Signs that costs were starting to overrun the budget began to emerge in January. In February, Sasol's leadership took immediate and decisive action to correct the problem. However, news of the latest cost overrun saw the share price drop 13%. Management's credibility is at stake. Can it recover?
Sasol's multibillion-dollar Lake Charles Chemical Project (LCCP) in Louisiana, United States, is easily the biggest project ever undertaken by a South African company off-shore. And in Louisiana it is the largest single manufacturing investment in the history of the state, dwarfing those of the 500 companies from 50 countries that have been drawn by the abundance of liquefied natural gas in the region.
Announced in 2012 and given the green light in 2014, the petrochemical complex, which includes an ethane cracker that will produce 1.5 million tons of ethylene annually, and six chemical manufacturing plants, was projected to cost $8.3-billion and come on stream in 2018.
The complex is now expected to cost Sasol 60% more, at somewhere between $12.6-billion and $12.9-billion, which includes a contingency of $300-million. This is about $1-billion more than was projected in February when joint CEOs Stephen Cornell and Bongani Nqwababa insisted that they had provided for...