JOHANNESBURG, Oct. 28, 2019 /PRNewswire/ -- Following the
publication of revised guidance for the Lake Charles Chemicals
Project (LCCP) on 22 May 2019, the
Board of Directors (Board) of the Company commissioned an
independent review (the Review), which was conducted by global
consulting firms at the direction of external legal counsel.
The Company's announcement on 22 May
2019 set out the principal factors that had resulted in an
increase in the LCCP capital cost guidance relative to the previous
estimate that was issued on 8 February
2019:
1. Adjustments to the February
2019 cost forecast of approximately $530 million, comprising:
- Duplication of investment allowances of approximately
$230 million.
- Correction for certain contracts and variation orders of
approximately $180 million.
- Forecast improvements not expected to be realised and
adjustments for potential insurance claims and procurement
back-charges of approximately $120
million.
2. Additional events and remaining work impacting the
February 2019 cost forecast of
approximately $470 million,
comprising:
- Repair and replacement of defective components and related
impacts on units such as the Ethane Cracker, Ethylene Oxide /
Ethylene Glycol and Utilities of approximately $210 million; and
- Remaining work and finishing activities, primarily on the Low
Density Polyethylene, Ziegler, Alumina and Guerbet units of
approximately $260 million.
3. A contingency amount for items that could impact the
cost forecast of $300 million.
Additionally, throughout the LCCP, there have been adverse
weather conditions and related productivity issues, including but
not limited to the impacts of Hurricane Harvey in 2017.
Based on remediation measures taken, the Board is confident that
the cost to completion estimate for the LCCP, confirmed by the
Board's most recent assessment of LCCP management's reporting, is
tracking the 22 May 2019 announced
cost guidance range of between $12,6
billion and $12,9 billion. The
Board also remains comfortable that the principal factors for the
cost increase as identified in the 22 May
2019 market guidance are sound, and that criminal conduct is
not one of those factors.
Outcomes of the Review
The purpose of the Review was to consider the circumstances that
may have delayed the prompt identification and reporting of these
developments, root causes, and the legal consequences thereof. The
Review, which is legally privileged, has now been
concluded.
The Board has made the following key conclusions:
- The primary responsibility for shortcomings in relation to LCCP
lies with the former leadership of the LCCP's Project Management
Team (PMT), which engaged in conduct that was inappropriate,
demonstrated a lack of competence, and was not transparent.
However, on balance, the Board finds that there is not sufficient
evidence to conclude that these individuals acted with an intent to
defraud.
- In addition, certain governance shortcomings relating to the
LCCP also contributed, including a culture of excess deference
within the control environment and governance structures that
oversaw the LCCP.
- No earnings, financial position, or cash flow restatements are
required.
Some of the driving factors behind the cost and schedule
increases are common in projects of the size and nature of the
LCCP, but some are shortcomings that may have been avoided.
In light of these findings, the Board has concluded that
appropriate steps need to be taken to ensure appropriate
accountability, to re-establish trust in the Company and its
leadership, and to assist in promoting a culture of "constructive
dialogue" across the organisation.
Specific Causal Factors
The Board has identified multiple causal factors that affected
the prompt identification and reporting of the errors, omissions,
and inaccuracies in the project cost estimate that underpinned the
8 February 2019 market guidance and
which were described in the 22 May
2019 announcement. This was based on a substantial amount of
independent work and included additional substantive and analytical
testing procedures on LCCP capital expenditures, accruals, and
associated transactions during the period 1
July 2017 to 30 June 2019.
The causal factors include:
- Competence - Insufficient experience within the LCCP leadership
team in executing mega projects.
- Conduct - Inappropriate conduct and an improper tone at the top
of the LCCP, including an excessive focus on maintaining cost and
schedule estimates at the expense of providing accurate cost and
schedule estimation to oversight bodies (including Joint Presidents
and Chief Executive Officers (Joint CEOs)) within the Company.
- Segregation of duties - Insufficient segregation of duties of
the LCCP project controls environment from the LCCP project
execution environment, which prevented the identification of
certain potential errors in cost and schedule estimation.
- Control procedures - Inadequate control procedures within the
LCCP control environment that allowed erroneous and/or unsupported
reporting by the LCCP leadership to go unchallenged without proper
escalation of potential red flags.
- Ethics process - Inadequate procedures to ensure that internal
ethics complaints as to the LCCP were escalated appropriately.
- Project-related Control Environment - A culture of excess
deference within the control environment that oversaw the LCCP
caused certain individuals with control responsibilities and in
oversight committees, including but not limited to the Steering
Committee created to oversee the LCCP, to exhibit insufficient
scepticism toward reporting by the LCCP leadership team.
It is the Board's assessment that the former leadership of the
LCCP PMT's conduct was inappropriate, demonstrated a lack of
competence, and was not transparent. These, coupled with
governance shortcomings, were the primary factors in relation to
the prompt identification and reporting of developments relating to
the LCCP's costs and schedule between 1
January 2019 and 22 May 2019.
