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PRIVATISATION - A BLESSING OR A CURSE TO THE BASOTHO NATION?

 Some quarters within Lesotho seem to think that the privatisation and restructuring of former state-owned enterprises imply necessarily surrendering our nation’s sovereignty and national pride, status and humanity to South Africans. Nothing could be further from the truth. It is important at this stage to explain why the need for restructuring of the economy, which led to their privatisation, came about.

 1.         The Situation in the Past 

a)         Lesotho Telecommunications Corporation 

The Lesotho Telecommunications Corporations was established by Act No.12 of 1979 to supply telecommunications services throughout Lesotho. Although during the first few years LTC succeeded to improve the telephone connections within the main towns of Lesotho, however, it was not long before LTC showed signs of deterioration in service delivery. It soon became obvious that LTC lacked the capacity to fulfill the conditions of its existence as evidenced by: 

·     Apparent delays in attending to faults. It was normal to wait for a telephone to be repaired for more than a month in some cases. 

·     Inability to provide new lines-thus unable to satisfy increasing demand for service. The unmet demand for telecommunications lines stood at 22,000.  

·     Loss of  M3.9 million during 1996 

·     Loss of  M12.9 during 1997 

·     High staffing levels: in early 1999 LTC employed 785 staff, implying that there were 27 lines per employee, compared to OECD average of 188 lines per staff member. 

·     Inability to provide the necessary infrastructure needed to expand the service to the under serviced areas of the country 

·     Huge debt  of approximately M56 million. 

b)    Lesotho Electricity Corporation 

LEC had insurmountable problems, which included: 

·     Inefficient commercial operations: evidence of systematically organised monthly reading of electricity meters resulted in sometimes customers billed six months after the service provision. 

·      Inability to meet the demand for electricity connection 

·     High operational costs characterised by high staffing levels: LEC employed 805 people resulting in a ‘customer per employee’ ratio of 17 connections. Regionally, the ratio is between 60-160 connections. 

·     Poor financial management: LECs billing system failed in 1997 causing major inaccuracies in its customer database and tremendous delays in billing. At some stage, the parastatal did not have cash to pay for its power supplies and was in arrears on salaries to its employees. 

·     High tariffs 

·     Inability to service loan commitments: LEC  owed the Government M13.5 million, and a further M85 million owed for power expansion in the north and southern regions; 

c)      The Banking Sector 

The banking sector in Lesotho had ceased to perform its key function of safe keeping of depositors’ money and extending credit to worthy borrowers. During the latter part of 1990 the two state-owned banks began to experience difficulties largely as a result of inadequate management and extension of credit to borrowers without regard to prudent lending policies. In the case of the Lesotho Agricultural Development Bank, the loan portfolio of the bank was increasingly getting contaminated. By 1997, the bank had become insolvent meaning that its liabilities were far in excess of its assets. The bank was not in a position to honour all the claims on it by its creditor including the depositors. The bank was also beginning to experience liquidity problems. The financial situation of LADB continued to deteriorate such that by 1998, the government was injecting funds into the bank to the tune of M2.0 million per month in order to enable it to continue its operations.  

The situation was even worse at Lesotho Bank – the country’s largest commercial bank. The loan portfolio of the bank had gradually deteriorated over the years again as a result of inadequate management and because of political interventions. 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 million a month into the bank in order to keep the bank operational and to safeguard depositor’s funds. 

d)         PVPS 

Before Imperial Fleet Services took over the management of government fleet, there were no systematic records of total number of government fleet; no record of removable components that each vehicle brought in for repairs had. Even worse, numberplates of cars were usually removed when major repairs had to be undertaken by sub-contracted garages in South Africa.  Removal of the number plates was made deliberately to prevent identification of vehicles belonging to private individuals from those belonging to the Government of Lesotho. 

Government vehicles did not have any insurance cover except third party insurance. This resulted in huge expenses for the Government as evidenced by the number of vehicle involved in accidents that have been declared write-offs.  

A control of vehicles entering and leaving the PVPS premises was almost non-existent leading to theft of cars, spare parts and tools. Rampant theft of car components was evidenced by the high depletion of stock within a short period. There was no thorough check at the entrance or exit of drivers to identify whether the driver possesses the correct identification. The system of parking cars was haphazard and the premises had an untidy appearance which evidenced bad management. Even the car keys were not properly tagged to afford easy identification of vehicles to be collected. It was common for illegal multiple refueling of vehicles in a single day arising from theft of petrol. Whole sets of tyres went missing from new cars and nobody bothered to check. It became a custom for drivers of vehicles being taken for repairs to remove the car radio since it was common knowledge that car radios went missing. 

Between April, 1998 and February, 1999 the actual cost incurred by the old PVPS which are known to Government amounted to M48, 331, 911.00. However, there are other hidden costs which the Government is unable to account for which include thefts of vehicles and their components such as batteries, abuses of vehicles, vehicles involves in major accidents which were declared write-offs, overcharging of maintenance of vehicles and thefts of fuel from government vehicles by drivers and government officials.

2.         Why Privatisation? 

Privatisation is an evolutionary process that calls for major changes in the way the economy is managed. First and foremost privatisation means the transfer of Government owned enterprises, or their parts or shares into private sector hands. Admittedly, some people are intimidated by change itself simply because it means change into the unfamiliar and unknown. The fundamental questions that are being asked are whether private sector ownership of key enterprises will deliver better service, increased employment opportunities; faster development and lead to better allocation of limited national resources for education, public health, judicial services and infrastructure development. 

The process of restructuring has costs and benefits. Among costs mention may be made of retrenchments of workers in overstaffed enterprises, happening at the time of chronic unemployment facing the economy. The introduction of competitive practices also painfully disrupted entrenched monopolies.   

