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Sasol’s R190bn Lake Charles blunder costs co-CEOs their jobs

Senior executive previously in charge of the project is facing disciplinary action and three executives involved in Lake Charles have left the company.

Sasol fired its co-CEOs Bongani Nqwababa and Stephen Cornell after an investigation found serious mismanagement in the development of a $13 billion chemicals plant in the U.S., tarnishing the reputation of the whole company.

It’s an ignominious end for the executives, who promoted the Lake Charles facility in Louisiana as a way to transform the fortunes of the almost 70-year-old company, best known for liquid fuels from coal in South Africa. Development of the massive plant went badly wrong, with costs surging about 50% from initial plans.

Read: Sasol investors suggest co-CEO Cornell should go

The funds most exposed to Sasol

Sasol’s internal probe showed that the Lake Charles project management team acted inappropriately, lacked experience and was overly focused on maintaining cost and schedule estimates instead of providing accurate information.

“There was a culture of fear that was prevailing” at the project, which was fostered by previous management, Sasol Chairman Mandla Gantsho said on a call with reporters. That prevented people from coming forward, he said.

Sasol was drawn to America’s Gulf coast by the shale boom – a historic surge in production of oil and gas that has reshaped global energy markets. As the Asian manufacturing boom increased demand for chemicals to make materials like plastics, the hydrocarbon feedstocks used to make those chemicals were becoming ever more abundant in the US, offering an opportunity for profit.

The Lake Charles Chemical Project, dubbed LCCP, will produce the building blocks of products including packaging, bottles, and footwear, plus solvents, explosives and fertilizers. Once completed, it will boost the portion of chemicals in Sasol’s sales mix to 70%.

It’s one of two massive plants originally planned in the US. The second project, to convert natural gas into liquid fuels, was abandoned during the oil-price crash.

Sasol didn’t find misconduct or incompetence by either of the outgoing chief executive officers, who will be replaced on November 1 by Fleetwood Grobler, previously executive vice president for chemicals. Nonetheless, the board decided a leadership reset was needed to restore trust in the company.

“Shortcomings in the execution of the LCCP have negatively impacted our overall reputation, led to a serious erosion of confidence in the leadership of the company and weakened the company financially,” Sasol said. The setbacks “have tarnished the entire company.”

Sasol’s shares rose 12% to R299.51 at 2:33 p.m. in Johannesburg on Monday, the most in about 11 years.

South Africa’s biggest company by sales has tumbled this year and twice delayed reporting full-year results ahead of an investigation into what went wrong at the plant. The company reported adjusted earnings that missed analyst estimates.

 

A senior executive previously in charge of the project is facing disciplinary action and three executives involved in Lake Charles have left the company.

Gantsho described the findings of the investigation that included “overly optimistic assumptions” used by the project management team. While more work remains to restore trust in the company, “today we are ending a period of uncertainty,” he said.

The chemical plant, approved in 2014 at an estimated cost of $8.1 billion, exceeded its “worst-case scenario” for price over the last few years as problems continued to deepen.

A cost revision in 2016 reflected “poorer-than-anticipated subsurface conditions,” requiring more ground works, weather delays, and higher construction and labor costs, Sasol said at the time. The following year it shut the site for over a week due to Hurricane Harvey.

The Lake Charles facility is now nearing completion and Sasol said it’s confident the plant will soon start delivering financial and strategic benefits.

While the successful completion of LCCP remains a challenge for the company, it will “significantly strengthen” its position in the global chemicals market, Grobler said in a presentation at Sasol headquarters. The plant is expected to bring in a core profit of as much as $200 million in the 2020 financial year, ramping up to $1 billion from 2022.

Other actions following the Lake Charles review:

  • Co-CEOs and members of the group executive committee were awarded zero short-term incentive value for the 2019 financial year.
  • Reassigned oversight and accountability for the project to a new executive vice president as of April and added project management resources.
  • Revising the company’s procedures regarding the escalation of ethics complaints and internal investigation findings.

© 2019 Bloomberg L.P.

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Can they please pay back the salaries and bonuses since the overruns.

