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LESOTHO
PRIVATISATION AND PRIVATE SECTOR DEVELOPMENT PROJECT -
ANNUAL REPORT FOR 1997/98
1.1 This report covers
the implementation of the project from 1 April 1997 to 31 March 1998.
1.2 The Work Plan of the Privatisation and Private Sector Development
Project for 1997/98 was drafted by the Privatisation Unit after due
consultations with Line Ministries and Agencies such as the Lesotho
National Development Corporation. Before submission to Cabinet the draft
plan was also considered by the Private Sector Advisory Committee. After
Cabinet approval the draft Work Plan was notified to the World Bank as
provided for in the Project Credit Agreement.
1.3 The implementation of the Work Plan progressed satisfactorily at the
enterprise preparation stages, and tribute has to be paid to the
officials of the Privatisation Unit and its Advisors as well as their
counterparts in the line Ministries for their prompt and thorough
preparations of Privatisation Schemes. The Private Sector Advisory
Committee met five times during the plan period to tender advice on
draft Privatisation Schemes. The Private Sector Advisory Committee also
tendered advice on its representation in Evaluation Teams of bid
proposals for advertised enterprises.
1.4 The major thrust of the privatisation programme took off towards the
end of the 1997 calendar year, a period which also preceded the
elections, when the Government had to contend with the possibility of
severe political criticism from opposition parties for giving away the
“family silver”. The defense of the objectives of the programme,
especially when it came to enterprises which had a history of being
profitable (Lesotho Flour Mills), and those perceived to be profitable
(Loti Brick), posed a major challenge and concern for policy makers.
The highly charged political atmosphere led to several careful redrafts
and readjustments of sale agreements which had in essence followed
approved privatisation schemes and procedures. As a result of these
political sensitivities the completion of the privatisation, in
September 1997, of Lesotho Airways Corporation, which had severely
drained government coffers over a period of five years, was a major
achievement with four other enterprise privatisations long awaiting
approval at about the same time. A likely positive outcome of the
caution is that the final packages were carefully scrutinised before
approval. This can be said in particular about the privatisation of
Lesotho Flour Mills with certain “Golden Share” provisions.
1.5 One of the major developments during the plan period was the
Mid-term Review of the Project, undertaken by a World Bank Mission from
1 to 14 December 1997. The mission recommended to the Government of
Lesotho that the restructuring of Utilities and of the state banking
sector should receive higher priority in the future implementation of
the project. The Review Mission also expressed concern over the
bureaucratic delays encountered in the final stages of the privatisation
process, and recommended possible solutions for consideration by the
Lesotho Government primarily by delegating more responsibility to the
Privatisation Unit, and by utilising the proposed Cabinet Sub-Committee
on Privatisation for some approvals.
2. ENTERPRISE BASED ACTIVITIES
2.1. Lesotho Airways Corporation :
A Privatisation Scheme was prepared by the Privatisation Unit in
consultation with the Ministry of Transport and Communications. The
scheme recommended that majority shareholding in the enterprise be sold
to a strategic investor. Minority shares would be reserved for local
institutional investors and offered to them when the profitability of
the airline stabilises. The scheme was approved by Cabinet in December,
1996. Sale of the airline was advertised in the “Economist”, “Business
Day” and local newspapers in January 1997. The Unit also contacted
several airlines that had expressed an interest in LAC during an
investor search conducted in May, 1996. No bids were received on the due
date of March 15, but one potential investor, Rossair requested an
extension of three weeks to finalise their proposal. Further extension
was granted, placing the deadline at June 2, 1997. . Two bids were
received from South African airline operators, Rossair Group and Bass
Aviation. Both bidders proposed to buy the assets of LAC. Following
evaluation of the two bids Rossair was invited to negotiations held in
July, 1997. Cabinet approved sale on the basis of the negotiated sale
agreement which provides for a 20% shareholding for local investors. The
sale agreement provides for the sale of assets for operation of the
business (aircraft, spares and equipment exclusive of equipment for
servicing aircraft landing etc.). It further excludes assets relating to
landed properties which remain under the ownership of Government. All
the workers of Lesotho Airways were paid terminal benefits.
