Restructuring of the Forestry Sector: briefing

Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
16 October 2002
RESTRUCTURING OF THE FORESTRY SECTOR: BRIEFING

Chairperson: Mr B Martins (ANC)

Documents Handed Out:
Presentation on Restructuring of the Forestry Sector

SUMMARY
The Committee was briefed on the restructuring of the forestry sector, dwelling on objectives, achievements and plans for the future. The Department noted that, with respect to the Northern Province (Limpopo) and Mpumalanga, this transaction was cancelled because the process had been compromised. The Department has now received the report on the alleged misconduct of Andile Nkuhlu, Chief Director of Restructuring. Parliament had confirmed that both Zama Resources and Paharpur could express interest in a new process but if they are found to have conducted any unlawful act in the initial process, they would be disqualified. Currently, the re-bid process was being planned and lessons learned from the first process are being used.

MINUTES
Mr James Patterson said that in implementing the restructuring of the forestry sector, the government hoped to achieve an increase in black economic empowerment, clarify and confirm land rights, achieve environmental sustainability and agree on labour issues. Since mid-2000 when the program started, a decision was made that only the Eastern Cape and Northern Cape and Kwa-Zulu Natal would be considered for negotiation. The Northern Province and Mpumalanga would be dealt with as a single package. The Southern and the Western Cape would then be considered in the future. As a start, seven packages were offered to acceptable bidders.

On progress, he said in Kwa Zulu Natal, South African Forestry Company Ltd (Safcol) has signed a legal agreement with a purchasing consortium consisting of Mondi and Imbokodvo Lemabalabala (IL), a Black Economic Empowerment (BEE) partner with 10% shares in the company. Mondi intends to reduce its shareholding to 51% and 14% will be sold to rural black timber farmers, neighbouring communities and IL. Transfer of assets occurred in October 2001 to the value of R100 million. An annual rental of R5.1 million will accrue to successful land claimants and other community groups.

For the Eastern Cape transaction, Mr Patterson said SAFCOL and Hans Merensky (HM), the purchasing consortium which includes Singalanga Trust and the Eastern Cape Development Corporation, had signed legal agreements and sale and transfer of assets was done in August 2001 to the value of R17 million. The company employees 2300 people and influences 11600 peoples' lives. Merensky's BEE partner was Singalanga Trust, whose 10% shareholding represents 163 communities.

For the Southern and Western Cape, recommendation was made to and accepted by, government to convert 45, 000 hectares of unsustainable forests from forest use in twenty years time. The process would be managed by MTO, previously known as Southern and Western Cape forestry package.

With respect to the Eastern Cape South transaction, Mr Patterson said there were legal agreements between SAFCOL and the preferred bidder, Rance consortium and the sale and transfer of assets was expected in June 2003. The consortium consists of 10% shareholding by Amatole Community Trust.

He then elaborated that the Southern and Western transaction had received an unsolicited bid from Steinhoff but due to fairness reasons the Department decided to advertise the bid and is now awaiting the approval of the preferred bidder. The sale and transfer of assets is expected in August or September 2003.

With respect to the Northern Province (Limpopo) and Mpumalanga, Mr Patterson said that this transaction was cancelled because the process had been compromised and the Department has now received the report on the alleged misconduct of Andlile Nkuhlu, Chief Director of Restructuring. Parliament had confirmed that both Zama Resources and Paharpur could express interest in a new process but if they are found to have conducted any unlawful act in the initial process, they would be disqualified. Currently, the re-bid process was being planned and lessons learned from the first process are being used.

On achievements, Mr Patterson said all transaction included a share of at least 10% for a BEE partner, a 10% for communities and maximum of 9% for workers. Lands rentals were also being charged at market rates and environmental conservation is ensures in the conversion process. The transfer was also approved by labour and there was a commitment period with a no redundancy clause for three years. Wage issues and pension benefits where there were deficits were also sorted out.

In terms of future plans, he said government expected future transaction to be concluded quickly but there were time delays because different government departments were involved. He said although the process was sometimes slow, the major issues and risks pertaining to the process were identified.

Discussion
Mr Heine (DP) asked what would happen to the Dugudugu forest where people were living and the fact that the forest is the last indigenous forest in the country.

