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 PU/PAC/008/1/95                                                                               4^th November 2003

The Editor

Public Eye Newspaper

Box 14129

Maseru 100 

Dear Editor, 

 I would like to thank you for the 37^th Independence Supplement that was recently incorporated in the Public Eye.  It was indeed an eye-opener. But I was provoked by the statement from the National Progressive Party  on Privatisation in Lesotho and thought I should give a different view form that the one that was uttered. 

First of all I would like to start by elaborating on the Objectives of Privatisation as it seems to be eluding the understanding of some readers. This will help to evaluating its impact on the economy and so provide an objective perception to the public as opposed to inaccurate statements that are always cropping up in the media. 

1. Objectives 

Privatisation of state enterprises is expected to achieve many objectives which include provision of new capital investment, introduction of new technology, and rapid expansion of services and removal of distortionary need for state subsidies to the state enterprises thereby releasing budget resources for other national needs. Finally, the object of privatisation is increased efficiency in meeting demand. 

One of the reasons why Lesotho had to adopt the Privatisation Policy was due to the fact that Foreign Aid has almost dried up in developing countries such as Lesotho. Statistics indicate Foreign Aid to Sub-Saharan countries declined by almost 43 percent between 1999 – 2000. The problem is that many Basotho still behave as if Foreign Aid still exists to bail us out of our economic difficulties. In the place of Foreign Aid we have to look for Foreign Investment, and this can be attracted through foreign investors by taking over our ailing enterprises that had become dry carcasses that depend on Government subsidies year in, year out. 

 Privatisation of Government assets in Lesotho was not approached with utter thoughtlessness and lack devoid of accountability. And I do have to point out that public assets have not been squandered. If anything, public assets were squandered prior to the Privatisation process and at that time there was no accountability. That is why parastatals such as LEC and LTC defaulted in publishing audited annual reports including financial statements from 1996 to 1999 as required by law. And nobody ever bothered to inquire about lack of audited statements until it became an accepted tradition. 

2. Lesotho Telecommunications Corporation 

The Corporation already had serious problems before privatization but it seems that most Basotho are going through a period of denial concerning its glaring problems at that time. These problems were discernible through: 

·      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 if one was lucky. 

·      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 

·       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. 

Now it is obvious that if the Corporation needed to connect an estimated minimum of 22, 000 subscribers, it would need financing to lay the infrastructure before telephone connections can be made. Now with donor funding having dried up the Government would need to seek alternative funding. This is where privatization comes in as a source of alternative investments that would otherwise not exist. 

One of the biggest advantages of restructuring of the telecommunications sector was creation of competition in the sector that ultimately benefits the consumer. Before the restructuring of the sector, coverage was confined to a small area in the lowlands and only some parts of it. But as the service providers had to compete for the subscribers, it meant that to gain access to more customers, coverage had to extent to the highland areas such as Qacha’s Nek and Mokhotlong.  Since 2001 the following connections were made: 

Source: Lesotho Telecommunications Authority June 2003 

Communication is crucial as services need to be coordinated between the capital city and the districts to provide services in rural areas as the need arises. Communication is even more important in a democratic society where people need to exercise their right to be heard. Hence why we are hearing more people participating on radio talk shows about national issues that are discussed on a daily basis. 

3. Lesotho Airways Corporation 

On 1^st October 1996, Lesotho Airways Corporation had to suspend its international flights due to inability to satisfy the minimum requirements specified by the Department of Civil Aviation. The Corporation signed a contract with Rossair (Pty) of South Africa to provide interim air services pending resumption of its own flights. 

Lesotho Airways Corporation was the first corporation to be privatised in 1997.  At the time of its privatization, the Corporation was already losing business as the majority of its customers, the public servants who were taking airline travel, were already being taking their flights from Bloemfontein.

