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LESOTHO PRIVATISATION AND PRIVATE SECTOR DEVELOPMENT PROJECT
(WORLD BANK
CREDIT 2612)
ANNUAL REPORT FOR THE PERIOD 1 APRIL 1998 TO 31 MARCH 1999
This report has been prepared by the Privatisation Unit to comply with
the provisions of the Privatisation Act No. 9 of 1995, and covers the
period 1 April 1998 to 31 March 1999. The implementation of the planned
activities of the Lesotho Privatisation and Private Sector Development
Project in the 1998/99 year was affected significantly by the
understandable national pre-occupation with the General Elections in May
1998 and their immediate aftermath as well as the later civil
disruptions of August and September 1998. By 31 March 1999 most planned
activities were approximately four months behind the original schedule
in the approved Work Plan. Despite the dislocations there was still
considerable progress with Government taking key decisions in
restructuring some sectors of the economy. The highlight of the year was
the privatisation of Lesotho Flour Mills, the largest transaction of the
project so far.
2. Work Plan for 1998/99:
The Project management prepared the draft Work Plan for 1998/99 of the
project in consultation with Line Ministries of the Lesotho Government
for consideration by the Private Sector Advisory Committee. The
Committee recommended its approval by Cabinet subject to minor
clarifications and modifications relating in particular to concerns
about strengthening the Public Awareness activities of the Project, and
further efforts to stimulate Basotho participation in the privatisation
programme. The Committee held the view that inadequacies in the
dissemination of programme information in understandable forms were a
major constraint to Basotho participation in the privatisation programme.
Secondly, some of the Lesotho Private Sector representatives in the
Committee expressed concern that the time usually allowed between
advertisement and closing of bids was often insufficient for local
interest groups to mobilise resources. After Cabinet approval of the
1998/99 Work Plan on 18 May 1998 the World Bank was notified as required
by the Project Credit Agreement. The major thrust of the Work Plan was
directed at the privatisation and restructuring of Lesotho Agricultural
Development Bank and Lesotho Bank, and the preparations for the
privatisation of Lesotho Telecommunications Corporation. The other major
utilities of Water and Electricity were included in the Work Plan for
attention. The Work Plan also directed attention at the outstanding
enterprise privatisations from the 1997/98 programme including in
particular Lesotho Flour Mills, Loti Brick, the Plant and Vehicle Pool
Services, the Maluti Highlands Abattoir, and Lesotho Pharmaceutical
Corporation.
3 Enterprise related Activities:
3.1 Government sold its controlling interest (51%) in Lesotho Flour
Mills to Seaboard Corporation, a US grain and milling concern for a sum
of US $ 5,100,000 payable in cash (12 May 1998). The Government retained
a 49% interest for eventual disposal among employees and the Basotho
public.
3.2 The assets of the Car Rental Division of International Freight and
Travel Services (Pty) Ltd (IFTS) were sold to Avis Southern Africa Ltd
following Government approval of the transaction (30 April 1998). The
Sale Agreement provided for purchase of up to 20% of the shareholding by
Basotho in a new company to be registered in Lesotho.
3.3 A management contract for Loti Brick (Proprietary) Limited with
Weneen Bpk. of South Africa went into effect (8 February 1999). Weneen
Bpk was soon thereafter placed under provisional liquidation in South
Africa, and the management contract was revoked. Plans were made by
agreement between the Privatisation Unit and the Lesotho National
Development Corporation for an interim management of the company while
it was readvertised.
3.4 The assets of Plant and Vehicle Pool Services (Government Garage)
PVPS were offered for sale to Imperial Fleet Services under Heads of
Agreement negotiated in March 1999. The other bidders of Plant and
Vehicle Pool Services were Pelma/Roadcorp and Leliehoek. No Lesotho bids
were received in spite of a concerted effort to attract local investors.
