Alexcor Limited Amendment Bill: hearings

Meeting report

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
5 September 2001
ALEXKOR LIMITED AMENDMENT BILL: HEARINGS

Documents handed out:
Richtersveld compilation document
Richtersveld 1998 proposal to inter-ministerial Committee
Cosatu submission
Alexkor Limited Amendment Bill [B29-01]
Amalgamated Services for Concerned Residents Association (ASCORA) [see Appendix]
Udasa submission

Acting Chairperson: Mr B Martin

SUMMARY
The Richtersveld Vereniging vir Gemeenskaps Eiendom presented their grievances to the Committee about the privatisation of Alexkor and the negative impact that it would have on their community. They felt that the Bill exacerbates matters by allowing the government to sell off portions of Alexkor without fulfilling the legislative requirements for selling off a shareholding in the company. The major concern was the direct effect that the sale would have on the livelihood of the community in the region as most if not all incomes are in some or other way derived from the Alexkor mining industry. The community also expressed its disappointment in the lack of transparency in the process as a whole and called for greater co-operation from the Department and Alexkor.

The Congress of SA Trade Unions and the National Union of Mineworkers rejected the Bill entirely. Their argument was that the problems of Alexkor could be solved by the State itself without resorting to privatisation. The government’s shortsightedness on the issue was unacceptable given the negative impact that privatisation would have on the surrounding communities. They presented seven key proposals for a turn-around strategy for the loss-making Alexkor. They concluded that the private sector’s great interest in buying the shareholding in Alexkor speaks volumes about the company’s profitability potential.

The United Diamond Association of South Africa asserted that both the value of the diamonds and the land was being purposely undervalued and that the demise of this mine was as a direct result of a lack of transparency and security. It claimed that South Africa produces about 70% of the world’s gem diamonds yet polishes less than 1%. It believed that Alexkor could become profitable again. Udasa could play a significant role in the marketing of Alexkor’s products and adding value to it in the form of a co-op model.

MINUTES
Richtersveld Vereniging vir Gemeenskaps Eiendom
Mr P Strauss (Chairman), Mr W Louw and Mr H Smith (Legal Adviser) made the submission accompanied by a delegation comprised of many individuals.

Mr Louw dealt with the concerns of the community as that one of the unintended consequences of the Bill is that it will adversely affect the Richtersveld community. The issue was why privatise Alexkor? Especially since it is the hub of all economic activity in the Richtersveld and Namaqualand area. It was feared that the consequence of privatisation would be huge job losses. This would drastically exacerbate the existing unemployment crisis in the area.

Another concern was the loss of the developmental role that Alexkor was playing in the area. Thirty percent of Alexkor’s profits are paid into a fund to assist the community in its developmental needs. It was feared that the community would lose this benefit when Alexkor is privatised.

Mr Louw stated that the timing of the proposed privatisation of Alexkor could not have been worse as the community is currently embroiled in land claims issues. Why not wait till the land claims issues are resolved?

A sore point for the community was the lack of consultation with them on the privatisation issue. The community was disappointed with the manner in which government had dealt with the process. Their continual requests for information such as feasibility reports from Alexkor fell on deaf ears. It was pointed out that it is difficult for the community to state their case to Parliament without having the relevant information at hand.

The Bill had made no provision for community equity, which is supposed to be a responsibility of the government. What is the Richtersveld community getting out of the privatisation process?
In the past Alexkor had had its fair share of problems and as a result a management contract had been awarded to a company called Nabera for the duration of three years to try to get the company back on track. Nabera had not faired as well as was expected and yet it is rumoured that their management contract is to be renewed. Mr Louw felt this state of affairs to be totally unacceptable.

Mr H Smith emphasised that from a legal standpoint it was difficult to prepare an argument when Alexkor continually stonewalled him in his efforts to obtain information from them. Firstly, it should be clarified as to what is being privatised. How is the privatisation of mining leases going to be reconciled with the interests of the community? If the area is to be reaped of its mineral deposits, should the locals not benefit from it?

