There is an acrid smell even before the world’s largest coal-to-liquid refinery emerges out of the South African highveld.
The Secunda mines-to-refining complex is the world’s largest carbon emitter by volume. The plant, owned by South Africa’s biggest chemical company Sasol, emits more carbon dioxide than Portugal.
The 40-year-old refinery in the heart of South Africa’s Mpumalanga coal country has an almost dystopian feel. Flames shoot skywards from gas flares, steam billows from chimney stacks and a maze of steel pipe twists around a procession of boilers, gasifiers and cooling towers. A single flue, 300m high, one of the tallest structures in Africa, disperses pollutants over hundreds of kilometres.
After decades of turning abundant South African coal into synthetic fuel under a process first developed by Nazi Germany, Secunda is now at the centre of a dispute about the pace at which Sasol should ditch its dirty habits.
It is a dispute that pits the ESG investing revolution sweeping global boardrooms against the grimy reality of South Africa’s emissions-intensive yet beleaguered economy.
At stake is the long-term future of Sasol itself, one of the country’s most technologically sophisticated companies and its biggest taxpayer.
Sasol, which is listed in New York as well as Johannesburg with a market value of about $7.6bn, produces one-third of South Africa’s fuel, exports speciality chemicals worldwide, and employs more than 30,000 people. Secunda drives about 40 per cent of its earnings.
Now two South African institutional investors, Old Mutual and Ninety One, which together own about 5 per cent of Sasol, have openly revolted over its emissions-reduction timetable — breaking with a tradition of quiet shareholder engagement in the country.
Environmental protesters stormed Sasol’s annual general meeting last month, forcing it to abandon proceedings.
Shareholders have questioned Sasol’s ability to meet its goal of cutting emissions by 30 per cent by 2030 and, beyond that, of reaching net zero by 2050. The acid test will be whether Secunda can decarbonise, or if it will ultimately have to shut down.
“We don’t want to see Sasol being left with stranded assets,” said Nazmeera Moola, chief sustainability officer at Ninety One.
The company, she said, had for too long delayed transition in South Africa, and had instead invested massively in international expansion, including an expensive foray into a chemicals plant in Lake Charles, Louisiana, which ended up devouring nearly $13bn.
“As a result the South African operations were starved of focus and capital,” Moola said. Sasol’s enterprise value is about three times its forecast earnings before interest, taxes, depreciation and amortisation (ebitda) for the next year, compared with more than five times for ExxonMobil and Chevron.
In an interview with the Financial Times, Fleetwood Grobler, Sasol’s chief executive, rebuffed any suggestion the company had been slow to anticipate the pace of transition or that it was backtracking from 2030 targets.
“Nothing has changed,” he said, adding that 98 per cent of shareholders had backed emissions-reduction plans when they were announced in 2021. “This year, all of a sudden, there’s this doubt about the target. For us, the plans to execute the targets are still the same.”
Grobler, speaking from his top-floor office at Sasol’s sleek glass-and-steel Johannesburg headquarters, said emissions cuts to 2030 would not be steady but would be “backloaded”, getting progressively steeper.
Tracey Davies, director of Just Share, a South African advocacy group for responsible investing, said Sasol’s target implied an improbably sharp acceleration of emissions cuts. Direct greenhouse gas emissions had fallen from 72mn tonnes in 2005 to 64mn tonnes this year, an annual reduction of 0.6 per cent, she said. The 2030 target of 46mn tonnes implied reductions of nearly 4 per cent a year.
Sasol, Davies said, might be counting on forbearance from both shareholders and regulators given its dominant position in South Africa’s economy. On paper, Sasol is facing hefty South African carbon taxes towards the end of this decade, but the tax has so far come with generous allowances.
South Africa’s government employee pension fund is Sasol’s biggest shareholder, with a stake of more than 13 per cent, followed by more than 8 per cent held by a state development body. Sasol says it accounts for roughly 5 per cent of South Africa’s gross domestic product.
That made the company hard to discipline, Davies said. “If Sasol doesn’t meet these targets . . . it is unlikely to meet a huge amount of resistance.”
Sasol says it can tweak exactly how it gets to its 2030 emissions target, depending on variables including the price of gas, an alternative feedstock to coal and access to renewable energy, which has been hampered by government bureaucracy.
Grobler said assumptions had changed given the impact of the war in Ukraine on LNG prices. Sasol would instead use gas reserves from neighbouring Mozambique, some of which it already piped to a second Sasol refinery in Sasolburg, south of Johannesburg.
In extremis, Grobler said, Sasol could “throttle the input” at Secunda. If it reduced the amount of coal going into the process, it would cut the amount of CO₂ coming out.
Moola at Ninety One said a fallback plan of cutting production was not reassuring to investors. “It is not in our interest for Sasol to shrink the size of the company in order to meet their climate target,” she said.
Grobler said shareholders were getting unnecessarily jittery — Sasol’s share price has fallen more than 22 per cent in 2023 — and that the company had for at least 20 years been “alive to the pressures piling up in the financial markets with respect to ESG”.
But investors also needed to understand that going green carried a cost. “There is no transition that doesn’t impact on profit,” he said, adding that Sasol would spend R16bn-R25bn on emissions reduction before 2030.
Grobler said that the Fischer-Tropsch technology at the core of its business was its best guarantee of a post-oil future. Sasol commercialised the technology in the 1970s when it was a state-owned company looking to circumvent sanctions on the apartheid regime’s access to oil.
Grobler said the process required a carbon feedstock, but that this could come from gas, biomass or even carbon captured from the air. Required hydrogen could one day be produced using electrolysis, he said. “Few companies have got the [same] ability to pivot.”
Criticism that Sasol had not spelt out how it would get to net zero by 2050 was unreasonable, Grobler added, given uncertainties over the pace and cost of new technologies, including green hydrogen. “What does your crystal ball say?” he asked the company’s detractors.
More immediately, Sasol must meet government air-quality standards at Secunda by reducing sulphur dioxide and so-called NOx gas emissions. Sasol says it will meet NOx standards by 2025 but cannot hit required levels of S02 emissions without shutting down some of its boilers.
Residents living near the plant, many in a black township built downwind of the plant during apartheid, complain of health issues related to air quality. “People are becoming blind because of the sulphur dioxide,” said Fana Sibanyoni, an environmental activist in Secunda, who said residents also suffered from skin rashes, breathing difficulties and elevated levels of cancer.
“This is not an allegation, it’s the truth,” Sibanyoni said. “[Sasol] is the majority cause of all this sickness and all this poverty and death.”
Grobler said he could not comment on any alleged link between the plant and elevated health risks. “Everything we do today, and up to 2025, except the S02, will be compliant with the regulatory environment,” he said.