The Board believes these factors compromised the ability of the
various LCCP governance structures, including the Board in relation
to LCCP matters, to perform their oversight role effectively on
behalf of shareholders.
Remediation
A number of significant remediations and consequence management
steps have already been implemented or initiated to hold the
responsible individuals to account and to address the shortcomings
identified during the Review. These include:
- Reassigned oversight and accountability for the LCCP to a new
Executive Vice President as of 1 April
2019 and added additional project management resources to
the LCCP.
- Implemented a new LCCP controls structure, independent from the
LCCP's execution activities, and redesigned controls on cost
reporting regarding the LCCP to ensure segregation of duties,
control effectiveness, and appropriate oversight.
- Commissioned additional external assurance work to validate
aspects of the Company's estimates regarding the LCCP's cost and
schedule.
- Engaged in consequence management, including initiating
disciplinary action against the Executive Vice President previously
in charge of the LCCP and removing him from all work
responsibilities, and effected the negotiated separation from the
Company of the three Senior Vice Presidents with roles in the
project.
- For FY2019, the Joint CEOs were awarded zero as the value of
their short-term incentive.
- For FY2019, all members of the Group Executive Committee (GEC)
were awarded zero as the value of their short-term incentive.
- Reduced incentives awards for individuals company-wide based on
relation and/or proximity to LCCP.
- Requiring that various employees involved in the LCCP and/or
its oversight engage in additional training, including on reporting
obligations.
- Re-evaluating the effectiveness of the finance function
holistically with a specific focus on parts of the function
supporting Sasol's business in the United
States, which will be led by the Audit Committee.
- Continuing with the roll-out of the Aspirational Culture
programme within the entire Group and reconfirming critical
leadership behaviours on a Group-wide basis.
- Revising the Company's procedures regarding the escalation of
ethics complaints and internal investigation findings.
The Board believes, however, that further remedial steps are
required to embed a new culture at all levels in the Company. At
the leadership level, there needs to be more robust challenge of
key decision making. At the LCCP, the Company's executive
leadership placed too much trust in the PMT leadership. 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.
To address this, in addition to ongoing culture transformation
initiatives, the Company intends to focus on promoting leaders who
have demonstrated their ability to promote transparency and
constructive dialogue.
Further Accountability Measures
With the LCCP now nearing completion, the Board firmly believes
that this strategic project will soon start delivering significant
strategic and financial benefits to our shareholders and other
stakeholders, and will help Sasol to gain a competitive position in
a growing international chemicals market.
However, it is a matter of profound regret for the Board that
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.
Sadly, the LCCP challenges have tarnished the entire Company, which
has world-class assets and teams that have delivered a consistently
strong performance.
The Board has resolved to ensure that the Company lives its
values and to ensure that there is a culture of accountability and
consequence management. It is also the judgment of the Board
that, for trust to be restored in the Company, a leadership reset
is required.
It is in this light that Mr. Bongani Nqwababa and Mr.
Stephen Cornell, Joint CEOs, have
agreed to an amicable mutual separation with the Company. Effective
31 October 2019, Bongani and Stephen
will step down as Joint CEOs, and as executive directors of Sasol
and its subsidiaries. To be clear, the Board has neither identified
misconduct nor incompetence on the part of the Joint CEOs.
The Board has appointed Mr. Fleetwood
Grobler, EVP: Chemicals, to assume the role of President and
CEO and as an executive director, with effect of 1 November 2019.
Dr Mandla Gantsho, Chairman of
Sasol, said: "I would like to thank Bongani and Stephen for their
long and loyal service to Sasol, and for showing exemplary
leadership by putting the interests of the company first in
agreeing to step down to allow for a leadership reset."
Dr Gantsho added: "With Fleetwood assuming the role of President
and CEO, Mr. Brad Griffith,
currently Senior Vice President: Performance Chemicals, has been
appointed as EVP: Chemicals with effect from 1 November 2019. Fleetwood will retain oversight
responsibility over the final stages of LCCP, with the SVP
currently responsible for the construction of the remaining units
of the LCCP continuing to report to him."
Dr Gantsho also remarked: "With the Board Review completed, and
key remedial actions already implemented or underway, Sasol is now
focused on restoring trust and ensuring that it delivers value for
all its stakeholders."
He concluded: "Sasol remains rooted in our South African
heritage, and we are determined to transition towards a
fully-fledged integrated international chemicals and energy
company. With his background in both Synfuels and Chemicals
business for over 35 years, Fleetwood enjoys the full confidence of
the Board and is uniquely placed to lead the Company in the next
phase of its value-based growth."
Sasol Investor Relations, please contact:
Feroza Syed, Chief Investor
Relations Officer
Direct telephone: +27(0)10-344-7778
investor.relations@sasol.com
For Sasol Media Relations, please contact:
Alex Anderson, Senior Manager: Group
External Communication
Direct telephone: +27(0)10-344-6509
alex.anderson@sasol.com
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SOURCE Sasol Limited