are the property of the state, which determines the
conditions for their development and use.
The Petroleum Law creates a state enterprise, Empresa Nacional de Hidrocarbonetos de Mozambique,
which is appointed as the custodian of rights for the use, benefit, administration and disposal of hydrocarbons
and may grant licenses to international investors to conduct exploration and production.
Other countries
In a number of other countries we are engaged in various activities that are regulated by local and
international laws, regulations and treaties. In Malaysia, China and other countries, we operate plants and
facilities for the storage, processing and transportation of chemical substances, including feedstock, products and
wastes. In Qatar, the United Arab Emirates, Nigeria, Gabon, Equatorial Guinea and other countries, we are
involved, or are in the process of being involved, in exploration, extraction, processing/or storage and
transportation activities in connection with feedstock, products and waste relating to natural gas, petroleum and
chemical substances. Our operations in the respective jurisdictions are subject to numerous laws and regulations
relating to exploration and mining rights and the protection of safety, health and the environment.
background image
97
4.C
Organizational Structure
Sasol Limited is the ultimate parent of the Sasol group of companies. Our wholly owned subsidiary, Sasol
Investment Company (Pty) Limited, a company incorporated in the Republic of South Africa, holds our interests
in companies incorporated outside South Africa. The following table presents each of Sasol’s significant
subsidiaries (including direct and indirect holdings), the nature of business, percentage of shares of each
subsidiary owned and the country of incorporation at 30 June 2006.
Percentage
Country of
Name
Nature of business
ownership
incorporation
Sasol Mining (Pty) Limited
Coal mining activities
100
South Africa
Sasol Synfuels (Pty) Limited
Production of liquid fuels, gases and chemical
100
South Africa
products and refining of tar acids
Sasol Technology (Pty)
Engineering services, research and
100
South Africa
Limited
development and technology transfer
Sasol Financing (Pty) Limited
Management of cash resources, investment
100
South Africa
and procurement of loans
Sasol Investment Company
Holding company of the group’s foreign
100
South Africa
(Pty) Limited
investments
Sasol Chemical Industries
Production and marketing of mining
100
South Africa
Limited
explosives, gases, petrochemicals and,
fertilizers
Sasol Gas Holdings
Holding company for the group’s gas
100
South Africa
(Pty) Limited
interests
Sasol Oil (Pty) Limited
Marketing of fuels and lubricants
100
1
South Africa
Republic of Mozambique
Owning and operating the natural gas
75
2
South Africa
Pipeline Investments
transmission pipeline between Temane
Company (Pty) Limited
in Mozambique and Secunda in South
Africa for the transportation of natural
gas produced in Mozambique to markets
in Mozambique and South Africa
Sasol Chemical Holdings
Investment in the Sasol Chemie group
100
South Africa
International (Pty) Limited
Sasol Chemicals Europe
Marketing and distribution of chemical
100
United Kingdom
Limited
products
Sasol Chemicals Pacific
Marketing and distribution of chemical
100
Hong Kong
Limited
products
Sasol-Chem Inc.
Marketing and distribution of chemical
100
United States
products
Sasol Financing
Management of cash resources, investment
100
Isle of Man
International plc
and procurement of loans
Sasol Gas Limited
Marketing, distribution and transportation
100
South Africa
of pipeline gas and the maintenance of
pipelines used to transport gas
Sasol Oil International Limited
Buying and selling of crude oil
100
1
Isle of Man
Sasol Petroleum International
Exploration, production, marketing and
100
South Africa
(Pty) Limited
distribution of petroleum and natural gas
background image
98
Percentage
Country of
Name
Nature of business
ownership
incorporation
Sasol Polymers International
Holding company for Sasol Polymers’
100
South Africa
Investments (Pty) Limited
foreign investments
Sasol Synfuels International
Develop and implement international
100
South Africa
(Pty) Limited
GTL and CTL ventures
Sasol Wax International
Holding company for Sasol Wax operations
100
Germany
Aktiengesellschaft
Sasol Wax GmbH
Production, marketing and distribution of
100
Germany
waxes and wax related products
Sasol Wax (SA) (Pty) Limited
Production, marketing and distribution of
100
South Africa
waxes and wax related products
Tosas Beherend (Pty) Limited
Investment holding company
100
South Africa
National Petroleum Refiners of
Refining crude oil
64
South Africa
South Africa (Pty) Limited
Sasol Chemie GmbH
Investment in Sasol Germany GmbH
100
Germany
and Co. KG
and Sasol Olefins and Surfactants GmbH
Sasol Germany GmbH
Production, marketing and distribution of
100
Germany
olefin and surfactant products
Sasol Italy SpA
Manufacturing, trading and transportation
100
3
Italy
of oil products, petrochemicals and
chemical products and derivatives
Sasol North America Inc.
Manufacturing of commodity and
100
3
United States
speciality chemicals
1.
25% interest in Sasol Oil (Pty) Limited was sold to Tshwarisano LFB Investment (Pty) Limited effective 1 July 2006.
2.
CMG is finalizing its financing arrangements for the exercise of its option to acquire a 25% interest in ROMPCO.
3.
Subsidiaries which form part of our discontinued operations.
4.D
Property, plants and equipment
Plants and facilities
We operate coal mines and a number of plants and facilities for the storage, processing and transportation
of oil, chemicals and gas related raw materials, products and wastes. For a detailed discussion regarding the use,
capacity and products of these facilities provided for each business see “Item 4.B – Business overview”.
Coal mining facilities
Our main coal mining facilities are located at the Secunda Mining Complex, consisting of underground
mines (Bosjesspruit, Brandspruit, Middelbult, Syferfontein and Twistdraai export mine) and the Sigma Mining
Complex, consisting of underground mines (Mohlolo and Mooikraal) near Sasolburg.
Pages M–2 to M–4 include maps showing the location of our coal properties and major manufacturing
plants in South Africa.
Our Secunda facilities
Our main manufacturing facilities are located at Secunda and they are the base for numerous of our
Synfuels operations and a range of our chemical industries operations, including explosives, fertilizers,
monomers and polymers, solvents, alpha olefins and tar. The approximate size of this property is 82.5 square
kilometers (km
  ).
2
 
background image
99
Our Sasolburg facilities
Our facilities at Sasolburg are the base for numerous of our chemical industries operations, including
ammonia, explosives, mining chemicals, phenols, solvents, polymers, fertilizers, tars and waxes operations. The
approximate total size of these properties is 51.4 km
2
.
The size of the Natref refinery, also based in Sasolburg, is approximately 1.1 km.
2
 
Our Mozambican facilities
Our natural gas processing operations in Mozambique are operated by Sasol Petroleum Temane Limitada
(a subsidiary of Sasol Petroleum International). These facilities, located some 700 km north of the Mozambican
capital, Maputo, on a site of approximately 400,000 m
2
, extract and process gas from the Temane gas field. The
processed gas is supplied to the South African gas market, utilizing a newly installed high pressure pipeline,
some 865 km in length owned by ROMPCO.
Our facilities in Germany
Various operations of Sasol Solvents are based at a number of locations in Germany, most significant of
these facilities are at Marl (site size approximately 160,000 m
2
; plant size 75,000 m
2
) and Moers site (site size
approximately 808,000 m
2
; plant size 400,000 m
2
). Sasol Wax facilities are based in Hamburg.
Various operations of Sasol Olefins & Surfactants are based at a number of locations in Germany. The most
significant of these facilities are at Brunsbüttel (site size approximately 1.5 million m
2
; plant size 500,000 m ).
2
Our facilities in Italy
Various operations of Sasol Olefins & Surfactants are based at a number of locations in Italy. The primary
facilities are at Augusta (site size approximately 1.35 million m
2
; plant size 220,000 m
2
) and Terranova (site size
approximately 185,000 m
2
; plant size 75,000 m  ).
2
 
Our facilities in the United States
Various operations of Sasol Olefins & Surfactants are based at a number of locations in the United States.
The most significant of these facilities are located at Lake Charles, Louisiana (site size approximately 3 million
m
2
; plant size 540,000 m
2
) and in Baltimore, Maryland (site size approximately 293,000 m  ;
2
 
plant size 255,000 m  ).
2
 
Merisol also has operations based at Oil City, Pennsylvania and Houston and Winnie, Texas.
For more information regarding capital expenditure in respect of these properties and the related facilities
and operations, see “Item 4.A – History and development of the company – Capital expenditure” for a
description of our material plans to construct, expand and enhance our facilities.
background image
100
Mining properties and operations
Mine systems and their production capacity
Sasol Mining operates six mines, the annual nominated capacities and actual production values are
indicated in the following table:
Nominated capacity and production
Nominated
2006
capacity
Actual
Mine
per year
1
production
(Mt)
(Mt)
Bosjesspruit Mine (Secunda)
8.1
7.8
Brandspruit Mine (Secunda)
8.4
8.2
Middelbult Mine (Secunda)
8.2
9.3
Syferfontein Mine (Secunda)
8.7
8.8
Twistdraai Export Mine (Secunda)
10.6
10.5
Sigma Mine (Mohlolo and Mooikraal) (Sasolburg)
1.7
1.6
1.
The 2006 nominated capacity of the mines is the expected maximum production of that mine during normal
operational hours.
All mines employ the underground room and pillar mining method, using continuous miners. At Sasolburg,
the Sigma Mine was first established in 1950. In the Secunda area, production at the first two mines, Brandspruit
and Bosjesspruit commenced in 1977. Twistdraai and Middelbult followed during the early 1980s, while
Syferfontein started production in 1992. In 1996, the Twistdraai Export Mine was commissioned. The mine
boundaries are adjusted into new reserve areas with brownfield extensions, facilitated by satellite shaft systems,
based on ongoing studies and new planning. All the production equipment is either replaced or overhauled on a
regular basis according to a managed maintenance system.
Processing operations
Export business – Secunda operations. The export business was initiated in August 1996 as part of a
growth strategy. To date, a total of 32.5 Mt of coal has been exported, beneficiated from 86.1 Mt at the
Twistdraai Export Plant from 1996 through 2006. Coal is fed to the beneficiation plant from the existing
Twistdraai Export Mine. The beneficiation plant produces primary export product with an ash content of
approximately 10.3% as well as a secondary product for the Sasol Synfuels market.
The export beneficiation plant has a design throughput capacity of 10.5 Mt per year. In 2006, 10 Mt was
processed. The plant consists of a primary and secondary stage. The primary stage comprises three modules with
two feed streams each. The coal is fed at a rate of 550 tons per hour into two 800 millimeter (mm) diameter
dense medium cyclones per feed stream. There are a total of 18 cyclones in the primary stage. The secondary
stage consists of two modules with two 1,000 mm diameter dense medium cyclones.
The run of mine (ROM) coal is transported via overland conveyor belts to the export beneficiation plant
from the Twistdraai export mine. The export product is loaded onto trains by means of a rapid load-out system,
and then transported to the Richards Bay Coal Terminal in KwaZulu-Natal.
The existing capacity at the Richards Bay Coal Terminal is 72 Mt per year. Sasol Mining has a 5% share in
this terminal, which relates to an existing entitlement of 3.6 Mt per year. It is expected that the planned Richards
Bay Coal Terminal expansion project will increase the total throughput capacity to 82 Mt.
Sasol Coal Supply – Secunda operations. Sasol Coal Supply operates the coal handling facility between
Sasol Mining and Sasol Synfuels by stacking and blending coal on six stockpiles of 110,000 tons each.
background image
101
The Sasol Coal Supply operation has a stockpile capacity of 660,000 tons, which is turned over
approximately 1.5 times per week. In addition, there is a reserve stockpile capacity of more than 2.2 Mt. The
objectives of this facility are:
• to homogenize the coal quality supplied to Sasol Synfuels;
• to keep the Sasol Synfuels bunkers full with a product that conforms to customer requirements;
• to maintain a buffer stockpile to ensure even supply; and
• to prevent fine coal generation.
The daily coal supply to Sasol Synfuels is approximately 110,000 tons to 118,000 tons.
Coal exploration techniques
Sasol Mining’s geology department employs several exploration techniques in assessing the geological
risks associated with the exploitation of the coal deposits. These techniques are applied in a mutually supportive
way to achieve an optimal geological model of the relevant coal seams, targeted for production purposes. The
Highveld Basin is considered to be structurally complex when compared to the other coalfields in South Africa
where mining activities are taking place. As a result, Sasol Mining bases its geological modeling on sufficient
and varied geological information. This approach is utilized in order to achieve a high level of support to the
production environment.
Core recovery exploration drilling. This is the primary exploration technique that is applied in all
exploration areas, especially during reconnaissance phases. In and around operational mines, the average vertical
borehole density varies from 1:10 to 1:15 (boreholes per hectare), while in medium term mining areas, the
average borehole density is in the order of 1:25. Usually, the drilling depth ranges from 200m to 250m. Depths
of the boreholes drilled vary, depending on the depth to the Pre-Karoo basement, which vary from 160m to
380m. The major application of this technique is to locate the coal horizons, to determine coal quality and to
gather structural information about dolerite dykes and sills, and the associated de-volatilization. This information
is used to compile geological models and forms the basis of geological interpretation.
Directional drilling (surface to in-seam). Directional drilling from surface to in-seam has been successfully
applied for several years. A circular area with a radius of approximately 2km of coal deposit can be covered by
this method, from one drill site. The main objective of this approach is to locate dolerite dykes and steep dipping
dolerite sills, as well as faults with displacements larger than the coal seam thickness.
Horizontal drilling. This technique is applied to all operational underground mines and supplies short-term
(minimum three months) exploration coverage per mining section. No core is usually recovered, although core
recovery is possible, if required. The main objective is to locate dolerite dykes and steep dipping sills
intersecting the coal mining horizon, by drilling horizontal holes in the coal seam from a mined out area.
A drilling reach of up to 1km is possible, although the average length is usually 800m.
Aeromagnetic surveys. All exploration areas are usually aero-magnetically surveyed before the focused
exploration is initiated. The main objective is to locate dolerite sills and dykes, as well as large-scale fault zones.
Airborne electro-magnetic surveys. Due to the occurrences of non-magnetic dolerite dykes and sills, it has
been necessary to survey certain exploration areas electro-magnetically to pinpoint these structures to optimize
mine deployment.
Geophysical wireline surveys of directional boreholes. Geophysical surveys are routinely conducted in the
completed directional drilled boreholes. This resulted in the availability of detailed information leading to
increased confidence of the surface directional drilling results. This technique has also been applied in
underground directional drilling with excellent results.
background image
102
Secunda operations
The coal supplied to Sasol Synfuels is the raw coal mined on the tied mines and the secondary product
from the export mine’s beneficiation plant.
Extensive geological exploration has been done in the coal resource areas. Annually, additional exploration
is undertaken to update and refine the geological models, which allows accurate forecasting of geological
conditions and coal qualities, for the effective planning and utilization of the coal reserves.
Computation and storage of geological information
Geological information is stored in a Sequel Server database. Data validation and quality checking through
several in-house methods is conducted regularly. Data modeling is conducted by manual interpretation and
computer-derived geological models, using the Minex 5 edition of the SURPAC/MINEX software. Reserves and
composite qualities are computed using established and recognized geo-statistical techniques.
General stratigraphy
The principal coal horizon, the Number 4 Lower Coal Seam, provides some 90.8% of the total proven and
probable reserves. The Number 4 Lower Coal Seam is one of six coal horizons occurring in the Vryheid
Formation of the Karoo Supergroup, a permo-carboniferous aged, primarily sedimentary sequence. The coal
seams are numbered from the oldest to the youngest.
Characteristics of the Number 4 Lower Coal Seam. The Number 4 Lower Coal Seam is a bituminous hard
coal, characterized by the following borehole statistics:
• The depth to the base of the seam ranges from 40m to 241m with an average depth of 135m below the
surface topography. All the current mining done on this seam is underground.
• The floor of the seam dips gently from north to south at approximately 0.5 degrees.
• The thickness of the seam varies in a range up to 10.0m with a weighted average thickness of 3.30m. In
general, thinner coal is found to the south and thicker coal to the west adjacent to the Pre-Karoo
basement highs.
• The inherent ash content (air dried basis) is an average 24.5%, which is in-line with the coal qualities
supplied during the past 29 years to Sasol Synfuels.
• The volatile matter content is tightly clustered around a mean of 22.8% (air dried).
• The total sulfur content (air dried), which primarily consists of mineral sulfur in the form of pyrite and
minor amounts of organic sulfur, averages 1.08% of the total mass of the coal.
The other potential coal seam is:
• The Number 2 Coal Seam, which provides an additional tonnage to the reserve in one area and is being
evaluated in a number of other areas to provide supplemental reserve tonnage.
Mining parameters and assumptions used during reserve estimation
Minimum Mining Height (meters); the minimum mining height used is 2.2m. The exception is
Bosjesspruit mine, where the height is 2.0m.
Maximum mining height (meters): the maximum mining height used is 4.8m (Syferfontein).
Primary Safety factor.
1
:
the safety factor used in the mine planning, for primary development, in normal
ground conditions is 1.8.
Secondary Safety factor.
1
:
the safety factor used in the mine planning, for secondary development, in
normal ground conditions is 1.6.
background image
103
Minimum dry ash free volatile matter content: the dry ash free volatile matter content gives an
indication of devolatilized coal. During estimations, areas with a dry, ash free volatile matter content of
less than 28%, are excluded, and considered to be devolatilized coal areas.
Geological loss factor: the geological loss factors vary in the respective blocks from 5.2% (Brandspruit)
to 35% (Block 5 East). The geological loss factor is a discount factor applied to the gross in situ tonnage
to take into account as yet unobserved geological features, which may occur. The geological loss factor is
therefore a function of the borehole density and known geological complexity of the area, as well as the
judgment of the competent person involved.
Mine layout losses: the mine layout loss factors, expressed as a percentage of the in situ coal reserves
vary between 11% (Rooipoort) and 28% (Block 5 East). The mine layout loss factor is a discount factor
required to account for the expected loss of coal reserves, due to actual mining activities, not reaching
the defined boundary of the minable in situ coal reserve block. The mine layout loss factors applied are
therefore a function of the complexity of the depicted actual and anticipated geological structures and the
actual historical loss factors experienced.
Mine method losses: the mine method loss factor, expressed as a percentage of the minable in situ coal
reserves vary between 40.4% (Twistdraai) and 50.6% (Syferfontein). The mine method loss factor is the
discount factor required to account for the expected loss of coal reserves, due to actual mining activities,
which requires support pillars to be left in situ. The mine method loss factors applied are therefore a
function of the mine method used and planned to be used, as well as the actual historical loss factors
experienced.