2.2. Lesotho Flour Mills
The Privatisation Scheme for this enterprise was prepared by the
Privatisation Unit in close consultation with the Ministry of
Agriculture, Co-operatives and Marketing following a major consultancy
on the implications of grain deregulation for the milling industry. The
scheme recommended that 51% of the Government’s shareholding be sold to
a strategic investor, 10% reserved for employees, and the remaining 39%
reserved for future public floatation. Cabinet approved the scheme in
May, 1997. Advertisements for the sale were place in the “ECONOMIST”,
“BUSINESS DAY”, and local newspapers in June, 1997. Three bid proposals
were received from SEABOARD (US); LESOTHO MILLING COMPANY; AND FRASERS/EASTERN
FREE STATE CO-OPERATIVES on August 15, 1997. Following evaluation of the
bids SEABOARD and LESOTHO MILLING COMPANY were shortlisted and invited
to perform due diligence in order to finalise their proposals. The
winning bidder, SEABOARD was invited for negotiations which were held in
October, 1997. Cabinet approved the sale subject to including of the
“Golden Share” provisions to ensure protection of the vital national
interests in the company. The sale was duly approved in March, 1998.
2.3. Basotho Fruit and Vegetable Canners:
The Privatisation Scheme was prepared by the Privatisation Unit in
consultation with the Ministry of Agriculture Co-operatives and
Marketing as well as the LNDC. The scheme recommended direct sale of
majority shareholding to LANGEBERG, who ran the enterprise under a
management contract during the 1996 season. The scheme also recommended
selling the company through open tender in the event that a mutually
satisfactory agreement was not reached with LANGEBERG. Cabinet approved
the scheme in March, 1997. Due to several postponements by LANGEBERG in
submitting their proposal, the Privatisation Unit took a deliberate step
to advertise for sale of the enterprise in the “ECONOMIST” and “BUSINESS
DAY” and local newspapers in April, 1997. The only bid received in June,
1997 was from LANGEBERG, who proposed an amalgamation of the assets of
their Ficksburg plant with those of Basotho Canners (as opposed to
acquiring strategic shareholding). Negotiations were held in October,
1997. Cabinet approval was delayed pending clarification of the
implications of the negotiated outcome, especially in relation to the
production and marketing of asparagus in Lesotho and the entry of canned
products into the European Union market.
2.4. Loti Brick :
Loti Brick was one of the first eight enterprises to be listed for
privatisation in July, 1996. A Privatisation Scheme prepared by the
Privatisation Unit in consultation with the Ministry of Trade and
Industry and the LNDC as the major shareholder recommended the
preservation of the enterprise as a private company, with shares
allocated to the management and staff, local institutional investors and
a strategic technical investor. Thoughout this process all other
shareholders of Loti Brick (Lesotho National Development Bank with 23%,
and Lesotho Energy Enterprises with 4% equity) were kept in the picture.
The scheme was approved by Cabinet and invitations to tender published
in October, 1996. After several re-advertisements the Unit finally
received three non-responsive bids by January 24, 1997. Two of the bids
received were from COV1 and PROMAKARD, both of whom wished to
participate as institutional investors. A third bid from a South African
company based in the North West Province, WEENEN lent itself more to a
proposal for management of the enterpise without purchase of equity. In
the absence of any further proposals the evaluation committee
recommended in September, 1997 that the option of a perfomance-based
management contract be pursued with Weenen. Negotiations were held with
representatives of WEENEN in Maseru on October, 1997. -A draft contract
has been drafted and sent to WEENEN for their comments in January, 1998.
In the meantime KFW (Germany) have reiterated that privatisation of Loti
Brick was a condition for their 1990 loan which financed the procurement
of a kiln.
