Transitioning SA's Petrochemical Value Chain

The disruptive nature of the global energy transition provides an imperative for government to ensure that the transition is managed and just. Geopolitically there will be winners and losers as the race to secure markets and competitive advantage in low carbon products and services gains pace. In particular, the race is on internationally for green hydrogen players (Asset Management Engagement).

Sasol has a history of receiving state support for technological advancements. In the company’s early days there was great uncertainty about the Fischer-Tropsch process. The state poured capital into Sasolburg initially, uncertain of returns and even as costs escalated driven by security of liquid fuel and chemicals supply concerns.

Domestic public finance in equity or loan form could assist fossil fuel companies such as Sasol together with their product markets ‘walk the transition tightrope’. Closely associated with financing is the role of government to provide price, regulatory and policy support. The Inflation Reduction Act in the United States is an example of a government mobilising to provide support to transitioning and emerging green industry. Opportunities which could be explored in South Africa could include:

• In the realm of green hydrogen there is a regional investment case to be made, particularly involving Namibia, which will require intra-government collaboration.
• Automotive manufacturers may require support to shift to the production of EVs. Re-industrialisation is an important component of transition (Civil Society Engagement)
• Many internal combustion vehicles may become stranded in the transition, with a potential role for government in supporting the purchase of EVs.
• Subsidisation may be required for businesses operating along the liquid fuels value chain to help transition their business models, given the closure of refining capacity and declining utilisation of liquid fuels.

The case for using public finance to support private sector transition is a complex one, and changes over time. Public support and finance for decarbonisation initiatives will need to be balanced with addressing other policy goals, including those of Just Transition.

At present, the  government does not have a clear strategy for the petrochemicals sector (Asset Management Engagement), which could undermine the potential for Secunda and Sasolburg to effectively transition, and miss out on the potential opportunities presented by this infrastructure in the green hydrogen derivative space (Asset Management Engagement). In practice, the government also continues to subsidise aspects of the fossil fuel based economy.

The Civil Society Engagement emphasised that any investment in a future economy should not be in an extractive economy. Access to capital is the critical barrier to people getting involved in clean energy / food value chains (Labour Engagement), a need highlighted in the Grassroots Engagement.

There will also be transition finance needs within government, across municipal and provincial governments, in particular as they respond to behavioural and demand changes. The Government Engagement highlighted the challenge to existing government financial models across different government scales.