3.5 Marakabei Lodge was sub-leased for 3 years to MCM Enterprises.
Annual rental for the lodge was set at M 36,000 (30 April 1998)
3.6 Basotho Fruit and Vegetable Canners (BFVC)
The 24-month search for a strategic investor for BFVC which commenced in
January 1997 has generated only one bid - from Langeberg. Langeberg
submitted a counter-proposal the essence of which was the amalgamation
of the assets of their Ficksburg asparagus factory with the BFVC plant
at Masianokeng to form a new company. Cabinet approved the deal on March
24, 1998. Subsequently, at the stage of finalising the contract,
Langeberg called for the Ministry of Agriculture to provide certain
inputs to support the asparagus farmers. As the Ministry was unable to
provide some of the required inputs, negotiations with Langeberg have
fallen through.
It was therefore necessary for the Privatisation Unit to resume the
search for a strategic investor for BFVC. Entities that had earlier
expressed an interest in the company but had not bid (including the
Seaboard Corporation) were approached again. Former European clients of
BFVC were also contacted. None of these, however, were interested in
pursuing this business opportunity, mainly due to what they perceived to
be a very low tonnage of asparagus available for processing in the
country.
In early March 1999 the Privatisation Unit met with Setla-Bocha, the
Committee of Lesotho asparagus farmers, to enquire whether the farmers
would consider the possibility of taking over the ownership and
operation of BFVC. The Committee felt that this would not be feasible
due to lack of financial resources as well as technical expertise to run
the factory.
A meeting between the Ministry of Agriculture, the Lesotho National
Development Corporation and the Privatisation Unit to review jointly the
prospects of BFVC, which appear to be severely limited under the current
circumstances, is pending.
3.7 International Freight and Travel Services (IFTS)
For the purposes of the privatisation programme, this enterprise was
broken down into its three main components namely: Travel Services
(American Express), Car Rental Services(Avis) and Freight Services.
Following privatisation of its Car Rental Services Division, the rest of
the Company was put into liquidation by Lesotho Bank 100% shareholders
in International Freight and Travel Services.
3.8 Lesotho Airways Corporation (LAC)
Approval by the Cabinet for privatisation was obtained in December
1996.The operational assets of the Company were sold to Rossair Group (a
South African charter operator) as of 31 July 1997. Rossair also agreed
to allow a 20% shareholding to Basotho investors at a later date. The
new owners operated the enterprise under the name Air Lesotho (Pty) Ltd.
One day after signing the privatisation contract on 1 August 1997
Airlink, a subsidiary of South African Airways, commenced its operations
on the Maseru-Johannesburg route. The resulting competition proved too
strong for Air Lesotho. The company’s operations ceased on 6 February
1999. Cabinet approved winding up of LAC in December 1996. The status of
LAC’s Debtors and Creditors as at 31 July 1997 was finally determined in
September 1998. The Privatisation Unit is in the final stages of
engaging a liquidator for LAC.
3.9 Lesotho Pharmaceutical Corporation (LPC)
Sale of LPC was advertised extensively in September 1997 inviting bids
from potential strategic and institutional investors by closing date of
7 January 1998 (subsequently extended to 2 February 1998). On the
closing date, two proposals from institutional investors wishing to
acquire a minority shareholding in LPC were received. No bids were
received from potential technical partners. Since no strategic investor
emerged through the first round of bidding, it was decided that the
Privatisation Unit should continue its search for such investors.
Subsequently, second and third rounds of bidding were conducted (with
closing dates for bids on 14 April 1998 and 20 November 1998
respectively), however they did not generate any bids. A proposal to buy
majority shareholding was finally expected from a potential strategic
investor in April, 1999. An option of a lease with subsequent purchase
by management was being pursued simultaneously.