Contamination factor: the contamination factor expressed as a percentage of the extractable coal
reserve, vary between 0% (Syferfontein) and 2.7% (Middelbult). The contamination factor refers to the
extraneous coal and non-coal material which is unintentionally added to the practical mining horizon, as
a result of the mining operations. The contamination factors applied are therefore a function of expected
geological conditions in the immediate roof and floor of the mining horizon, as well as the actual and
historical contamination factors experienced.
Superficial moisture factor: the superficial moisture factor, expressed as a percentage of the extractable
coal reserve, vary between 4.5% (Middelbult) and 3.1% (Brandspruit). The superficial moisture refers to
the extraneous moisture added to the extracted coal as a result of the mining operations. The factors
applied are therefore based mostly on the historical factors experienced.
1.
The safety factor is calculated by dividing the strength of the pillar by the stress acting on the pillar. The strength of the
pillar is determined by the inherent strength of the coal material, the width of the pillar and the height of the pillar. The
stress on the pillar is the result of the pillar load, which is determined by the depth of mining, the pillar width and the
bord width.
Reserve estimation (remaining reserves at 31 March 2006)
We have approximately 4.0 billion tons (Bt) of gross in situ proven and probable coal reserves in the
Secunda Deposit and approximately 1.5 Bt of recoverable reserves. The coal reserve estimations are set out in
the table 1 below. The different reserve areas are depicted on a map on page M–4, as well as whether the reserve
areas are allocated or not.
background image
104
Table 1.
Coal reserve estimations
1
in the Secunda area where Sasol Mining has interim statutory rights (old order
mining rights), for which applications were submitted to convert to mining rights in terms of the Mineral
and Petroleum Resources Development Act, Act 28 of 2002
Gross in
Mine
situ coal
Geological
layout
Extraction
Recoverable
Beneficiated
resource
2
discount
losses
rate
reserves
3
yield
Proven/
Reserve area
(Mt)
5
(Mt)
5
(Mt)
5
(%)
(Mt)
5
(%)
probable
Middelbult Mine
851
180
168
57
306
100
Proven
Bosjesspruit Mine
502
55
115
54
189
100
Proven
Twistdraai Mine
166
30
24
60
71
P40, S36
4
Proven
Syferfontein Mine
508
40
56
49
212
100
Proven
Brandspruit Mine
169
9
36
53
69
100
Proven
Rooipoort Area
300
49
28
55
129
100
6
Probable
Evander Town
30
6
6
58
11
100
Probable
Secunda Town
88
18
18
54
30
100
Probable
Block 2, Number 4 seam
810
219
148
59
273
100
Probable
Block 2, Number 2 seam
370
100
68
59
125
100
Probable
Block 5 East
184
64
34
51
47
100
Probable
Total Secunda Area
3,978
1,462
1.
The coal reserve estimations in this table were compiled under supervision of Mr. Phill Grobler Pr. Nat. Sci
(Professional Natural Scientist). The “South African Code for Reporting of Minerals Resources and Minerals reserves,
(The SAMREC Code)”dealing with competence and responsibility, paragraph 4.1, state: Documentation detailing
exploration results, mineral resources and mineral reserves estimates from which a public report on exploration results,
mineral resources and mineral reserves is prepared, must be prepared by or under the direction of, and signed by, a
competent person. Paragraph 4.3 states: A competent person is a person who is a member of the South African Council
for Natural Scientific Professions. Mr. JD Conradie, on behalf of Gemecs (Pty) Limited reviewed the correctness of the
methodology and the assumptions used to obtain coal resource/reserve estimations in tables 1 and 2.
2.
The gross in Situ coal resource is an estimate of the coal tonnage, contained in the full coal seam above the minimum
thickness cut off and relevant coal quality cut off parameters. No loss factors are applied and seam height does not
include external dilution or contamination material.
3.
The recoverable coal reserve is an estimate of the expected recovery of the mines in these areas and is determined by
the subtraction of losses due to geological and mining factors and the addition of dilutants such as moisture and
contamination.
4.
The P% refers to the yield export product from the recoverable coal reserve and the S% refers to secondary product
yield, which will be supplied to the Synfuels factory. The balance of this is discard material.
5.
Mt refers to 1 million tons. Reference is made of tons, each of which equals 1,000 Kilograms, approximately
2,205 pounds or 1,102 short tons.
6.
The Rooipoort area contains some coal which can be beneficiated for the export market. Investigations to prove the
viability of beneficiation are underway.
background image
105
Coal qualities per associated reserve estimation (remaining reserves at 31 March 2006)
In tables 2 and 3, additional information regarding coal qualities is provided.
Table 2.
Coal qualities, on an air dry basis, in respective coal reserve areas, where Sasol Mining has interim
statutory rights (old order mining rights), in the Secunda mining complex, for which applications were
submitted to convert to mining rights, in terms of the Mineral and Petroleum Resources Development Act,
Act 28 of 2002
Average
Average
Heat
inherent superficial
value
moisture moisture
Steam/
(air dry
Sulfur
Wet/dry
content
content
Assigned/
metallurgical basis)
(air
dry
Reserve area
tons
(%)
(%)
unassigned
coal
MJ/kg
basis)
Middelbult Mine
Wet
4.3
4.5
Assigned
Steam
20.9
0.8
Bosjesspruit Mine
Wet
3.7
3.6
Assigned
Steam
22.1
1.4
Twistdraai Mine
Wet
3.8
4.1
Assigned
Steam
21.2
1.1
Syferfontein Mine
Wet
6.3
4.3
Assigned
Steam
22.4
0.7
Brandspruit Mine
Wet
4.1
3.5
Assigned
Steam
18.9
1.3
Rooipoort Area
Wet
3.8
3.1
Assigned
Steam
21.2
1.1
Evander Town
Wet
4.3
3.1
Unassigned
Steam
21.1
0.8
Secunda Town
Wet
3.8
3.1
Unassigned
Steam
21.6
1.0
Block 2, number 4 seam
Wet
4.3
4.5
Unassigned
Steam
21.5
0.9
Block 2, number 2 seam
Wet
3.9
4.5
Unassigned
Steam
19.6
0.7
Block 5 East
Wet
3.7
3.1
Unassigned
Steam
20.8
1.0
Table 3.
Coal qualities, on an as received basis, in respective coal reserve areas, where Sasol Mining has interim
statutory rights (old order mining rights), in the Secunda mining complex, to convert to mining rights in
terms of the Mineral and Petroleum Resources Development Act, Act 28 of 2002
Average
Average
Heat
inherent superficial
value (as Sulfur
moisture moisture
Steam/
received (as
Wet/dry
content
content
Assigned/
metallurgical basis)
received
Reserve area
tons
(%)
(%)
unassigned
coal
MJ/kg
basis)
Middelbult Mine
Wet
4.3
4.5
Assigned
Steam
20.3
0.8
Bosjesspruit Mine
Wet
3.7
3.6
Assigned
Steam
21.3
1.4
Twistdraai Mine
Wet
3.8
4.1
Assigned
Steam
20.6
1.1
Syferfontein Mine
Wet
6.3
4.3
Assigned
Steam
21.5
0.7
Brandspruit Mine
Wet
4.1
3.5
Assigned
Steam
18.2
1.3
Rooipoort Area
Wet
3.8
3.1
Assigned
Steam
20.5
1.1
Evander Town
Wet
4.3
3.1
Unassigned
Steam
21.1
0.8
Secunda Town
Wet
3.8
3.1
Unassigned
Steam
20.9
1.0
Block 2, number 4 seam
Wet
4.3
4.5
Unassigned
Steam
20.8
0.9
Block 2, number 2 seam
Wet
3.9
4.5
Unassigned
Steam
19.0
0.7
Block 5 East
Wet
3.7
3.1
Unassigned
Steam
20.3
1.0
background image
106
Criteria for proven and probable
Over and above the definitions for coal reserves, probable coal reserves and proven coal reserves, set forth
in Industry Guide 7, under the US Securities Act of 1933, as amended, which are included in our glossary, we
consider the following criteria to be pertinent to the classification of the reserves.
Probable reserves are those reserve areas where the drill hole spacing is sufficiently close in the context of
the deposit under consideration, where conceptual mine design can be applied, and for which all the legal and
environmental aspects have been considered. Probable reserves can be estimated with a lower level of
confidence than a proven coal reserve. Currently this classification results in variable drill spacing depending on
the complexity of the area being considered and is generally less than 500 meters, although in some areas it may
extend to 880 meters. The influence of increased drilling in these areas should not materially change the
underlying geostatistics of the area on the critical parameters such as seam floor, seam thickness, ash and
volatile content.
Proven reserves are those reserves for which the drill hole spacing is generally less than 350 meters, for
which a complete mine design has been applied which includes layouts and schedules resulting in a full financial
estimation of the reserve. This classification has been applied to areas in the production stage or for which a
detailed feasibility study has been completed.
Legal rights on coalfields
Mineral rights were substituted with interim statutory rights in accordance with the transitional provisions
of the Mineral and Petroleum Resources Development Act, 2002 (Act 28 of 2002), which came into effect on
1 May 2004. Sasol, therefore, hold these interim statutory rights (old order mining rights), to mine more than
98% of the mineral rights previously owned in the Secunda area. Sasol holds four old order mining rights,
(previously Section 9 mining authorizations under the repealed Minerals Act), consisting of 157,000 hectares of
coal rights. In terms of the aforementioned transitional provisions, Sasol must convert these interim rights to
mining rights by May 2009. Applications for the conversion of the four old order mining rights have been
submitted to the Department of Minerals and Energy during April 2006. See also “Item 4.B Business Overview
– Regulation of mining activities in South Africa”.
Sasolburg operations
Exploration history
The Northern Free State area was first explored in the late 1930s. The exploration was conducted by
drilling core recovery boreholes over the current Sasolburg area. Some boreholes were initially drilled by the
South African government. The Sigma mine was established in 1950. Subsequent drilling by the General Mining
and Finance Corporation in the 1960s identified more coal reserves in the southwest of the existing Sigma Mine
as well as extensions to the south and east. Page M–3 includes a map showing the location of our Sasolburg coal
operations.
Drilling conducted by Sasol Mining has continued to the present. All analytical work was initially done by
the state laboratory, the Fuels Research Institute. More recently, it was conducted by the laboratories of the
South African Bureau of Standards in Pretoria (now Coal and Mineral Technology).
Coal seam geology
There are two primary coal seams of importance, the Number 2 Coal Seam and the Number 3 Coal Seam.
These coal seams are separated by a carbonaceous mudstone to siltstone parting and consist of a number of coal
plies and carbonaceous mudstone interburdens. The individual coal plies are numbered from the base upwards
and selected mining horizons are identified on the basis of the coal quality required. The major controlling factor
on the coal development is the pre-Karoo basement.
background image
107
Selective mining within coal seams implies that strict horizon control is exercised to maintain mining on
the selected horizon. This has been done very successfully at the old Sigma underground operations and at the
Mohlolo underground operation, which was closed during the year. The same principles will be applied at the
Mooikraal Mine. In the visible coal seam a well-defined marker within the seam assists in the identification and
verification of the pre-determined minable horizon underground, even in areas where the coal seam is displaced
by faulting.
In general, the quality of the coal (the ash yield or the fixed carbon content) deteriorates from the base of
the coal seam to the top of the coal seam.
In-seam occurrence of inorganic material is rare in the selected minable area and may consist of locally
developed carbonaceous mudstone lenses. Inorganic material occurs mainly towards the top of the coal seam,
but has been excluded from the selected minable horizon.
Sigma Mine has been active since 1950 and has completed total extraction of room and pillar and longwall
mining on both the major coal seams. The operations at the Mohlolo underground mines, developed from the
highwalls of the Wonderwater strip mine, was closed during 2006.
The development of the Mooikraal mine is on schedule and production has started from the mine. The
current expected production (2007) is 1.6 Mt per year, where the number 3 B seam is mined.
Selected mining horizon
The determination of the selected mining horizon is driven primarily by the required coal quality for the
steam process at Sasol Infrachem. In order to define the mining horizon, detailed sampling, with associated coal
seam descriptions, are conducted. From this, both a visual and chemical correlation of the plies are made.
Reserve estimation
Sasol Mining has 28 Mt proven recoverable coal reserves for supply to Sasol Infrachem for steam
generation from the number 3B coal seam. The reserve estimation is depicted in Table 4 below.
Table 4.
Coal reserve estimation
1
of proven and probable reserves, in areas where Sasol Mining has interim
statutory rights (old order mining rights) in the Sasolburg mining complex, to be converted to mining
rights pursuant to the Mineral and Petroleum Resources Development Act, Act 28 of 2002
Gross in
Mine
Recoverable
situ coal
Geological
layout Extraction
coal
Proven/
Coal
resource
2
discount
losses
rate
reserves
3&4
probable
Reserve area
seam
(Mt)
5
(Mt)
5
(Mt)
5
(%)
(Mt)
5
(%)
Mooikraal
3B
81
12
6
43
28
Proven
Mooikraal (Remainder)
3B
19
3
1
43
7
Probable
Mooikraal South(devol)
6
3B
1100
16
8
43
38
Probable
Total Sasolburg area
210
73
1.
_______
________
Mr. B Fourie compiled the coal reserve estimations in this table, under the supervision of Mr. Phill Grobler Pr.Nat.Sci.,
Divisional Manager, Strategic Capacity Management, Sasol Mining. The “South African Code for Reporting of
Minerals Resources and Minerals reserves, (The SAMREC Code)”dealing with competence and responsibility,
paragraph 4.1 states: Documentation detailing exploration results, mineral resources and mineral reserves estimates
from which a public report on exploration results, mineral resources and mineral reserves is prepared, must be prepared
by or under the direction of, and signed by, a competent person. Paragraph 4.3 states: A competent person is a person
who is a member of the South African Council for Natural Scientific Professions (SACNASP).
background image
108
2.
The gross in situ coal resource is an estimate of the coal tonnage, contained in the full coal horizon, selected for
mining, above the minimum thickness cut off and relevant coal quality cut off parameters. No loss factors are applied
and seam height does not include external dilution or contamination material.
3.
Recoverable coal reserve refers to the economically minable coal, inclusive of diluting and contaminating material, and
allows for losses that may occur when material is mined.
4.
At Sasolburg, no coal beneficiation is conducted with 100% of the recoverable coal supplied to the client.
5.
Mt refers to 1 million tons. One tons equals 1 000 kilograms, approximately 2 205 pounds or 1 102 short tons.
6.
In the southern portion of the Mooikraal reserve area, the coal is overlain by a dolerite sill, which had an effect on the
coal seam which is planned to be mined. The reserves in this area is therefore indicated as probable reserves. The
reserves’ minebility will be proven once mining is attempted in this area.
Coal qualities per associated reserve estimation (remaining reserves at 31 March 2006)
In tables 5 and 6 additional information regarding coal qualities is provided.
Table 5.
Coal qualities on an Air Dry Basis, per reserve estimation area, in areas where Sasol Mining has interim
statutory rights (old order mining rights), in the Sasolburg mining complex, to be converted to mining
rights in terms of the Mineral and Petroleum Resources Development Act, Act 28 of 2002.
Average
Average
Heat
inherent superficial
value
moisture moisture
Steam/
(air dry
Sulfur
Wet/dry
content
content
Assigned/
metallurgical basis)
(air
dry
Reserve area
tons
(%)
(%)
unassigned
coal
MJ/kg
basis)
Mooikraal
Wet
4.8
3.2
Assign
Steam
19.5
0.2
Mooikraal (Remainder)
Wet
3.7
3.2
Assign
Steam
20.6
0.6
Mooikraal South (devol)
Wet
2.9
3.2
Assign
Steam
21.2
0.6
Table 6.
Coal qualities on an as received basis, per reserve estimation area, in areas where Sasol Mining has
interim statutory rights (old order mining rights), in the Sasolburg mining complex, to be converted to
mining rights pursuant to the Mineral and Petroleum Resources Development Act, Act 28 of 2002.
Average
Average
Heat
inherent superficial
value (as Sulfur
moisture moisture
Steam/
received (as
Wet/dry
content
content
Assigned/
metallurgical basis)
received
Reserve area
tons
(%)
(%)
unassigned
coal
MJ/kg
basis)
Mooikraal
Wet
4.8
3.2
Assigned
Steam
18.9
0.2
Mooikraal (Remainder)
Wet
3.7
3.2
Assigned
Steam
19.9
0.6
Mooikraal South (devol)
Wet
2.9
3.2
Assigned
Steam
20.5
0.6
background image
109
Oil and gas production and exploration operations
SPI, our dedicated oil and gas exploration and production company, currently has reserves in two fields:
• In Gabon, the company holds a 27.75% non-operated interest in the offshore Etame field. An internally
determined assessment of oil reserves was conducted during April 2006. As the license held over this
property is a Production Sharing Contract, reserves reported represent the net economic interest volumes
attributable to the company, after deduction for royalties, grossed up for income taxes.
• In Mozambique, the company holds a 70% operated interest in the Pande and Temane gas fields. An
internally determined assessment of gas reserves was conducted during April 2006. Reserves reported
represent the net economic interest volumes attributable to the company, after deduction of production
tax. Additionally, the volumes booked are restricted to the take-or-pay quantities defined in the gas sales
agreement for the 25-year term. A phased approach to field development has been followed and only the
Temane field has currently been developed. Development of the Pande field is planned to begin in 2007.
Reserve and production disclosure
See unaudited supplemental oil and gas information to “Item 18 – Financial statements” for further
disclosures of oil and gas operations.
Crude Oil and Condensate
Natural Gas
Other
Mozambique
areas
Total
Mozambique
Total
Millions of barrels
Billions of cubic feet
Proved developed and undeveloped reserves
First estimate
9.2
9.2
1,445.0
1,445.0
Production
(1.5)
(1.5)
(7.0)
(7.0)
Balance at 30 June 2004
7.7
7.7
1,438.0
1,438.0
Revisions
7.5
2.7
10.2
(24.9)
(24.9)
Extensions and discoveries
1.0
1.0
Production
(0.2)
(1.6)
(1.8)
(45.2)
(45.2)
Balance at 30 June 2005
7.3
9.8
17.1
1,367.9
1,367.9
Revisions
0.3
0.2
0.5
(6.7)
(6.7)
Extensions and discoveries
0.1
0.1
Production
(0.4)
(1.4)
(1.8)
(55.1)
(55.1)
Balance at 30 June 2006
7.3
8.6
15.9
1,306.1
1,306.1
Proved developed reserves
At 30 June 2004
4.3
4.3
375.0
375.0
At 30 June 2005
3.1
4.7
7.8
385.7
385.7
At 30 June 2006
3.1
3.0
6.1
373.5
373.5
The table above records estimates of the reserve quantities held by Sasol, through its various operating
entities under Sasol Petroleum International (Pty) Limited.
