Sasol Gets Go Ahead for Natural Gas Project

Sasol announced that Minister of Minerals and Energy Ms. Phumzile Mlambo-Ngcuka and Minister of Trade and Industry Alec Erwin, together with Sasol Limited Executive Director Patrick Davies confirmed two agreements governing the regulatory environment to enable the introduction of natural gas into South Africa, as well as providing for a joint venture company between the Governments of South Africa and Mozambique and Sasol that will own the gas transmission pipeline.

This follows an earlier announcement this week that the US$1.2 billion Mozambique to South Africa Natural Gas Project is ready for implementation. The project consists of a major gas field development in Mozambique, a 660mm diameter pipeline of some 865 km to Secunda in South Africa, the conversion of Sasol's current gas pipeline network and the supply of natural gas to Sasol's factories and industry in South Africa.

In October 2000, agreements were signed between the Government of the Republic of Mozambique, ENH (the Mozambican national oil company) and Sasol, which provide for access to the Temane and Pande gas fields as well as the granting of pipeline rights in Mozambique. Sasol and the two governments are finalizing a shareholder agreement for the pipeline company.

At its meeting on September 3, 2001, the Sasol Limited Board approved funds for the project to proceed. Sasol and the Government of Mozambique are presently in the process of finalizing the necessary development plans for the gas field and the transmission pipeline, whilst negotiating teams representing the respective parties have been engaged in negotiating the following agreements related to the execution of the project:

  • the Gas Sales Agreement between Sasol and the upstream partners;
  • the Gas Transportation Agreement between Sasol and the pipeline company; and
  • a shareholder's agreement for the transmission pipeline company between CMH (a subsidiary of ENH), iGas (a subsidiary of the Central Energy Fund of South Africa) and Sasol.

Significant progress has been made on these agreements and the parties are confident that they will be signed shortly.

In June 2001 Sasol and Enron Southern Africa Development Limited signed a Gas Sales Agreement, which provides for the sale of natural gas to the proposed Maputo Iron and Steel Project ("MISP").

It is envisaged that the Gas Bill, which will regulate the piped gas industry within South Africa, will be presented to Parliament during the current session. The Gas Bill also provides for the two agreements between Sasol and South African Government to be binding on the proposed Gas Regulator. The South African Reserve Bank will also now be approached for the necessary approval of the investment to be effected within Mozambique.

The project, which is expected to bring significant benefits to both countries, will bring natural gas to South Africa during the first half of 2004. Close to a thousand new jobs will be created during the three-year construction period. Natural gas will also enable local industry to use the latest technology, which has been steadily moving to pipeline gas as an environmentally friendly energy carrier.

Consistent with Government's black economic empowerment (BEE) objectives, the agreements make provision for BEE groups to participate in the transmission pipeline from Mozambique. Sasol has already signed memoranda of understanding with two BEE groups for local gas distribution companies in Mpumalanga and KwaZulu-Natal.

Sasol will enable the project by converting its existing pipeline gas market to natural gas, switching its Sasolburg plants from coal to gas as well as taking gas into Secunda to supplement coal-based growth there. Sasol will grow its current market through new market developments to achieve the initial targeted volume of 120 million Gigajoules per annum. Natural gas will be available in South Africa during the second quarter of 2004.

The Minister of Minerals and Energy, Ms. Phumzile Mlambo-Ngcuka stated: "The Governments of South Africa and Mozambique together with Sasol have demonstrated what can be achieved in SADC when governments and the private sector co-operate. Cross border infrastructure projects such as this one go a long way towards the provision of much needed infrastructure."

Mr. Alec Erwin, Minister of Trade and Industry, said: "This project will be a significant stimulus to the local economy. The availability of competitively-priced gas will enable South African industry to stay abreast of international technological trends in a cost-effective manner."

Mr. Patrick Davies, an executive director of Sasol, reported that Sasol had received excellent co-operation from both Governments: "Sasol will spend over R8 billion in capital expenditure over the next twelve months, of which some R6 billion will be spent in Southern Africa. This makes Sasol one of the largest investors in the region. The decision by the Sasol Board to give the go-ahead for the Mozambique to South Africa Natural Gas Project demonstrates our commitment to Southern Africa as a base for Sasol's international growth. This is an exciting cross-border project and I trust that it will serve as a model for other Public Private Partnership (PPP) ventures so necessary for the South African economy. We are very grateful for the support we have received from the relevant ministers and their staff during this process."