2.5. Maloti Oil :
Maloti Oil is a Lesotho National Development Corporation which was
listed for privatisation in November, 1996. The shareholders in the
copany are LNDC with 65% , and the Lesotho Agricultural Bank with 35%
equity respectively. The company was shut down due to poor perfomance in
July, 1996. The Privatisation Scheme for Maloti Oil was prepared by the
Privatisation Unit in consultation with the Ministry of Agriculture,
Co-operatives and Marketing as well as the LNDC. The proposed ownership
structure was a 70% stake for a strategic investor with 30% of the
shares reserved for employees and Basotho investors. No bids were
received in response to advertisements placed in both Lesotho and South
African newspapers in October 9, 1997. The search for a strategic
investor is being pursued afresh in conjunction with the Investment
Promotion Centre of the Lesotho National Development Corporation, LNDC.
2.6. Lesotho Pharmaceutical Corporation
Privatisation Scheme was prepared by the Privatisation Unit in
consultation with the Ministry of Health and Social Welfare and the LNDC.
The Scheme recommended sale of majority shareholding to a strategic
investor with minority shares offered to institutional investors and
some shares reserved for employees. The scheme was approved by Cabinet
in August, 1997. The sale was advertised in “CHEMISTRY AND INDUSTRY”,
“BUSINESS DAY”, and local newspapers in September, 1997. Two potential
institutional investors, TRIPHARM (LESOTHO) and TIME CONTROLLING
INVESTMENTS (SA) submitted proposals by the deadline of February 2,1998.
Both proposals were conditional on identification of a suitable
strategic investor. The search for a strategic partner continues, with
the due date for submission of proposals set at April 14, 1998.
2.7. Maluti Highlands Abattoir (Lesotho National Abattoir and Feedlot
Complex)
The Privatisation Scheme of this enterprise is in the course of
preparation by Privatisation Unit in consultation with the Ministry of
Agriculture Co-operatives and Marketing. An Investor search has
commenced early to identify possible levels of interest. In the meantime
the management contract by AACM International has been extended by six
months from February 1, 1998.
2.8. Marakabei Lodge
A Privatisation Scheme was prepared by the Privatisation Unit in
consultation with the Ministry of Tourism and Sports and was approved by
Cabinet in May 1997. Advertisements were placed in local and
international newspapers inviting prospective bidders to participate in
the privatisation. Despite numerous prior expressions of interest, only
two bids were submitted by the closing date of 18 July 1997. Both of
these were found to be unresponsive to the bidding guidelines and so the
process was repeated for a second time. The only bid received was again
found to be inadequate. The Evaluation Team advised that the lodge be
re-advertised on the basis of leasing the premises. Two bids were
received by the closing date of 21 November, 1997, one of which was
found to be responsive. Negotiations around a three year sub-lease
agreement have been completed and Cabinet approval is now awaited.
2.9. Quthing Lodge
A Privatisation Scheme was prepared by the Privatisation Unit in
consultation with the Ministry of Tourism and Sports. The scheme
recommended sale of the enterprise to a local investor. Cabinet approved
the proposal in June, 1997. Sale of the lodge was advertised in local
newspapers in July, 1997. No bid was received by the deadline in August,
1997. The Unit subsequently sent letters to a number of South African
and local tourism establishment and tour operators inviting them to
submit bids to purchase or lease the lodge. One bid to purchase was
received from a local businessman in January, 1998. Negotiations with
the prospective buyer are pending.
2.10. International Freight and Travel Services (IFTS)
The privatisation of this enterprise was handled as a fast track
transaction on the advice of the Private Sector Advisory Committee. For
purposes of inviting and evaluating bids the enterprise was divided into
its three lines of business, Travel Services, Car Rental and Freight. An
advertisement inviting bids from private investors was placed in local
and international newspapers in April, 1997. The Freight division
attracted no interest at all. As it had not been functional for the
previous few years, the evaluation committee recommended winding up the
business. The Travel division received one bid at the first round, but
that was found to be unresponsive to the criteria laid out in the
bidding guidelines. On the second round the bid received was again found
unresponsive. The future of the business now lies in the hands of
Lesotho Bank who are 100% shareholders in the company. The Car Rental
division, which holds the franchise to trade as Avis in Lesotho did not
attract any bidders. However, AVIS (Southern Africa) had indicated their
interest in the business in 1996 and so were invited to submit a
proposal. Negotiations with AVIS (Southern Africa) were undertaken for
them to buy the business with 20 per cent shareholding reserved for
Basotho participation. Employees of AVIS (Lesotho) have all been paid
terminal benefits by Lesotho Bank, with AVIS (Southern Africa) offering
employment on new contracts to four of them. Heads of agreement for the
sale are due to be completed, with effective takeover on April 1, 1998.