The oil and gas reserve estimations in this table were compiled by:
• Mr L Williams, Technical Manager (SPI), Bachelor of Science Petroleum and Natural Gas;
• Mr M Waterhouse, General Manager (SPI), Bachelor of Science Geology.
background image
110
ITEM 4A.
UNRESOLVED STAFF COMMENTS
There are no unresolved written comments from the SEC staff regarding our periodic reports under the
Exchange Act received more than 180 days before 30 June 2006.
background image
111
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read this section along with our consolidated financial statements for the years ended and as at
30 June 2006, 30 June 2005 and 30 June 2004, including the accompanying notes, that are included in this
annual report on Form 20-F. The following discussion of operating results and the financial review and prospects
as well as our consolidated financial statements have been presented and prepared in accordance with US GAAP.
The Segment review included below is based on our segment results which have been prepared and presented in
accordance with IFRS and reconciled to US GAAP, as IFRS information is utilized by the company’s chief
operating decision maker in allocating resources and making investment decisions. Certain information
contained in the discussion and analysis set forth below and elsewhere in this annual report includes forward-
looking statements that involve risks and uncertainties. See “Item 3.D – Key information – Risk factors” for a
discussion of significant factors that could cause actual results to differ materially from the results described in
or implied by the forward-looking statements contained in this annual report.
5.A
Operating results
Company and business overview
Sasol is an integrated oil and gas company with complementary interests in coal, chemicals and the
international development of synthetic-fuel ventures based on our proprietary Fischer-Tropsch technology. We
mine coal in South Africa and through Sasol Synfuels, we convert this coal, along with Mozambican natural gas,
into fuels and chemical feedstock utilizing our Fischer-Tropsch technology.
We have significant chemical manufacturing and marketing operations in South Africa, Europe, the United
States and Asia. Our chemical portfolios include monomers, polymers, solvents, comonomers, waxes, phenolics,
ammonia, fertilizers and commercial explosives.
In South Africa, we refine imported oil into liquid fuels and retail liquid fuels and lubricants produced in
our refinery and by Sasol Synfuels through Sasol convenience centres and Exel service stations. We also
wholesale fuels in South Africa and export fuels to sub-Saharan Africa. We produce and sell oil in Gabon.
We produce gas in Mozambique for supply to customers and as feedstock for some of our South African
fuel and chemical production. We shall start up our first international GTL plant in Qatar in 2007. A second
GTL plant, under construction in Nigeria, is scheduled to be commissioned in 2009. These plants will use the
Sasol Slurry Phase Distillate™ process.
Formed in 1950, we commenced Fischer-Tropsch-based production in 1955. We employ more than
31,000 people and remain one of South Africa’s largest investors in capital projects and skills training.
In 2003, Sasol determined that it would continue to grow its chemical business conditional upon projects
leveraging its technology or securing integrated and highly cost-competitive feedstock positions. The Sasol
Olefins & Surfactants business is only partially integrated upstream into feedstocks and has not adequately
provided the integration benefits required. On 1 August 2005, Sasol announced that it was considering the
divestment of its Sasol Olefins & Surfactants business excluding its activities in South Africa subject to fair
value being obtained. At 30 June 2006, the sales process was sufficiently advanced such that management
believe that the business will be sold, as a going concern, within the next financial year. With effect from
30 June 2006, the business has been classified as a disposal group held for sale and reported as discontinued
operations.
The income statement has been restated for all periods to exclude Sasol Olefins & Surfactants from
continuing operations and report these results as discontinued operations on a single line item under
discontinued operations. The cash flow statement for all periods presented and the 2005 balance sheet include
both continuing and discontinued operations. On classification as held for sale, the net assets of the business
were written down by R3.1 billion (before tax) to the estimated fair value less costs to sell.
background image
112
We divide our operations into the following segments:
Continuing operations
• Sasol Mining;
• Sasol Synfuels;
• Sasol Oil (previously Sasol LFB);
• Sasol Gas;
• Sasol Synfuels International;
• Sasol Polymers;
• Sasol Solvents; and
• Other – which consists of Sasol Wax, Sasol Nitro, Sasol Technology, Sasol Petroleum International,
Sasol Financing, Sasol Infrachem, Merisol and the group’s corporate head office.
Discontinued operations
• Sasol Olefins & Surfactants.
External factors and conditions
Our business, operating results, cash flow and financial condition are subject to the influence of a number
of external factors and conditions. These include conditions in the markets in which we sell our products,
including the effect of fluctuations in the currency markets, most notably in the exchange rate between the rand
and the US dollar, fluctuations in the international price of crude oil, cyclicality in the prices of chemical
products, the effect of coal prices on export coal operations and the effects of inflation on our costs.
Other factors which may influence our business and operating results include economic, social, political and
regulatory conditions and developments in the countries in which we operate our facilities or market our
products. See “Item 3.D – Key information – Risk factors”.
Exchange rate fluctuations
The rand is the principal functional currency of our operations. However, a large part of our group’s
turnover is denominated in US dollars and some part in euro, derived either from exports from South Africa or
from our manufacturing and distribution operations outside South Africa. A significant part of our turnover is
also determined by the US dollar (approximately 90%), as petroleum prices in general and the price of most
petroleum and chemical products are based on global commodity and benchmark prices which are quoted in
US dollars. A significant part of our capital expenditure is also US dollar-denominated, as it is directed to
investments outside South Africa or constitutes materials, engineering and construction costs imported into
South Africa.
background image
113
After the significant weakening of the rand against the US dollar, in 2002 the rand has appreciated against
the US dollar since 2003 to 2005. This appreciation had a negative impact on our operating results over this
period. During 2006 we saw a marginal weakening of the rand against the US dollar, with the average exchange
rate for 2006 of R6.41 per US dollar compared to R6.21 per US dollar in 2005. This weakening in the rand had
a positive impact on our operating results in 2006. Similarly, the strengthening of the euro against the US dollar
over the last two years has negatively impacted the profitability of our European operations where our costs are
euro-based and a significant portion of our turnover is US-dollar based.
Although the exchange rate of the rand is primarily market-determined, its value at any time may not be an
accurate reflection of the underlying value of the rand, due to the potential effect of, among other factors,
exchange controls. These regulations also affect our ability to borrow funds from non-South African sources for
use in South Africa or to repay these funds from South Africa and, in some cases, our ability to guarantee the
obligations of our subsidiaries with regard to these funds. These restrictions have affected the manner in which
we have financed our acquisitions outside South Africa and the geographic distribution of our debt.
See “Item 10 – Additional information”.
The average exchange rate for the year has a significant effect on our turnover and our operating profit. In
2007, for budgeting and forecasting purposes, we estimate that for every R0.10 weakening or strengthening in
the annual average rand/US dollar exchange rate, our operating profit will increase or decrease by approximately
R570 million as applicable.
We manage our foreign exchange risks through the selective use of forward exchange contracts and cross
currency swaps. We use forward exchange contracts to reduce foreign currency exposures arising from imports
into South Africa. Forward exchange contracts which result in exposure of R100 million or more require the pre-
approval of our Group Executive Committee. We apply the following principal policies in order to protect
ourselves against the effects (on our South African operations) of a volatile rand against other major currencies
as well as an anticipated long-term trend of a devaluing rand:
• all major capital expenditure in foreign currency is hedged on commitment of expenditure or on approval
of the project (also with South African Reserve Bank approval), by way of forward exchange contracts;
and
• all imports in foreign currency in excess of an equivalent of US$50,000 per transaction are hedged on
commitment by way of forward exchange contracts.
See “Item 11 – Quantitative and qualitative disclosure about market risk”.
background image
114
Fluctuations in refining margins and crude oil, natural gas and petroleum products prices
Through our equity participation in the Natref refinery, we are exposed to fluctuations in refinery margins
resulting from fluctuations in international crude oil and petroleum product prices. We are also exposed to
changes in absolute levels of international petroleum product prices through our synfuels operations.
Fluctuations in international crude oil prices affect our results mainly through their indirect effect on the
BFP formula. A key factor in the BFP is the Mediterranean and Singapore (gasoline) or the Arab Gulf (diesel)
spot price. See “Item 4.B – Business overview – Sasol Synfuels”, “Sasol Oil” and “Sasol Petroleum
International”. Furthermore, prices of petrochemical products and natural gas are also affected by fluctuations in
crude oil prices.
Market prices for crude oil, natural gas and petroleum products fluctuate as they are subject to local and
international supply and demand fundamentals and factors over which we have no control. Worldwide supply
conditions and the price levels of crude oil may be significantly influenced by international cartels, which
control the production of a significant proportion of the worldwide supply of crude oil, and by political
developments, especially in the Middle East.
The volatility of the crude oil price is illustrated in the following table, which shows the annual high, low
and average of the European Brent crude oil price (free on board) in US dollars for the past ten calendar years
and to 26 September in the 2006 calendar year:
US dollars per barrel (US$/b)
Calendar year
Average
1
High
Low
1996
20.64
25.40
16.23
1997
19.11
24.83
15.86
1998
12.76
16.28
9.10
1999
17.90
26.46
9.77
2000
28.66
37.43
21.05
2001
24.46
30.68
16.51
2002
24.99
32.02
18.17
2003
28.85
34.94
23.23
2004
38.26
52.28
29.02
2005
54.57
67.26
40.75
2006 (six months through 30 June)
65.61
74.45
56.78
July 2006
73.67
76.13
71.62
August 2006
73.23
78.26
67.01
September 2006
62.43
70.49
57.89
Source: Energy Information Administration (US Department of Energy)
1.
The average price was calculated as an arithmetic average of the quoted daily spot price.
background image
115
On 26 September 2006, the price of European Brent crude oil was US$58.53/b.
Significant changes in the price of crude oil, natural gas and petroleum products over a sustained period of
time may lead us to increase or decrease our production, which could have a material impact on our turnover.
Decreases in the price of crude oil and petroleum products can have a material adverse effect on our business,
operating results, cash flows and financial condition.
Other factors which may influence the aggregate demand and hence affect the markets and prices for
products we sell may include changes in economic conditions, the price and availability of substitute fuels,
changes in product inventory, product specifications and other factors. In recent years, prices for petroleum
products have fluctuated widely.
We make use of derivative instruments, including commodity options and futures contracts of short
duration as a means of mitigating price and timing risks on crude oil and other energy-related product purchases
and sales. While the use of these derivative instruments provides some protection against short-term volatility in
crude oil prices, it does not protect against longer-term trends in crude oil prices.
As a result of the group’s substantial capital investment programme and cash flow requirements, it was
deemed necessary to protect the group’s cash flow from fluctuations in crude oil prices by means of appropriate
hedging strategies. For 2005, we hedged the equivalent of approximately 30% of Sasol Synfuels’ production
(45,000 bpd) by entering into a forward sale agreement. This resulted in a charge to the income statement of
R1,147 million. After revising our hedging strategy, for 2006, we again hedged the equivalent of approximately
30% of Sasol Synfuels’ production by entering into a zero cost collar pursuant to which the group was protected
at crude oil prices below US$45.00/b but able to take advantage of higher crude oil prices, only incurring a cash
outflow should average crude oil prices be above US$82.61/b. The crude oil price traded within the range of this
collar throughout the hedging period and therefore the collar had no cash flow effect.
This revised strategy is believed to be more appropriate in the context of high but volatile crude oil prices
and, as a result of our continued requirement to fund our extensive capital investment programme, we have again
for 2007, hedged the crude oil equivalent of approximately 30% of our Sasol Synfuels’ production (45,000 bpd)
by means of a zero cost collar. In respect of the hedged portion of production, the group is protected at average
monthly crude oil prices below US$63.00/b and will incur a cash outflow should average crude oil prices exceed
US$83.60/b during the period of the hedge. As a result of the significant increase in monthly crude oil prices
background image
116
before 30 June 2006, after entering into the collar for 2007, the market value of the collar resulted in a charge of
R93 million at year end. See “Item 11. – Quantitative and qualitative disclosure about market risk”.
In 2007, for budgeting and forecasting purposes, we estimate that for every US$1/b increase in the annual
average crude oil price, our group operating profit will increase by approximately US$45 million (approximately
R290 million) (excluding Sasol Olefins & Surfactants). Should the average annual crude oil price move outside
the range of our zero cost collar hedging instrument, the effect of the hedge on operating profit will be
approximately US$17 million (R110 million) for each US$1/b change in the average crude oil price above or
below the range of the collar.
Cyclicality in petrochemical products prices
The demand for our chemical products is cyclical. Typically, higher demand during peaks in industry cycles
leads producers to increase production capacity, at which point prices decrease. Most commodity chemical
prices tend, over the longer term, to track the crude oil price. However, over the past years, in which significant
increases in the crude oil price have been experienced, we have been unable to pass all of these increases in raw
materials costs on to our customers. We saw a 3% and 18% increase in the polymer and ammonia product prices
in 2006 compared to 2005 respectively and a 7% decrease in solvent product prices during 2006.
Although peaks in these cycles have in the past been characterized by increased market prices and higher
operating margins, such peaks have prompted further world wide capital investment which has led to supply
exceeding demand and a resultant reduction in selling prices and operating margins.
The group’s strategic policy is to invest in downstream chemical activities which are backward integrated
into the primary feed streams of those commodities. In times of high crude oil and related product prices (the
primary feedstock of most commodity chemicals), the profit margin shifts towards the feedstock producer while
in times of high chemical prices and lower feedstock prices, the profit margin shifts towards the downstream
activities. Our decision to divest Sasol Olefins & Surfactants, as a result of it not having the required degree of
backward integration into its feed streams evidences this strategy.
As a result of this backward integration, the group has elected not to hedge its exposure to commodity
chemical prices as this may, in part, negate the benefits of being backward integrated into its primary feed
streams.
Divestment of Sasol Olefins & Surfactants business
On 1 August 2005, we announced that we were considering the disposal of our Sasol Olefins & Surfactants
business excluding its comonomers activities in South Africa subject to an acceptable price being obtained.
Since August 2005 substantial work was undertaken to prepare the business for sale as a going concern
including:
• the carve-out of the business from the group to enable it to operate independently;
• finalisation of various agreements for the formation of a stand-alone divestiture group;
• issuance of an Information Memorandum on 22 May 2006 to interested parties inviting them to
participate in the auction process to acquire the business;
• completion of vendor due diligence regarding finance and tax, safety, health and environmental, human
resources and market/ industry aspects of the business; and
• evaluation of indicative bids received on 16 June 2006 and inviting certain interested parties to
participate in the next round of bidding.
background image
117
At 30 June 2006, the disposal process was sufficiently advanced such that management believe that the
business will be sold, as a going concern, within the next financial year. With effect from 30 June 2006, the
business has been classified as a disposal group held for sale and reported as discontinued operations.
The income statement has been restated for all periods to exclude Sasol Olefins & Surfactants from
continuing operations and report these results as a single line item. In the 2006 balance sheet the assets and
liabilities of Sasol Olefins & Surfactants have been classified as held for sale. The cash flow statement for all
periods and the 2005 and 2004 balance sheet includes both continuing and discontinued operations.
The significant changes in international crude oil prices necessitated a write-down of R3,110 million before
tax of the assets of Sasol Olefins & Surfactants.
Since the start of the divestiture process in August 2005, international oil prices have increased
significantly, which represent fundamental changes in energy costs and their related impact on oil derived
feedstock prices. Irrespective of the negative impact of the increased feedstock costs on the Sasol Olefins &
Surfactants business, the strategic rationale for considering the disposal of the business, as expressed in the
initial announcement, remains relevant and valid. It is not backward integrated into the primary feed streams to
Sasol’s required standards and is also not adequately linked to our proprietary Fischer-Tropsch technology.
Our estimate of the fair value of the Sasol Olefins & Surfactants business as at 30 June 2006 is based on
various assumptions, in particular long-term international oil prices and expected chemicals product prices. The
estimated fair value may be affected by the negotiation process with potential bidders.
Coal prices
Approximately 12% of our coal production is sold to external markets (3.6 Mt sold to the export market,
predominantly in Europe and 2.1 Mt sold to the South African market). External sales to these markets
represented approximately 28% of the total turnover generated by Sasol Mining during 2006.
Export coal sales prices are compared to the published international coal price indices to track
performance. Sasol Mining’s policy is to sell partially based on an API index related basis, and partially on fixed
prices. Sales at fixed prices are not extended beyond nine months forward. Internal coal sales are made to Sasol
Synfuels and Infrachem. Coal sales prices into this market are negotiated on a five year contractual basis and are
subject to periodic price adjustments. Transfer price negotiations are at arms length. Sasol Mining entered into a
three year contract with Eskom during the 2004 financial year. Eskom uses the coal for the purposes of power
generation.
The average free on board Richards Bay price index for the past six financial years:
background image
118
Inflation
Whilst over recent years, inflation and interest rates have been at relatively low levels, the economy of
South Africa, though currently well managed, at various times in the past has had high inflation and interest
rates compared to the United States of America and Europe. Should these conditions recur, this would increase
our South African-based costs. High interest rates could adversely affect our ability to ensure cost-effective debt
financing in South Africa. Sasol expects the impact of changes in the inflation rates on our international
operations to be less significant.
The history of the South African producer price index is illustrated in the following table, which shows the
average increase in the index for the past 10 calendar years and the annual percentage change on a monthly basis
in calendar year 2006:
Calendar year
Average
1996
7.0%
1997
7.0%
1998
3.6%
1999
5.8%
2000
9.2%
2001
8.4%
2002
14.2%
2003
1.7%
2004
0.6%
2005
3.1%
January 2006
5.5%
February 2006
5.5%
March 2006
5.4%
April 2006
5.5%
May 2006
5.9%
June 2006
7.5%
July 2006
8.1%
August 2006
9.6%
Source: Statistics South Africa
Our operations are subject to various laws and regulations in the countries in which we operate
The group operates in numerous countries throughout the world and is subject to various laws and
regulations which may become more stringent. Our mining, gas and petroleum-related activities in South Africa
are subject to, amongst others, the following laws or regulations:
• The Broad-based Black Economic Empowerment Act;
• The Gas Act;
• The Gas Regulator Levies Act;
• The Minerals Act;
• The Mineral and Petroleum Resources Development Act (MPRD Act);
• The Mineral and Petroleum Royalty Bill;
• The National Energy Regulator Act;
• The Petroleum Products Act and the Petroleum Products Amendment Act;
background image
119
• The Petroleum Pipelines Act;
• The Petroleum Pipelines Levies Act; and
• The Restitution of Land Rights Act.
We are also subject to various local, national and regional safety, health and environmental laws and
regulations. Our global operations are also impacted by international environmental conventions. See “Item 4. –
Business overview” and “Item 3.D – Key information – Risk factors” for the details of the various laws and
regulations which may impact on our operating results, cash flows and financial condition.