Mr Smith made the point that government’s position on unused state land is that it should be used and occupied by people who had previously occupied it. Therefore if the Richtersveld land is not to be used by the state for state purposes, it should be returned to the people who had owned it before dispossession. The implication of successful land and mineral claims is therefore something that needs to be considered.

The information that they do have about how much of Alexkor is to be privatised and how it is to take place is merely speculation by the press. It is rumoured that 50% of Alexkor is to be put up for sale. The value attached to the sale is in the region of R50 – R80m.

Mr Smith stated that the manner in which the privatisation is to take place is paramount. In the Act, the requirement was that in order for a sale to take place, Alexkor needs to be listed. The listing in itself opens up a whole array of requirements that encourages transparency. Amongst the requirements is that a prospectus should be issued that would allow the public to scrutinise the particulars of the sale. In the proposed Bill listing is no longer required and the sale is purely at the discretion of the Minister. Mr Smith stated that there is a definite need for listing as it relates to the opening up of the financial records of Alexkor to the public. It is this transparency that would allow the residents of Richtersveld to deliver a much more constructive submission to the Committee. At present, the best that the community is able to do is to put forth their proposals as outlined in 1998.

Discussion
- Mr M Nonkonyana (ANC) stated that the object of the Bill is to make provision for Alexkor to become a profit-making company once again by bringing in new investment. What are the fears about making Alexkor profitable once again?
- Mr J Louw (ANC) asked what proposals are being made in response to the concerns that were highlighted to the Committee.
- Mr A Van Jaarsveld (NNP) asked for concrete proposals on what should be done. Further, what seems to be the problem with Nabera?

Mr Smith replied that the problem lies in the fact that the process is being fast tracked. On the one hand government is trying to foster investment in Alexkor but on the other hand the needs of communities are being ignored. At present the only proposals that the people of Richtersveld can offer to the Committee is those that were outlined in 1998, given the lack of information at their disposal. Further, the government’s policy framework is not sufficient in guiding the process. The sale should be open to the requirements of a listed company. The obvious problem with Nabera is that Alexkor is still suffering losses under their management. In light of this, is it feasible to renew their management contract? Mr Smith noted that he does however appreciate the complexities of managing a mine.

Mr Q Kgauwe (ANC) asked if it was correct that community profit sharing would not work given the fact that Alexkor had not made substantial profits since 1995.

Mr Smith stated that it was correct. He pointed out that Alexkor had not made contributions to the Alexkor Fund since 1995. They have therefore not been fulfilling their obligation of developing the community. The Fund has been surviving off its reserves.

An ANC member asked what attempts had been made to obtain information from Alexkor and the Department.

Mr Louw stated that many letters had been written to Alexkor requesting information but thus far nothing has been received. He added that they have tried to engage with the Department as well.

The Chair stated that the Committee takes cognisance of the fact that the Richtersveld community was limited in its efforts due to the lack of information. He nevertheless congratulated them on their effort as their presence before the Committee speaks for itself. He asked the Department to comment on the issues that were raised.

Mr Andile Nkuhlu, Chief Director of State Owned Enterprises (Department) stated that Nabera is a private company and does not have a shareholding in Alexkor. He emphasised that Nabera is at present only responsible for the management of Alexkor and that discussions are ongoing as to whether their management contract is to be extended. The Department was however not at liberty to discuss the issue in detail.

Mr Nkuhlu conceded that there are disputes between the government and the residents of Richtersveld over land claims. The government has however had success in opposing the claims in the courts, but the residents have taken the matter on appeal.

