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LESOTHO PRIVATISATION AND PRIVATE SECTOR DEVELOPMENT PROJECT
PRIVATISATION PROGRESS (1995-2002)
The Government of
Lesotho’s privatisation policy is implemented in accordance with the
Privatisation Act of 1995. The Act established the Privatisation Unit,
which is mandated to plan, manage, implement and control the
privatisation process in Lesotho using over 12 different privatisation
methods outlined in the Privatisation Act. These range from management
contracts to the outright sale of shares and assets. Implicit in this
process is the promotion of Basotho participation.
The privatisation process is carried out in a transparent and
competitive manner as set out in the Privatisation Act 1995 and its
Regulations. The parastatal to be privatised, the method of
privatisation, the private sector partner to whom the parastatal is
being privatised to and other related matters have to be approved by
Cabinet.
At the appraisal of the Lesotho Privatisation and Private Sector
Development Project, there were about 32 parastatals earmarked for
privatisation. These included enterprises directly owned by Government
of Lesotho and indirectly owned through LNDC and Lesotho Bank.
(1) Lesotho Airways Corporation (LAC)
LAC was founded in terms of the Lesotho Airways Order No. 50 of 1970 and
commenced operations in 1971. This 100% Government owned Corporation
provided nationally and internationally air transport. The Government
policy objectives for privatisation of LAC were to eliminate the fiscal
burden and to sell a controlling interest in LAC to a strategic partner
capable of providing adequate services.
LAC was sold to Rossair Contracts (Pty) Ltd in 1997, following normal
privatisation procedures stipulated in the Privatisation Act of 1995 and
its Regulations. A new company Air Lesotho was registered to operate
domestic and international routes of LAC in accordance with the
applicable laws and was designated Lesotho Flag carrier.
Air Lesotho ceased its operations in February 1999.
(2) International Freight and Travel Services (IFTS)
IFTS was 100 % owned by the Government through Lesotho Bank and
Government’s policy for its privatisation included improvement of
efficiency by introducing full private ownership, Basotho participation
and elimination of subsidies.
IFTS operated 3 distinctive businesses under the following trade names:
Avis Rent-A-Car; American Travel Express and Freight Services.
a) Avis Rent-A-Car
Avis rent-a-Car was sold to Avis Southern Africa in 1998. A new company
was registered named Zeda Car Rentals Lesotho (Pty) Ltd whose minority
shareholding of 20 % is owned by a Mosotho while Avis Southern Africa
retained 80 % shareholding of the company.
b) American Express Travel
American Express Travel is under liquidation by Naledi Chambers.
c) Freight Services
Freight Services is under liquidation by Naledi Chambers.
(3) Lesotho Flour Mills (LFM)
The Lesotho Flour Mills, which was 100 % owned by Government, was
established as a trading account under the Finance Act of 1975. The
policy objectives for privatisation of LFM were to improve efficiency of
LFM by introducing a technical partner, and to introduce Basotho
participation and LFM employees to own shares in the enterprise.
A technical partner, Seaboard Overseas Limited and Saxonvale Investments
Limited, bought the 51 % majority shares of LFM in 1998. Of the 49 %
that is retained by Government, 39 % is reserved for Basotho
participation through either the Lesotho Unit Trust or any other means,
while the remaining 10 % is reserved for Employee Share Ownership
Scheme.
(4) Lesotho Agricultural Development Bank (LADB)
The Bank was liquidated in 1998. The liquidation was necessitated by the
fact that LADB ceased to perform its key functions of safekeeping
depositors’ monies and extending credit to creditworthy borrowers. By
1997, the Bank became technically insolvent, meaning that its
liabilities were far in excess of its assets. It was beginning to
experience liquidity problems in that it could not honour all the claims
on it by its creditors including depositors. This distress financial
situation forced Government to inject funds into the Bank to the tune of
M24.0 million per annum in order to enable it to continue its operations
until its liquidation.
(5) Minet Kingsway (Pty) Ltd
Minet Kingsway was 51 % owned by Government through Lesotho Bank and 49
% owned by AON Risk Services. The divestiture of 31% of Government’s
shareholding in Minet Kingsway (Pty) Ltd was effected in May 2000. AON’s
shareholding in Minet Kingsway increased to 80 %.
