PETROCHEMCIALS group Sasol was banking on state financial support for its mooted 80000- barrel -a-day coal-to-liquid plant, CE Pat Davies said yesterday.

Sasol's expectations are an indication the government will have to dig deeper into its coffers to keep the country's array of infrastructure projects on track.

The government has factored the project, known as Project Mafutha, into its industrial policy action plan, together with PetroSA's 400000-barrel -a-day crude oil refinery.

Sasol expected the government to be a partner in the project, Davies said.

"We already have an understanding with the Industrial Development Corporation."

He said Sasol hoped that once the government had conducted its "cost-benefit analysis" of the project, it would come up with strong financial and general support. "It is only fair to give government time to determine its funding capacity. If we do not get the support, we will not proceed with the project. It is too big a project to go it alone."

Sasol was, however, proceeding with the preparatory work, which is at the prefeasibility stage. Sasol yesterday said it had spent R1bn on the prefeasibility study. In November Sasol began coal blasting and extraction of samples.

Speaking at the release of the company's results for the six months to December, Davies said yesterday that despite the effect of the recession, the group's growth plans were still intact. Capital expenditure in the period was R6,6bn. Sasol is the biggest industrial investor in SA.

As expected, lower product prices and a strong rand were big factors in Sasol's performance. Operating profit was down 51% to R10,5bn. Turnover fell 30% to R58bn, while headline earnings per share also fell 51%, to R10,67. Sasol increased the interim dividend by 12% to R2,80 a share.

Operating profit at Sasol's energy cluster was down from the previous R21,8bn to R8,1bn. Profit for the international energy cluster, which drives Sasol's foray into international markets, was R300m, from R2,1bn before.

The chemicals business, which has borne the brunt of falling commodity prices, reported a profit of R1,5bn, down from R3,5bn. "That we have managed to get profit in the chemicals cluster speaks to the resilience of the group. Few chemicals companies in our space can say the same," Davies said.

Chief financial officer Christine Ramon said Sasol had achieved cost savings of more than R500m. Sasol was still planning for a slow and volatile economic recovery, Ramon said.

In a departure from its practice of the past few years, Sasol is yet to hedge a portion of its synfuels production. The net gain of the oil hedge on last year's results was R5,1bn. Sasol hedges against downside risk in the crude oil price to ensure the predictability of its cash flows. Davies said the hedge was a risk-mitigation move, and not speculation.

Davies said Sasol had submitted a project application report for the China coal-to-liquid plant and would make an investment decision on the project this year.

The latest designs showed the plant's output was 90000 barrels a day, from an earlier estimate of 80000, which would boost Sasol's synfuels output.

The Bottom Line: page 12


Half-year 2009 2008

Revenue (Rbn)58 83,1

Pretax (Rbn) 10,2 21,2

Net Income (Rbn)6,5 13

Headline EPS10,6721,92

Dividend PS 2,80 2,50