He said that the government had made provision for an equity community stake for the residents of Richtersveld in Alexkor. It is only the quantum that must still be decided. Mr Nkuhlu pointed out that the Department had not had any discussions with the Richtersveld community in the past six months. As far as the policy framework guiding the sale, it does make provision for corporate plans to be furnished to the Minister of Finance. He added that the residents have not requested any reports in this respect. If the residents wish to be briefed, the Department would be pleased to oblige. Mr Nkuhlu confirmed that Alexkor have not been making contributions to their fund because they have not been making a profit. In closing, he stated that the residents should not be alarmed, as discussions on the issues would continue.

The Chair agreed that the process is only starting and encouraged all stakeholders including the Department to continue discussions.

Congress of SA Trade Unions (COSATU)/ National Union of Mineworkers (NUM)
In their combined submission, Cosatu was represented by Ms F Tregenna and Mr Neil Coleman and Mr Noel Coetzee and Mr Edward Mlondobozi were the NUM representatives. from NUM.

Ms Tregenna noted that Alexkor is currently experiencing a range of problems, including ineffectual management, abysmal industrial relations, poor mining strategy, and ongoing theft, which clearly have a significant negative effect on Alexkor’s bottom line. The bulk of the problems are avoidable, and addressing them would be the basis for a turnaround strategy.

Transforming Alexkor and addressing its problems does not require a jettisoning of state ownership and a takeover by the private sector. It requires a turnaround and thoroughgoing transformation, which is not only possible under continued public ownership, but can best be achieved under government control. COSATU and NUM reject the Bill and the privatisation of Alexkor. They believe that Alexkor has a significant contribution to make to both the regional and broader economies, and that continued state ownership will best position it to play such a role.

They were also concerned that the Bill has neither gone through the process specified in the National Framework Agreement on the Restructuring of State Assets (NFA) nor through Nedlac, as should have been the case.

The significant private sector interest in buying into Alexkor is indicative of its future profit-generating potential. It is unions’ strong suspicion that Nabera has deliberately downplayed the financial viability of Alexkor in order to convince government of the urgent need to proceed with privatisation, to be prepared to sell Alexkor at a discounted price, and even to discourage other prospective private buyers. Alexkor has a critical developmental role to play in the Namaqualand region, and any downscaling would have devastating socio-economic effects.

Their key proposals, the "Seven-point Plan", for the turnaround of Alexkor as a state asset are:
• Improving mining methods;
• Transforming and upgrading management;
• Human resource development;
• Crackdown on theft, wastage and corruption;
• Capital injection;
• Improvement of non-mining activities;
• Integration in a regional industrial strategy.

They called on the Committee to reject the Bill, and the proposed privatisation of Alexkor, so that viable alternatives can be explored. Even if the Bill goes through, they call on the Committee to support their proposals for the turnaround of Alexkor. It is recommended that the Committee sets a timeframe for a progress report-back in this regard.

The Committee should also initiate the setting up of a Joint Operational Team comprising labour, Alexkor management, the Departments of Public Enterprises and Minerals and Energy, and local and provincial government, which could generate a short, medium and long-term plan for Alexkor which meets the various stakeholder needs.

Discussion
Mr Frolick (UDM) asked how much money would the state have to contribute to turn Alexkor into a profit-making entity given the fact that the government has already been contributing money into this parastatal for a long period?

Mr Nkosi (ANC) inquired about Cosatu’s proposal regarding capital injection. Where would this injection come from and for how long? Was there any viability study that Cosatu had conducted in order to support its claim that Alexkor has a potential?

Mr Mohlala (ANC) remarked that their submission fails to deal with the specific issues and clauses in the Bill except to say that the Bill must be entirely rejected. Further, the Committee is requested to follow through on proposals such as capital injection and other transformation methods, the results of which they were not sure.

He criticized the speculative nature of Cosatu’s statement that neither the government nor other stakeholders have an accurate picture of the real state of affairs at Alexkor especially in terms of its financial situation. He said that this was quite a serious statement to make and asked for clarity. He maintained that there does not appear to be anything wrong with the Bill.