Government has retained 20 % shareholding in Minet Kingsway (now renamed
AON Lesotho) for future Basotho participation possibly through the
Lesotho Unit Trust. It has also been agreed that AON will set aside 10 %
of its shareholding in AON Lesotho for an Employee Share Participation
Scheme.
(6) Plant and Vehicle Pool Services (PVPS)
PVPS was established under the technical control of the Ministry of
Works and the administrative control of Ministry of Finance. Its
responsibilities included purchasing and maintenance of all Government
plant and vehicles fleet; storage and provision of spare parts;
allocation of equipment and vehicles to all government ministries and
departments; and supply of fuel and lubricant necessary to operate all
government equipment and vehicles.
In December 1997, forensic investigation into the operations of the
service revealed serious fraud, abuse of public funds and mismanagement,
which forced the Government to accelerate the privatisation of the
entity. An interim management team with the mandate to seek a buyer for
the enterprise was engaged in 1998, and the enterprise was eventually
privatised through the sale of 80 % of its shareholding to Imperial
Fleet Services of South Africa in January, 2000. The remaining 20 % will
be availed to Basotho through purchase of shares in the Lesotho Unit
Trust.
(7) Plant Pool Workshop
The sale of Plant Pool Workshop effected through a closed tender which
comprised machinery, equipment and other movables was sold to a local
businessman, Mr Ralebitso in May, 2000.
The Plant Pool Workshop was part of Maseru Headquarters, which was one
of the nine units that had been proposed in the Privatisation Scheme of
the Plant and Vehicle and Pool Services and approved by Government in
August, 1999.
(8) Lesotho Bank
The situation of Lesotho Bank had gradually deteriorated over the years
as a result of inadequate management and political intervention. In
1995, the Bank was forced to recognise this situation and for the first
time in its history the Bank reported losses amounting to some M58.3
million. The situation was made worse by the collapse of the Bank’s
management information system in 1997. By 1999, the Government was
injecting M20.0 million a month (or M240.0 million a year) in the Bank
in order to keep the Bank operational and to safeguard depositor’s
funds. The financial restructuring of Bank has cost the Government some
M612.0 million, of which M15.0 million was used to secure the
Government’s 30 % shareholding in the new Lesotho Bank.
In February 1999, the Standard Bank of South Africa was identified as a
strategic partner, and the whole privatisation process kicked-off. The
actual privatisation of Lesotho Bank took effect in August 1999 and
Lesotho Bank 1999 Ltd. was created, a new bank that was 70 % owned by
Standard Bank (Lesotho) Ltd. and 30 % owned by Government.
Fifteen (15%) percent of the 30 % shareholding that was kept in trust by
Government for Basotho was sold to the Lesotho Unit Trust.
(9) WASA and Ministry of Local Government Sanitation Services
Subsequent to advertisements that were placed in newspapers locally and
regionally, one bid was eventually received from Sani Tech, a South
African company whose proposed tariffs proved to be too high. Although
efforts were made to revive local interest, as evidenced by a bidders’
conference and further meetings held with seven prospective local
investors, no firm proposals were received.
Outsourcing of WASA tanker service and the Ministry of Local Government
(MLG) pit emptying service was effected by merging the two services.
This assignment is commercially run by a semi-independent unit under the
responsibility of WASA and the auspices of an Inter-Agency Steering
Committee. The transaction is to run for an interim period of nine (9)
months from April, 2001 pending full privatisation of the operations.
Advertisements for the outsourcing of the Sanitation Services were
placed in local newspapers in October, 2001 that attracted five (5)
local bidders. Letters of invitations were sent to the five local
bidders in May, 2002 and only one bid was received from Cefas
Enterprises, a local bidder. The bid is presently being evaluated.
(10) Outsourcing of WASA Vehicle Workshop
As part of the divestiture of WASA non-core activities, advertisements
for the Workshop were made locally and in South Africa. One bid was
received from a local company, JKL Engineering (Pty) Ltd. Negotiated
sale of machinery and equipment contract, and a 7 year lease agreement
is before Cabinet for approval.
