Sasol Limited – Annual report – 30 June 2021
Industry: oil and gas
* Decrease in rehabilitation provision capitalised in 2021 relates to a reassessment of the provision based on discount rates and cost estimates.
** Relates to rehabilitation provisions of the Canadian shale gas assets classified as held for sale, refer note 12 and the Gabon oil producing assets that were disposed of during the year.
* Decrease relates mainly to Canada which was classified as held for sale at 30 June 2021 and the Gabon oil producing assets that were disposed of during the year.
In accordance with the group’s published environmental policy and applicable legislation, a provision for rehabilitation is recognised when the obligation arises, representing the estimated actual cash flows in the period in which the obligation is settled.
The environmental obligation includes estimated costs for the rehabilitation of coal mining, oil, gas and petrochemical sites. The amount provided is calculated based on currently available facts and applicable legislation.
The total environmental provision at 30 June 2021 amounted to R16 196 million (2020 – R21 790 million). In line with the requirements of the legislation of South Africa, the utilisation of certain investments is restricted for mining rehabilitation purposes. These investments amounted to R676 million (2020 – R661 million). In addition, indemnities of R2 190 million (2020 – R2 190 million) are in place.
The following risk-free rates were used to discount the estimated cash flows based on the underlying currency and time duration of the obligation.
Share Appreciation Rights scheme
All rights issued in terms of the Share Appreciation Rights scheme (SARs) have vested and will be settled in cash when exercised. As at 30 June 2021 there were 2,2 million vested rights not yet exercised with an intrinsic value of R0 (2020: R0). The final rights awarded under the scheme will expire in September 2022.
* Increase mainly relates to the National Energy Regulator of South Africa’s final decision on the maximum gas price methodology for Sasol Gas. A provision of R1,4 billion was raised in this regard. Refer note 37.1. It also includes employee related provisions of approximately R950 million.
Estimated long-term environmental provisions, comprising pollution control, rehabilitation and mine closure, are based on the group’s environmental policy taking into account current technological, environmental and regulatory requirements. The provision for rehabilitation is recognised as and when the environmental liability arises. To the extent that the obligations relate to the construction of an asset, they are capitalised as part of the cost of those assets. The effect of subsequent changes to assumptions in estimating an obligation for which the provision was recognised as part of the cost of the asset is adjusted against the asset. Any subsequent changes to an obligation which did not relate to the initial construction of a related asset are charged to the income statement. The increase in discounted long-term provisions as a result of the passage of time is recognised as a finance expense in the income statement.
The estimated present value of future decommissioning costs, taking into account current environmental and regulatory requirements, is capitalised as part of property, plant and equipment, to the extent that they relate to the construction of the asset, and the related provisions are raised. These estimates are reviewed at least annually.
Deferred tax is recognised on the temporary differences in relation to both the asset to which the obligation relates to and rehabilitation provision.
Termination benefits are recognised as a liability at the earlier of the date of recognition of restructuring costs or when the group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. In the case of an offer to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits that are expected to be wholly settled more than 12 months after the end of the reporting period are discounted to their present value.
Areas of judgement:
The determination of long-term provisions, in particular environmental provisions, remains a key area where management’s judgement is required. Estimating the future cost of these obligations is complex and requires management to make estimates and judgements because most of the obligations will only be fulfilled in the future and contracts and laws are often not clear regarding what is required. The resulting provisions could also be influenced by changing technologies and political, environmental, safety, business and statutory considerations as well as the period in which it will be settled.
It is envisaged that, based on the current information available, any additional liability in excess of the amounts provided will not have a material adverse effect on the group’s financial position, liquidity or cash flow.