Ms Tregena replied to the complaint that Cosatu’s proposals are not linked to the Bill, by pointing out that the Bill only has two paragraphs. The real purpose of the Bill is to make it easy for the government to privatize Alexkor. The Memorandum to the Bill mentions the removal of those obstacles to the privatization. This gives the government carte blanche to privatize Alexkor as it sees fit. Thus this is not a submission suggesting that certain changes have to be effected to the wording of the Bill because the Bill has only one purpose which is to aid the government to privatize Alexkor. Even if the Bill went through, which is certainly not Cosatu’s preference, this would not rule out the turnaround strategies that Cosatu has proposed.

She continued that in government’s own briefing to the Committee it has been unable to say exactly what Alexkor’s current financial situation is. The government has stated that an investigation still needs to happen to find out whether or not Nabera has added value. It would be suicidal for any restructuring to go ahead when government is not clear about what is the actual financial situation. She concluded that Cosatu does know that the company is making a profit at the moment.

Ms Hloane (ANC) did not think that the problems raised by Cosatu were sufficient to create a need to reject the Bill. She asked what had Cosatu done to address the lack of transformation at Alexkor and what would be the terms of reference for the "joint operational team" mentioned in Cosatu’s turnaround strategy?

Mr Noel Coetzee (NUM) replied that it was clear that it is not the role of the government to get involved with the actual operations of Alexkor. Clearly, government together with the labour force has to find a way to solve the problems at Alexkor and see whether it is possible to get out Alexkor out of the crisis situation it is in.

Mr Neil Coleman (Cosatu) added that the government has more access to information and a joint task team will be able to make an appropriate assessment – this would be an issue for the Committee to apply its mind based on the suggestion made in the submission. It would be unfortunate if news was to spread out to the society at large that the government is only interested in one issue which is finance. Cosatu has clearly stated the potential of Alexkor, both its developmental potential and the returns it can bring to the state. There is a need to look at the impact of privatization on the community such as the loss of jobs and the impact of privatizing and selling to private sector owners

Mr Andile Nkuhlu replied that Cosatu’s submissions are welcomed by the Department but that this submission had very little to do with the Bill. He quickly pointed out some inaccuracies in Cosatu’s statements:

Firstly, the Department is fully aware of the detailed financial status of the mine. Alexkor has undergone a recent audit and financial reports reflect that the financial status has deteriorated from bad to worse. The Board of directors is battling to pay salaries and has only enough to pay salaries up to December this year.

When Nabera was commissioned to assume Alexkor’s administration, the government took a loan and guaranteed the debt that was used for exploration up to R72 million. Only R25 million has been utilized in exploration and operations and Alexkor is not in a position to pay back the bank loan. Therefore, the perceived potential of Alexkor is not borne by fact. The future of the mine is not in the land but is in the sea – which would be the most expensive type of exploration. Research has been made in this regard.

Secondly, the government is not talking about carte blanche privatization of Alexkor. This is a misnomer.

Thirdly, the Department concurs with the issue of industrial strategy in terms of beneficiation. Discussions are currently afoot with the Northern Cape’s provincial government and the Minister to look at these strategies. There are not innocent approaches as there has been a lot of "raping" of resources of the Northern Cape which makes the government very wary of the use of some of the approaches.

Fourthly, on the issue of financial resources to turn the company around, the financial resources would not come from the state. The future of Alexkor is not in the land where the majority of its employees are. The future lies in deep sea exploration.

Lastly, what the Bill seeks to achieve is flexibility. Government may list Alexkor if it becomes profitable again and the only way in which this could be done is through privatization. Thus, this is not a carte blanche power given to Cabinet.

Ms Tregenna posed the question: if the situation at Alexkor is as gloomy and hopeless as the Department is portraying, then why is Nabera, which knows the company inside out, as well as other private sector interests queuing up to buy into Alexkor?

