Sasol to develop its own petrol station network across South Africa

Chemicals and petroleum group Sasol plans to invest at least R1.1-bn in developing its own petrol station network across South Africa. This disclosure is made in a registration statement filed with the US Securities Exchange Commission (SEC) ahead of Sasol's listing on the New York Stock Exchange on April 9.
Sasol CEO Pieter Cox has previously said the New York listing would provide Sasol with "substantial new funding options" to help maintain the impetus of expansion outside South Africa. The planned investment is part of Sasol's move into the petrol retail market. In December this year an agreement with the oil industry preventing Sasol from running its own service station network is set to end.

The agreement includes the requirement that other oil companies buy up to 90 % of Sasol's petroleum products (7.7 bn litres a year). This requirement applies to Gauteng, the northern Free State and some parts of Mpumalanga, which in total account for about 59 % of total fuel consumption.
Sasol already owns 100 petrol stations but these are leased to other oil companies. "We intend to re-brand the stations with the Sasol brand and expect gradually to operate an additional 100 to 200 Sasol service stations. We estimate that we will be required to invest approximately R 1.1-bn in the development of our network," Sasol states in the registration document filed with the SEC on March 6.

The company says it will aim to achieve "maximum profitability" by focusing on building "high-volume" stations in "growth areas". "We believe our independent access to the retail fuel market should serve as a competitive advantage in our arrangements with other oil companies... with whom we expect to negotiate on an individual basis," says Sasol.
This refers to negotiations between Sasol and other oil companies on the continuation of Sasol fuel supplies in Gauteng and other provinces after December. Sasol currently supplies about 40 % of South Africa's fuel needs from its oil-from-coal plants in Sasolburg and its 64 %-owned Natref refinery in Secunda.

Under the current agreement, oil companies are obliged to buy fuel from Sasol. Most companies then add their own additives. When the agreement ends, oil companies may continue to buy from Sasol, or increase their own production levels and transport fuel from their refineries in Durban and Cape Town to Gauteng.
But Sasol says in the SEC document that the ability of its competitors to increase their own supplies to their inland service stations will be limited by the high cost of transport from Durban and Cape Town. There is only one pipeline from Durban to inland regions. That pipeline is currently used by Natref to move crude oil from ships off Durban to Secunda.

The company says it believes the limited capacity of the pipeline and the high cost of other transport will compel competitors to buy its fuel products. Also in Sasol's favour is the fact that Petronet is required, in terms of the current agreement, to give Sasol five years' notice before it changes the pipeline used by Sasol to transport gas to Durban to a petroleum feeder.
Meanwhile, other oil companies say they are concerned about Sasol's use of manganese additive MMT, which it adds in place of lead for the production of unleaded petrol. Oil companies say the long- term use of one heavy metal in place of another is an "unknown" factor which could create health problems.

One company says it is not known what effect MMT will have on catalytic converters and other engine components. Another says no refinery anywhere in the world uses MMT and that it was banned in California a while ago, although the ban was lifted after court actions. Others say that MMT is under investigation in developed countries regarding its possible effects on health and engine components.
Caltex is also concerned about MMT as an additive in petroleum. It supports the removal of lead from petrol, but has reservations about introducing any metal additive into unleaded petrol. It is concerned about MMT in terms of its environmental impact, toxicological effects and compatibility with engine and vehicle systems. "Caltex does not blend MMT into any petrol that we manufacture. We prefer that it not be used in petrol that we obtain from third parties."