Lesotho Airways Corporation was technically insolvent (that is, its liabilities exceeded its assets). The Corporation had been relying to a large extend on funding from the Government of Lesotho. Factors which contributed to this poor performance were:

 ·        Declining traffic volumes

·        Low traffic utilisation

·        Large staff complement

·        Inadequate financial disciplines

·        Reliance on Government of Lesotho funding and grants 

The major reasons for the decline in traffic volumes were:

 ·        Competition  from Bloemfontein Airport

·        Competition from road transport

·        Lack of tourism in Lesotho. Tourism and passenger flights are directly correlated and directly complement each other.

·        Inadequate marketing

·        Poor image of Lesotho Airways Corporation. The pilots were not taking any regular tests as the aviation regulations demand. The airplanes were not getting any service maintenance as demanded by the aviation industry standards. Some companies in Lesotho had already cautioned their staff not to use services of Lesotho Airways Corporation under any circumstances.

·        Poor passenger appeal of Lesotho Airways Corporation. It was normal to have a single passenger or none at all in a plane. So one can imagine the loss in revenue that the Government had to incur under such circumstances. The reason for tests not being taken by pilots and airplanes was simply that there were cost implications that would be incurred by the Government and as accountability was not a priority at the time, planes continued to operate without any maintenance. 

When Rossair Contracts (Pty) Ltd took over the operations of Lesotho Airways in 1997 there were a lot of challenges to be overcome. And indeed Rossair nearly overcame the challenges as it was at break-even point when the political disturbances of 1998 erupted. These severely disrupted airline travel to Lesotho.  

At the same time, SA Airlink exercised its bilateral rights to fly into Lesotho as Lesotho Airways was already flying into South Africa at the time. The competition posed by SA Airlink took a huge slice of business from Rossair Contract (Pty) Ltd and so Rossair Contracts (Pty) Ltd had to cease its operations in Lesotho.  One has to point out here that Rossair Contracts (Pty) Ltd had signed an agreement to service the outlying areas of Lesotho such as Ha Seshote and Semonkong and Qacha’s Nek. 

4. Lesotho Flour Mills 

Lesotho Flour Mills was the only profit making enterprise amongst enterprises that were slated for privatization. But with the liberalization of the agricultural sector in 1996 it meant that grain products from South Africa would compete on the supermarket shelves with those from Lesotho. Lesotho’s grain products are more costly than those of South Africa due to high costs of production. As the management of Lesotho Flour Mills at that time had only been operating in a protected environment, it was evident that the management would have problems operating the business in a competitive environment. It was therefore recommended that Lesotho Flour Mills be privatized and install in place new management that could operate the business in a competitive environment. That is why these days we see Lesotho‘s grain products competing openly with those of South Africa on the local supermarket shelves. The advantage is the average consumer has a wider choice than before at competitive retail prices, when we were forced to buy grain products from Lesotho at a much higher cost than those in South Africa. 

5. 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, number-plates 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. This was the state of affairs at PVPS before its privatization. 

The amazing thing is that there is usually a complaint that the cost of hiring vehicles from Imperial Fleet Services is too costly. But one has to realize that there is no basis for comparison because PVPS has no records at its takeover by Imperial Fleet Services. This stems from the fact that we turn to assume that the only costs incurred by the vehicle owner are the initial purchase costs. But an average vehicle owner knows very well that there are insurance costs and the ongoing maintenance which becomes even higher considering the general state of our roads in Lesotho. 

6. Conclusions 

Currently preparations for the restructuring of the electricity sector are ongoing. This is due to the fact that a reliable and efficient supply of electricity stimulates investment from both local and foreign investors, which generates employment for Basotho. When the interim Management Task Force took over in February 2001 there was a backlog of 8, 000 subscribers. Over and above that, during the 30 years since the establishment of LEC up to 2001, only 24, 000 and the electricity coverage was estimated at 5% for the entire nation. During the two and half years under the management contractor, over 13, 000 connections were made. This clearly points out that under the restructuring process positive changes become evident in a short space of time when compared to the past stagnant state of affairs that benefited no one.  

Makalo Ntsasa

Privatisation Unit

4^th October 2003