Alexkor Bill: briefing

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Public Enterprises

02 May 2001
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Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
2 May 2001

ALEXKOR BILL: BRIEFING

Chairperson
: Mr S T Belot

Documents handed out:
Presentation to the Portfolio Committee for Public Enterprises on the Alexkor Limited Amendment Bill (See Appendix 1)
Alexkor Limited Act No.116 of 1992
Alexkor Limited Amendment Bill 2001
(e-mail info@pmg.org.za for documents)

SUMMARY
The government's decision to restructure Alexkor Limited was discussed. The performance of Nabera, a mining company that had been chosen to manage
Alexkor's mining activities was examined. Nabera had not significantly improved the profitability of Alexkor as envisaged.

MINUTES
Mr Andile Nkuhlu (Deputy Director, Department of Public Enterprises) addressed the Committee on the Alexkor Limited Amendment Bill.

In 1998 the Government resolved to restructure Alexkor. One of the issues that came to the forefront was to sell Alexkor. Accordingly, the value of the mine and the objective basis to determine the value had to be considered. Instead of selling the company then, a decision was taken to explore the benefit of a management contract.

Nabera Mining Company
Through a bidding process,Nabera, which is a mining company, was chosen as a contractor. It was given a two-year contract to mine and manage Alexkor's mining activities. Part of its mandate was to develop a coherent exploration programme so that at the end of that period the reserve of the mine could be established. The contract terminates on the 17 May 2001.

There had been pressure on the Department. to look at those aspects of the Alexkor Act that impeded the Department's ability to restructure the mine in line with the Government's objectives. The Alexkor Bill seeks to amend the sections of the Alexkor Act to enable the government to make any decisions.

Secondly, Alexkor is linked to the Namaqualand community in Alexander Bay. One of the objectives of the Bill is to transfer the social infrastructure of this mine to the Northern Cape government and the relevant local authority. The second objective of the Bill is to identify through an objective process with the government. Discussions have already taken place with the Northern Cape government regarding which aspects of the asset base of Alexkor is deemed necessary for the social infrastructure.

Alexander Bay Mining & Alexander Bay Training
The third aspect of the Bill is to incorporate Alexander Bay Mining (ABM) and Alexander Bay Trading (ABT) because as the mine developed, it diversified into agricultural and other non-mining activities as part of a long-term strategy for the post mining economy in Namaqualand.

One of the Department's suggestions to the Bill is to incorporate two subsidiaries to Alexkor Limited, which will be ABM and ABT. This is a legal issue. There had, over the past two years, been an objective determination of what assets and liabilities sit with ABM and ABT in their individual capacities. This is only to give a legal form to this separation.

Shares
The last issue, which is a core of the amendment, is to amend section 4(3) (b) (i) to (iv) dealing with the disposal of shares in Alexkor, which may currently be done through a listing process with the approval and concurrence of the Minister of Finance. Government felt that it was too restrictive an approach. Government wants flexibility in order that it may look at a variety of options. This Bill has been approved by the Cabinet and has been referred to the State Law Advisors.

The Government's contention is that it is necessary to create these subsidiary entities. The Department is also in the process of clarifying the quantum of Alexkor shares that ought to be sold during the first phase of the restructuring.

Department's Presentation on the Alexkor Limited Amendment Bill.
Denzil Matjila (Departmental Legal Advisor) dealt with the legal aspects of the Bill. He outlined the brief background of Alexkor Limited. He indicated that there had been a typing error on the third page of the document where it is mentioned that Alexkor's profitability had improved since Nabera took over. He stated that Alexkor's profitability had not shown any significant improvement ever since Nabera took over.

Discussion
Mr Heine (DP) asked a question of clarity on the profitability of Alexkor Ltd since it was taken over by Nabera. Mr Matjila replied that Alexkor's profitability had not shown any "significant" improvement since Nabera took over. Secondly, he commented that Alexkor had a deficit of 62 million. He said that as far as he understood, Nabera's mandate or appointment was aimed at wiping out that cash deficit. He asked if the deficit was at all wiped out.

The Chair commented that he did not want to preempt Mr Heine's question. He asked if Mr Heine could indicate how his question assisted the committee in the issue at hand.

Mr Heine replied that if it was true that Nabera had turned Alexkor around into a profit making venture, why was the Nabera contract being terminated, and two new companies taking over. Furthermore, he asked if there was any undertaking or guarantee that the two new companies would operate profitably.