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3.10 Lesotho Telecommunications Corporation (LTC)
Preliminary measures for bringing about the privatisation of Lesotho
Telecommunications Corporation were considered and reported in the Work
Plan for 1997-98. Specifically these included: development of a sectoral
legal and regulatory framework and engagement of a financial work-out
specialist to stabilise Lesotho Telecommunications Corporation’s
operational and financial condition. In pursuance of the institutional
part of these plans, a Financial Work Out Specialist and a Marketing
Analyst & Divestiture Strategy Specialist were commissioned. A
short-term turnaround plan was developed that included debt
restructuring as well as a reconfiguration of personnel. A privatisation
strategy was also recommended following investigation into the market
situation by a diagnostic study of the corporation. This research and
the recommendations will be used to draw up a Privatisation Scheme for
Lesotho Telecommunications Corporation for presentation before Cabinet
in August 1999. Plans were laid to engage a Divestiture Advisor to
implement the privatisation transaction. There was also progress on the
legal and regulatory aspect of the sectoral restructuring with the
drafting of new legislation to set up an independent regulator.
3.11 Maluti Highlands Abattoir (MHA) (wholly-owned Government asset)
Privatisation of the Abattoir became a Government priority in January
1998.A Privatisation Scheme was initially submitted to Cabinet on 20
April 1998. After clarifications, the Scheme was approved by Cabinet on
14 July 1998.The Scheme called for the enterprise to be sold in its
entirety as a going concern. Despite intensive advertising and local
lobbying the Privatisation Unit received no expressions of interest. The
divestiture of the enterprise was obviously complicated by its record of
poor financial performance; unresolved questions of land title; its
association with the Government’s Feedlot property, and lack of a clear
legal personality being a body which was set up by simple legal notice.
Consideration was given to a management/employee buy-out in association
with local butchers, but this approach did not yield an immediate bid.
Privatisation Unit interviewed about 60 butchers, most of whom expressed
in taking over jointly the Maluti Highlands Abattoir but the
Privatisation Unit did not receive any bids.
3.12 Maluti Oil & Cake Mills (Proprietary) Limited
The company has not operated since February 1996. On 10 June 1997
Cabinet approved the Privatisation Scheme for Maluti Oil under which its
assets were to be sold by private competitive tender. No bids were
received despite the marketing efforts of the Privatisation Unit and the
Investment Promotion Centre (IPC) of Lesotho National Development
Corporation to attract potential investors. The enterprise was further
advertised twice, the second deadline for bids being fixed at 16 April
1998.
3.13 Orange River Lodge (Quthing Lodge)
The sale of Orange River Lodge was gazetted in August 1996. The relevant
privatisation scheme was prepared and submitted in October 1996 and
approved by Cabinet in June 1997. The lodge was advertised for sale in
July of the same year as result of which there was one Mosotho bidder in
January 1998. The bidder was approved and given three months to raise
required financing.
3.14 Water and Sewage Authority (WASA) and Urban Sanitation Improvement
Team (USIT) Project
WASA entered the privatisation process through a recognised need to
out-source its non-core services in July 1997. The relevant feasibility
study for WASA non-core services and USIT pit emptying was set in motion
by the Privatisation Unit and completed in April 1998. The WASA study
found that 6 services were suitable for out-sourcing. Of these two,
namely Tanker Services and Workshops were selected by WASA for a pilot
out-sourcing scheme. However planned implementation was disrupted
because of the civil disturbances in September 1998. The next feasible
period for implementation to assist the Ministries of Natural Resources
and Local Government accordingly was set as March-June 1999.
3.15 Small Agricultural Enterprises and Funds
A Memorandum of Understanding was developed by the Privatisation Unit
and the Ministry of Agriculture (MOA) under which implementation of
divestiture of several small agricultural enterprises and services was
delegated by the Privatisation Unit to the Ministry of Agriculture.
Recruitment of an Advisor to assist the Ministry of Agriculture with the
privatisations was set in motion in February 1999.
3.16 Reform/Restructuring of Water and Energy Sectors
A Project Preparation Facility (PPF) was approved by the World Bank to
fund preparatory work on restructuring the water and energy sectors
through development of a legal and regulatory framework and a mode of
securing private sector participation in the restructured sectors.