In addition to exposing the underlying corruption that had been taking place for years, The restructuring process has had the greatest benefit by relieving Government and the taxpayer the heavy burden of subsidizing loss-making inefficient state owned enterprises. 

Ten years ago, the independent countries of Southern Africa had a special niche among donors because of the situation then prevailing in South Africa. But today foreign aid has dried up. In its place foreign investment must be sought. Foreign investment, however, requires a predictable welcoming environment in the form of a private sector that is vibrant. 

The situation in Lesotho is such that there is insufficient local capital within the country to create all the jobs that are needed. Consequently, it is incumbent upon the upon the policy makers to create an investment climate that is attractive to foreign investors in the form of inputs that are of paramount importance to potential investors. Furthermore, the inputs have to be of international standards otherwise investors will relocate elsewhere. Hence the reform of the utilities sector which is currently on-going. 

The United States of America recently passed the Africa Growth and Opportunity Act (AGOA), the intention being to allow free access of goods from Sub-Saharan countries such as Lesotho. As a result of these arrangements, it is expected that there will be an influx of foreign investors into Lesotho to take advantage of these open markets. When this influx occurs, it is important that Lesotho should be able to provide utility services that are at least as efficient and as reliable as other investment destinations, as judged by investors. Privatisation of state-owned enterprises is the first step in this direction. 

3.         The Situation at Present 

Imperial Fleet Services has installed a computerised system called Fuel-O-Mat, which links Engen Filling Station with Imperial Fleet Services. The purpose of installing the system is to control and prevent the illegal use of by drivers and government officials. When filling the petrol, the system immediately indicates the Department/Ministry to which the car belongs; the last date of refuel; and the number of kilometers traveled.  

Attempts have already made by Government drivers to tamper with the system. Tampering causes the computerised system to jam, resulting in inability to refuel the vehicle. When the vehicle is taken for repairs to enable the system once again, Imperial Fleet Services notifies the transport officer of the ministry in charge about the tampering; the system is once again enabled and the costs incurred are borne by the Ministry to which the vehicle belongs. The system has resulted in huge savings on the part of Lesotho Government account on petrol. In addition the computerised system has curbed rampant corruption that was taking place in the form of theft of fuel from Government vehicles. 

When a government vehicle is taken in for repairs, a record, which is signed by Imperial Fleet official and the driver of the vehicle, is made of tools, a radio, a spare wheel, a jack, and any other components of the vehicle that may removed.  This fairly simple system has helped to curb rampant theft of spare parts that was taking place in the old days of PVPS. 

During the period from April, 2000 to February, 2001 when Imperial Fleet Services was operating at the old PVPS premises, the following amounts were paid to the Government of Lesotho: 

·        M8, 518, 223.00 for Corporate Tax

·         M1, 737, 051.00 for Income Tax

·        M47, 637.00 for Fringe Benefits Tax

·        M4, 460, 337.00 for other taxes

·        M1, 557, 936.00 for renting PVPS premises

·        M3.4 million for 20 percent shares held by Government

·        M72 million for the sale of Government vehicles to imperial Fleet Services

·        M10.9 million for the purchase of other activities and operations formerly used by PVPS. 

Despite the fiscal burden that the Government has been relieved of, the Government is complaining about the huge costs incurred for its fleet. Records indicate that for the month of August Ministry of Agriculture has incurred cost of over M1.3 million; Public Works and Transport M940, 000; and Health and Social Welfare M820, 000.  Costs for the whole Government fleet for the month of August are estimated at over M8.3 million. The major handicap is the missing records from PVPS to substantiate that fleet management by PVPS was in fact more economic than Imperial Fleet Services. On the other hand, local garages are already reaping benefits from outsourcing from Imperial Motors. In March of this year, for instance, outsourcing to local garages amounted to M14.7 million while in South Africa the figure was M3.05 million. 

Restructuring of the banking sector bore fruits almost immediately. Under the new ownership and management structure, the new Lesotho Bank was once again profitable and depositor’s monies were intact. By the end of 1999, only five months following its restructuring, the Bank reported profits and actually paid dividends to Government, as one of its shareholders, to the tune of M5.0 million. 

 Already the ATM cardholders have seen tremendous improvements in ATM machines that are always in working order (referred to as ATM uptime). Before, there were always huge queues at ATM machines, and amazingly this problem occurred usually around the 20^th to the 30^th of every month which is the time when workers from various sectors of the economy in Lesotho are being paid.  

Complaints coming from Lesotho Bank 1999 customers point out that queues are too long. In recognition of this problem, Lesotho Bank 1999 is in the process of phasing out savings books to substitute them with ATM cards. Civil servants will be paid directly through their bank accounts and the whole process will take about 20 weeks. Because of the large number of employees in industrial firms, the phasing out of their saving books will spill into the year 2002. 

In the case of LEC, the management consultants who took over the running of the parastatal in February this year in preparation for its privatisation have already advertised in newspapers for electrical connections for small businesses in Maseru, Berea, Maputsoe, Mafeteng, Leribe and Mohale’s Hoek. This initiative mainly addresses the huge backlog of electrification that should have been completed long ago. Already, 2,500 new electricity connections and 3, 500 meter conversions have already been made since new management of LEC took over in February this year.  

It should be recognised that the ultimate goal of economic reform is to achieve a more streamlined, efficient, and productive economy. Unlike negative sentiments that have been expressed about the privatisation process in Lesotho, the private sector environment is such that managers make more prudent and economically efficient decisions than their civil service counterparts. Led by the need to survive, with no opportunity of Government rescuing their enterprises from financial distress, the private sector invests in project that will maximise their own success, thus injecting positive influence into the economy. 

Makalo Ntsasa

Senior Information Officer

Privatisation Unit