3. PUBLIC AWARENESS
The project continued to place great emphasis on the public awareness
campaign utilising various approaches. it was clear that the level of
understanding of privatisation issues was still below expectation.
3.1 Radio:
The Information Unit participated in talk shows on Radio Lesotho.
Periodic Press releases were issued on major developments relating to
privatisation for broadcast on Radio Lesotho.
3.2 Newsletter:
Two issues of the Privatisation Unit Newsletter Seli-la-Moruo in English
and Sesotho were produced and circulated throughout the ten districts.
3.3 Feature Articles:
The Information Unit produced articles for publication in local
newspapers.
3.4 Participation In Workshops:
The Director took part as a lead panellist in various seminars on
privatisation during the year, including a Department of Economics
seminar at NUL, Association of Lesotho Accountants Seminar on
Privatisation in Maseru; Lesotho Institute of Public Administrators and
Management seminar in Maseru.
3.5 Enterprise Briefings:
The Legal Officer and the Information Officer periodically briefed
employees of enterprises at various stages of the privatisation process
on possible implications for their jobs. Enterprises visited include the
Lesotho Airways Corporation, Lesotho Pharmaceutical Corporation, IFTS
and the Lesotho Electricity Corporation.
4. ENTREPRENEURSHIP TRAINING PROGRAMME
4.1 A major development during the year was the first phase of the
institutionalisation of ETP within the Basotho Enterprises Development
Corporation, BEDCO. After initial Training of Trainers activities, the
ETP undertook formal needs assessment and training initiatives beginning
with the informal Sector pilot training at Masianokeng. This was
followed by two formal courses for small business entrepreneurs. The ETP
also embarked on district courses beginning in Leribe and continuing in
Mohale’s Hoek and Mafeteng. The objective of ETP is to link business
training with the opportunities offered within the Privatisation and
Private Sector Development Project.
4.2 Employee Counselling
The first involvement in staff counselling was with employees of Lesotho
Airways Corporation, but because of late intervention it was not very
successful. The Entrepreneurship Training Programme Team has paid visits
to Lesotho Flour Mills and Lesotho Pharmaceutical Corporation, and these
early interventions may yield more promising results in terms of
utilisation of the services offered by the Etrepreneurship Training
Programme.
5. LESOTHO CHAMBER OF COMMERCE AND INDUSTRY (LCCI)
The Capacity building of the Lesotho Chamber of Commerce and Industry
under the project continued with close collaboration between the project
and the new management of LCCI. The new management seemed to be
achieving some success in raising the profile of the LCCI and in
attracting new members as well as reviving expired memberships. The new
management has also attempted to crystallise the focus of LCCI’s
activities.
6. BUSINESS ADVISORY AND PROMOTION SERVICES (BAPS)
This components of the project did not perform as expected and project
funds were not drawn down pending clarification of the future
orientation of the programme.
7. PRIVATE SECTOR ADVISORY COMMITTEE
The Private Sector Advisory Committee met five times to consider draft
Privatisation Schemes as well as to advise the Privatisation Unit on
other aspects of project implementation. Some members of the Committee
participated actively as members of bid evaluation Teams. Members
requested a capacity building programme with study visits and workshops
to improve their effectiveness.
8. IMPLEMENTATION FUND
The constitution and establishment of the Implementation Fund Committee
was delayed by an unfortunate communication breakdown between the
Privatisation Unit and the World Bank. It has since been agreed that
part of the Implementation Fund will be used to initiate an Investment
Fund to warehouse shares reserved for local participation in privatised
enterprises.