The delegation explained that there were negotiations taking place to ensure conservation and that in pending consultations, the forest was not part of the package. The Cape Conservation Committee determines movement from unsustainable forest and a program manager overlooks the process of community consensus. This was a slow process because the land did not belong to SAFCOL but a tripartite of government departments.

Mr Mohahla (ANC) asked who would embark on the transaction on the forest allocated for housing purposes. Whether it would be the bidder or the government. He also referred to page 2 of the presenter's document and asked the presenters to give precise statistics including the bids, the names and the addresses of the winners of the bids to facilitate BEE progress. Were there any job losses due to the restructuring?

Mr Sibiya (IFP) asked for clarification on the time frame for Mondi to reduce the shareholding to 51% in SAFCOL to benefit rural timber farmers. He then asked how BEE partners and communities are informed of the opportunities created by restructuring.

Mr Patterson said that these were Mondi's intentions but there was a guaranteed 10% for communities concerned. He said community trust comprised of a number of authorities in the area including the Amakhosi. He said there was need for Mondi to give their share to the right people especially empowered black rural farmers but it was Mondi's decision to make. He also said that Mondi's partner, IL was co-owned by blacks.

In answering the above questions the members of the DPE delegation said that there were no job losses to date because in the process there was an agreement that in all transactions there would be no job losses. This was enforced by the fact that government has a residual 25% shareholding to ensure adherence to the moratorium.

Mr Patterson said that the BEE statistics would be made available to the Committee.

The presenters said there were also delays because there were problems with the lease since the state owns the land through the Department of Lands so the final lease has to be signed by the Minister of Public Works, Land and the DWAF. He said these resulted in a six months cycle. The delays were necessary since the lease agreements were often for 75 years and there was need for caution.

On information channels for BEE opportunities, the delegation said the adverts were placed in Newspapers but the department recognised that this may not be the best way to reach the right people especially black farmers and they were looking at other modes of rushing their target audience. In response to the bidding consortium question the delegation said that community members were put on bidding committees to advice on what is appropriate. But that there is a problem on how to sensitise people on opportunities and ensure that they place themselves in a position that enables them to take advantage.

The delegation said that the bid document also contained conditions of BEE but there was need for involvement of big as well as small BEE partners and so the 9% that is set aside for employees and 10% for communities helps overcome these problems.

A Member wanted to know the consequences of cancelling the contract and how it would affect loan holders and whether government is going to be affected in terms of the tax payer. He also wanted to know how DPE would ensure that community members would not compromise their stake and what would happen if there are no bidders during the second process.

Hon Heine (DP) also wanted to know the assurance that the Eastern Cape process would be transparent

In answer to these questions the delegation members said that so far the problems had only been in the Komatiland bid. They also said the rural areas were negatively impacted by the cancellation of the bid but that the government was committed to broad based restructuring and Zama had bid as single entity. On financial implications, the cost to the tax payer was minimal in that the legal advice and bank transactions which were the biggest expenses were funded by donors. After noting the way the process was handled, the donor, DFID had agreed to fund the second bid as well. Timing was crucial and it was important to start the bidding process as soon as possible. Currently, negotiations were underway with the reserve bidder who had sought recourse from the high court. Government was eager to recommence the re-bid and was negotiating with the reserve bidder to withdrawal his submission to the high court. He said to assist people; there was a provision for an education campaign

Mr Komphela (ANC) asked what BEE was doing to avoid the problem of fronting. He also asked who had incurred the pension benefit alluded to on page 8 and why. He wanted to know whether it was the apartheid government or the present government and why there was this deficit.

The delegation said that the pension fund deficit was not peculiar to SAFCOL. This was a legacy of post 1994 and cases like that were also true of Transnet and SAA. He said this was a consequence of moving from public enterprises without financial backing. While SAFCOL's deficit was R160 million other restructuring Departments had more deficits. He than said that the assets of the Department of Water Affairs and Forestry were originally assets belonging to the Homelands but this has so far been resolved. On the issue of fronting, the respondent said that the required document included names of owners of BEE ventures and physical engagement with the said owners. This enabled them to assess where the person was a front by the level of his knowledge of the venture and the process. He said that there can never be 100% assurance but the stringent scrutiny offered a level of comfort.

Ms Mpaka (ANC) asked if government was doing anything to assure people to militate against the negative impact of cancelling the bid.

Mr Patterson said that there had been public statements of encouragement and proactive encouragement for effective participation and to mitigate risk.

The meeting was adjourned.