SOUTH AFRICAN SYNFUELS TARIFFS FOCUS OF DISPUTE

A row has broken out in South Africa's petroleum industry, as government's Liquid Fuels Industry Task Force waits for delivery June 26 of a report into tariff protection for synthetic fuels.

Sasol Ltd. is South Africa's largest producer of synfuels and argues for the desirability and viability of continuing production despite growing opposition from domestic refiners. Sasol expects deregulation of petroleum prices to lead to fierce competition in the market before prices rise again once the market settles. Synfuel tariffs are seen as a key issue for deregulation, so Arthur Andersen & Co., Johannesburg, was called in to make recommendations. Sasol has not been allowed to sell fuel directly to customers and wants government approval to build its own retail chain to compete equally with oil companies, selling products from its Sasolburg refinery (OGJ, June 5, p. 26). Sasol expects the domestic refiners to continue to purchase its synfuels under commercial wholesale contracts.

THE DISPUTE

Government's task force is charged with overseeing deregulation of South Africa's petroleum industry. Sasol claims oil companies have created misconceptions about the contents of the report, which are not due to be made public until after the task force has received it.

"The Arthur Andersen report clearly shows that Sasol's synthetic fuels is a desirable industry, which justifies continued tariff protection by virtue of its massive contribution to the South African economy," said Sasol.

Sasol told Oil & Gas Journal the company's strategy to produce high value chemicals will greatly increase its future wealth creating capacity. Meantime, Sasol contends its most valuable contribution to the economy is in foreign exchange savings. The contribution of Sasol's synfuel and chemicals business topped $1.36 billion in 1994. The Arthur Andersen report proposes a massive cut in synfuel subsidies, to be phased in until it reaches zero in July 1999. Tariffs now are based on a crude price of $21.40/bbl.

Sasol reckons it will lose $680 million from proposed tariff reductions.

Sasol said the Arthur Andersen report states that, at the reduced levels of tariff protection, "Although earnings and cash flows are relatively low by benchmark standards, we believe that they are sufficient to ensure the continuation of Sasol's synthetic fuel business."