She criticised the Department’s assertion that the future of Alexkor is at sea stressing that she did not know what the relevance of that was because the majority of Alexkor’s reserves are actually offshore. She conceded that there might be cost implications but to say that its operations are onshore and its reserves offshore has no bearing on one restructuring option or the other.

She stressed that Cosatu’s entire submission is a response to the Bill. The objective that the Bill is steering towards is neither desirable nor necessary.

Mr Coetzee referred to the notion that Alexkor’s future is in offshore mining. NUM had had a meeting with the representatives of the Board on 3 September 2001. It emerged that there is extensive potential onshore. It is a lack of capital that prevents Alexkor from carrying on its activities. Therefore, it was wrong to state that there is no potential onshore and nothing to be done except offshore exploration. This needs to be corrected.

Mr Coleman added that it was easy to look at balance sheets and throw figures and numbers around. There was a concrete need to look at "social balance sheets". He appealed to the Committee to look at a much broader cost benefit analysis and the implications of throwing people out of work in economic terms - the unemployment insurance payments, the social security benefits and the costs of creating new jobs to replace the existing jobs as well as the social costs to the community concerned. This is the analysis that needs to be made.

Mr Nkuhlu replied to Ms Tregenna’s question and said that the reason behind other stakeholders interest at Alexkor is because of the quality of the jewel in the seabed lining in the Namaqualand. This has been confirmed by various studies that Alexkor’s future will be under the sea. There are currently negotiations at the mine aimed at significantly reducing the workforce due to the problems at Alexkor. These have been put on hold in consideration of the social impact this may have. He said that he does not understand why Cosatu believes that the restructuring of the mine would be the cause of job losses because even if government does not restructure the mine, it faces job cuts which will reduce the workforce by 50%. The only thing that makes Alexkor survive on a month to month basis is the contracts that Alexkor has to mine and explore in the sea. This comes to an end at the end of September. These facts are not conjured up by the Department.

Mr Martin concluded that the Committee has an oversight role and a duty to question the Department and stakeholders without fear or favour in order to carry out the terms of its mandate and to serve the people of the Republic of South Africa.

Udasa
Mr Vuyisile Mdleleni noted that Udasa is an SMME based in Johannesburg with a cross section of representation by previously disadvantaged persons. . Udasa embraces the restructuring of Alexkor from a loss to a profit-making entity. The focus of the submission was Udasa’s suggestion that it market Alexkor’s products in to improve Alexkor’s productivity so that a worse situation could be avoided. Udasa is not in a position to offer a solution to Alexkor from a production point of view. Issues of ownership and management of Alexkor should be decided carefully weighing up the collective interests of the state, local people and national economy . Udasa can however, play a vital role in the marketing of the product adding value to it and creating a significant number of jobs. It was therefore in the national interest that a bond be formed between the two entities.

Mr Abe Sher stated that he had been involved with Alexkor in the past and is familiar with the diamond mining industry in terms of buying and polishing diamonds. He visited the mine for the first time in 1996 and the diamonds that he was shown as part of the investigating crew, had not been cleaned. It appeared that none of the diamonds were cleaned at Alexkor but were immediately transferred to De Beers. He mentioned that he was not allowed to take his tools with him in order to make an assessment. He is of the opinion that this is part of the scam. The only assessment that he made was that the diamonds were totally undervalued. De Beers took 14% for the privilege of marketing the diamonds. This was on an undervalued basis. It appeared that De Beers was buying uncut diamonds at a greatly undervalued rate. He refused access to the mine’s archives and the contract between Alexkor and De Beers. It was clear that there were cover-ups and that there was no transparency. The identical situation occurred in 1999. The sale of diamonds at an undervalued rate has created significant losses for Alexkor Ltd. He said that this is iniquitous. He concurred with Cosatu’s submission that Nabera has been selling at a loss in order to underplay the value of Alexkor Ltd. People have also been misinformed about the land value of Alexkor. There is generally a lack of transparency.