Absolutely agree – applicable to these 2 and many others. Mind-boggling how such a massive st*ff-up could have escalated to this point. Where was the oversight, where were the whistle blowers? The entire Board must be held accountable.

Whoever approved a project of this scale in a big bang approach should be hauled over the coals…but i still maintain that Canadian guy! Why was he hired anyway? Like we never had capable managers in SA…

Speaking as the Vaal River Sasol whistleblower, they are scared, they fear speaking up, this is the current culture within the company. I am an example of what happens to whistleblowers in Sasol, I have been victimised and harrassed for more than 3 years, 3 suspensions designed to dismiss.

Pay back the money!where have i heard this before?

They can’t pay back VBS bank is no more… No one will help.

Well done! For once it appears that the fund managers did their work and sacked these two.

“Sasol didn’t find misconduct or incompetence by either of the outgoing leaders”
These guys didn’t start the project, the blunder was made loooooong before.

Similar to blaming current management of Eskom for mistakes made when Medupi was initially planned, probably before during Mbeki era when they refused to maintain/expand.

These 2 are just the fall guys.

Ain’t no big surprise here; for me anyway. I have long held that SASOL relies on its SA monopolies and subsidies; killing SA industry but hey, who cares. These vanity projects, like the F1 sponsorship are just that; vanities for the executives at the shareholders expense.

That is NOT a subsidy, not even a tax ruling. That is a submission by Sasol to treasury in response to the windfall tax issue. It specifically states that there is no subsidy by the government to SASOL.

Please give me the actual subsidy that was given to (NOT REQUESTED BY) SASOL.

The last time there was any form of subsidy by the GOVERNMENT (not charge to the consumer)to SASOL was nearly 20 years ago. Get back to your braai and don’t waste my time with your ‘evidence’.

“…overly focused on maintaining cost and schedule estimates instead of providing accurate information”. The one good things about the Lake Charles Project, is that for once (and probably once only) this prevalent project controls problem of ticking boxes and following the procedures without insight, but not noticing what is going on, is admitted in the blunt words it should be admitted. Such admission is exceedingly rare, yet present in most projects.

Before asking for Stephen and Bongani (colloquially known as Stephani) to pay back their salaries, I think someone needs to ask David Constable to come and explain. Earned a massive salary and pay-out. Made the call on LCCP and did not see it through (quit after 5 years). Messed Sasol up with his restructuring project (Project Phoenix). Led to many good engineers, artisans, managers, etc. leading the company. Destroyed Sasol’s R&D culture – once the organisation that employed the most number of PhDs in the world.

Sasol used to be an engineer’s dream job. David, fix your mess.

Not sure what Fluor’s involvement was in the end but below is what was said in 2016. So why then are shareholders picking up the tab?

“Fluor Corporation to engineer and build the facility under a lump sum, turn-key, date-certain construction contract”

SA Pensionfunds and the JSE have taken a big hit from corporate misadventures in foreign lands.
If we had a decent government these forays into the unknown would not be necessary.

Pity they were sunk by a project that was not of their doing. That Canadian guy Constable left this mess for them. I am sure some of his buddies got massive contracts on this project. Sasol board should’ve known better than a big bang approach. An incremental scaling i.e. nibling at an elephant is almost always a wiser approach…

It’s alarming how the scorecard of international venture failures continue to mount up. This is our own poor decision making and, dare I say, arrogance. BUT, PLEASE let’s stop blaming the Govt for everything. Yes – it has been poor and has set a really bad example. I feel, however, that it should be business that sets the example for Govt – if not then the private sector and it’s adherents have no room to complain… #NOMOREBLAMESHIFTING

shame, after taking in R100m a year for the last few years between them : the poor guys must be panicking!

In 2010 an old style engineer at Sasol confided that Sasol as it stood then would never manage to build Sasol I or II I’d they had the blueprints. At that time their head of R&D delivered an assessment on thermodynamics of a project that had the Germans wondering about the safety of their coal to liquid operation.