Mr Nkuhlu replied that it was a misperception that the government had appointed Nabera to wipe out the debt or the cash deficit. This was never the mandate of Nabera. This was only one of the issues that Nabera had to deal with when it took over Alexkor Limited. Among the major clauses in the contract with Nabera it was resolved that Nabera would carry out exploration. Furthermore, there was nothing in the contract that bound the government to extend the period of the duration of the contract beyond 17 May 2001, the time at which this contract is due to expire.

There were two principal considerations behind not extending the contract. One of them was that there was a possibility that the government would sell the mine and Nabera had indicated that it was one of the contenders to buy the mine. Therefore, the decision not to extend the contract was motivated by the above consideration. He appealed to the committee members not to ask many questions regarding the issue because the matter was still sub iudice and that the government was still involved in negotiations with Nabera. Secondly, it was not correct to say that two new companies had been created. The only decision that had been taken was to separate the company's mining and non-mining activities, as it has been indicated in the briefing. This was only a pragmatic decision, it had not been given legal status yet.

Mr Nchakha Moloi (Advisor to the Min. of Minerals & Energy) added that Alexkor is a large company that is comprised of both mining and non-mining assets, such as dairy farming, ostrich farming, orchards and all things not related to the mine. In addition, Alexkor also owns a whole town, hospitals, an airport, roads, museums etc. It is difficult to manage a company of this nature. A decision was taken to restructure Alexkor. Consequently, Cabinet took a decision approving the separation of Alexkor into three entities. The ABM will look at the issue of diamond mining. The ABT will look at all non-mining businesses. All the issues relating to the social infrastructure will be taken dealt with by the Northern Cape provincial government. The Amendment Bill will enable the creation or the constitution of legal entities out of the mining and non-mining business of Alexkor.

Mr Moloi also expressed reluctance in engaging in the discussion whether Nabera had carried out its mandate or whether it had failed to do so. This was due to the reason that an independent company was still to be appointed after the termination of the contract to do an audit to determine if Nabera had performed or not.

Mr Heine retorted and said that he did not understand Mr Moloi's response. He stated that there must at least be a financial statement to show that Nabera how had performed. He said that there had to be some kind of proof to see whether Alexkor was running at a profit or a loss.

Mr Moloi responded that the issue was whether Nabera has performed or had failed to perform in terms of the contract. Alexkor was making a profit on a month to month basis starting from September 1999. However the current projection at the end of this financial year was that the profit scale would be zero if the company continued to perform on a month to month basis as it had been doing from September 1999.

Mr Heine interrupted and said that the committee was informed that Alexkor's profitability had not significantly improved since it was taken over by Nabera. He said that Mr Moloi was contradicting himself by saying that Alexkor was making a profit on a month to month basis. This proved that the company's profitability had, as a matter of fact, improved. He said that the facts should be stated correctly.

A Member raised a point of order and said that the discussion around profitability of Alexkor was unfair to other members of the portfolio committee and said that the committee had moved away in substance from the Bill. The essence of the meeting was to discuss the Bill.

The Chair acknowledged the Member's point. He, however, pointed out that it was proper that these issues were ironed out so that members of the committee did not leave the meeting with the wrong conceptions.

Mr Moloi responded with what would encompass improvement at Alexkor. He stated that such would firstly include the improvement of security at Alexkor. Secondly, profitability also meant mining diamonds out of the ground, the essential test is increasing the capacity of mining activities. This is a reason behind the proposed appointment of an independent company to consider if any tangible improvement had been made.

The Chairperson said that it was good that the matter had been broached as this afforded members the opportunity to interact with the Department and Alexkor on the matter and proposed that the committee should begin deliberating on the Bill.

Mr M Nonkonyana (ANC) suggested that the issue of profitability of Alexkor and other matters connected therewith may appropriately be discussed after an independent company had released a report regarding Nabera's performance in terms of the contract.

One Member based his question on section 5 regarding privatisation and asked if it was government policy to privatise state assets. He also acknowledged the vast expanse of Alexkor's business activities and that a proposal had been made that these would be managed by Alexander Bay Trading (ABT). He asked if there were any prospects for the development of these business activities in the future.

Mr L Montana (Department's Parliamentary Officer) acknowledged that the issues that were raised by the Member were very important, especially the issue of profitability of the company. However, this should not be confused with the tabling of annual reports and financial statements. These documents would be tabled in accordance with the process that was set down by the PFMA. He stressed that these issues need not be conflated.

Mr Nkuhlu added that they would not discuss the profitability issue in any greater detail due to the process that had not yet been completed. Until that process has been legally completed the Department would not be in a position to share the details because they would be acting mala fide to Nabera as they were still in a process of reaching clarity on certain issues.