9. CREATION OF ENABLING LEGAL ENVIRONMENT
9.1 Establishment of Commercial Court
As part of the creation of a favourable investment climate, negotiations
were held with the Chief Justice to assign one of the High Court Judges
to commercial cases. Appropriate training for support staff is being
arranged between the Privatisation Unit and the Ministry of Justice.
9.2 Support to Law Reform Commission
The project entered into discussions with the Law Reform Commission with
regard to the utilisation of resources earmarked in the project for the
removal of discriminatory legislation against women. The Unit is
awaiting submission of a detailed workplan before any funds can be
disbursed.
10. CAPITAL MARKETS DEVELOPMENT
An area of major concern which has been addressed in the past year is
the development of Capital Markets, and of appropriate empowerment
measures to provide for public participation. The pending promulgation
of the Capital Market Regulations by the Minister of Finance will be a
significant step in this regard. These Regulations will provide a formal
framework under which capital market development can be effectively
pursued and controlled.
One intiative which progressed throughout the year is the establishment
of a holding company. This project is designed to develop the capital
market, and also to effect the privatisation of certain companies whose
shares are held by the LNDC. Initially shares in three companies will be
transferred to the holding company, however, in the future, the company
will make other investments. These could consist of other shares
currently owned by LNDC such as the Brewery and Maseru Sun Cabanas as
well as other companies with high growth potential. It is envisaged that
a portfolio manager will be appointed to ensure that the company is
competently managed and the investments yield maximum returns for the
shareholders.
A second concept which has been developed throughout the year is the
establishment of a Trust Fund to warehouse the shares of newly
privatised enterprises which are retained by Government for future
public ownership. Given the current level of development of the Capital
Market in Lesotho, it is often not possible to divest shareholdings to
the public at the time of privatisation. The Trust Fund will hold shares
until the infrastructure necessary for divestiture is present and
interest groups have had sufficient time to organise themselves and
raise the required capital. The Fund will provide firm evidence of
Government’s commitment to increasing Basotho participation in the
privatisation process.
11. TRAINING
11.1 Study Visit to Zambian Privatisation Agency.
The Privatisation Unit arranged the second study visit of officials of
the P.U and the Law Office to the Zambian Privatisation Agency in
Lusaka. The four participants gained valuably from the experience of
Zambia, where the privatisaiton law has been amended to effect speedy
implementation of the privatisation programme. The group also visited
enterprises whose financial perfomance has turned around as a result of
privatisation, the Privatisation Trust Fund and the Lusaka Stock
Exchange.
11.2 Privatisation Unit Capacity Building Workshop
The Privatisation Unit held a one-day capacity building workshop for the
staff of the Unit facilitated by the Team Leader of the Deloitte Touche
Group to reflect on the lessons of implementing the project since its
inception. It was noted that the activities of the Unit should be
designed in such a way that they address some obvious manifestations of
resistance to the privatisation programme.
11.3 Workshop for Personal Secretaries.
The Privatisation Unit arranged a facilitative workshop for Personal
Secretaries in various key offices for briefing about privatisation
procedures and key issues in project implementation.
11.4 Mr. Valentine Chitalu, Chief Executive of the Zambia Privatisation
Agency visited Lesotho on a project-sponsored consultative and training
mission from March 15 - 17, 1998. While here he conducted training
sessions for Privatisation Unit staff, the Capital Markets Steering
Committee, and some members of the Private Sector Advisory Committee.
Mr. Chitalu also met the Government Secretary and some Principal
Secretaries, and shared his experiences with privatisation in Zambia. He
also paid a call on the Acting Minister of Finance and Economic
Planning, the Honourable Lira Motete during his visit. The new Team
Leader of the Enterpreneurship Training Programme, Mr. Thabiso Moletsane
was also sponsored on a study visit to the Small Business Development
and Training Centre at Pima Community College in Tucson, Arizona.