In South Africa our operations are required to comply with certain procurement, employment equity,
ownership and other regulations which have been designed to address the country’s specific transformation
issues. These include the Mining Charter, the Liquid Fuels Charter, and the Broad-based Black Economic
Empowerment Act along with the various Codes of Good Corporate Practice for broad-based Black Economic
Empowerment, the MPRD Act and the Restitution of Land Rights Act. See “Item 4.B – Business overview”.
We announced on 16 March 2006 the first phase implementation of Sasol Mining’s broad-based
empowerment strategy for compliance with the Mining Charter and the MPRD Act through the formation of
Igoda Coal, a 65:35 BEE venture with Eyesizwe. Igoda Coal will comprise the full value chain of Sasol
Mining’s coal export business – the Twistdraai Colliery and beneficiation plant at Secunda in Mpumalanga
Province, the marketing and logistics components of its coal export business, as well as Sasol Mining’s interest
in the Richards Bay Coal Terminal.
In compliance with the Liquid Fuels Charter we facilitated the R1.45 billion transaction with our BEE
partner Tshwarisano. Tshwarisano acquired a 25% shareholding in Sasol Oil (Pty) Limited with effect from
1 July 2006. We are providing considerable facilitation and support for Tshwarisano’s financing requirements, of
approximately R1.1 billion, which will significantly lower Tshwarisano’s cost of borrowing. In addition, we are
also establishing and funding trusts within Tshwarisano for the benefit of under-privileged communities.
The implementation of these or any future BEE ventures may require us to provide facilitation and support
for the financing requirements of the transactions.
A task team appointed by the South African Minister of Finance during May 2006 investigated possible
reforms to the fiscal regime applicable to windfall profits in South Africa’s liquid fuel energy sector, with
particular reference to the synthetic fuel industry and a discussion document for public comment was released by
the task team. During August 2006, we publicly released a comprehensive written submission in response to the
discussion document and also presented our views in an oral presentation to the members of the task team. The
task team handed their report containing its recommendation to the Minister of Finance on 22 September 2006.
It is expected that an announcement on the decision will be made during 2007 by the Minister of Finance. We
cannot predict whether this investigation will lead to amendments to the current fiscal regime.
Competition from products originating from countries with low production costs
Certain of our chemical production facilities (both from continuing and discontinued operations) are
located in developed countries, including the United States of America and Europe. Economic and political
conditions in these countries result in relatively high labor costs and, in some regions, inflexible labor markets,
compared to others. Increasing competition from regions with lower labor costs and feedstock prices, for
example the Middle East and China, exercises pressure on the competitiveness of our chemical products and,
therefore, on our profit margins and may result in the withdrawal of particular products or closure of facilities.
background image
120
Engineering contract costs
The increase worldwide in the sanctioning of large engineering contracts has resulted in a shortage of
engineering resources and strains in that industry. These have impacted on some of our projects and have
affected construction timing schedules and costs. Whilst higher international crude oil prices may boost post-
commissioning income streams and compensate for construction delays higher capital costs, these strains in the
engineering industry are nevertheless a cause for concern and may impact on our project plans and growth
ambitions.
HIV/AIDS in sub-Saharan Africa
HIV/AIDS is a healthcare challenge faced by our South African and other sub-Saharan operations. Based
on an actuarial study, which excludes the positive impact of any prevention and management intervention
programs, we estimate that, while the percentage of infected employees may not rise significantly in the
forthcoming years, there will be a significant increase in the number of AIDS-related fatalities. See “Item 6 –
Directors, senior management and employees”.
Based on the results of our voluntary counseling and testing program which had an 82% uptake amongst all
levels of the organization, we estimate that 7% of our South African workforce may be currently infected, with
the highest concentration of infections in our mining operations. This is less than the 10% to 15% initially
estimated during 2004.
We incur costs relating to the medical treatment and loss of infected personnel, as well as the related loss of
productivity. We also incur costs relating to the recruitment and training of new personnel. We are not in a
position to accurately quantify these costs. Based on our actuarial models, we estimate that the impact of
HIV/AIDS on our payroll expenses should be less than 1% of our current payroll for our South African
employees by the year 2007. This calculation is based on the estimated financial impact on production resulting
from the projected prevalence of HIV/AIDS among our workforce, but does not take into account indirect costs
of productivity losses. We are investing human and financial resources to establish and maintain programs to
address the HIV/AIDS pandemic. In September 2002, we launched SHARP, which is our initiative to respond to
the HIV/AIDS pandemic, on which we have spent a total sum of approximately R22 million to June 2006. We
are committed to the on-going funding of SHARP.
Significant accounting policies and estimates
The preparation of our consolidated financial statements requires management to make estimates and
assumptions that affect the reported results of its operations. Some of our accounting policies require the
application of significant judgments and estimates by management in selecting the appropriate assumptions for
calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty
and are based on our historical experience, terms of existing contracts, management’s view on trends in the
industries in which we operate and information from outside sources and experts. Actual results may differ from
those estimates.
Our significant accounting policies are described in more detail in note 2 to the consolidated financial
statements. See “Item 18 – Financial statements”. This discussion and analysis should be read in conjunction
with the consolidated financial statements and related notes included elsewhere in this annual report.
Management believes the following significant accounting policies, among others, affect the more
significant judgments and estimates used in the preparation of Sasol’s consolidated financial statements and
could potentially impact our financial results and future financial performance.
We evaluate our estimates, including those relating to trade receivables, inventories, investments, intangible
assets, income taxes, pension and other post-retirement benefits and contingencies and litigation on an ongoing
basis. We base our estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making our judgments about carrying
values of assets and liabilities that are not readily available from other sources.
background image
121
Share options and other share-based payments
The Sasol Share Incentive Scheme allows certain senior group employees the option to acquire shares in
Sasol Limited over a prescribed period. The objective of the Scheme is the retention and reward of key
employees.
Effective 1 July 2005, we adopted, under the modified retrospective basis, the provisions of SFAS 123(R),
which establishes accounting for share-based awards exchanged for employee services. Under the provisions of
the standard share-based payments expenditure is measured at the grant date, based on the fair value of the
award, and is recognized as an expense over the employee’s requisite service period. The application of the
modified retrospective method provides that the financial results of prior periods are adjusted to reflect the fair
value method of expensing share-based payments for all awards which had not vested as at 1 July 2000. The
disclosure requirements of SFAS 123 were adopted by the group effective 1 July 2000 the first financial year
that the group presented its financial results in terms of US GAAP.
The financial results for the prior periods presented have been restated to reflect the fair value method of
expensing share-based payments, which was consistent with the pro-forma disclosures required for those periods
by SFAS 123.
We recognized share-based payment expense for the years indicated:
2006
2005
2004
Share-based payment expense (Rand in millions)
169
137
146
Weighted average grant-date fair value (Rand)
58.74
33.44
28.40
The total unrecognized share-based payment expenditure related to non-vested share options, expected to
be recognized over a weighted average period of 5.6 years, amounted to R361 million at 30 June 2006.
The weighted average assumptions that were used for option grants in the respective periods are as follows:
2006
2005
2004
Risk free interest rate (%)
8.00
9.25
10.75
Expected volatility (%)
34
34
37
Expected dividend yield (%)
4.0
4.3
4.3
Vesting period (years)
2, 4 & 6
2, 4 & 6
2, 4 & 6
The risk free interest rate for periods within the contractual term of the share options is based on South
African government bonds in effect at the time of grant and the expected volatility in the value of the share
options granted is determined using the historical volatility of the Sasol share price.
Estimation of oil and gas reserves
The estimation of oil and gas reserves under SEC rules requires “geological and engineering data (that)
demonstrate with reasonable certainty (reserves) to be recoverable in future years from known reservoirs under
existing economic and operating conditions, i.e., prices and costs as of the date the estimate is made.” Refer to
Table 4, “Proved reserve quantity information,” on page G–4 for the estimates for the year ending 30 June 2006
and to Table 5, “Standardized measure of discounted future net cash flows”, on page G–5 for our standardized
discounted future net cash flow information in respect of proved reserves for year-end 30 June 2006, which were
based on year-end prices at the time.
Estimates of oil and gas reserves are inherently imprecise, require the application of judgment and are
subject to future revision. Accordingly, financial and accounting measures (such as the standardized measure of
discounted cash flows, depreciation and amortization charges and asset retirement obligations), that are based on
proved reserves are also subject to change.
background image
122
Proved reserves are estimated by reference to available reservoir and well information, including
production and pressure trends for producing reservoirs and, in some cases, subject to definitional limits, and
similar data in respect of other producing reservoirs. Proved reserves estimates are attributed to future
development projects only where there is significant commitment to project funding and execution and for which
applicable governmental and regulatory approvals have been secured or are reasonably certain to be secured.
Furthermore, estimates of proved reserves only include volumes for which access to markets is assured with
reasonable certainty. All proved reserves estimates are subject to revision, either upward or downward, based on
new information, such as from development drilling and production activities or from changes in economic
factors, including product prices, contract terms or development plans. See “Item 4.D – Information on the
company – Property, plants and equipment”.
Upward revisions in oil reserve estimates for 2005 were enabled by additional performance history
resulting in increased confidence in reserve levels and the effect of higher crude prices in the extension of the
production plateau. Additionally condensate volumes which were excluded from estimates prior to 2005 are now
included based upon the recognition of a spot market and a history of sales. Revisions to our oil and gas reserves
during 2006 and 2005 did not have a material impact on our financial position and results of operations.
Our exploration assets included under property, plant and equipment on the balance sheet largely consist of
our 5% interest in the OPL249 license in deepwater Nigeria. The costs include acquisition costs and exploration
costs for three wells. Current activities include unitization of one discovery in the license area with a
neighboring field due to the field stretching across both license areas. Further exploration wells are planned to be
drilled in the license area in the near future. The declaration of proved reserves is pending commencement of
front end engineering and design and finalization of the development plan. This is expected to be completed
in 2007.
Amortization of coal mining assets
We calculate amortization charges on coal mining assets using the units-of-production method, which is
based on our proved and probable reserves. Proved and probable reserves used for the amortization of life-of-
mine assets are the total proved and probable reserves assigned to that specific mine (accessible reserves) or
complex which benefit from the utilization of those assets. Inaccessible reserves are excluded from the
calculation. A unit is considered to be produced once it has been removed from underground and taken to the
surface, passed the bunker and been transported by conveyor over the scale at the shaft head. The lives of the
mines are estimated by our geology department using interpretations of mineral reserves, as determined in
accordance with Industry Guide 7 under the US Securities Act of 1933, as amended. The estimate of the total
reserves of our mines could be materially different from the actual coal mined. The actual usage by the mines
may be impacted by changes in the factors used in determining the economic value of our mineral reserves, such
as the coal price and foreign currency exchange rates. Any change in management’s estimate of the total
expected future lives of the mines would impact the amortization charge recorded in our consolidated financial
statements, as well as our estimated asset retirement obligations. See “Item 4.D – Information on the company –
Property, plants and equipment”.
Fair value and useful life of intangible assets
In assessing the recoverability of goodwill (which requires the assessment of fair value of the reporting
unit) and other intangible assets, we must make assumptions (including inflation, exchange rates and oil and
chemicals product prices amongst others) regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. If these estimates or their fair value assessments change in the future, we
may need to record impairment charges for these assets. Identifiable intangible assets with definite useful lives,
such as patents, trademarks and licenses, are currently amortized on a straight-line basis, over their estimated
useful lives.
background image
123
Useful life of long-lived assets
Given the significance of long-lived assets to our financial statements, any change in the depreciation
period could have a material impact on our results of operations and financial condition.
In assessing the useful life of long-lived assets, we use estimates of future cash flows and expectations
regarding the future utilization pattern of the assets to determine the depreciation to be charged on a straight-line
basis over the estimated useful lives of the assets. Annually, we review the useful lives and economic capacity of
the long-lived assets with reference to any events or circumstances that may indicate that an adjustment to the
depreciation period is necessary. The assessment of the useful lives takes the following factors into account:
• the expected usage of the asset by the business. Usage is assessed with reference to the asset’s expected
capacity or physical output;
• the expected physical wear and tear, which depends on operational factors such as the number of shifts
for which the asset is to be used, the repair and maintenance program of the business and the care and
maintenance of the asset while idle;
• technological obsolescence arising from changes or improvements in production or from a change in the
market demand for the output of the asset;
• legal or similar limits on the use of the asset, such as expiry dates and related leases; and
• dependency or co-dependency on supply of raw materials.
The assessment performed during 2005 of the useful lives of certain items of property, plant and equipment
resulted in a reduction in our depreciation charge of approximately R1.5 billion. The assessment was undertaken
due to recent significant capital expenditure incurred, for example Project Turbo, primarily designed to enable
our facilities to produce fuel which meets the new South African fuel specifications with effect from 1 January
2006 and to expand our polymers portfolio. As Sasol Synfuels is the primary downstream feedstock provider to
a number of the chemical plants in the Secunda complex, the useful lives of these assets were also assessed. This
resulted in a substantial increase in the expected remaining useful life of our assets in Secunda to a maximum
remaining life of 25 years. In Sasolburg, the introduction of natural gas as the primary feedstock towards the end
of 2004 and the replacement of coal resulted in a similar assessment of the useful lives of the assets in the
Sasolburg region as well as the group’s gas pipeline infrastructure. As part of this process the useful lives of the
assets in our overseas facilities were also evaluated. There were no significant changes to the useful lives of our
long-lived assets during 2006.
Impairment of long-lived assets
Long-lived assets are reviewed using economic valuations to calculate impairment losses whenever events
or a change in circumstance indicate that the carrying amount may not be recoverable. In carrying out the
economic valuations, an assessment is made of the future cash flows expected to be generated by the assets,
taking into account current market conditions, the expected lives of the assets and our latest budgets. The actual
outcome can vary significantly from our forecasts, thereby affecting our assessment of future cash flows. Assets
whose carrying values exceed their estimated recoverable amount, determined on an undiscounted basis, are
written down to an amount determined using discounted net future cash flows expected to be generated by the
asset. The expected future cash flows are discounted based on Sasol’s Weighted Average Cost of Capital
(WACC) which, at 30 June 2006, was 11.75% for our South African operations and 7.25% for our operations in
Europe and the United States. Refer to the discussions included below under the Segment Review for the
financial impact of the impairment assessments performed during the current year.
background image
124
Environmental and asset retirement obligations
We have significant obligations to remove plant and equipment, rehabilitate land in areas in which we
conduct operations upon termination of such operations and incur expenditure relating to environmental
contamination treatment and cleanup. Environmental and asset retirement obligations are primarily associated
with our mining and petrochemical operations around the world.
An accrual for environmental matters is recorded when it is probable that a liability has been incurred and
the amount of the liability can be reasonably estimated. Expenditure related to environmental contamination
treatment and cleanup is expensed. The estimated fair value of dismantling and removing these facilities is
accrued for as the obligation arises, if estimable, concurrent with the recognition of an increase in the related
asset’s carrying value. Estimating the future asset removal expenditure is complex and requires management to
make estimates and judgments because most of the removal obligations will be fulfilled in the future and
contracts and regulations often have vague descriptions of what constitutes removal. Further, management is
required to determine the discount rate to be used in calculating the obligation based on the amount of the credit
risk of the group which varies depending on the underlying interest rate environment. Future asset removal costs
are also influenced by changing removal technologies, political, environmental, safety, business relations and
statutory considerations.
The actual liability for rehabilitation costs can vary significantly from our estimate and, as a result, the
liabilities that we report can vary significantly if our assessment of the expenditures changes.
The group’s environmental obligation for continuing operations accrued at 30 June 2006 was
R2,262 million compared to R2,002 million in 2005 (R238 million and R158 million was accrued for 2006 and
2005, respectively, for our discontinued operations).
These obligations are discounted using a credit adjusted rate depending on the expected timing of the
obligation and the currency in which the obligation will be settled, and the discount rates which fall within a
range of between 4.2% to 8.1%. An increase in the discount rate by one percentage point would result in a
decrease in the long-term obligations recognized of approximately R426 million and a decrease of one
percentage point would result in an increase of approximately R523 million.
Employee benefits
We provide for our obligations and expenses for pension and provident funds as they apply to both defined
contribution and defined benefit schemes, as well as post-retirement healthcare benefits. The amount provided is
determined based on a number of assumptions and in consultation with an independent actuary. These
assumptions are described in Note 21 to “Item 18 – Financial statements” and include, among others, the
discount rate, the expected long-term rate of return on pension plan assets, healthcare cost inflation and rates of
increase in compensation costs. The nature of the assumptions is inherently long-term, and future experience
may differ from these estimates. For example, a one percentage point increase in assumed healthcare cost trend
rates would increase the accumulated post-retirement benefit obligation by R547 million.
The group includes the amortization of unrecognized gains and losses on the pension fund valuation as a
component of net pension cost for the year if the net cumulative unrecognized actuarial gains and losses at the
end of the previous reporting period exceed the greater of:
• 10% of the present value of the defined benefit obligation at that date; or
• 10% of the fair value of any plan assets at that date (the 10% corridor rule).
In respect of the post-retirement healthcare benefits valuation the group accounting policy requires the
immediate recognition of net actuarial gains and losses.
While management believes that the assumptions used are appropriate, significant changes in the
assumptions may materially affect our pension and other post-retirement obligations and future expense.
background image
125
On 26 September 2006, the South African Financial Services Board approved the Sasol Pension Fund
Surplus Apportionment Scheme. Had this approval been obtained prior to year end, the prepaid pension asset
would have increased by R130 million.
Fair value estimations of financial instruments
We base fair values of financial instruments on listed market prices, where available. If listed market prices
are not available, fair value is determined based on other relevant factors, including dealers’ price quotations and
price quotations for similar instruments traded in different markets. Fair value for certain derivatives based on
pricing models that consider current market and contractual prices for the underlying financial instruments or
commodities, as well as the time value and yield curve or fluctuation factors underlying the positions. Pricing
models and their underlying assumptions impact the amount and timing of unrealized gains and losses
recognized, and the use of different pricing models or assumptions could produce different financial results. See
“Item 11—Quantitative and qualitative disclosures about market risk”.
Deferred tax
We apply significant judgment in determining our provision for income taxes and our deferred tax assets
and liabilities.
Temporary differences arise between the carrying values of assets and liabilities for accounting purposes
and the amounts used for tax purposes. These temporary differences result in tax liabilities being recognized and
deferred tax assets being considered based on the probability of our deferred tax assets being recoverable from
future taxable income. We provide deferred tax at the tax rate applicable to undistributed earnings on all
temporary differences arising between the carrying values of assets and liabilities for accounting purposes and
the amounts used for tax purposes unless there is a temporary difference that is specifically excluded in
accordance with generally accepted accounting principles. To the extent that we believe that recovery is not
likely, we establish a valuation allowance. A valuation allowance of R307 million (2005 – R671 million) has
been established for certain deferred tax assets which we believe are not more likely than not to be recovered.
The carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future
taxable income in applicable tax jurisdictions, based on estimates and assumptions. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the
valuation allowance, in the event that we were to determine that we would not be able to realize our deferred tax
assets in the future, a valuation allowance may be required which would reduce income in the period that such
determination was made.
Secondary Taxation on Companies
In South Africa, we pay both income tax and Secondary Taxation on Companies (STC). STC is levied on
companies at a rate of 12.5% of dividends distributed. In the case of liquidation STC is only payable on
undistributed earnings earned after 1 April 1993. The tax becomes due and payable on declaration of a dividend.
When dividends are received in the current year that can be offset against future dividend payments to reduce the
STC liability, a deferred tax asset is recognized to the extent of the future reduction in STC.
We do not provide for deferred tax at the tax rate applicable to distributed earnings. We believe that this is
consistent with the accounting principle that allows the accrual of dividend payments after dividend declaration.
If we were to provide for deferred taxes on the potential STC arising on our undistributed earnings, should these
be declared as dividends, there would be the following effects on our reported results:
background image
126
2006
2005
(Rand in millions)
Balance sheet
Net deferred tax liability as reported
4,963
5,541
Increase in the deferred tax liability
6,275
5,027
Net deferred tax liability based on the tax rate applicable to
distributed earnings
11,238
10,568
Shareholders’ equity as reported
50,668
40,945
Decrease in shareholders’ equity
(6,275)
(5,027)
Shareholders’ equity after the effect of providing for deferred tax
using the tax rate applicable to distributed earnings
44,393
35,918
2006
2005
2004
(Rand in millions)
Income statement
Income tax as reported
(6,452)
(4,886)
(3,122)
Increase in income tax
(732)
(789)
(478)
Income tax after providing for deferred tax at the rate applicable to
distributed earnings
(7,184)
(5,675)
(3,600)
Earnings attributable to shareholders as reported
11,299
9,719
5,237
Decrease in earnings attributable to shareholders
(732)
(789)
(478)
Earnings attributable to shareholders after providing for deferred tax
at the rate applicable to distributed earnings
10,567
8,930
3,759
We expect that R1,877 million of undistributed earnings earned before 1 April 1993 of two dormant
companies will be distributed without attracting STC of R209 million.
Commitments and contingencies
Management’s current estimated range of liabilities relating to certain pending liabilities for claims,
litigation, tax matters and environmental remediation is based on management’s judgment and estimates of the
amount of loss. The actual costs may vary significantly from estimates for a variety of reasons. A liability is
recognized for these types of contingencies if management determines that the loss is both probable and
estimable. We have recorded the estimated liability where such amount can be determined and the minimum
liability related to those claims where there is a range of loss, and no amount within the range is more probable
than the others. As additional information becomes available, we will assess the potential liability related to our
pending litigation proceedings and revise our estimates. Such revisions in our estimates of the potential liability
could materially impact our results of operation and financial position. See “Item 5.E – Off-balance sheet
arrangements”.
background image
127
OUR RESULTS OF OPERATIONS
The financial results below are stated under US GAAP. Except where otherwise indicated, management’s
discussion and analysis focuses primarily on continuing operations.
Results of operations
Change
Change
Change
Change
2006
2005
2006/2005
2006/2005
2004
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Turnover
61,857
50,687
11,170
22
43,606
7,081
16
Other operating income
205
223
(18)
(8)
166
57
34
Net foreign exchange
gains/(losses)
189
148
41
28
(1,260)
1,408
(112)
Operating costs and expenses
(41,563)
(36,681)
4,882
13
(33,966)
2,715
8
Operating profit
20,688
14,377
6,311
44
8,546
5,831
68
Net other income/(expenses)
67
(85)
152
(179)
92
(177)
(192)
Income before tax, earnings/
(losses) of equity accounted
investees and minority
interest
20,755
14,292
6,463
45
8,638
5,654
65
Income tax
(6,452)
(4,886)
1,566
32
(3,122)
1,764
57
Income before earnings/
(losses) of equity accounted
investees and minority
interest
14,303
9,406
4,897
52
5,516
3,890
71
Earnings/(losses) of equity
accounted investees
13
308
(295)
(96)
(48)
356
742
Minority interest
(157)
(103)
54
52
(92)
11
12
Income from continuing
operations
14,159
9,611
4,548
47
5,376
4,235
79
Net (loss)/income from
discontinued operations
(including fair value
write-down), net of tax
(2,860)
108
(2,968)
(139)
247
178
Earnings attributable to
shareholders
11,299
9,719
1,580
16
5,237
4,482
86
Overview
Higher average annual international oil prices (dated Brent US$62.45/b compared to US$46.17/b for 2005
and US$31.30/b in 2004) boosted operating profit in all three years. The benefit of higher oil prices was,
however, mostly realized in the energy and fuel-related businesses and to a lesser extent in the group’s chemical
businesses which have been adversely impacted by the effect of higher crude oil prices on the cost of their
feedstock. This benefit was further enhanced by the positive impact of the slightly weaker rand during 2006
(average rate R6.41 per US dollar for the 2006 year compared to R6.21per US dollar for the 2005 year and
R6.88 per US dollar in the 2004 year). The benefit of the higher oil price was partly offset during 2005 by the
adverse impact of the stronger rand during that year compared to 2004.
background image
128
Turnover
Turnover consists of the following categories:
Change
Change
Change
Change
2006
2005
2006/2005
2006/2005
2004
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Sale of products
60,639
49,830
10,809
22
42,823
7,007
16
Services rendered
776
533
243
46
505
28
6
Commission and marketing
income
442
324
118
36
278
46
17
Turnover
61,857
50,687
11,170
22
43,606
7,081
16
The primary factors contributing to these increases were:
Change
Change
2006/2005
2005/2004
(Rand in
%
(Rand in
%
millions)
millions)
Turnover, 2005 and 2004, respectively
50,687
43,606
Exchange rates effects positive/(negative)
1,194
2
(2,888)
(6)
Product prices increases
9,526
19
9,553
19
– crude oil
5,902
12
6,349
13
– other products (including chemicals)
3,624
7
3,204
6
Net volume increases
450
1
416
1
Turnover, 2006 and 2005, respectively
61,857
50,687
Other operating income
Other operating income in 2006 amounted to R205 million, which represents a decrease of R18 million or
8%, compared to R223 million in 2005. Included in operating income for the 2006 year is a gain on hedging
activities of R84 million, insurance proceeds of R40 million and R24 million in respect of income recognized
relating to emission rights.
Other operating income in 2005 amounted to R223 million, which represents an increase of R57 million or
34%, compared to R166 million in 2004. Included in other operating income for 2005 is gain on hedging
activities of R82 million and a profit recognized of R33 million on the sale of part of our participation rights in
the second phase of the Qatar GTL project.
Net foreign exchange gains/(losses)
Net foreign exchange gains for 2006 and 2005 arising primarily from the translation of monetary assets
and liabilities amounted to R189 million and R148 million respectively. A net foreign exchange loss of
R1,260 million was recognized in 2004. The profit recognized in 2006 and 2005 is due to the weakening of the
rand/US dollar exchange rate towards the end of the year closing at R7.17 per US dollar at 30 June 2006
compared to the closing exchange rate at 30 June 2005 of R6.67 per US dollar and as at 30 June 2004 of
R6.21 per US dollar. Additionally the average exchange rate for 2006 was R6.41 per US dollar compared
to R6.21 per US dollar for 2005 and R6.88 per US dollar for 2004. The closing rate is used to translate to rand
all our monetary assets and liabilities denominated in a currency other than the rand at balance sheet date and as
a result a net profit was recognized on these translations.
background image
129
Operating costs and expenses
Operating costs and expenses consists of the following categories:
Change
Change
Change
Change
2006
2005
2006/2005
2006/2005
2004
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Cost of sales
(28,970)
(25,112)
3,858
15
(23,282)
1,830
8
Cost of services rendered
(666)
(524)
142
27
(495)
29
6
Selling and distribution costs
(3,895)
(3,840)
55
1
(3,824)
16
0
Administrative expenses
(4,051)
(3,811)
240
6
(3,541)
270
8
Other operating expenses
(3,981)
(3,394)
587
17
(2,824)
570
20
Operating costs and expenses
(41,563) (36,681)
4,882
13
(33,966)
2,715
8
The variances in operating costs and expenses are described in detail in each of the various reporting
segments, included in the Segment Review below.
Cost of sales. The cost of sales in 2006 amounted to R28,970 million, an increase of R3,858 million or
15%, compared to R25,112 million in 2005 which increased by 8% from R23,282 million in 2004. The increase
over the past two years is due to the increase in the crude oil price and other feedstock prices. Compared to
turnover from the sale of products, the cost of sales was 48% in 2006, 50% in 2005 and 54% in 2004. This
decrease was mainly due to the positive effects of the increase in crude oil prices on our energy related
businesses which generate the majority of the group’s operating profit.
Cost of services rendered. Cost of services rendered amounted to R666 million in 2006, an increase of
R142 million or 27%, compared to R524 million in 2005 which increased by 6% from R495 million in 2004.
Compared to turnover from services rendered, the cost of services rendered was 86% in 2006 and 98% in 2005
and 2004. The decrease is mainly due to the higher refinery margins attained by Natref which resulted in an
increase in the turnover from services rendered.
Selling and distribution costs. These costs comprise marketing and distribution of products as well as
advertising, salaries and expenses of marketing personnel, freight, railage and customs and excise duty. Selling
and distribution costs in 2006 amounted to R3,895 million, R3,840 million in 2005 and R3,824 million in 2004.
Compared to sales of products, selling and distribution costs represented 6% in 2006 compared to 8% in 2005
and 9% in 2004. The increase in these costs has been contained during the years under review.
Administrative expenses. These costs comprise expenditure of personnel and administrative functions,
including accounting, information technology, human resources, legal and administration, pension, post-
retirement healthcare benefits and Sasol Share Incentive Scheme costs. Administrative expenses in 2006
amounted to R4,051 million, an increase of R240 million or 6%, compared to R3,811 million in 2005 which
increased by 8% from R3,541 million in 2004. Increased activity at SSI and SPI resulted in significant increases
in their administrative expenses for 2006. The increase in our administrative expenses during 2005 was also due
to costs incurred on our transaction to form the liquid fuels joint venture Uhambo Oil, and our readiness project
undertaken with respect to our adoption of Sarbanes-Oxley Act, Section 404.
Other operating expenses. Other operating expenses in 2006 amounted to R3,981 million, an increase of
R587 million or 17%, compared to R3,394 million in 2005 which increased by 20% from R2,824 million in
2004. This amount includes impairments of R119 million (2005 – R175 million and 2004 – R205 million),
scrapping of assets of R264 million (2005 – R284 million and 2004 – R22 million) and net loss on the disposal
of property, plant and equipment of R50 million (2005 – a net profit of R43 million and 2004 – a net profit of
R122 million). Other operating expenses includes the effects of our crude oil hedging activities amounting to a
loss of R93 million (2005 – a loss of R1.2 billion and 2004 – a profit of R36 million). Details of the
impairments, scrapping of assets and profit/(loss) on disposals are detailed in the Segment review.
background image
130
Included below are the impairments, scrapping of assets and (profit)/loss on disposal of property, plant and
equipment recognized:
2006
2005
2004
(Rand in millions)
Sasol Mining
16
(16)
(17)
– impairments
16
– scrapping of assets
25
4
– profit on disposal of property, plant and equipment
(9)
(36)
(17)
Sasol Synfuels
187
122
3
– impairments
16
2
– scrapping of assets
205
123
17
– profit on disposal of property, plant and equipment
(18)
(17)
(16)
Sasol Oil
5
57
– impairments
2
47
– loss on disposal of property, plant and equipment
3
10
Sasol Gas
67
– impairments
67
Sasol Polymers
(2)
12
(59)
– impairments
4
5
– scrapping of assets
2
5
5
– (profit)/loss on disposal of property, plant and equipment
(8)
2
(64)
Sasol Solvents
19
229
19
– impairments
12
78
42
– scrapping of assets
7
151
– profit on disposal of property, plant and equipment
(23)
Other divisions
141
12
159
– impairments
34
13
161
– scrapping of assets
25
1
– loss/(profit) on disposal of property, plant and equipment
82
(2)
(2)
433
416
105
background image
131
Operating profit
The main factors contributing to the increase in operating profit were:
Change
Change
2006/2005
2005/2004
(Rand in
%
(Rand in
%
millions)
millions)
Operating profit, 2005 and 2004, respectively
14,377
8,546
Exchange rates effects positive/(negative)
1
1,331
9
(1,437)
(17)
Net product and feedstock price increases
6,625
46
7,420
85
– crude oil effects
4,536
32
5,062
58
– effect of the crude oil hedge
1,032
7
(1,147)
(13)
– other products (including chemicals)
1,057
7
3,505
40
Inflation on fixed costs
(1,294)
(9)
(525)
(6)
Net volume and productivity effects
(700)
(5)
(968)
(11)
Capital items effects
2
187
1
311
4
Other effects
3
162
1
1,030
12
Operating profit, 2006 and 2005, respectively
20,688
14,377
1.
This arises primarily from the effects of the average US dollar exchange rate during the year on both turnover and
operating expenses.
2.
Included in capital items is the impairment of long-lived assets and other capital items.
3.
Included in other effects are R182 million relating to the capitalization of mining development costs during 2006 and
the reduction in the depreciation charge in 2005 after a reassessment of the useful lives of various items of property,
plant and equipment was performed. The effect on each business is discussed in detail in the “Segment review”
.
Net other income/(expenses)
Net other income/(expenses) consists of the following:
Change
Change
Change
Change
2006
2005
2006/2005
2006/2005
2004
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Dividends received
9
13
(4)
(31)
6
7
117
Interest received
261
82
179
218
142
(60)
(42)
Finance costs
(203)
(180)
23
13
(164)
16
10
– interest incurred
(1,152)
(1,208)
(56)
(5)
(1,235)
(27)
(2)
– interest capitalized
949
1,028
(79)
(8)
1,071
(43)
(4)
Gain arising from issuance of
subsidiary’s shares
108
(108)
(100)
Net other income/(expenses
)
67
(85)
152
(179)
92
(177)
(192)
Interest received amounted to R261 million in 2006, compared to R82 million in 2005, and R142 million in
2004. The increase in the interest received during 2006 is attributable to the significant increase in cash and cash
equivalents available to the group during 2006. The decrease in 2005 is mainly attributable to translation
differences on interest income from investments in foreign countries due to the appreciation of the rand against
the US dollar, as well as lower average cash balances and declining interest rates.
background image
132
Interest incurred in 2006 amounted to R1,152 million, a decrease of 5% from 2005, of which R949 million
was capitalized, compared to interest incurred of R1,208 million in 2005 and R1,235 million in 2004, of which
R1,028 million and R1,071 million was capitalized for the respective years. The decrease in 2006 is mainly due
to the 21% decrease in net debt from 2005. Further interest incurred decreased in 2006 and 2005 due to
declining interest rates which was partially offset in 2005 as a result of increased net borrowings due to capital
project requirements. The Eurobond raised during 2005 in the European capital markets is at a favorable interest
rate compared to our other external borrowings. Capitalized interest decreased due to the lower interest incurred,
partially offset by increased capital expenditure on property, plant and equipment in 2006 and 2005.
In 2004 our shareholding in Naledi Petroleum (Pty) Limited was diluted through the issuing of shares to
minority shareholders which resulted in a gain of R108 million being realized.
Taxation
Income tax expense in 2006 amounted to R6,452 million, an increase of 32%, compared to R4,886 million
in 2004 which increased by 57% from R3,122 million in 2004.
The income statement charge consists of the following:
2006
2005
2004
(Rand in millions)
Current tax
– South African normal tax
(5,607)
(3,325)
(2,842)
– Secondary Tax on Companies (STC)
(551)
(375)
(343)
– Foreign tax
(386)
(420)
(158)
Total current tax
(6,544)
(4,120)
(3,343)
Deferred tax
– South African
(123)
(693)
202
– Foreign
215
(73)
19
Total deferred tax income/(expense)
92
(766)
221
Income tax expense for the year
(6,452)
(4,886)
(3,122)
The increase in taxation is broadly in line with the increase in net income before taxation. The effective tax
rate was 31.1% in 2006, 34.2% in 2005 and 36.1% in 2004. The difference between the South African statutory
tax rate of 29% in 2006 and 30% in 2005 and 2004 and the effective tax rate results mainly from STC which is
levied at a rate of 12.5% on dividends paid, differences in foreign tax rates, disallowed expenditure and the
effect of changes in tax rates. The decrease in average effective tax rate is due to the increase in the average rate
of earnings to dividend distributions ratio from 2.1 times in 2004 to 2.9 times in 2005 and increased further to
3.1 times in 2006 (based on continuing operations) which reduces the effect of STC on the effective tax rate.
Earnings/(Losses) of equity accounted investees
Earnings of equity accounted investees amounted to R13 million in 2006 compared to R308 million in 2005 and
loss of equity accounted investees of R48 million in 2004. The earnings in 2006 and 2005 comprise our
attributable share of equity accounted investments held by our Sasol Polymers and Sasol Solvents businesses,
offset in 2006 by losses mainly from equity accounted investments held by our SSI business. The loss incurred
by our SSI business is due to increased activity in respect of developing our GTL projects by this business which
does not currently generate significant turnover. The earnings generated by the equity accounted investments
held by Sasol Polymers and Sasol Solvents are due to the increase in solvents and polymer chemical prices.
background image
133
Net (loss)/income from discontinued operations (including fair value write-down)
With effect from 30 June 2006, the Sasol Olefins & Surfactants business has been classified as a disposal
group held for sale and the results reported as discontinued operations. The income statement has been restated
for all periods to exclude Sasol Olefins & Surfactants from continuing operations and reports these results as a
single line item. Detail of the performance of the Sasol Olefins & Surfactants business is included in the
Segment review.
Included below are the impairments, fair value write-down, scrapping of assets and loss on disposal of
property, plant and equipment included in net loss/income from discontinued operations:
2006
2005
2004
(Rand in millions)
– impairments
131
84
79
– fair value write-down
3,110
– scrapping of assets
16
4
– loss on disposal of property, plant and equipment
14
8
11
3,255
108
94
The write-down of R3,110 million before tax of the assets of Sasol Olefins & Surfactants to their expected
fair value less costs to sell was primarily due to significant changes in crude oil prices.