Mr M Maphalala (ANC) commented that it would be a good idea to visit the area to see the physical arrangement, particularly regarding the ABT that dealt with the social aspects of the mine.

The meeting was adjourned.

Appendix 1
PRESENTATION OT THE PORTFOLIO COMMITTEE FOR PUBLIC ENTERPRISES ON THE ALEXKOR LIMITED AMENDMENT BILL

2 May 2001

STRUCTURE OF PRESENTATION
1. Alexkor's brief,background

2. Bill - purpose, objects and content

3. Changes - Additions and deletions from the previous draft

4. State Law Advisors concerns and comments

5. Response

6. Debate I Discussion

BACKGROUND
- Alexkor established as a Corporation in 1989 through the Alexander Bay Development Corporation Act no 46 of 1989

Purpose
Undertake mining, agriculture, commence, industrial and Town Settlement

- Alexkor incorporated as a company in 1992 Alexkor Limited Act 116 of 1992.

- Alexkor was a loss making entity in - May 1999, government appointed Nabera to turn it around.

- Nabera's contract coming to an end on 17 May 2001.
- Cabinet has taken a decision not to renew or extend Nabera's contract.
Alexkor's profitability has however, improved since Nabera look over.

Cabinet took a decision that in order to better position Alexkor, its business units (i.e. ABM and ABT be incorporated as separate companies.)

BILL Purpose, objects and content

Purpose and objects of the bill is threefold:
a) To incorporate ABM and ABT as separate companies in terms of the Companies Act and, at the same time establish Alexkor Limited as a holding company for those.' business units,

b) To make provision for transfer of social infrastructure held by Alexkor to appropriate local authorities e.g. Northern Cape Provincial Government,

c) To amend Section 4 (3) (b) (i - iv) of the Alexkor Act of 1992 so as to remove restrictions imposed on government in terms of disposing its shareholding in Alexkor.

Content
1. Long title to insert definitions, constitute Alexkor Limited as a holding company of ABM and ABT to provide for incorporation of ABM and ABT, to alter the requirements ct5 to disposal of shares by government, provide for disposal of social infrastructure and matters connected therewith:

Sec 1. Definitions
1.1 ABM
1.2 ABI
1.3 Incorporated Companies
1.4 Alexkor holdings Ltd. Act

Sec 2
a) Constituting Alexkor Ltd. as a holding for ABM and ABJ
b) Incorporation of ABM and ABI
i) Incorporation to be done by the current Alexkor board
- Requesting the registrar in writing to incorporate ABM and ABJ

ii) Such request to be accompanied by Memorandum and Articles of Association, signed by members of the Board and approved by the Minister

iii) Once such rnemo and articles have been signed and approved, shall as tar as the signing is concerned be deemed to comply with requirements of the Companies Act

c. The registrar to register the said memo's and articles of association upon receipt in terms of section 6 4 (i) and to endorse that ABM and ABT have been incorporated

d. ABM and ABT to be incorporated as Public Companies in terms of Companies Act, having share capital - section 19 and Alexkor Holding limited being the sole shareholder.

e. Consequences of Incorporation of ABM and ABT:
i) Ownership and control of assets to be vested Upon ABM for mining assets and ABT for non-mining, which prior to incorporation vested in Alexkor.

ii) Alexkor to take up shares in those companies in exchange of such assets that shall have been transferred to those companies or, such other consideration as the Minister, BQA may determine with concurrence of the Minister of National Treasury

f. Provisions of the Companies Act apply to those companies with effect from the date of incorporation

g. Alexkor Ltd. not to be liable for payment of any transfer duties for transfer of any assets to those companies

h. Provision for Alexkor to transfer servitudes or similar rights to those companies, by way of deed of cession affected by a notary, in consultation with the holder of a right.

I. Relevant register of deeds to make such endorsement in any register, title deed or other document.

j. Articles of association to be determined by Alexkor Ltd.

k. Transitional Provisions:
i) All liabilities, rights and obligations which prior to incorporation vested in Alexkor to devolve upon ABM in respect of all mining activities and ABI for all non-mining activities.

ii) Alexkor Ltd. to ensure proper apportionment of liability and benefit for shared services, prior to incorporation,

iii) All persons in the employ of Alexkor Ltd. prior to incorporation to be redeployed to ABM and ABI accordingly without interruption to their services including all their rights and obligations.

iv) For purposes of the Income Tax Act, 1962, no change of employer shall be deemed to have taken as a result of such incorporation and position of employees in respect of phasing in of tax levied on benefits or advantages derived by reason of employment or the holding of any office shall be deemed to remain unchanged.