(a) Electricity. In accordance with its on-going Work Plan the Power
Sector Policy Committee (PSPC) prepared a Policy Paper covering the
establishment of an Inter-Agency Steering Committee and Examination of
Sector Vision and Privatisation Options. The Privatisation Unit began a
search for an independent professional consultant to develop the legal
and regulatory framework. The idea of hiring a Sales Advisor for the
eventual privatisation transaction was postponed until a later date
while the question of a short-term management contract was also left in
abeyance.
(b) Water. No Inter-Agency Steering Committee was set up for the Sector
and the idea of a Management Contractor for WASA, as proposed by the
Adam Smith Consultancy, was deferred. The search for an independent
professional consultant to develop the legal and regulatory framework
began. Implementation of out-sourcing of Non-Core Services of WASA was
kept under active consideration.
3.17 Banking Sector. The severely distressed Lesotho Agricultural
Development Bank was closed on 2 September 1998 to stop further
financial losses. Depositors with less than M2000 in their accounts were
paid their balances. Accounts above M2000 were transferred to Lesotho
Bank. Staff were granted retrenchment packages. Plans were set in motion
for liquidation of the Bank. The Conservatorship of Lesotho Bank
continued with a contract extension until 31 March 1999. Meanwhile
negotiations with a strategic investor were launched. The proposal to
hire a Bank Disinvestment Adviser was abandoned.
3.18 Lesotho National Convention Center:
The Cabinet directed the Privatisaiton Unit to undertake a search for a
manager and operator of the National Convention Center. A draft
management scheme was prepared on the basis of which advertisements were
issued inviting bids from interested parties. Unfortunately the one bid
which was received from a Lesotho Group in association with a South
African company was found to be unresponsive by the evaluation team.
Other efforts to find an operator of the Center have continued.
4 Private Sector Advisory Committee (PSAC):
The Private Sector Advisory Committee met four times during the year and
besides critical appraisal of the draft Work Plan for 1998/99, the
Committee played an active and detailed monitoring role in the
implementation of the programme. Individual members of the Committee in
turn took part as members of various evaluation teams in assessing
various bid proposals for enterprises during the year. Two members of
the Committee took part in a study tour sponsored by the project to the
Zambia Privatisation Agency (ZPA). On their return they submitted a
highly enlightening report containing their observations and
recommendations based on the experiences of privatisation in Zambia.
They seemed to be particularly impressed by the high intensity and
effectiveness of the public awareness initiatives of the Zambia
Privatisation Agency and the positive responses of the Zambian employee
buy-out schemes in small businesses.
5. Public Awareness Campaign:
As a result of the criticisms in regard to the dissemination of
information to the public on the Privatisation programme, as well as
allegations of lack of transparency, the Privatisation Unit commissioned
the Adam Smith Institute (ASI) to review the performance of the
project’s public awareness efforts and to make recommendations for their
enhancement. ASI’s findings were that the project’s public awareness
efforts were carried out reasonably well; however, they recommended the
use of more frequent press releases and interviews to strengthen the
efforts. Additionally they recommended more frequent briefings of
selected target groups. During the last quarter of 1998/99, the
Privatisation Unit attempted to implement some of the recommendations of
ASI.
6. Entrepreneurship Training Programme:
The Entrepreneurship Training Programme continued with its efforts to
contribute to Private Sector development through short needs based
courses for Basotho entrepreneurs and retrenched employees. In
accordance with the Terms of Reference of this component, the programme
attempted to provide financial counselling and entrepreneurship training
for staff of the Lesotho Flour Mills prior to the take-over of the
enterprise by Seaboard Corporation with significant staff retrenchments.
International Development Ireland continued with its contracted
activities for training a pool of trainers from all Entrepreneurship
training institutes in Lesotho under the auspices of the project.
International Development Ireland also undertook a mid-term review of
the performance of the Entrepreneurship Training Programme. In general
it can be said that despite the positive evaluation by International
Development Ireland, there was a feeling that the role and services of
the Entrepreneurship Training Programme had not been sufficiently
publicised. Furthermore there was concern about the focus of the
programme with some interested observers stressing that the programme
should focus more on stimulation of entrepreneurial skills than on
straight-forward management training. Towards the end of the year there
was a beginning of an intensified discussion with the leadership of the
Entrepreneurship Training Programme about the possible re-orientation of
the programme’s activities.
