JOHANNESBURG (Business Day) -- Petrochemicals company Sasol [NYSE:SSL] has joined a growing list of South African companies looking to put down roots in India, as it considers a deal that could see it spend billions of rand to build a fuel plant in the country, according to India’s government.
With oil prices at record highs, Sasol’s technology to produce fuel from coal has attracted intense international interest — underlined yesterday when Indian Finance Minister Palaniappan Chidambaram lauded the possibility of Sasol’s investment in the country.
If Sasol decides to proceed, this would put it in an enviable position in the two fastest- growing economies in the world.
Three weeks ago, Sasol signed a R70 billion ($9.8 billion) deal to proceed with the second stage of feasibility studies to set up two coal-to-liquid plants in China — a country that reported growth of 9.9% last year.
India, with an economy growing at 7.5% and a population exceeding 1-billion, is an attractive prospect for a fuel supplier.
Other South African companies have also recently moved into India.
Retailer Shoprite opened its first outlet in Mumbai in 2004, Naspers has opened an office in India and the Airports Company SA and Bidvest teamed up to land a 30-year concession in February to run Mumbai’s airport.
Chidambaran told news agency the Press Trust of India yesterday that the Sasol investment was a very exciting opportunity that was “likely to run into $6 billion”. He said Sasol would begin with an initial $1 billion investment.
He was speaking after a meeting with the country’s Investment Commission, which had had discussions with Sasol.
This R42 billlion ($5.8 billion) would be roughly the amount Sasol would need to invest to build a typical coal-to-liquids plant that would pump out 80000 barrels of oil a day.
But Sasol yesterday was cagey about the Indian discussions, saying only that it had done “a preliminary evaluation and (is) engaging in discussions with various interested parties”.
Discussions are still at an early stage, with no immediate plans for any feasibility study, so it is still possible that Sasol may opt not to proceed — although the Indian government’s public statements would suggest there was some meeting of minds.
Chidambaram said that India would consider creating “a fulltime job for an officer to handle the (Sasol) investment and see it through”. He also praised Sasol’s coal-to-liquids fuel technology and said India would “have to give (Sasol) identified coal blocks” to allow it to begin doing business.
India has among the largest global coal reserves, according to the World Energy Council, with more than 200- billion tons — 7% of the world total.
Sasol’s stock climbed only 0.4% yesterday after the news but this was still a good performance as the oil price fell, which normally knocks Sasol’s stock.
An analyst from a South African brokerage, who did not want to be named, said that while Sasol had become the flavour of the month amid sky-high oil prices, any investment in India would be “too far in the future to have any real impact on Sasol’s investment case”.
“You’re talking about 10 years before you see anything in India because it takes four to five years to simply build a plant, let alone other planning,” he said.
Corrupt US energy group Enron landed a lucrative $2.9 billion deal to provide electricity to India’s Maharashtra state but the deal collapsed in 2001 when the state was unable to pay for the power, which was being sold at four times the going rate. Enron, General Electric and other companies lost millions.