Minority interest
Minority interest in 2006 amounted to R157 million compared to R103 million in 2005 and R92 million in
2004. The increase is mainly attributable to the increase in profits earned from certain operations of Sasol Oil in
which outside shareholders have an interest. This is due to the increase in the refining margin which was
partially off-set by the appreciation of the rand in 2006.
Segment overview
The following is a discussion of our segment results. Segmental financial performance is measured on a
management basis which is prepared in accordance with IFRS. This approach is based on the way in which the
Group Executive Committee organizes segments within our group for making operating decisions and assessing
performance. For more information on the reconciliation of segmental turnover and operating profit under IFRS
to the corresponding amounts prepared under US GAAP, refer below “Reconciliation of segmental results to
US GAAP” and Note 3 to our consolidated financial statements, see “Item 18. Financial statements”.
Inter-segment turnover was entered into under terms and conditions substantially similar to terms and
conditions which would have been negotiated with an independent third party. The segment information for 2005
and 2004 has been restated for the classification of Sasol Olefins & Surfactants as discontinued operations as
well as the reclassification of the comonomers division from Sasol Olefins & Surfactants to Sasol Solvents.
background image
134
Turnover per segment
Sasol
Synfuels
Total
Sasol
Sasol
Sasol
Sasol
Inter-
Sasol
Sasol
continuing
2006
Mining
Synfuels
Oil
Gas
national
Polymers
Solvents
Other
operations
(Rand in millions)
External turnover
1,517
915
32,243
1,663
161
7,537
10,485
9,329
63,850
% of external turnover
2%
1%
51%
3%
12%
16%
15%
100%
Inter-segment turnover
3,949
24,734
544
1,546
102
1,181
4,242
36,298
% of inter-segment
turnover
11%
69%
1%
4%
3%
12%
100%
Aggregated turnover
5,466
25,649
32,787
3,209
161
7,639
11,666
13,571
100,148
Sasol
Synfuels
Total
Sasol
Sasol
Sasol
Sasol
Inter-
Sasol
Sasol
continuing
2005
Mining
Synfuels
Oil
Gas
national
Polymers
Solvents
Other
operations
(Rand in millions)
External turnover
1,471
820
23,525
1,408
7,199
9,361
8,713
52,497
% of external turnover
3%
1%
45%
3%
14%
18%
16%
100%
Inter-segment turnover
3,744
17,864
187
996
83
947
3,534
27,355
% of inter-segment
turnover
14%
65%
1%
4%
3%
13%
100%
Aggregated turnover
5,215
18,684
23,712
2,404
7,282
10,308
12,247
79,852
Sasol
Synfuels
Total
Sasol
Sasol
Sasol
Sasol
Inter-
Sasol
Sasol
continuing
2004
Mining
Synfuels
Oil
Gas
national
Polymers
Solvents
Other
operations
(Rand in millions)
External turnover
1,083
1,329
18,554
1,389
7
6,576
7,937
8,124
44,999
% of external turnover
2%
3%
41%
3%
15%
18%
18%
100%
Inter-segment turnover
4,161
14,664
297
133
86
748
3,609
23,698
% of inter-segment
turnover
18%
62%
1%
1%
3%
15%
100%
Aggregated turnover
5,244
15,993
18,851
1,522
7
6,662
8,685
11,733
68,697
background image
135
Operating profit/(loss) per segment
Sasol
Synfuels
Total
Sasol
Sasol
Sasol
Sasol
Inter-
Sasol
Sasol
continuing
Mining
Synfuels
Oil
Gas
national
Polymers
Solvents
Other
operations
(Rand in millions)
Operating profit/(loss)
2006
1,180
13,499
2,432
1,526
(642)
822
873
1,042
20,732
% of total continuing
operations
6%
65%
12%
7%
(3%)
4%
4%
5%
100%
Operating profit/(loss)
2005
1,239
7,546
1,892
931
(201)
1,475
1,021
480
14,383
% of total continuing
operations
9%
52%
13%
6%
(1%)
10%
7%
3%
100%
Operating profit/(loss)
2004
1,185
5,498
1,421
386
(140)
1,021
4
(239)
9,136
% of total continuing
operations
13%
60%
16%
4%
(2%)
11%
(3%)
100%
background image
136
Reconciliation of segment results to US GAAP
Our segments’ financial performance is prepared, measured and presented in accordance with IFRS which
is consistent with the basis that is used by the GEC to measure and manage the segments of our business. This
basis differs from the presentation of our consolidated financial statements which are prepared under US GAAP.
The differences between US GAAP and IFRS as they affect external turnover and operating profit are discussed
below:
30 June 2006
30 June 2005
30 June 2004
Turnover
Operating
Turnover
Operating
Turnover
Operating
Note
(external)
profit
(external)
profit
(external)
profit
(Rand in millions)
Operating results per IFRS
consolidated income
statements
63,850
20,732
52,497
14,383
44,999
9,136
Reconciliation of IFRS to
US GAAP:
Equity accounting of
incorporated joint ventures
and reversal of
proportionate consolidation
1
(1,993)
(123)
(1,810)
(180)
(1,659)
56
Entities previously not
consolidated
2
266
106
Business combinations
3
(15)
77
(151)
Research and development
4
(60)
Derivative instruments
5
(4)
(1)
(12)
Foreign currency translation
6
(3)
(253)
Impairment
7
36
375
83
Asset retirement obligations
8
134
(94)
(23)
Gain arising from issuance of
subsidiary’s shares
9
(108)
Other
10
(12)
(180)
(288)
Results per US GAAP
consolidated income
statements
61,857
20,688
50,687
14,377
43,606
8,546
Turnover. The differences between IFRS and US GAAP comprise the following:
1.
Decrease of R1,993 million (2005 – R1,810 million; 2004 – R1,659 million). Proportionate
consolidation is applied with respect to incorporated joint ventures for IFRS reporting purposes.
Under US GAAP, the equity method of accounting is applied.
2.
Increase of Rnil (2005 – Rnil; 2004 – R266 million). From 1 January 2004, Naledi Petroleum
Holdings (Pty) Limited (included in the Sasol Oil segment) was consolidated for both IFRS reporting
purposes and for US GAAP.
Operating profit. The differences between IFRS and US GAAP comprise the following:
1.
Decrease of R123 million (2005 – decrease of R180 million; 2004 – increase of R56 million).
Proportionate consolidation is applied with respect to incorporated joint ventures for IFRS reporting
purposes. Under US GAAP, the equity method of accounting is applied.
2.
Increase of Rnil (2005 – Rnil; 2004 – R106 million). From 1 January 2004, Naledi Petroleum
Holdings (Pty) Limited (included in the Sasol Oil segment) was consolidated for both IFRS reporting
purposes and for US GAAP.
background image
137
3.
Decrease of R15 million (2005 – increase of R77 million; 2004 – decrease of R151 million). The
timing and recording of certain fair value adjustments differs under US GAAP to those recorded for
IFRS reporting purposes because the transactions were not accounted for at the same effective date.
The difference will have a continuing impact on the depreciation of these items. Up to 30 June 2004,
negative goodwill was recognized for IFRS reporting purposes and amortized over the remaining
useful life of non-financial assets acquired. With effect from 1 July 2004, negative goodwill was
written off against opening retained earnings and is no longer amortized. US GAAP requires that
negative goodwill be allocated to reduce the amounts of any non-financial assets acquired and any
excess amount remaining is recognized as an extraordinary gain in the period that it arises.
4.
Decrease of R60 million (2005 – Rnil; 2004 – Rnil). For IFRS reporting purposes certain development
costs are capitalized. US GAAP requires that these development costs be recognized in the income
statement as incurred.
5.
Decrease of R4 million (2005 – R1 million; 2004 – R12 million). Derivative contracts entered into
subsequent to 1 July 2004 met the criteria for hedge accounting under both US GAAP and for IFRS
reporting purposes. Certain derivative contracts entered into prior to 30 June 2002 did not meet the
hedge accounting criteria under US GAAP and as such hedge accounting was not applied. For IFRS
reporting purposes cumulative gains/losses arising from hedge accounting are adjusted against the cost
of the non-financial asset upon recognition of the forecasted transaction. Under US GAAP cumulative
gains/losses are reclassified to earnings over the same period during which the forecasted transaction
affects earnings.
6.
Increase of Rnil million (2005 – decrease of R3 million; 2004—increase of R253 million). Only one
entity was accounted for differently for IFRS reporting purposes and under US GAAP. As a result the
translation gains and losses arising on translation of monetary assets and liabilities of this entity were
recognized in the income statement.
7.
Increase of R36 million (2005 – R372 million; 2004 – R83 million). For IFRS reporting purposes,
property, plant and equipment is considered to be impaired when its carrying value exceeds the
discounted estimated future cash flows, whereas under US GAAP an initial impairment review is
required to be performed on an undiscounted basis.
8.
Increase of R134 million (2005 – decrease of R94 million; 2004 – decrease of R23 million). For IFRS
reporting purposes asset retirement obligations are discounted at a risk free discount rate which is
reassessed annually, whereas under US GAAP, a credit adjusted rate is used for the entire period and
not reassessed. For IFRS reporting purposes, the accretion charge is recognized as an interest expense
in the income statement in the year that it was incurred. Under US GAAP the accretion charge is
recognized as an operating expense.
9.
Decrease of R108 million in 2004 is due to the profit on sale of 2.04% shares in Sasol Oil (Pty)
Limited which was not shown as operating profit for US GAAP and was shown as operating profit for
IFRS reporting purposes.
10. The other decrease of R12 million (2005 – R118 million; 2004 – R176 million) relate to various non-
significant adjustments that affect some of our segments. Other contains non-significant adjustments
related to capitalization of finance leases, depreciation methods and pensions.
background image
138
Segment review – Continuing operations
Sasol Mining – results of operations
Change
Change
Change
Change
2006
2005
2
2006/2005
2006/2005
2004
2
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Turnover
External
1,517
1,471
46
3
1,083
388
36
Inter-segment
3,949
3,744
205
5
4,161
(417)
(10)
Aggregated turnover
5,466
5,215
251
5
5,244
(29)
(1)
Operating costs and expenses
1
(4,286)
(3,976)
310
8
(4,059)
(83)
(2)
Operating profit
1,180
1,239
(59)
(5)
1,185
54
5
Operating margin
%
22
24
23
1.
Operating costs and expenses net of other income.
2.
Restated for the adoption of IFRS 2, Share-based payment. A share-based payment expense of R8 million and
R9 million for 2005 and 2004, respectively, has been recognized in operating costs and expenses.
Results of operations 2006 compared to 2005
Aggregated turnover increased by 5% from R5,215 million to R5,466 million. Sales volumes increased
from 46.5 Mt to 47.7 Mt mainly because of higher short-term sales to Eskom of 1.7 Mt compared with 0.2 Mt in
2005. Contributing to the increased aggregated turnover was higher Eskom sales volumes and higher sales to
Sasol Synfuels mainly because of a higher transfer price. Export sales volumes for 2006 and 2005 was 3.6 Mt
for each year, however, the average free on board Richards Bay coal price decreased by 4% in rand terms.
Against the backdrop of reduced production volumes, operating costs and expenses increases were
contained to 8%, including the higher price of coal purchases from Anglo Operations of 3.1 Mt during 2006.
The main factors contributing to the 5% decrease in operating profit were:
Change
2006/2005
(Rand in
%
millions)
Operating profit 2005
1,239
Exchange rate effects
44
4
Net product price increases
16
1
Inflation on fixed costs
(157)
(13)
Net volume and productivity effects
77
6
Capital items effects
39
3
Operating profit 2006
1,180
background image
139
Results of operations 2005 compared to 2004
The increase in Sasol Mining’s external turnover in 2005 of R388 million or 36% was mainly attributable
to the increase in the US dollar price of coal which increased turnover by R470 million. This was partially
negated by the effect of the appreciation of the rand against the US dollar.
The decrease in inter-segment turnover in 2005 of R417 million or 10% is due to inter-segment sales
volumes to Infrachem and Sasol Synfuels decreasing by 4.6 Mt or 10% to 42.4 Mt in 2005, due to the
introduction of natural gas at Infrachem and Sasol Synfuels.
Operating costs and expenses of Sasol Mining amounted to R3,976 million in 2005, compared to
R4,059 million in 2004, a decrease of R83 million or 2%. The decrease was mainly attributable to lower sales
volumes and cost saving initiatives.
Sasol Mining’s property, plant and equipment is depreciated over its estimated remaining useful lives.
These useful lives were reassessed during 2005. Due to the extension of the useful lives of certain items of
property, plant and equipment, the depreciation charge was reduced by R29 million for 2005. These changes in
estimate were accounted for prospectively with no adjustment made to prior years.
Capital items for the years under review
During the years under review operating costs and expenses includes the effect of the following capital
items:
2006
2005
2004
(Rand in millions)
Impairment of property, plant and equipment
(16)
Scrapping of property, plant and equipment
(25)
(4)
Profit on disposal of business
7
Profit on disposal of property, plant and equipment
9
36
17
Total
(16)
23
17
During 2006 numerous assets with small carrying values were retired from use and the remaining carrying
values attributable to these assets were written off.
The Syferfontein opencast mine was sold on 1 April 2005 to Anglo Operations. Whilst a profit of
R36 million was realized on the sale of mining assets, certain assets excluded from the disposal were impaired.
An impairment of R16 million was recognized.
background image
140
Sasol Synfuels – results of operations
Change
Change
Change
Change
2006
2005
2
2006/2005
2006/2005
2004
2
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Turnover
External
915
820
95
12
1,329
(509)
(38)
Inter-segment
24,734
17,864
6,870
38
14,664
3,200
22
Aggregated turnover
25,649
18,684
6,965
37
15,993
2,691
17
Operating costs and expenses
1
(12,150)
(11,138)
1,012
9
(10,495)
643
6
Operating profit
13,499
7,546
5,953
79
5,498
2,048
38
Operating margin
%
53
40
34
1.
Operating costs and expenses net of other income.
2.
Restated for the adoption of IFRS 2, Share-based payment. A share-based payment expense of R14 million for both
2005 and 2004 has been recognized in operating costs and expenses.
Results of operations 2006 compared to 2005
Sasol Synfuels again benefited from a combination of higher oil prices, focused cost containment and an
all-round effort to streamline operations and lift productivity, which resulted in a record operating profit.
Aggregated turnover increased by 37% from R18,684 million to a record R25,649 million on the strength of
higher product prices and marginally higher sales volumes. Overall production was below target due to
instability in our support utilities. Despite this, we increased production by 1%. Our costs increased mainly
because of higher coal and gas feedstock prices, as well as the unscheduled plant interruptions, including power
outages.
The main factors contributing to the increase in operating profit were:
Change
2006/2005
(Rand in
%
millions)
Operating profit 2005
7,546
Exchange rate effects
704
9
Net product and feedstock price increases/(decreases)
6,769
90
– crude oil effects
6,013
80
– effect of the crude oil hedge
1,032
14
– other products
(276)
(4)
Inflation on fixed costs
(728)
(10)
Net negative volume and productivity effects
(862)
(11)
Management interventions
1
147
2
Capital items effects
(77)
(1)
Operating profit 2006
13,499
1.
Includes the net positive effects of the delay of the scheduled maintenance shutdown of the plant to 2007.
background image
141
Results of operations 2005 compared to 2004
External turnover amounted to R820 million in 2005, compared to R1,329 million in 2004, a decrease of
R509 million or 38%, mainly resulting from the suspension of the sale of certain products (e.g. metcoke). This
decision was taken as a result of low profit margins earned on these products as well as lower sales volumes of
ammonia, sulfur, krypton xenon and wood preservative product sales. The increase in Sasol Synfuels’ aggregated
turnover of R2,691 million was mainly due to higher crude oil prices of R5,614 million as well as higher other
product prices of R201 million partly reduced by the negative effect of a strengthening of the rand against the
US dollar of R2,278 million as well as lower production volumes of R846 million.
Operating costs and expenses of Sasol Synfuels amounted to R11,138 million in 2005, compared to
R10,495 million in 2004, an increase of R643 million or 6 %. The increase includes a realized opportunity loss
on our commodity derivative financial instruments of R1,147 million, offset by a small profit realized on other
derivative instruments of R11 million, compared to the loss of R54 million in 2004. The other main reasons for
the increase in our costs is due to feedstock price increases of R79 million and higher overhead costs of
R337 million. This was partly reduced by the decrease in costs due to lower volumes produced of R309 million,
due to three unplanned shut downs mentioned below.
Production volumes for 2005 decreased to 7.5 Mt, a decrease of 3% over 2004 production of 7.7 Mt,
mainly due to three unplanned shutdowns, most significantly the flooding of the ash dams due to a rainstorm.
Sales volumes for 2005 decreased to 7.4 Mt, a decrease of 6% over 2004 sales of 7.9 Mt resulting in a stock
build up of intermediate products at year end.
Sasol Synfuels reassessed the useful lives of certain items of property, plant and equipment during 2005.
The estimated useful life of certain assets was extended due to technological innovations, product life cycles and
maintenance programs. Due to these extensions of the useful lives of certain items of property plant and
equipment the depreciation charge was reduced by R656 million for the 2005 year. These changes in estimates
were accounted for prospectively with no adjustment made to prior years.
Capital items for the years under review
During the years under review operating costs and expenses includes the effect of the following capital
items:
2006
2005
2004
(Rand in millions)
Impairment of property, plant and equipment
(16)
(2)
Scrapping of property, plant and equipment
(205)
(111)
(17)
Profit on disposal of property, plant and equipment
18
17
16
Total
(187)
(110)
(3)
The capital items in 2006 include the scrapping of property, plant and equipment during the year of the
remaining carrying value of costs capitalized as part of the C4 Skeletal Isomerisation scheme of R81 million,
R79 million for items of property, plant and equipment which formed part of the sulfur recovery project and the
remaining carrying value of R10 million on the CFB reactors were scrapped during the year.
The capital items in 2005 include:
• Impairment of property, plant and equipment—following a business decision to utilize an alternative kiln
for processing low sulfur coke, the electrical kiln was idle for a period of eight months. Although
potential uses for this asset are being investigated, there are presently no expected future cash flows to be
derived from this asset and as a result an impairment of the carrying value of the asset was recognized;
and
• Scrapping of property, plant & equipment—various items of property, plant and equipment were
scrapped during the year. These consist mainly of development costs for certain projects as well as
certain smaller assets which are no longer being used by Sasol Synfuels.
background image
142
Sasol Oil – results of operations
Change
Change
Change
Change
2006
2005
2
2006/2005
2006/2005
2004
2
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Turnover
External
32,243
23,525
8,718
37
18,554
4,971
27
Inter-segment
544
187
357
191
297
(110)
(37)
Aggregated turnover
32,787
23,712
9,075
38
18,851
4,861
26
Operating costs and expenses
1
(30,355)
(21,820)
8,535
39
(17,430)
4,390
25
Operating profit
2,432
1,892
540
29
1,421
471
33
Operating margin
%
7
8
8
1.