7. Lesotho Chamber of Commerce and Industry:
The Lesotho Chamber of Commerce and Industry maintained a lively
participatory interest in the Lesotho Privatisation Programme through
its representative in the Private Sector Advisory Committee who
articulated the views and concerns of the Chamber with great clarity.
Additionally the Lesotho Privatisation Project continued to pay the full
salaries of designated staff of the Head Office of the chamber as
provided in the Credit Agreement, and agreed with review missions of the
World Bank to strengthen the capacity of the Lesotho Chamber of Commerce
and Industry. The public announcement of the restructuring of the
Lesotho Agricultural Development Bank (LADB) and the Lesotho Bank
sparked calls from the Lesotho Chamber of Commerce and Industry for the
suspension of the privatisation programme which were discussed and
dismissed by the Private Sector Advisory Committee. Nevertheless it was
noted that the Lesotho Chamber of Commerce and Industry continued to
view the implementation of the privatisation programme with disquiet.
8. Implementation Fund:
The Implementation Fund was included in the budget of the Lesotho
Privatisation Project to finance investments identified by studies
related to Private Sector development carried out under the project,
subject to agreement between the World Bank and the Lesotho
Implementation Fund Committee. Unfortunately due to an error in
communication between the Privatisation Unit and the World Bank, the
establishment of the Implementation Fund Committee was delayed, and the
Committee was only formed in the course of the 1998/99 financial year.
Although the Committee had a couple of useful preparatory meetings it
was unable to proceed with its work as the budgetary resources
originally allocated to the fund had in the meantime been diverted to
support the costs of the International Development Ireland (IDI)
Conservatorhsip Team in Lesotho Agricultural Development Bank (LADB) and
Lesotho Bank. The World Bank subsequently confirmed that contrary to
initial understanding of the Privatisation Unit the resources committed
to the Conservatorship of the banks would not be reimbursed to the
Implementation Fund.
9. Creation of Enabling Legal Environment:
During the course of the 1998/99 Financial year the Chief Justice
confirmed that one of the judges of the High Court had been assigned the
task of establishing a Commercial Court which has long been agreed as
essential to the creation of a legal environment favourable to economic
reform. The project confirmed that budgetary resources had been provided
within the project to train support staff for the new Court, and plans
were laid for the training to commence in the second half of 1999. The
Law Reform Commission did not avail itself of resources provided under
the project for facilitative legal reforms.
10. Capital Markets Development:
During 1998/99 great concern was expressed within the Private Sector
Advisory Committee and by the general public about the lack of a
mechanism for public participation as investors in the privatisation
programme. Original plans to establish a small Stock Exchange in Lesotho
were abandoned after the World Bank advised that the number of
profitable companies with a track record of consistent profitability
were too few to support a Stock Exchange. An alternative strategy of
establishing an Investment Trust Fund was proposed and accepted. The
Crown Agents were commissioned as consultants to advise on the most
appropriate form of Investment Trust Fund to establish to meet the
objective of enabling broad Basotho involvement in the privatisation
programme. The Consultants commenced work on 22 February 1999 and worked
very closely with the Privatisation Unit and the Capital Markets
Steering Committee under the Chairmanship of the Governor of the Central
Bank of Lesotho. The proposal to establish a Unit Trust which shall have
the essential qualities of providing protection for Basotho investors,
as well as competitive returns and ready access to invested funds are
now ready for submission to Cabinet for approval. Crown Agents also
revised the draft Regulations for the operations of a Securities Market
in Lesotho. These are currently under consideration of the Capital
Market Steering Committee.
11. Training:
In accordance with the perceived need for relevant training of all key
players in the implementation of the project, many officials of the
Privatisation Unit, Line Ministries and related agencies as well as
members of the Private Sector Advisory Committee were sponsored by the
project to attend training courses and workshops both within and outside
Lesotho.