He referred to the ostrich farming, one of the non-mining activities undertaken by Alexkor Ltd. He pointed out that there is a big demand for ostrich meat in European countries and surely this could generate revenue on Alexkor’s behalf.

Discussion
Mr Mohlala (ANC) remarked that Udasa’s input was very informative. However he doubted whether the Portfolio Committee was an appropriate platform for the issues raised by Udasa as they have no direct bearing on the Bill before the Committee. Udasa’s presentation was merely an opportunity for this organization to inform the Committee about Udasa and its expertise and how they could assist in the restructuring process of Alexkor Ltd.

Both Mr Nkosi (ANC) and Mr A Van Jaarsveld (NNP) also if Udasa had any comments on the proposed amendment Bill.

Mr Sher replied that it was of no consequence to Udasa whether the Alexkor project was privatized or whether one followed Cosatu’s proposals and stopped privatization and let the mine be developed. However, the two main aspects that contributed to the demise of this mine was lack of transparency and security. This had a direct impact on the profitability of the mine.

The meeting was adjourned.

Appendix
ASCORA (Amalgamated Services for Concerned Residents Association)
Lentswe La Setshaba

ALEXKOR LIMITED AMENDMENT BILL (B29-2001)
As a community based organisation and, members of the civil society we felt obliged that the closure of the Alexkor Limited or rather the diamond mining company cannot be left alone without comments and fair and constructive criticism applied.

We understand the position of the Ministry of Public Enterprise on the matter and, we do sympathise with the government on the matter as disposal and selling is envisaged.

But we feel the Ministry of Public Enterprise and the Government should also understand and sympathise with all those who will be affected by the disposal and selling of shares and, who will become victims of problems of the socio-economic and political intransigence, created the Public Enterprise's position.

Because the Public Enterprise's position is inevitable, we would like the following matter to be considered:

1. ECONOMIC EMPOWERMENT
Because of the unfortunate situation that will prevail, we urge the Ministry concerned on humanitarian grounds to consider providing those who will lose jobs with economic empowerment training and skills and allow them self-development in the different fields they were involved in.

This is imperative as Alexkor Limited and the Public Enterprise would have done a great accountability and responsibility and also it would have ploughed back to those who have made it become what it is today.

It will be a sorry state of affairs for AIexkor Limited to close shop and ignore inputs and requests from all spheres and walks of life.

2. MINISTRY OF FINANCE
Since we are all living in a world of profit making, it would be a very sad day to see our government and the Ministry of Finance going broke because of serious losses experienced at Alexkor.

We concur with the Ministry of Finance because of the inevitability of the position, to sell and/or otherwise dispose of shares in the company but we also urge that when shares are disposed of and sold, people who were involved in the company at labour and managerial levels should be taken into consideration for shareholding. This opportunity must be accorded to them.

Our organisation (ASCORA) supports the Alexkor Limited Amendment Bill to amend the Alexkor Limited Act, 1992 (Act No. 116 of 1992) by the substitution for Section 4(3) of the Act of provisions, enabling the Minister of Public Enterprises to sell Alexkor Limited shares held by the State.

3. ECONOMIC EXCLUSlVISM
From our political perspective and point of view we believe Section 4(3) of the Act, which imposes restrictions on the sale of disposal of shares held by the State, is the work and creation of the architectures of the previous economic and political systems which were based on the exploitation and economic exclusivism and shut out.
A mechanism and way should be found out by the Ministry of Public Enterprise, members of civil society, trade unions, church bodies and political organisations, to encourage the relevant Ministry to remove the stumbling block (Section 4(3) and change AIexkor into a profit making organisation for the benefit and betterment of our developing country and people.

We hope our contribution and input will be suffice enough to the amelioration of our economy and Alexkor.

We hope you will find this in order.
Thanking you.

THEMBA NCALO
SECRETARY GENERAL