(11) Marakabei Lodge
Marakabei Lodge was sold to MCM Enterprises for in November 2001. MCM
Enterprises is a local company owned by a Mosotho businessman Mr. Mosuoe
Moteane. Up to now, Marakabei Lodge has been sub-leased by the
Government to MCM Enterprises since April 1998 when efforts to sell the
lodge had been unsuccessful as the bids received were found to be too
low. The Lodge was non-operational from 1992 until it was sub - leased
to MCM Enterprises in April 1998 under the privatisation programme.
MCM Enterprises expressed interest to purchase the Lodge in 2000, as a
result the Lodge was readvertised for sale. Only one bid was received
from MCM Enterprises and the Government entered into negotiations
accordingly.
(12) Maluti Oil
Efforts to attract interested investors to take over Maluti Oil as a
business concern were without success. In order to free capital held in
fixed assets in the company, Maluti Oil was auctioned in July, 2001.
(13) Basotho Fruit and Vegetable Canners (BFVC)
Negotiations of the amalgamation of BFVC with Langeberg’s Ficksburg
Canning Factory which were approved by Cabinet proved to be unsuccessful
due to the fact that, at the stage of finalising the contract, Langeberg
called for a number of inputs, some of which the Ministry of Agriculture
could not provide. The future direction in relation to privatisation of
BFVC is currently under consideration by Government.
(14) Orange River Lodge
An auction of the Orange River Lodge was held in October, 1999 with
participation by several bidders. A firm offer was received from Mr. Kou
that resulted in the conclusion of the sale agreement with him, that was
signed in February, 2000. The final handing over of the Land Act Lease
for the property was effected in September, 2001.
(15) Lesotho Pharmaceutical Corporation (LPC)
The search for a buyer for LPC, jointly conducted by PU and LNDC,
started in 1997 following Cabinet approval of a Privatisation Scheme for
LPC. A number of expressions of interest were received, which did not
culminate into bids except for one company, Time Controlling Investments
(TCI).
TCI was provided with information after Cabinet approved their proposal
to undertake due diligence in January, 2000. Subject to satisfactory
outcome of the due diligence review, TCI would purchase majority
shareholding of LPC. TCI undertook the due diligence but did not meet
the agreed deadline and was therefore unable to proceed with the
acquisition of LPC. TCI thereafter proposed to enter into management
contract but failed to meet conditions agreed upon. In August, 2000 the
Steering Committee for LPC recommended to Cabinet that discussions with
TCI be terminated. Although contacts have been made with potential
investors from countries such as the Peoples Republic of China, Iran and
Pakistan, no bids have been received as yet.
(16) Maluti Highlands Abattoir (MHA)
Privatisation of the Abattoir became a Government priority in January
1998. A Privatisation Scheme was initially submitted to Cabinet in April
1998. After clarifications, the Scheme was approved by Cabinet in July
1998. The Scheme called for the enterprise to be sold in its entirety
together with Feedlot 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 (the entity has been a
loss-maker since 1992 with accumulated debt of about M30 million);
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 60 butchers, most of whom expressed
interest in taking over jointly the Maluti Highlands Abattoir but the
Privatisation Unit did not receive any bids. An interim management team
was sought to run the Abattoir in preparation for its take-over.
Currently, negotiations are continuing with an investor from a South
African company called Elwark Trading (Pty) Ltd.
(17) Tele-Com Lesotho (TCL)
The need to expand access to telecommunications services, improve the
affordability, the reliability and the quality of these services and
attract investment into the country prompted Government to privatise
Lesotho Telecommunications Corporation (LTC). In line with this policy,
the Lesotho Telecommunications Authority Act was passed before
Parliament in June 2000 to establish an independent regulatory authority
and LTC was concurrently incorporated under the Companies Act as
Tele-Com Lesotho (TCL) to act as service provider. The regulatory
authority is mandated to ensure that TCL and other telecommunications
service providers in Lesotho conduct their business in an efficient and
productive manner that will protect and serve the interest of consumers.
