Durban - Sasol and the Industrial Development Corporation (IDC) are pulling the plug on Sasol Fibres, their R520 million acrylic fibres joint venture, after the government turned down their plea for tariff protection.
The decision to apply for liquidation will result in the loss of 260 skilled jobs at the Durban-based operation. It comes as the world acrylic fibre market is in oversupply.
The IDC said yesterday it had been unable to secure another operating partner for the business because prospective buyers of Sasol's 50 percent stake had made their offers conditional upon suitable tariff protection being granted.
Sasol announced last year that it was seeking a buyer for its share, after having written off R111 million because of the impairment of the plant and related assets at the joint venture.
Neo Fowazi, the IDC's vice-president of marketing and corporate affairs, said the IDC had sought to find an international partner to take Sasol's stake. Business Report understands that Thai Fibres was among the suitors.
But in a letter dated January 23, the Board on Tariffs and Trade rejected an application by Sasol and the IDC for tariff protection, citing South Africa's obligations to the World Trade Organisation. This effectively shut the door on a buyout.
Fowazi said Sasol Fibres was the world's only acrylic fibres operation without tariff protection.
In a letter sent to the management and employees of Sasol Fibres, the joint venture partners said that as a result of the failure to secure tariff protection, Sasol Fibres "regrettably cannot achieve targeted rates of return and is no longer financially viable".
The business, which reported a loss of R19 million last year, would be closed for the next three to four months.
Sources close to the company insisted it was on track to break even this year, although Fowazi said the business was cash neutral. "They are operating, but just barely."
Sasol set up Sasol Fibres in 1993 as part of a strategy to penetrate downstream markets. Between 1996 and 1999, when the group produced acrylonitrile in Secunda, it was able to meet all of Sasol Fibres' raw material requirements.
But Sasol Fibres has subsequently had to import its main feedstock, bearing the brunt of rising prices and rand weakness.
It has also been knocked by a shrinking local textile market, which dwindled from 40 000 tons of acrylic fibres seven years ago to 12 000 tons in 2000.