2. Value of assets, obtained by ABM and ABT to be determined by the Minister, Minister of DME in consultation with Minister of National Treasury.

3, Compliance with Section 285 - First Financial year of ABM and ABT to be year ending 31 June 2002.

SECTION 3.
Alexkor Ltd. enabled to dispose of its assets in whatever manner it deems proper, for as long as such assets shall be maintained efficiently and effectively, to any person, whether natural, juristic or non-juristic but subject to section 54 of the PFMA.

SECTION 4
Minister may with the concurrence of the Minister to National Treasury dispose shares held by government in Alexkor provided:

i) Such disposal shall have been determined by government in terms of its policy on restructuring.

ii) Shareholding by any person to be determined by government in terms of its policy on restructuring of SOE's

SECTION 5
Alexkor Ltd. and the incorporated companies entitled for purposes of privatisation or restructuring their affairs to:

a) To form further companies, subject to compliance with section 38 (m) of
PFMA

b) Divide its activities into business units and to transfer to such units, assets, liabilities, rights and obligations.

C) Acquire fully paid up shares in those companies as consideration thereof.

SECTION 6
a) Minister may make regulations from time to time and authorise deviation as may be necessary for efficacious implementation of this bill

b) ABM and ABT may.retain .Alexkor's patents, designs and copyrights.

SECTION 7
Act to be called Alexander Limited Amendment Bill and to come into operation on a date fixed by the State President by Proclamation in the Gazette.

CHANGES
1 Previously:
ABM and ABT were to be incorporated by the Minister in the government gazette

Currently: lncorporation by Board of Alexkor

Reason: Not ideal for Minister to incorporate moreso that he was not going to sign Memo's and Articles. It was also not necessary, as these are subsidiaries

2. Additions
Section B (i) - (ii)

Section e (i), (ii), g, h, k, (i), (iii), (iv), I, m and Section 6 (b)

3 Previously: Disposal of government shareholding in Alexkor was to be determined in terms of government programme on restructuring

Currently: Such disposal is done in terms of government policy on Restructuring

Reason: Government programme on restructuring not cast in stone. It can create a lot of ambiguity, unlike policy, where there is a policy document in place.

4. Previously: In terms of Section 5, it was just stated Alexkor Ltd. and the incorporated can form companies.

Currently:
It is stated such formation to be done subject to section 38 (m) of PFMA

Reason: It is a requirement in terms of PFMA for formation of companies

STATE LAW ADVISOR'S CONCERNS

1
. Why definition of Alexkor Ltd. business? No expression either in the bill or the Act itself.

Response: Concurred - definition taken out

2. Previously in the definition it was stated that ABM and ABT were
held by Alexkcor Ltd. through a separate wholly owned subsidiary.
State Law Advisor wanted to find out why this expression i.e. is there a 3rd company involved or is Alexkor Ltd. one of a number of companies holding ABT.

Response: Concern valid. Definition of ABM and ABT were taken from the Management agreement. Definition revised to address this anomaly.

3. State Law Advisor said why not determination of share capital of both ABM and ABT in the bill as in the Act section (4) (i)

Response:

Not agree with the State Law Advisor. Share capital does not necessarily have to be in the Legislation. It has to be in the Memo's and Articles of Associations. Case in point here is Safcol Management of Stale Forest Act Legal Succession to the South African Transport Services Act.

4. Provision should be made for a board of Directors.

Response:

Not necessary, all provisions of the Companies Act apply to these incorporated companies which provisions provide for a board of directors. Secondly provisions for a Board is normally made in the Memo's and Articles. Thirdly in respect of Safcol and Transnet no provision was made in their enabling legislation of constitution of the Board.

5. Exemptions from Provisions of the Companies Act

Response: Concurred. No exemptions any more for ABM and ABT from provisions of the Companies Act.

6. Concern about programme on restructuring of SOE

Response: Concern addressed. No longer programme on restructuring of SOE but policy on restructuring of SOE because a policy document does exist.

7. Is programme referred to in paragraph (ii) section 4 (3) (b) same as programme referred to in paragraph (I)

Response: Yes, it is the same. Even though it is no longer programme any more but policy.

8.
Concern about Transitional provisions to provide for continued existence thereof as divisions of Alexkor Ltd. Provision to be made for rights, benefits and duties of current personnel of those bodies and divisions

Response: Transitional provisions made.

9.
State Law Advisor proposing draft of a new bill authorising Alexkor Ltd. to form companies and to transfer particular powers and duties to those companies;

Response: Disagree. Another Bill not necessary. Secondary, we have to give effect to what Cabinet decided, which was incorporation of ABM and ABT.

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