Seventy percent (70% ) of Government’s shareholding in Tele-Com Lesotho
was sold in November 2000 to Mountain Communications (Pty) Ltd and the
Government retained 30% for eventual sale to Basotho investors. Mountain
Communications is to offer 5% of its 70% shareholding to an Employee
Share Participation Scheme.
Given the small market size in Lesotho and the poor state of the company
at time of privatisation, TCL has been granted a five years exclusivity
period for provision of fixed line telecommunications services. The
regulatory authority will monitor TCL’s performance against specific
targets that have been set, some of which are listed below, and are
subject to penalty if not met.
Specific targets:
• Provide capacity for at least 40,000 new connections in the first
year;
• Connect at least 50,000 new lines in the first five years;
• Ensure provision of at least 1,250 pay phones in the first five years;
• Establish internet access capability in the main commercial centres in
the first year;
• Achieve quality of service to defined minimum standards, which will
increase steadily over the first three years.
(18) Vodacom Lesotho
The sale of Government’s shareholding in VCL is part of Government’s
major programme for the restructuring of the telecommunications sector.
The sale will enable the privatised Tele-Com Lesotho to obtain a licence
from June 2001 to become the second cellular service provider in the
country. The objective is to create competition in the cellular
operator’s market, leading to more rapid and efficient provision of
cellular services.
Government’s 12% shareholding in Vodacom Lesotho was sold in November
2000 to a Basotho investment group registered in Lesotho by the name of
Sekhametsi Investment Consortium. The preferred investors were selected
on the basis of a competitive tender process. Bids were assessed on the
basis of offer price, bidder’s access to financial capital and the level
of Basotho participation in the bidding party.
CAPITAL MARKETS DEVELOPMENT
(19) Lesotho Unit Trust
As the privatisation of state-owned enterprises progressed, one of the
major public criticisms of the Lesotho Privatisation and Private Sector
Development Project was that Basotho have not been afforded the
opportunity to purchase shares of former state-owned enterprises. A
number of options were considered such as the establishment of the stock
exchange. Lesotho Unit Trust was recommended as the most appropriate and
viable option at that time.
The main principles on which the structure and portfolio of the Unit
Trust are based are:
• Accessibility – investors must have ready access to their savings.
• Competitiveness – the investment opportunity must be attractive in
terms of risk and returns compared with other opportunities in Lesotho
and South Africa.
• Low Risk - the possibility of loss of original investment must be
minimised to avoid complete loss of confidence in capital market
development.
Cabinet approved the establishment of the Lesotho Unit Trust in February
2000 and agreed to grant a number of tax exemptions and subsidies to
maximise the chances of good returns from the Lesotho Unit Trust. A
private management company (Standard Bank Lesotho Unit Trust (Pty) Ltd.)
was recruited through a competitive tender process to establish and
operate the Lesotho Unit Trust, which was formally launched at a public
ceremony in August, 2001. The Management Company will, among other
duties, assess which privatised enterprise shares are suitable for
inclusion in Lesotho Unit Trust and market this new investment
opportunity to make people aware of its benefits but also its risks.
Assets of Lesotho Unit Trust will be held in trust by the trustee (AON
Lesotho) to ensure protection of unit holders.
The Lesotho Unit Trust will operate in strict compliance with the
Central Bank Collective Investment Schemes Regulations of 2001,
published in the Gazette in January 2001.
LESOTHO UTILITIES SECTOR REFORM PROJECT (New Project)
The Lesotho Utilities Reform Project is financed by the World Bank, the
African Development Bank, the European Union and the Government of
Lesotho to the amount of US$39.35 million. Among other things the
Project aims to improve the performance of the electricity sector. A
private sector management team for LEC, SAD-ELEC, was appointed in
February 2001 to manage, with remuneration based on performance, all
aspects of the operations, maintenance and expansion of LEC for eighteen
(18) months, applying normal electricity utility principles to improve
financial, commercial and technical performance;
One of the key objectives of LURP is the restructuring of the
electricity sector with a view to improving and expanding the delivery
of electricity in Lesotho.