Operating costs and expenses net of other income.
2.
Restated for the adoption of IFRS 2, Share-based payment. A share-based payment expense of R8 million for both
2005 and 2004 has been recognized in operating costs and expenditure.
Results of operations 2006 compared to 2005
At a time when the South African liquid-fuels sector is enjoying strong volume growth, we continue to
increase our market share, mostly on the strength of vigorous marketing efforts and the continuing expansion of
our retail network launched in January 2004. We increased our complement of Sasol Convenience Centres and
Exel retail service stations in South Africa by 9% from 345 to 376.
The business increased aggregated turnover by 38% from R23,712 million to R32,787 million due to a 3%
increase in refining margins during 2006 and the weakening of the rand against the US dollar. Operating profit
rose by 29% from R1,892 million to R2,432 million, due mostly to the strength of better refining margins and
greater efficiency. On the downside, a drop in production volumes from the Sasol Synfuels operations and the
Natref refinery restrained profit growth. Operating costs and expenses increased by 39% as a result of higher
feedstock, such as crude oil.
The main factors contributing to the increase in operating profit were:
Change
2006/2005
(Rand in
%
millions)
Operating profit 2005
1,892
Exchange rate effects
139
7
Net product and feedstock price increases
608
32
Inflation on fixed costs
(52)
(3)
Net negative volume and productivity effects
(210)
(11)
Capital items effects
55
3
Operating profit 2006
2,432
background image
143
Results of operations 2005 compared to 2004
The net increase in Sasol Oil’s aggregated turnover of R4,861 million was mainly due to higher product
prices of R6,970 million (primarily as a result of higher refining margins) and higher sales volumes
of R294 million, which was partially offset by the strengthening of the rand against the US dollar of
R2,403 million.
Operating costs and expenses of Sasol Oil amounted to R21,820 million in 2005, compared to
R17,430 million in 2004, an increase of R4,390 million or 25%. The increase of 25% is mainly due to increases
in direct productions costs as a result of higher prices of feedstock, such as crude oil prices, of R6,108 million
and increased costs as a result of higher production of R248 million reduced by the effects of the strengthening
of the rand against the US dollar resulting in reduction in feedstock cost of R2,024 million. Other operating
costs increased as a result of annual fixed cost escalations of R84 million, increased depreciation cost of
R76 million due to commencement of the depreciation of additional items of property, plant and equipment
capitalized, an increase in the provision for doubtful debts of R16 million and other smaller increases of
R12 million, offset by lower foreign exchange translation losses of R154 million.
The useful lives of our property, plant and equipment were assessed during 2005. Due to the extension of
the useful lives of certain items of property plant and equipment the depreciation charge was reduced by
R39 million. These changes in estimate were accounted for prospectively with no adjustment made to prior
years.
Capital items for the years under review
During the years under review operating costs and expenses includes the effect of the following capital
items:
2006
2005
2004
(Rand in millions)
Impairment of property, plant and equipment
(4)
(3)
Impairment of intangible assets
(1)
(8)
Impairment of equity accounted investee
(42)
Loss on disposal of property, plant and equipment
(3)
(10)
Total
(8)
(63)
The capital items in 2006 include:
• Impairment of property, plant and equipment – Due to worse than expected performance of the truckstop
in Sasolburg it was necessary to recognize an impairment of R4 million; and
• Impairment of intangible assets – During the 2004 year Sasol acquired Exel Petroleum. The carrying
value of intangible assets of R1 million for 6 commercial contracts established in the allocation of the
purchase price was impaired during the year as these contracts were performing worse than expected.
The capital items in 2005 include:
• Impairment of intangible assets – Of the commercial contracts acquired through the acquisition of Exel
Petroleum, fourteen were terminated during the current year. The carrying value of these contracts
amounting to R8 million were impaired; and
• Impairment of equity accounted investee – As part of the acquisition of Exel Petroleum we acquired an
investment in Black Top Holdings (Pty) Limited (BTH). It was anticipated that this investment would be
sold in the near future and it was therefore valued at fair value. During 2005, business problems surfaced
at BTH which resulted in the deterioration of the cash flow position of the company and it was unable to
meet its obligations. Accordingly, the investment in BTH was impaired by R42 million to a zero carrying
value.
background image
144
Sasol Gas – results of operations
Change
Change
Change
Change
2006
2005
2
2006/2005
2006/2005
2004
2
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Turnover
External
1,663
1,408
255
18
1,389
19
1
Inter-segment
1,546
996
550
55
133
863
649
Aggregated turnover
3,209
2,404
805
33
1,522
882
58
Operating costs and expenses
1
(1,683)
(1,473)
210
14
(1,136)
337
30
Operating profit
1,526
931
595
64
386
545
141
Operating margin
%
48
39
25
1.
Operating costs and expenses net of other income.
2.
Restated for the adoption of IFRS 2, Share-based payment. A share-based payment expense of R1 million for both
2005 and 2004 has been recognized operating costs and expenses.
Results of operations 2006 compared to 2005
Sasol Gas experienced strong growth and delivered pleasing financial results on the strength of higher
pipeline-gas sales and prices. The business completed its second full financial year as a supplier and marketer of
natural gas, which is produced in Mozambique. Sasol Gas achieved a 22% increase in sales volumes from
87 MGJ to 106 MGJ. The increase was attributable to higher sales to the Sasol chemicals plant at Sasolburg,
Sasol Synfuels at Secunda and to South African industrial and commercial customers, mostly in Gauteng,
Mpumalanga and KwaZulu-Natal. The business again benefited from higher selling prices, which are based on
indices linked to producer price inflation and alternative energy prices, specifically oil products. Operating costs
and expenditure increased by 24% after the effects of the profit of R203 million recognized on the disposal of a
25% interest in ROMPCO to iGas and the impairment R67 million of the dedicated pipeline during 2006. The
increase was maintained in line with the increased gas sales through continued cost containment.
The main factors contributing to the increase in operating profit were:
Change
2006/2005
(Rand in
%
millions)
Operating profit 2005
931
Exchange rate effects
(3)
Net product price increases
201
22
Inflation on fixed costs
(10)
(1)
Net volume and productivity effects
269
29
Capital items effects
138
15
Operating profit 2006
1,526
background image
145
Results of operations 2005 compared to 2004
The net increase in Sasol Gas’ aggregated turnover of R882 million was mainly due to increased sales
volumes as a result of the introduction of natural gas from Mozambique to inter-segment operations. The natural
gas was introduced in March 2004, therefore the 2005 year reflects a full-year production compared to four
months in the 2004 year.
The increase in external turnover in 2005 of R19 million or 1% is attributable to higher sales prices being
achieved as a result of higher inflation and alternate energy price variations and higher volumes to new
customers partly offset by energy optimization strategies followed by some of our major existing customers.
The increase in inter-segment turnover for 2005 of R863 million or 649% is mainly attributable to the sale
of natural gas to the Sasol plants at Infrachem (Sasolburg) and Sasol Synfuels (Secunda) for the full year as
compared to a four month period (March 2004 to June 2004) in the 2004 year.
Operating costs and expenses of Sasol Gas amounted to R1,473 million in 2005, compared to
R1,136 million in 2004, an increase of R337 million or 30%. This increase of 30% is mainly attributable to the
higher cost of gas of R141 million and increased fixed costs of R69 million as a result of increased activity,
additional depreciation of R222 million due to the fact that certain items of property, plant and equipment
relating to the natural gas project were depreciated for a full year in 2005 compared to four months in the 2004
year, less other income of R5 million earned and customer plant conversion costs incurred by us of R50 million,
all associated with the introduction of natural gas.
Additionally Sasol Gas reassessed the useful lives of certain items of property, plant and equipment during
2005. The useful lives of certain assets was extended due to technological innovations, product life cycles and
maintenance programs. Due to these extensions of the useful lives of certain items of property, plant and
equipment the depreciation charge was reduced by R50 million in 2005. These changes in estimate were
accounted for prospectively with no adjustment made to prior years.
Capital items for the years under review
During the years under review operating costs and expenses includes the effect of the following capital
items:
2006
2005
2004
(Rand in millions)
Impairment of property, plant and equipment
(67)
Profit on disposal of business
205
Total
138
The impairment in 2006 is a result of the fact that Sasol Gas was required to supply both hydrogen-rich
and natural gas during the period of converting customers to natural gas. A dedicated pipeline was built from
Sasolburg to continue to supply hydrogen-rich gas. Upon completion of the natural gas conversion project,
this pipeline was intended to be utilized in a number of applications which have proved not to be feasible.
A portion of the pipeline with no alternative use to Sasol Gas has been impaired.
Effective 1 July 2005 a 25% interest in the Republic of Mozambique Pipeline Investment Company
(Pty) Limited was sold to iGas under the shareholders’ agreement. A profit of R205 million was realized on this
transaction.
background image
146
Sasol Synfuels International – results of operations
Change
Change
Change
Change
2006
2005
2
2006/2005
2006/2005
2004
2
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Turnover
External
161
161
7
(7)
Inter-segment
Aggregated turnover
161
161
7
(7)
Operating costs and expenses
1
(803)
(201)
602
300
(147)
54
37
Operating loss
(642)
(201)
(441)
219
(140)
(61)
44
1.
Operating costs and expenses net of other income.
2.
Restated for the adoption of IFRS 2, Share-based payment. A share-based payment expense of R2 million for both
2005 and 2004 has been recognized in operating costs and expenses.
Results of operations 2006 compared to 2005
The aggregated turnover generated during 2006 relates to the external portion of sales of catalyst for our
Oryx GTL plant. This business hosts the growth ambitions of the group relating to GTL and CTL ventures. Its
costs are associated with establishing and advancing the various opportunities that Sasol has to commercialize its
proprietary Fischer-Tropsch technology. An operating loss of R642 million was incurred in the year as a direct
consequence of our increased activity in this respect.
Results of operations 2005 compared to 2004
No turnover was generated during 2005 by Sasol Synfuels International. The aggregated turnover in 2004
was derived from the external portion of recoveries from joint ventures. Operating costs and expenses of Sasol
Synfuels International amounted to R201 million in 2005, compared to R147 million in 2004, an increase of
R54 million or 37%. This increase is a direct consequence of these increased activities in advancing the various
opportunities.
In 2005 Sasol Synfuels International sold business rights to Chevron Synfuels Limited, a subsidiary of
Chevron to enable the joint venture to participate in the second phase of the Qatar GTL project. A profit
of R33 million was realized on this sale.
background image
147
Sasol Polymers – results of operations
Our polymer-related activities are managed in two separate entities, Sasol Polymers a division of Sasol
Chemical Industries Limited and Sasol Polymers International Investments a subsidiary of the Sasol Investment
Company.
Change
Change
Change
Change
2006
2005
2
2006/2005
2006/2005
2004
2
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Turnover
External
7,537
7,199
338
5
6,576
623
9
Inter-segment
102
83
19
23
86
(3)
(4)
Aggregated turnover
7,639
7,282
357
5
6 662
620
9
Operating costs and expenses
1
(6,817)
(5,807)
1,010
17
(5,641)
166
3
Operating profit
822
1,475
(653)
(44)
1,021
454
44
Operating margin
%
11
20
15
1.
Operating costs and expenses net of other income.
2.
Restated for the adoption of IFRS 2, Share-based payment. A share-based payment expense of R9 million for both
2005 and 2004 has been recognized in operating costs and expenses.
Results of operations 2006 compared to 2005
Sasol Polymers experienced tougher trading conditions, but retained focus on optimizing production,
marketing and logistics with particular emphasis on improving safety, productivity and customer service.
Harsher trading conditions were attributable mostly to higher oil-derived feedstock costs and relatively low
international polymer prices. Polymer selling prices tend to move with oil prices, but during 2006 there was a
significant squeeze on our operating margin. On average, international oil prices rose by almost 35%, but
average international polymer selling prices increased by only 3%. Having reported an 11% drop in production
volumes in the previous year, due primarily to the incident at the Secunda ethylene plant, we increased
production volumes by 5% during 2006. A greater increase was targeted, but we had to contend with lower
production mostly due to upstream feedstock constraints, the impact of Project Turbo work at Sasolburg and
Secunda and unplanned power outages at Sasolburg. Sasol Polymers increased aggregated turnover by 5% on the
basis of the increased sales volumes, however, the impact of a decrease in the operating margin, through
increased feedstock prices, decreased operating profit by 44%.
background image
148
The main factors contributing to the decrease in operating profit were:
Change
2006/2005
(Rand in
%
millions)
Operating profit 2005
1,475
Exchange rate effects
153
10
Net product and feedstock price decreases
(851)
(58)
– crude oil
(764)
(52)
– other products
(87)
(6)
Inflation on fixed costs
(56)
(4)
Net volume and productivity effects
252
17
Other
1
(146)
(10)
Capital items effects
(5)
Operating profit 2006
822
1.
Includes the effect of the insurance proceeds received during 2005.
Results of operations 2005 compared to 2004
The increase in Sasol Polymers’ aggregated turnover of R620 million, was mainly due to US dollar product
price increases of R1,764 million partially offset by the appreciation of the rand against the US dollar resulting
in a negative financial impact of R567 million and decreased sales volumes of R577 million. Our sales volumes
decreased by 9% as production was interrupted for a 90 day period due to an explosion at the ethylene plant at
the Secunda site in September 2004.
Operating costs and expenses of Sasol Polymers amounted to R5,807 million in 2005, compared to
R5,641 million in 2004, an increase of R166 million or 3%. This increase is due to higher input cost as a result
of higher oil prices of R995 million and higher cost due to inflation of R38 million. This increase was partially
offset by the appreciation of the rand against the US dollar resulting in a positive effect of R257 million and
lower input costs of R207 million resulting from the decreased volumes. R304 million, net of excess payments,
was received as insurance payments to cover the contribution losses sustained in an explosion. An increase
of R3 million due to various other differences was offset by management initiated cost reduction
exercises of R42 million compared to the previous year.
Additionally Sasol Polymers reassessed the useful lives of certain items of property, plant and equipment
during the 2005 year. The useful life of certain assets was extended due to technological innovations, product
life cycles and maintenance programs. Due to these extensions of the useful lives of certain items of property
plant and equipment the depreciation charge was reduced by R170 million for 2005. These changes in estimate
were accounted for prospectively with no adjustment made to prior years.
background image
149
Capital items for the years under review
During the years under review operating costs and expenses includes the effect of the following capital
items:
2006
2005
2004
(Rand in millions)
Impairment of property, plant and equipment
(23)
(5)
Scrapping of property, plant and equipment
(2)
(5)
(5)
Profit/(loss) on disposal of property, plant and equipment
8
(2)
64
Total
(17)
(12)
59
The impairment of property, plant and equipment is mainly due to DPI Holdings, in which Sasol has a 50%
interest, which has been classified as a disposal group held for sale during 2006, after identifying a potential
buyer and approval by the Sasol Polymers divisional board to divest. The classification of DPI Holdings as held
for sale necessitated the impairment of the net assets to the fair value less costs to sell.
Sasol Solvents – results of operations
The 2005 and 2004 Sasol Solvents segment results have been restated for the reclassification of the
comonomers operations from Sasol Olefins & Surfactants.
Change
Change
Change
Change
2006
2005
2
2006/2005
2006/2005
2004
2
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Turnover
External
10,485
9,361
1,124
12
7,937
1,424
18
Inter-segment
1,181
947
234
25
748
199
27
Aggregated turnover
11,666
10,308
1,358
13
8,685
1,623
19
Operating costs and expenses
1
(10,793)
(9,287)
1,506
16
(8,681)
606
7
Operating profit
873
1,021
(148)
(15)
4
1,017
Operating margin
%
7
10
2
1.
Operating costs and expenses net of other income.
2.
Restated for the adoption of IFRS 2, Share-based payment. A share-based payment expense of R4 million and
R5 million for 2005 and 2004, respectively, has been recognized in operating costs and expenses in operating costs
and expenses.
Results of operations 2006 compared to 2005
Sasol Solvents performed well in general considering the previous year’s exceptional performance. Demand
for most of our product portfolios remained robust. Plants ran well mostly at or above design capacity; logistical
and marketing operations were well coordinated. While demand remained largely buoyant in most regional
markets, with some growth being achieved for certain portfolios, escalating oil and related commodity prices
impacted on margins, with some products being more harshly affected. Mostly on the strength of higher sales
volumes and some price increases, aggregated turnover increased by 13%, however, operating costs and
expenses increased by 16% primarily because of increased feedstock prices, thus reducing operating margins,
and the negative impact of increased expenditure on capital items. Total sales volumes increased from 1.38 Mt
to 1.58 Mt.
background image
150
The main factors contributing to the decrease in operating profit were:
Change
2006/2005
(Rand in
%
millions)
Operating profit 2005
1,021
Exchange rate effects
60
6
Net product and feedstock price decreases
(761)
(75)
– crude oil
(864)
(85)
– other products
103
10
Inflation on fixed costs
(66)
(6)
Net volume and productivity effects
(79)
(8)
Capital items effects
698
68
Operating profit 2006
873
Results of operations 2005 compared to 2004
Change
Change
Aggregated turnover
2005
2004
2005/2004
2005/2004
(Rand in millions)
(%)
After the reclassification of comonomers
10,308
8,685
1,623
19
Reclassification of comonomers
(1,904)
(2,230)
326
(15)
Before the reclassification of comonomers
8,404
6,455
1,949
30
The increase in aggregated turnover in 2005 before the reclassification of the comonomers activities was
R1,949 million. This increase was due to the increase in external turnover of R2,107 million, which was
attributable to an increase in product prices of R2,026 million which was offset by the appreciation of the rand
against the US dollar resulting in a negative effect of R538 million and by an increase in sales volumes of
R619 million. The increased prices and volumes were due to customer demand outstripping supply, and it is
believed that these price levels have reached unsustainable levels. The increase in external turnover was partially
offset by the decrease in inter-segment turnover of R158 million, which was mainly attributable to a decrease in
sales volumes of R187 million and increase in product prices which was partly offset by the appreciation of the
rand against the US dollar resulting in a negative effect of R18 million, partly offset by price increases of
R11 million.
