Fresh doubts over Komatiland forestry deal

Minutes of the board meeting of the South African Forestry Company Ltd (Safcol) that awarded Zama Resources a deal to buy a 75% share in Safcol’s Komatiland plantations have raised new doubts about the transaction.

The R335-million bid has already been placed in jeopardy by the disclosure in the Sunday Times two weeks ago that Mcebisi Mlonzi, Zama’s CEO, had allegedly arranged to pay R55 000 into the bank account of Andile Nkuhlu, chief director of the Department of Public Enterprises.

Nkuhlu chaired the bid evaluation committee that recommended Zama ahead of its main rival, Calcutta-based Paharpur Cooling Towers.

But minutes obtained by the Mail & Guardian show that the bid evaluation committee and Safcol had decided to overlook irregularities in making the award to Zama.

The minutes also suggest that Zama was dominated by business associates of government officials, despite its claims to represent black small-scale sawmillers and foresters.

The minutes reveal two board members—chairperson David Gevisser and then CEO Fanie van Vuuren—had to recuse themselves after it emerged they had been approached with offers of employment with what is described as Zama’s holding company.

Nkuhlu allayed the board’s concerns by claiming both bidders had been told they could approach Safcol employees and by saying that Paharpur had also approached employees. It is understood Paharpur may contest this claim and that it has launched an action in the Pretoria High Court to have Zama’s selection set aside.

The minutes show neither Zama nor Paharpur had provided acceptable bank guarantees to fund the purchase of the 75% stake in Komatiland. Both were evaluated on the basis of an alternative financing structure, which apparently did not form part of the original tender requirements.

The alternative involved offering the full 100% of Komatiland’s assets as security for funding.

Lael Bethlehem, an evaluation committee member representing the Department of Water Affairs and Forestry, said other bidders had not been offered the opportunity to make similar alternative bids based on asset finance rather than the purchase of shares. She warned that Yorkcor could challenge the award on this basis.

According to the minutes, Nkuhlu stepped in to reiterate that “the objective of the transaction was not to sell shares”.

The minutes reveal that the evaluation of the two bids was extremely close, with Paharpur emerging as marginally better in terms of its proposals on downstream processing, which would add value to the timber, and Zama being judged as marginally better on its ability to empower previously disadvantaged communities.

Just who would be empowered by Zama is, however, called into question by a final point raised about one of Zama’s shareholders, a company called Ubambo. The minutes reveal that Ubambo owes Safcol money and that Zama would have to make good this debt before the transaction could be approved because it was state policy that “government debtors cannot benefit from government”.

Ubambo appears to be part of the Ubambo Investment group led by Zwelakhe Mankazana, who led the controversial bid by Cell C for the third cell licence.

Ubambo is a new member of the long list of Zama shareholders with African National Congress or government connections that was revealed by the Sunday Times.

They include the former ANC chief whip Tony Yengeni, through a family trust; Kagiso Chikane, the wife of director in the office of the president Frank Chikane, through a company called Ikamva; the deputy director general of water affairs and forestry, who declared his interest, and Lembede Investments, which is linked to the ANC Youth League.

In Zama’s previous incarnation as the African Forestry Empowerment Consortium, much of the drive behind its establishment came from Wiseman Nkuhlu, now President Thabo Mbeki’s chief economic adviser. Nkuhlu is the uncle of Andile Nkuhlu and is also reported to be the godfather of Zama’s CEO Mcebisi Mlonzi.

Nkuhlu and Mlonzi have been suspended while the Department of Public Enterprises and Zama conduct internal investigations and the company’s bid hangs in the balance.

Zama has called in its financial advisers, PriceWaterhouseCoopers’ to investigate the payment to Nkuhlu. It is understood that a crisis board meeting was to be held on Friday.

The Department of Public Enterprises has asked the Public Service Commission to investigate the payments to Nkuhlu and has asked the Auditor General’s office to audit the bid-evaluation process.

It is understood that though the government is opposing Paharpur’s court application to set aside the Zama award, the Indian company has been given an assurance that the final deal with Zama will not be signed until the results of the investigations are known.

The Zama imbroglio represents a crucial test of the government’s privatisation policy, something that Sivi Gounden, director general of the Department of Public Enterprises, has explicitly recognised.

“We are playing a central role in the restructuring of state assets for the long-term benefit of all citizens,” Gounden said this week. “The entire process could be placed at risk if an impression is formed that we would accept anything less than total integrity made visible in a transparent and open process.”

His department has refused to answer detailed questions about the selection of Zama, saying it will await the outcome of the investigations.

The stakes are high.

“A lot turns for the industry on who controls this very valuable resource,” says one player, who wished to remain anonymous.

Aside from Paharpur, those with key interests in who controls the Komatiland resources include Steinhoff, the furniture manufacturers. The Komatiland assets include about 60% of the furniture-quality plantations in the country.

Solly Tucker’s Yorkcor is also considered to be at risk. Yorkcor has few of its own plantations and is still fighting the Department of Water Affairs and Forestry in court to retain some of its evergreen supply contracts in Mpumalanga.

Global Forest Products, a joint venture with the paper giant Mondi, has also made promises of about R5-billion in exports. It does own plantations, but is considered dependent on input from Komatiland. The exports are crucial to helping BAe Systems realise its arms deal offset obligations. BAe has also invested in a Global Forest sawmill.

Crucial questions remain about who has been funding Zama.

Absa Bank was this week keen to put some distance between itself and the deal. The bank refused to discuss its relationship with Zama other than to issue the following statement: “Absa Corporate & Merchant Bank has approved funding for the privatisation of Safcol-owned Komatiland Forest Pty Ltd subject to the fulfilment of certain terms and conditions. Absa Corporate & Merchant Bank has no exposure to Zama Resources Corporation Ltd.”

Danie van der Merwe, managing director of Steinhoff Africa, denied rumours that Steinhoff had provided a R30-million loan guarantee to Absa on behalf of Zama, though he says a guarantee was discussed.

Van der Merwe said Steinhoff was negotiating to take Zama on as its empowerment partner in a bid for Safcol plantations in the Western Cape. The two parties had also discussed the lease or management of two mills that form part of the Komatiland assets.

All this was is now on hold, he said, pending the outcome of the investigations into Zama.

Repeated attempts to contact Mlungisi Kwini, Zama’s acting CEO, were unsuccessful.

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