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| Time line |
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1960
The Organisation of Petroleum Exporting Countries (Opec) is formed |
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| 1960 |
The Organisation of Petroleum Exporting
Countries (Opec) is formed |
| 1968 |
South Africa gets an inland oil refinery, Natref. Sasol is a major
shareholder with board representatives including the
Iranian government |
| 1975 |
The location of Sasol’s huge new
factory, Secunda, is announced |
| 1979 |
Construction begins of a duplicate
factory (Sasol Three) at Secunda |
| 1982 |
Sasol Three comes on stream |
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| Sasol’s sales turnover rose steadily during the 1960s. Profit margins,
however, rose only modestly despite steady improvement in plant availability
and efficiency. In 1960 net profit was 8,5 per cent of sales; in 1970
10,5 per cent. |
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| The cause was apartheid on the one hand, and a booming
economy on the other. Once business confidence had
recovered from the shock of the Sharpeville killings and other
violent demonstrations in 1960, fixed investment began to rise
sharply. By 1963 the economy was growing at close to eight per cent a year. That pace could not, however, be sustained.
Various laws had confined the acquisition of industrial skills to
whites; now they began to cash in, driving their wage rates ever
higher. At the same time, banks began competing vigorously for
customers by lending money on an unprecedented scale:
discounts and advances rose from R750 million at the beginning
of 1963 to R1 250 million by the end of 1964. There was an
immediate surge in inflation. To counter it, the government set
about discouraging credit by raising the Bank Rate to five per
cent and increasing the proportion of banks’ liquid assets that
had to be invested in low-yielding government instruments. |
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| So Sasol, which continued to spend on new plant to improve its
existing operations and expand into additional products, was
faced with rising labour and capital-good costs and higher
financing charges. It could not, however, raise its prices for
petrol and diesel fuel. They were inexorably tied to the
international price of crude oil, and that remained virtually
unchanged from what it had been when the decision was taken
in 1950 to create Sasol. |
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| There was one way to reduce operating costs, Sasol decided, and
that was to trim the workforce as much as possible. In 1967 it
employed 3 337 whites in the factory. By 1971 their number was
down to 3 182. At the Sigma mine, their number fell from 235 to
188 over the same period. Black numbers were also steadily reduced, especially in the mine where they fell from 1 745 to
1 222 by 1974. It was a measure that, at least so far as skilled
employees were concerned, would within a few years produce
an unexpected cost. |
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| The Organisation of Petroleum Exporting Countries (Opec) had
been formed in 1960 to raise the price its members - all but
one of them located in the Middle East - would receive for
crude oil. It had, as we’ve seen, no success during the 1960s;
many oil-producing countries had not yet joined Opec, and
there was plenty of oil being produced around the world to
meet demand. In the early 1970s, though, the supply/demand
balance began to falter. Many countries were now enjoying
rapid economic growth and needed more crude oil to fuel it.
At the same time, US oil production was shrinking, its oil
imports expanding. Opec introduced several price-adjusting
mechanisms, the essential aim and outcome of which was to
provide higher oil prices to compensate its members for
inflation in countries from which they bought goods. By
mid-1973 Opec had driven the oil price from about US$1,50
in 1970 to US$3 a barrel. |
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| That was good news for Sasol, of course, but Etienne Rousseau
warned the government in his chairman’s address in late 1971
that it shouldn’t lead to undue optimism about the economics
of oil from coal. "The biggest problem remains the very high
capital cost involved," he explained. |
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| But then came the Yom Kippur War between Israel and its Arab
neighbours in October 1973. Opec had, shortly before it,
decided to raise oil prices by a further 70 per cent. Now,
angered by the West’s support for Israel in the war, it decided in December to raise them yet again, this time by 130 per cent.
In a couple of swift moves, it had raised the oil price to
US$12 a barrel. |
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| The South African government had asked Sasol several
times during the later 1960s and early 1970s to consider
building another oil-from-coal plant, and always Sasol had
refused. The price of crude oil relative to the capital cost
of a new plant, it explained, would make the enterprise
uneconomic. Instead, in 1969 it suggested that cheap crude
oil be stockpiled in worked-out mines at Ogies, east of
Johannesburg. Government agreed, and accepted Sasol’s
offer to administer the scheme. |
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| When the crude oil price shot up in late 1973, Sasol was asked
yet again to consider building another oil-from-coal factory.
In his chairman’s address of October 1972, Rousseau had
observed: "The danger exists that for as long as the plants
required to produce oil from coal remain of the present size
and complexity, the increase in production costs resulting from
the normal escalation of capital cost may well keep pace with
the increases in the price of crude oil." That was tantamount to
saying another factory would be economically feasible only if
far larger plants could be built to yield greatly improved
economies of scale in capital and operating costs. |
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| Moreover, he added in his address a year later, there was also
a good chance that further research into the design of oil-from-
coal plants would reduce significantly their capital cost.
It would, therefore, be unwise, he concluded, "to rush into
new South African oil-from-coal plants at a time when the
chances are good that such projects could be undertaken more economically after some further research work, which is
progressing well not only at Sasolburg, but also elsewhere in
the world." |
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