11.1 Privatisation Unit and Entrepreneurship Training Programme staff:
The following members of staff of the Privatisation Unit attended
capacity building short courses under sponsorship of the project:
Director,
Senior Accountant,
Senior Legal Officer,
Senior Information Officer,
Senior Economist,
Coordinator,
Legal officer I,
Secretary to the Director,
The Team Leader of the Entrepreneurship Training Programme, and 2
Trainers were also sponsored for short training courses.
11.2 Private Sector Advisory Committee (PSAC):
The project provided sponsorship for participation in study visits or
workshops for the following participants from the Private Sector:
Mr. Ramokoena, Lesotho Chamber Commerce and Industry
Mr Sehobai, Lesotho Manufacturers Association,
Mr. Jonathan, Lesotho Trade Union Federation,
Mrs. Chondoma, Lesotho Chamber Commerce and Industry,
Ms Mapheleba, Women in Business,
Mrs Makara, FIDA,
11.3 Line Ministries and Parastatal Agencies:
Capacity building sponsorships were also provided for participants from
Line Ministries and parastatals:
Mrs Lebesa, - Cabinet Office
Mrs Morake –Ministry of Finance
Mr. Khabele – Ministry of Finance
Mr. Tau - Department Water Affairs
Mr. Kanetsi – Department of Energy,
Mr Majara – Lesotho Electricity Corporation,
Mr. Simane – Lesotho Electricity Corporation,
Ms. Lebona – Ministry of Agriculture
12 Conferences:
The Privatisation and Private Sector Development Project was represented
at several conferences concerned with privatisation and economic
restructuring. The Director attended several conferences including the
World Economic Forum Regional Conference for Southern Africa in Windhoek
and the Southern Africa International Dialogue for Smart Partnership in
Walvis Bay, Namibia.
13 Visitors:
The Privatisation Unit continued to receive many visitors interested in
Lesotho’s economic restructuring programme ranging from ordinary
citizens of Lesotho and representatives of Lesotho Non-Governmental
Organisations and investment groups to representatives of Embassies,
High Commissions and International Organisations accredited to Lesotho.
14 The year in Retrospect and Future Prospects:
14.1 In concluding the report it should be noted that 1998/99 was a
particularly testing year because of the initial national preoccupations
with the General Elections and the disruptive effects of the
disturbances in September 1998. The collapse of Air Lesotho, which was
itself a product of the disruptive effect of the civil disturbances in
Lesotho on air traffic, was a major set-back to the Privatisation
Programme. Similarly the liquidation of Weenen Bpk after signature of
the Loti Management Contract also had a negative effect. Investor
interest in portfolio enterprises fell to an all time low with the
undermined public confidence in the security situation in Lesotho. The
management of the project was also challenged from many sides by
politically inspired criticisms and actions which were aimed at
destabilising the project’s progress.
14.2 The project was originally scheduled to end on 31 December 1999.
Because of delays in the commencement of the project in 1996 instead of
1995, and slow progress in implementation because of various factors
including the poor condition of the enterprises in the privatisation
portfolio, plans were already being laid to negotiate an extension of
the project beyond 31 December 1999. A World Bank Review Mission was
scheduled for mid-1999 to consider among other things, the possible
extension of the project.
14.3 The overall implementation of enterprise divestitures under the
project has generally been slow in the year under review. Some
enterprises such as Maluti Oil, Maluti Highlands Abattoir, the Orange
River Lodge (Quthing) and the Basotho Fruit and Vegetable Canners have
failed to attract any serious investor interest whether local or
foreign. Consequently there have been proposals that these enterprises
be liquidated or that the assets be sold off by auction to expedite
divestiture.
14.4 Towards the end of the 1998/99 Financial Year a new proposal was
gaining ground to hold a national dialogue to review the current plans
of the Government for privatisation and general restructuring of the
Lesotho economy. It would seem that such a forum would be a welcome
opportunity to consider the challenges of Private Sector Development in
Lesotho drawing on the benefits of the projects experience.
PRIVATISATION UNIT
MASERU
JULY 1999
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