11.5 Sponsorships
The Project Training Fund sponsored the attendance of the following key
officials involved with privatisation activities, training institutions
and the private sector:
OFFICER ORGANISATION (MINISTRY) TRAINING PROGRAMME
1. Mr. L.H. Sekonyela TRANSCOMM. Workshop on Strategic Partnership for
Telecommunication Development in Sub- Saharan Africa - Harare, April 22
- 24, 1997.
OFFICER ORGANISATION (MINISTRY) TRAINING PROGRAMME
2. Mrs. M Mokorosi Lesotho Manufacturers’ First Southern African
Association.. International Dialogue on
Smart Partnership, Kasane, Botswana, May 4 - 8, `1997.
3. Miss M. Selialia I.P.C., LNDC. International Programme on
Privatisation and Regulatory Reform, Harvard, U.S.A. June 30 - July 25,
1997.
4. Mr. P. Marabe LIPAM Workshop on Privatisation, Dublin, Ireland, Nov
24 - Dec. 3, 1997.
5. Mr. S. Rapapa LNDC Workshops in Mauritius
Mr. L. Khaka CBL on “Clearing, Settlement and Central Depository”
February 11 - 12, 1998; and on “Harmonisation of Listing Requirements
within SADC” February 13, 1998.
12. CONFERENCES
During the course of the year the Director and Privatisation Unit staff
members took part in various conferences dealing with themes related to
privatisation and private sector development as a way of deepening their
understanding as well as contributing to the pool of experience.
Among the conferences and workshops attended by the Director, Mr.
Mashologu, may be mentioned the Regional Ministerial Seminar on Good
Governance for Private Sector Development and Investment held in Entebbe
Uganda in March 1997; the First Southern African International Dialogue
on Smart Partnership in Kasane, Botswana from May 4 - 8, 1997; the
Commonwealth Business Forum in London, October 1997; and the Emerging
Markets Forum, Edinburgh, October 1997. The Director also formed part of
an investment mission to the Far East led by the Deputy Prime Minister,
Mr. Pakalitha Mosisili in September, 1997. The Project Co-ordinator, Ms.
S. Mphale attended a UNIDO-sponsored workshop on “Privatisation through
Broad-based Ownership Schemes” in Lusaka from October 27 - 29, 1997. The
Legal Officer, Ms. N. Motjolopane and the Economist Miss J. Barugh
attended workshops in Mauritius on “Clearing, Settlement and Central
Depository” from February 11 - 12, 1998; and on “Harmonisation of
Listing Requirements within SADC” on February 13, 1998. The Unit also
sponsored two private sector participants at the “Tourism Investment
Conference” from January 23 - 24, 1998. Valuable experience was gained
by those who participated in these conferences. Participation will be
extended to associates of the project such as members of the Private
Sector Advisory Committee in future.
13. VISITORS
Good working relations were maintained with the Diplomatic Corps in
Maseru, and the Unit received visits from the British High Commission
and the United States Embassy. The Privatisation Unit benefited greatly
from interactions with various visitors to the Unit including regular
Consultative missions of the International Monetary Fund and the World
Bank as well as representatives of donor missions from the European
Union, the Department for International Development, United States
Agency for International Development, United Nations Development
Programme, United Nations Industrial Development Organisations. The Unit
also received many visitors from many local and expatriate consultants
working on various assignments in the public and private sectors in
Lesotho who also enriched and deepened the perceptions of the staff of
the Unit.
14. VISION
The privatisation of larger enterprises with implications for the
national welfare was handled with understandable caution by the
authorities whose approval is by law necessary before the sales could be
concluded. It is apparent that in many sensitive instances the
Privatisation Unit will have to reassure Cabinet about the wisdom of
implementing the privatisation policy through more intensive briefing,
and by including, in the sale agreements, mechanisms which will allay
Government's concerns by providing for a measure of discreet influence
in the privatised enterprises. The "Golden Share" provisions, including
development plans that can be easily monitored, as well as the
establishment of Government's regulatory capability are some such
mechanisms. At the end of the second year of the project the Unit's
handling and success over such hurdles creates precedence for a faster
and more effective implementation and delivery in the second half of
1998, and into the future of the programme.
Privatisation Unit
March, 1998.
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