Cute. But the facts are that they have built and replaced far more complicated process units than the original crude stuff built back in the day. Do you really think these vrot old ommies had some special secret that they discovered in the mielie fields? Come off it.

Yarwell no fine – Moneyweb decided not to post my original views – but I think the plethora of shareholders 9pensioners0 with living annuities will be relieved that Sasol rid themselves with these types os leaders !

David Constable

Fluor: 1982 – 2011
Sasol CEO: 2011- 2016 (Construction contract at Lake Charles awarded to Fluor)
Fluor Director: 2019 –

In the 2015 annual report, Sasol chairperson Dr Mandla Gantsho admitted trying to extend CEO David Constable’s five year contract…
The Dr is retiring in November. Sipho Nkosi will replace him.

The problem of following procedures but not having an insight must surely extend to other parts of Sasol. This does not bode well for the future of Sasol.

from the horse’s mouth Constable:

President and CEO
Company NameSasol Ltd
Dates EmployedMay 2011 – Jun 2016
Employment Duration5 yrs 2 mos
LocationSouth Africa
During Constable’s tenure at Sasol, he set Sasol on a new course in difficult times. He and his team modernized a former state-owned bureaucratic organization and turned Sasol into a modern global petrochemical company. A major restructuring program he introduced saved R8.4 billion annually in costs and significantly trim headcount by 5,000 staff and up to 20,000 service providers. This restructuring program, coupled with a low oil price response plan conserved more than R75 billion over 42 months has allowed Sasol to weather very low commodity prices in their key markets.

In addition, Sasol will shift to being a more international chemical company once its multibillion-dollar North American ethane cracker and derivatives plant comes on line in 2018/2019. The decision to progress with an ethane fed cracker in the US was taken quickly under Constable and Sasol’s cracker will be in the first wave of new assets brought on stream to capitalize on cheap US ethane derived from shale gas. This will provide shareholders with good long term value based on low cost feedstock. Also, building an ethane cracker as opposed to a Gas-to-Liquids plant was a break with previous strategy of only building where Sasol had a technology advantage.

Of particular note, under Constable’s leadership, Sasol delivered the best two financial year’s in the company’s 65-year history, breaking all previous earnings and dividend pay-out records. Finally, the company hit its all-time high share price during Constable’s term, R645.10 per share.

Referring to the last bullet point of this article “Revising the company’s procedures regarding the escalation of ethics complaints and internal investigation findings.”
AND
According to another newspaper – “At the leadership level, there needs to be more robust challenge of key decision making. A spirit of ‘constructive dialogue’ which includes empowering challenge and avoiding conformity, needs to extend though the Company so that people always feel able and free to speak up without fear for their prospects.”

Speaking as the whistleblower against Sasol in the SAHRC Vaal river inquiry, I’d like to suggest the following to Sasol to achieve these goals to create a safe environment for people to “speak up”.

@Sasol Change the current ‘fear management’ culture. Stop the culture of retaliation for ‘speaking up’.

Apply your own ‘Anti-retaliation’ policy.

Apply your ‘Ethics always’ credo, and start to ‘Walk the Talk’.

Listen and act when someone does ‘speak up’, don’t manage them, silence them, victimize them, help them.

Be transparent to whistle blowers with Ethics investigations, include them, engage them, guide them, because they ARE scared, they ARE reluctant, and the DO fear what might happen to them.

I am an example of how a whistle blower is treated within Sasol, by my direct line management, HR, Ethics department, Senior management. I was bullied, physically assaulted, verbally abused, victimized, harassed, ignored, manipulated, isolated, my duties and career path removed, false rumors spread, threatened through written letters from management, on suspended on 2 separate occasions, currently on “forced leave” aka suspension number 3. I can prove that my disclosures were done internally on several formats before taking it outside. I am living proof that Sasol employees should indeed fear speaking up.

I am willing to continue speaking up.

Are you willing to listen to my story this time?

this culture is quite pervasive in corrupt societies like ours. Companies need to have an independent ethics department handled by their external auditor with a whistleblower line. It should have no reporting line to CEO but only o the board.

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