Change
Change
Operating costs and expenses
2005
2004
2005/2004
2005/2004
(Rand in millions)
(%)
After the reclassification of comonomers
(9,287)
(8,681)
606
7
Reclassification of comonomers
2,121
2,339
(218)
(9)
Before the reclassification of comonomers
(7,166)
(6,342)
824
13
Operating costs and expenses before the reclassification of the comonomers activities increased by R824
million or 13%. This net increase is mainly attributable to variable costs increases of R771 million as a result the
following:
• higher prices of R734 million;
• increase in the cost of feedstock due to higher crude oil prices of R565 million;
• partly reduced through the appreciation of the rand against the US dollar of R492 million; and
• lower production volumes of R36 million.
background image
151
In addition fixed costs increased by R7 million, due to the inflationary increases of R19 million as well as
various other increases amounting to R18 million, which were offset by the appreciation of the rand against the
US dollar of R30 million. Additionally profits incurred on translation of foreign exchange transactions were
R367 million higher than in the previous year.
Other income amounted to R38 million compared to R49 million in 2004, a reduction of R11 million or
22%. Other income consists mainly of rebates and management fees received.
Depreciation on the Acrylates plant for a full year after commissioning was higher by R90 million while
depreciation on other property, plant and equipment was lower by R61 million due to the extension of the useful
life of certain items. The useful life of certain assets was extended due to technological innovations, product life
cycles and maintenance programs. These changes in estimate were accounted for prospectively with no
adjustment made to prior years. Included in net operating costs and expenses in 2004 was the profits realized on
the disposal of the Acrylates plant of R50 million and various other items of property, plant and equipment of
R2 million.
Operating profit of comonomers increased from R109 million in 2004 to R217 million in 2005 primarily
due to the increase in chemical product prices which was partially offset by increases in the cost of feedstock
due to higher crude oil prices.
Capital items for the years under review
During the years under review operating costs and expenses includes the effect of the following capital
items:
2006
2005
2004
(Rand in millions)
Impairment of property, plant and equipment
(437)
(42)
Reversal of impairment of property, plant and equipment
140
Impairment of intangible assets
(26)
(5)
Scrapping of property, plant and equipment
(7)
(151)
Loss on disposal of business
(2)
Profit on disposal of property, plant and equipment
23
Total
105
(593)
(19)
The capital items in 2006 include:
• Reversal of a previously recognized impairment – During 2005 an impairment was recognized
of R140 million for Octene train 3 project due to increases in the capital costs. This project was not
impaired under US GAAP. The successful outcome of negotiations of the selling price of the product
which were finalized during the last quarter of 2005, has resulted in the return (based on a discounted
cash flow model) expected to be generated by this plant exceeding the expected cost of construction. As
a result, due to the change in economic circumstances, the impairment has been reversed.
• Impairment of intangible assets – includes:
1.
Impairment of Acrylates train 2 technology license (South Africa) – An impairment of the
technology license for the second train of R14 million was recognized due to uncertainty regarding
the expected product mix that will be manufactured and the decision to postpone the project due to
the current de-bottlenecking of train one.
2.
Impairment of emission rights (carbon credits) – The group accounts for emission rights granted by
government as an indefinite life intangible asset. This intangible asset is recognized at the fair value
of the allowance on the date it is granted. No amortization is provided and the intangible asset is
tested for impairment at least annually. Due to the decrease in the market price of emission rights
background image
152
during the year, from euro 26.00 to euro 16.00 per right (one right unit entitles the holder the right to
emit one ton of carbon dioxide per year), the carrying value of the intangible asset at year-end was
impaired by R12 million.
The capital items in 2005 include:
• Impairment of property, plant and equipment – includes:
1.
Impairment of Octene train 3 (South Africa) – The economic evaluation of the project indicated that
it will be substantially more expensive than the original approved amount. As a result the entire
amount of capital expenditure (including interest capitalized of R8 million) of R140 million was
impaired. The Octene train 3 was not impaired under US GAAP as the carrying value did not exceed
the undiscounted future cash flows. On 9 September 2005 the Sasol Limited board of directors
approved the continuation of the project at a substantially higher capital cost subject to successful
renegotiations of the product selling price to recover the cost of the capital to be invested. This
impairment relates to the comonomers activities which have been reclassified from Sasol Olefins &
Surfactants;
2.
Impairment of ketones and alcohols plants (Germany) – Both the ketones and ethanol plants were
evaluated for impairment during 2005. The impairment assessment resulted in an impairment of the
ketones plant of R13 million and of the ethanol plant of R71 million including an impairment
of R5 million of intangible assets; and
3.
Impairment of n-butanol plant (South Africa)—The lower than budgeted economic performance and
final cost of the n-butanol plant both lead Solvents to perform an assessment of impairment on the
n-butanol plant. The results of the impairment assessment yielded an impairment of R218 million
which is primarily attributed to the interest capitalized on the construction of the n-butanol plant.
• Scrapping of property, plant and equipment (South Africa)—During the current year, as a result of
decisions taken by the Solvents board, the following items of property, plant and equipment assets were
scrapped:
1.
Crotonaldehyde plant – R16 million;
2.
Propylene oxide and glycol ethers plants – R47 million; and
3.
Acetic acid plant – R 2 million
Furthermore, certain study costs were evaluated by Sasol Technology during the course of the year and
these costs (R83 million) written off. Other smaller items scrapped amounted to R3 million.
background image
153
Other Businesses – results of operations
Other businesses include Sasol Financing, Sasol Technology, Sasol Petroleum International, Sasol Nitro,
Sasol Wax, Sasol Infrachem, Merisol and various smaller chemical businesses.
Change
Change
Change
Change
2006
2005
2
2006/2005
2006/2005
2004
2
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Turnover
External
9,329
8,713
616
7
8,124
589
7
Inter-segment
4,242
3,534
708
20
3,609
(75)
(2)
Aggregated turnover
13,571
12,247
1,324
11
11,733
514
4
Operating costs and expenses
1
(12,529)
(11,767)
762
6
(11,972)
(205)
(2)
Operating profit
1,042
480
562
117
(239)
719
(301)
Sasol Financing
Operating profit
101
84
17
20
154
(70)
(45)
Sasol Petroleum International
Aggregated turnover
1,237
841
396
47
312
529
170
Operating profit/(loss)
600
280
320
114
(119)
399
(335)
Sasol Nitro
Aggregated turnover
3,402
3,485
(83)
(2)
3,226
259
8
Operating profit/(loss)
466
449
17
4
(157)
606
(386)
Sasol Wax
Aggregated turnover
4,584
4,075
509
12
4,042
33
1
Operating profit
276
208
68
33
266
(58)
(22)
Infrachem
Aggregated turnover
2,270
2,013
257
13
2,329
(316)
(14)
Operating (loss)/profit
(297)
(364)
67
(18)
89
(453)
(509)
Merisol
Aggregated turnover
556
535
(21)
4
497
38
8
Operating (loss)/profit
(11)
27
(38)
(141)
17
10
59
1.
Operating costs and expenses net of other income.
2.
Restated for the adoption of IFRS 2, Share-based payment.
Results of operations 2006 compared to 2005
Sasol Financing provides financing and treasury services to our group and also acts as our in-house bank.
Its operating profit amounted to R101 million in 2006, compared to operating profit of R84 million in 2005.
Changes in Sasol Financing’s operating profit are mainly attributable to movements in the rand against the
US dollar.
Sasol Petroleum International, through our partnership with Mozambique’s state-owned company, Empresa
Naçional de Hidrocarbonetos de Moçambique and the International Finance Corporation produced and sold
94 MGJ of natural gas from the Temane field. Sasol Petroleum International’s share of the sales was 66 MGJ, a
22% increase on the previous year’s 54 MGJ. Our share of gas condensate sales doubled from 225,000 b to
450,000 b. Through our 27.75% stake in Gabon’s Etame field, we sold for our own account 1.7 million b of
crude oil. Higher oil and gas prices, the weakening of the rand against the US dollar and increased volumes
enabled Sasol Petroleum International to increase aggregated turnover by 47% and to more than double
background image
154
operating profit from R280 million to R600 million. A loss of R82 million was recognized on the disposal of a
30% interest in the Temane central processing facility to Companhia Moçambicana Hidrocarbonetos and the
International Finance Corporation effective 1 April 2006 mainly due to the strengthening of the rand since the
construction of the facility. Total exploration costs expensed against operating profit amounted to R123 million
for 2006 compared to R121 million for 2005. A new onshore exploration, appraisal and development drilling
campaign will commence in 2007 with a budget of US$195 million. Drilling will be concentrated in the
Pande and Temane field areas and targeted at increasing annual gas production over the next few years
beyond 120 MGJ.
Sasol Nitro, which comprises our South African ammonia, fertilizers and explosives portfolios, benefited
from high ammonia prices and a strong performance from explosives being partially offset by a substantial
decrease in fertilizer sales. Sales volumes for our combined nitrogen value chain decreased by 20% mostly
as a result of lower fertilizer sales and the switch of our Phalaborwa phosphoric acid operation to toll
manufacturing in September 2005. Capital items in the previous year included a R28 million profit on the sale of
our US operation, whereas 2006 includes a net loss of R28 million mostly due to the disposal of our electronic
detonator business. The average ammonia price was significantly higher than that of the previous year and
benefited Sasol Nitro by making a higher contribution to operating profit, which was also boosted by higher
margins and strong sales for our non-fertilizer products. The ammonia production volumes at Sasolburg also
increased. Fertilizer sales were down substantially due to an estimated 44% decline in South African maize
plantings.
Sasol Wax produces and markets wax and wax related products to commodity and specialty wax markets
globally. Sasol Wax maintained steady production and increased sales with the advantage of achieving better
margins than in the previous year. High oil prices, however, impacted on feedstock prices in South Africa,
Europe and the US, with the effects being more dramatic in the latter two regions. To Sasol Wax’s benefit, the
second half of 2006 was characterized by a worldwide shortage of paraffin waxes due to an overall buoyant
global market and, more so, because of strong growth in general demand for waxes and related products.
Shortages drove sales prices up significantly for most wax grades, including those produced through Sasol’s
Fischer-Tropsch process. An impairment of R17 million was recognized for the Pass Christian plant in the US
which was damaged by Hurricane Katrina.
Sasol Infrachem has settled into its new role as a dedicated producer of reformed gas derived from natural
gas, which it produces at Sasolburg through two autothermal reformers operated on behalf of Sasol Gas.
Reformed gas production was stable during the year and above the set target. Gas production increased by
almost 46% from 25.9 MGJ to 37.7 MGJ. Greater gas production – along with the increased provision of onsite
utilities and ongoing cost containment – enabled an increase in turnover by 13%.
Merisol, our 50:50 cresylic acids joint venture with Merichem Company, had a tough year because of
feedstock constraints at Secunda in South Africa early in 2006 and the disruptive impact of Hurricane Rita on its
US operations at Houston, Texas, which lowered production. The hurricane interrupted the supply of gas and
process chemicals to our plants for an extended period. This necessitated plant idling and a subsequent
interruption in our supply of products to customers. Sales volumes decreased by almost 5% from 103 kt to 99 kt.
Turnover increased by 5% on the strength of higher prices necessitated by higher energy and feedstock prices.
Variable costs increased by 20% because of higher utility and feedstock prices worldwide.
Results of operations 2005 compared to 2004
Sasol Financing’s operating profit amounted to R84 million in 2005, compared to operating losses of
R154 million in 2004. Changes in Sasol Financing’s operating profit are mainly attributable to movements in the
rand against the US dollar.
Sasol Petroleum International’s aggregated turnover increased to R841 million in 2005 from
R312 million in 2004, mainly as a result of increased oil production and higher oil prices from the Etame oil
field in Gabon, and a full year of production from the Temane gas field in Mozambique. Operating profit
background image
155
amounted to R280 million in 2005 compared to an operating loss of R119 million in 2004 largely as a result of
the increase in turnover. Total exploration costs expensed against operating profit amounted to R121 million for
2005 compared to R223 million for 2004 mainly as a result of a temporary decline in exploration activity in
Mozambique.
Sasol Nitro’s aggregated turnover increased to R3,485 million in 2005 from R3,226 million in 2004, an
increase of R259 million or 8%. This increase is mainly because of stronger selling prices, as well as higher
explosives and accessories volumes, which was partially offset by the stronger rand, lower phosphoric acid sales
and the disposal of our investment in Sasol Southwest Energy joint venture in the United States. Following an
impairment charge recognized in 2004, the final disposal of the investment realized a profit for the group
of R28 million. Operating costs were contained through cost savings initiatives and greater efficiency, as well as
benefits arising from the repositioning of the electronic detonator business and the increased sales volumes from
the Sasol Dyno Nobel joint venture. Sasol Nitro’s contribution to group profit was R449 million compared to the
loss of R157 million in 2004.
Sasol Wax’s aggregated turnover increased 5% in euro. The rand equivalent increase was 1% up from
R4,042 million to R4,075 million. Higher oil-based feedstock prices kept operating margins under pressure.
Sales volumes of wax and associated paraffinic products increased by 5% from 779.9Kt to 821.6Kt primarily as
a result of securing new business. Sasol Wax’s contribution to group operating profit decreased by 22% from
R266 million to R208 million.
The conversion of Sasol Infrachem from coal gasification to natural gas reforming at Sasolburg towards the
end of 2004 went smoothly when the two new autothermal reformers were brought into commercial production.
The reformers production during 2005 alternated between prolonged periods of stable operations in line with
planned production and intermittent downtime to resolve post commissioning technical shortcomings that
limited full reformer capability. As a result of these interruptions, turnover dropped by almost 14% from
R2,329 million to R2,013 million. Gas production fell from 53.4 MGJ (coal-based) to 25.9 MGJ (natural
gas-based) and 12.5 MGJ (coal-based), a total of 38.4 MGJ. Sasol Infrachem incurred a loss of R364 million,
primarily due to the consequence of the one-off costs incurred during the commissioning of the natural gas-fed
autothermal reformers that have replaced the coal-fired gasifiers in Sasolburg which could not be passed on to
customers.
Merisol, performed well and increased turnover by 6% from R497 million to R528 million. The increase is
largely due to the strength of higher prices and sustained good sales across the product portfolio. Higher oil
prices drove up costs for Merisol products manufactured in South Africa, Japan and the US. Merisol was able to
absorb cost increases through price increases. Feedstock constraints, however, reduced sales volumes to 103.3Kt.
During the year Sasol undertook a reassessment of the useful lives of certain items of property, plant and
equipment. The useful life of certain assets was extended due to technological innovations, product life cycles
and maintenance programs. Due to these extensions of the useful lives of certain items of property, plant and
equipment owned by Sasol Nitro, Sasol Wax and Sasol Technology, the depreciation charge was reduced by
R25 million. These changes in estimate were accounted for prospectively with no adjustment made to prior
years.
background image
156
Segment review – discontinued operations
Sasol Olefins & Surfactants – results of operations
We acquired Condea in March 2001 from German-based RWE DEA AG for euro 1.3 billion (R8.3 billion).
Most of this business was subsequently hosted in Sasol Olefins & Surfactants with production facilities mainly
in the US, Europe and South Africa. In 2003, it was determined that we would continue to grow our chemical
businesses conditional upon projects leveraging our technology or securing integrated and highly cost-
competitive feedstock positions. We announced in August 2005 that we are considering the divestment of the
Sasol Olefins & Surfactants business excluding our comonomers activities in South Africa. The Sasol Olefins &
Surfactants business is not vertically integrated to our required standards; is not adequately linked to our
proprietary Fischer-Tropsch technology process and has not adequately provided the integration benefits which
we require. The financial impact of changes in the input costs of the business – together with current market-
place dynamics – exceeds the benefits of significant reductions that have successfully been achieved in the fixed
costs of the business and various other productivity improvements. After a review of valuations and bids received
from interested parties, which confirmed our valuation, it was necessary to write-down the net asset value of the
business to its fair value. By 30 June 2006, we had completed most of the activities required to prepare this
business for sale as a going concern and are presently in negotiations with potential buyers. It is envisaged that
the disposal of the Sasol Olefins & Surfactants business will be completed within the next 12 months, subject to
obtaining the relevant regulatory and other approvals. Until the business is sold, we remain committed to the
strategic and operational goals of Sasol Olefins & Surfactants and will continue to provide the business with the
support necessary to uphold its effectiveness and success.
Change
Change
Change
Change
2006
2005
2 & 3
2006/2005
2006/2005
2004
2 & 3
2005/2004
2005/2004
(Rand in millions)
(%)
(Rand in millions)
(%)
Turnover
External
18,545
16,742
1,803
11
15,152
1,590
10
Inter-segment
550
354
196
55
265
89
34
Aggregated turnover
19,095
17,096
1,999
12
15,417
1,679
11
Operating costs and expenses
1
(22,662) (17,110)
5,552
32
(15,385)
1,725
11
Operating (loss)/profit
(3,567)
(14)
(3,553)
32
46
(144)
1.
Operating costs and expenses net of other income.
2.
Restated for the adoption of IFRS 2, Share-based payment. A share-based payment expense of R10 million for both
2005 and 2004 has been recognized in operating costs and expenses.
3.
Restated for the reclassification of the comonomers operations to Sasol Solvents.
Results of operations 2006 compared to 2005
Sasol Olefins & Surfactants continued to build on its groundwork of the last three years, with emphasis on
reducing fixed costs in a sustainable manner, improving customer relations, lifting productivity and optimizing its
portfolio of surfactants, surfactant intermediates and speciality inorganic chemicals in the face of tougher market
conditions. Despite ongoing optimization, the business was again severely hampered by largely unfavorable
market conditions which impacted more harshly on some businesses. Most markets remain highly competitive due
to continuing and, in some cases, increasing oversupply. Further substantial increases in oil prices and related
feedstock prices, as well as natural gas and utility prices, could not be fully accommodated in higher selling
prices. This led to sustained margin pressure and, in some instances, severe margin erosion. Aggregated turnover
increased by 12% due mostly to higher sales prices. This benefit was fully absorbed by the higher feedstock and
energy costs. Our global sales volumes were largely unchanged and, in general, the markets we sell into remained
stable to stronger with the dominating characteristic being the oversupply of many products.
background image
157
The financial impact of changes in the input costs of the business – together with current market-place
dynamics – exceeds the benefits of significant reductions that have successfully been achieved in the fixed costs
of the business and various other productivity improvements.
The main factors contributing to the increase in operating loss were:
Change
2006/2005
(Rand in
%
millions)
Operating loss 2005
(14)
Exchange rates effects
(4)
Net product and feedstock prices (decreases)/increases
280
27
– crude oil
(674)
(66)
– other products
954
93
Inflation on fixed costs
(24)
(2)
Net volume and productivity effects
(234)
(23)
Capital items effects
(375)
(37)
Fair value write down
(3,196)
(313)
Operating loss 2006
(3,567)
Results of operations 2005 compared to 2004
Change
Change
Turnover
2005
2004
2005/2004