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South African Government Denies Windfall Tax Rumours

by Robert Lee,, London

02 March 2007

Following mounting speculation in the national press, the South African government has moved to quell rumours that it is introducing a new windfall tax on the energy and mining sectors, which caused stocks traded on the Johannesburg Stock Exchange to plummet earlier this week.

"The National Treasury would like to clarify the confusion on the relationship between the Minerals and Petroleum Royalty Bill and the report by a Task Team on Windfalls in the Liquid Fuels Industry," a government statement explained.

"Both the Bill and the Task Team report have been released for further comment by the public and the industry. Government will only finalise its response after completing such a consultative process. The report of the Task Team does make some recommendations on the Minerals and Petroleum Royalty Bill, though it was not part of their terms of reference. We have as yet not responded to any of the recommendations," it added.

The statement went on to claim that the South African Government has a "recognised track record in financial management" and would not "jettison this reputation, so carefully constructed, and replace it with capricious policy announcements".

The remit of the task team was to focus on the synthetic fuels industry, and the government said that it has been "scrupulous" in its dealings with the producers of synthetic fuels.

"Our extractors and producers are entitled to at least similar treatment," the statement noted, adding that: "There are no announcements on the recommendations of the task team on the horizon."

The statement was issued after the JSE All Share Index closed down 3% on Tuesday. The resources index closed down 4%, as the windfall tax speculation added to wider concerns over the Chinese economy.

Finance Minister Trevor Manuel launched the windfall tax taskforce after Sasol, the South African petrochemical group, revealed in its interim financial results last year that higher average international oil prices boosted operating profit by about R2.9 billion ($480 million) in the six months which ended on December 31, 2005. Meanwhile, the firm's attributable earnings for the first half of the financial year 2006 increased by 86% from R3.9 billion to R7.3 billion.

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