From a developmental to a regulatory state? Sasol and the conundrum of continued state support

ABSTRACT

Sasol was established and supported by the apartheid state in South Africa for its strategic position as a liquid fuel and chemical producer. The evolving government treatment of Sasol through various policy measures, and Sasol’s changing corporate strategy under a liberalised economy, represents a key part of South Africa’s transition under democracy from 1994. The article takes Sasol as a case study of industrial policy, regulation and business strategy. We analyse the terms on which the post-apartheid government continued to support Sasol along with the decisions to release Sasol from obligations to repay subsidies it had received and not to impose a tax on windfall gains. We then evaluate the regulatory regime for fuel and gases, the advantages that it bestowed on Sasol, and the ability of competition authorities as regulators of last resort to address Sasol’s entrenched market position. Sasol’s impact on downstream diversified industrial sectors, which rely on it for inputs, is assessed as part of the bigger questions about the failure of South Africa to develop diversified manufacturing capabilities over the last 25 years. The article draws conclusions relating to the political economy of industrial policy, regulation and competition law in addressing Sasol’s entrenched position.

KEYWORDS:

• Regulation
• industrial policy
• market power
• competition policy
• industrial development

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. The company was first incorporated as the South African Coal, Oil and Gas Corporation, subsequently changed to South African Synthetic Oil Ltd, SASOL (in Afrikaans, Suid-Afrikaanse Steenkool en OLie). http://www.sasol.co.za/about-sasol/company-profile/historical-milestones.

2. Energy White Paper, 1998.

3. Sasol 50 years of Innovation report.

4. Working rules to administer the basic fuel price (BFP) methodology .

5. These include relating to: creosote (Nationwide Poles), fertiliser (Profert and Nutriflo, collusion arrangements with Omnia and Yara, and with Foskor and AECI), ammonia excessive pricing (Omnia), polymers (excessive pricing and collusion), industrial gas collusion (with Air products), jet fuel and diesel (collusion cases involving information exchange).

6. The authors worked for the Competition Commission at the time of the case and co-authored expert economic reports for the Commission for the matter.

7. We note, however, that the data used in the assessment of performance is for products recorded under HS code 39. As plastic is a component in other products, a portion of the plastic activity may be recorded as the output of the finished good. For example, even though bumpers and parts thereof are plastic products, they are recorded under vehicles, parts and accessories in HS code 87.

8. Sasol Chemical Industries Answering Affidavit in Competition Commission vs. Sasol chemical Industries CT Case Number 48/CR/Aug10, p 33.

9. Witness statement of Mr Julius Lebi in Competition Commission vs. Sasol Chemical Industries case no. 48/CR/Aug10.

10. See South African Petroleum Industry Association, http://www.sapia.org.za/key-issues/industry-transformation .

11. Sasol press release 30 June 2006. Sasol Concludes R1.45 billion Tshwarisano BEE Deal.