The restructuring process involves:
• Legislation - up-dating legislation that governs the electricity
sector and the establishment of an independent sector regulator, the
Lesotho Electricity Authority (LEA), to ensure that electricity services
are provided efficiently, with maximum outreach and at a competitive
price to ensure that consumer welfare is protected;
• IMTF - the engagement of a private sector management team, the Interim
Management Task Force (IMTF), to run the Lesotho Electricity Corporation
(LEC) for a period of eighteen months aimed at improving the managerial,
technical, commercial and financial performance of LEC in preparation
for LEC’s eventual privatisation;
• SAG - Recruitment of a Sales Advisory Group to assist with: (i)
drafting of secondary legislation to supplement and enable
implementation of the new electricity legislation, and (ii) divestiture
of LEC to the private sector.
4. Progress to date:
• Legislation - Lesotho Electricity Authority Bill has been granted
Royal Assent and is currently being prepared for publication by
Government Printers.
• IMTF - in place since 1 February 2001;
• SAG - assignment commenced in December 2001 and is expected to be
completed in the second half of 2002.
Muela Hydropower Plant (MHP) Options Study
Objective: to propose the optimal institutional, functional and
management set up for MHP. Study commenced in November 2001, to be
completed in February 2002.
Telecommunications Regulator
The long-term resident advisor to LTA was recruited in August 2002.
Electricity Regulator
Recruitment of Advisor to Lesotho Electricity Authority is underway.
Additional Advisory Assistance
Recruitment of a long-term resident advisor to the Ministry of
Communications is underway.
ENTERPRISES IN THE PIPELINE
1. Loti Brick
2. Basotho Fruit and Vegetable Cannery
3. Maluti Highlands Abattoir
4. Water and Sewerage Authority
NEW ENTRANTS
Maseru Private Hospital
The Government of Lesotho has entered into a Management Contract with
Lenmed Hospital Management Services of South Africa to operate Maseru
Private Hospital for a period of two years. The Management Contract will
commence at the middle of October, 2001.
The Government of Lesotho acquired the building and other assets of
Maseru Private Hospital when the private hospital was placed under
liquidation. The Maseru Private Hospital was heavily indebted to the
former Lesotho Bank which was wholly owned by the Government.
Lenmed Hospital Management Services was recommended for consideration by
the liquidator of the Maseru Private Hospital, after approaches had been
made to several hospital management companies many of whom expressed
very limited interest in the hospital. Prior to negotiations, a
representative delegation travelled to Ladysmith to see La Verna
Hospital, a facility run and managed by Lenmed Hospital Management
Services. The delegation was favourably impressed by the demonstrated
capacity and high standards maintained by Lenmed Hospital Management
Services in its operations of the Hospital.
Sixteen (16) Small Agricultural Enterprises
A list of sixteen (16) Small Agricultural Enterprises was gazetted and
published in local newspapers in accordance with Section 16 of the
Privatisation Act of 1995. Subsequently privatisation schemes for eight
enterprises proposed for privatisation were prepared and tabled before
Government for approval in accordance with section 18 (1) of the
Privatisation Act. Of the eight privatisation schemes that were tabled
before Government, the following six (6) enterprises that were approved
in April 2002 for privatisation have already been gazetted:
Mejametalana Vegetable Farm;
Tšalitlama Vegetable Farm;
Molimo-Nthuse Pony Trading and Trekking Centre
Merino Sheep Stud Breeding Farm – Mokhotlong;
Merino Sheep Stud Breeding Farm – Quthing; and
Wool and Mohair Marketing Facilities – 95 Wool Sheds.
The following four (4) enterprises are recommended for liquidation due
to the fact that they are not viable and also not sustainable:
Tšakholo Fish Farm;
Forestry Facilities;
Basotho Pony Breeding Farm; and
Technical Operation Unit (TOU)
The privatisation of Botšabelo Dairy Farm is still awaiting approval
from Government.
Farmers Training Centres and Veterinary Services are proposed for
restructuring following an in-depth analysis of a suitable private
sector participation.
Privatisation Unit
August, 2002
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