When Sasol sneezes, Sasolburg catches cold

Khathutshelo Masheleni, who runs the Green Eden Nursery next to Sasol's plant in Sasolburg, has been having sleepless nights since the petrochemicals giant announced plans to slash spending on projects to deal with the oil price crash.

"You will never know what will be the ultimate outcome of this announcement. I am worried indeed," he said.

This is the human cost of the plunging oil price, which has tumbled from $110 a barrel to about $60 in less than a year.

For a company such as Sasol, the largest maker of motor fuel from coal, whose profit is closely linked to the oil price, the crash has caused a dramatic spending rethink. This week, Sasol took the radical step of downgrading the dividend it is likely to pay investors, saying: "In the context of a low oil-price environment, the group's earnings will be negatively impacted."

The ripple down the chain for business people like Masheleni, and for a town like Sasolburg, is profound.

Sasolburg, situated in the Free State about an hour's drive from Johannesburg, may be like any other industrial town in South Africa: its fortunes fluctuate according to the price of commodities found there.

But few towns are as reliant on one company. It was built in 1954, mainly to house Sasol staff who worked at the nearby plant, which was the flagship operation of the company's coal-to-liquid fuel programme.

About 113000 people live in the town, and about five years ago, Sasol was responsible for between 50% and 60% of Sasolburg's gross municipal product - worth between R3-billion and R4-billion a year.

Until now, Masheleni's nursery has been supplying Sasol, which has been buying trees and greenery as part of its environmental rejuvenation plan for the town.

"Sasol has had a major contribution. Without them, nothing would have moved because the municipality usually doesn't have funds. So if Sasol cuts back, we will be in deep trouble," said Masheleni.

Common Fear

Retailers in Sasolburg, as well as ordinary people, describe the change in the mood of the town.

Johan van der Walt, who worked as a supervisor for a painting and sandblasting company contracted to Sasol, was retrenched just more than a year ago.

Today, he and his wife sell biltong and sweets from a stall he sets up every morning.

"That day, they retrenched 12 of us. The following week another 110 ... good, qualified guys," he said.

Van der Walt, a resident of Sasolburg for many years, had to sell his car and move in with his family when he couldn't afford to pay the rent.

"Business is slow this time of year. My expenses are more than my profits," he said.

This reinforces the view that unemployment in Sasolburg has rocketed in the past 18 months. When Business Times visited Sasolburg this week, there were long queues outside the Department of Labour as people waited to register for or claim UIF payments. Some said they had been waiting since 4am.

In nearby Zamdela township, scores of people were loitering around their houses, unemployed and bored. In town, throngs of job seekers moved from factory to factory.

Louis Botha, the former chairman of Sasolburg's AHI business chamber, said things began slowing down after Sasol announced its restructuring plans last year. This led to the retrenchment of senior people - many of whom had given the go-ahead for other projects.

"It basically means that projects are not going [ahead] as planned," Botha said.

"Things are slow because all the businesses in the area, in one way or another, depend on Sasol for survival. So the contractors that are normally here are not. At the moment we're sitting and hoping things get better. It is not a crisis of epidemic proportions. It might just be that the oil price burst their bubble," he said.

Asked for comment, Sasol declined to provide statistics on how many it had retrenched.

Shops and franchises had been closing down because of the lack of business, said Yvonne Bennet, an assistant manager at property rentals company Kruger Group.

"We have seen people around [here] putting houses on sale and others are leaving in droves because jobs are drying up, and they are going to places where the pay matches their education," said Bennet.

Although manageable now, she said, the problem could escalate in the next six months.

A former pastor, who asked not to be named, said members of his congregation had been jittery about losing jobs at Sasol and other companies in the area, including Eskom and steel giant ArcelorMittal SA - both also facing a cash crunch.

"If you were to speak to people from churches, they will tell you about people's [income] dwindling. [There is] fear about the possibility of losing their jobs and facing an uncertain future," the pastor said.

Not Everyone Is Gloomy

One businessman said Sasolburg was like any mining and agricultural town which had been battered by the wave of strikes in recent years.

"You cannot separate what has been happening in the mining industry with its five-month strike, the labour action in the logistics industry and the whole labour strike-wave," he said.

Johannes Hattingh is also upbeat. The owner of a company called Malokiba Trading, which supplies rotating equipment such as turbines, compressors and gearboxes to Sasol, ArcelorMittal and Karbochem, said business was still good.

"I have heard some businesses expressing concerns about contracts drying out. But for me, business is good and I am very optimistic about the future," Hattingh said.

The whole country, he said, "has been experiencing problems", so Sasolburg wasn't any worse off.

But Christo van der Rheede, the CEO of the AHI, said companies such as Sasol remained hostage to global markets, where the prices of commodities such as oil were determined.

"Their hands are tied. This is because they have little control because they are controlled internationally," said Van der Rheede.

Instead, he said, many other problems in the country were affecting business, including unreliable electricity supply from Eskom. "If you look at issues like dwindling infrastructure in roads, electricity infrastructure and sustainable electricity delivery - doesn't that fail [ businesses]?" he asked.

"Why don't we confront them [Eskom] instead of leaving it to Sasol and the likes of the smelters [to solve]?"

For Masheleni and his nursery, Sasol's continued presence has a direct effect on his prosperity.

His main revenue source is a contract he secured to supply Sasol's ChemCity Industrial Park, which brings in 70% of his turnover and was instrumental in transforming his business from a small neighbourhood nursery to a much larger enterprise.

Today, he plants indigenous trees, tends to the nearby wetland parks and also runs a small retail business for people who come in off the street.

"Sasol helped me big time," he said.