Wealth grab sinks Lesotho Flour Mills

TEBOHO KHATEBE MOLEFI and

MOTSAMAI MOKOTJO

MASERU –  Over 20 years of recorded failure to declare government dividends of the Lesotho Flour Mills’ (LFM) appears to be running the milling company aground. This is not only the result of boardroom greed but also the LFM directors’ incompetence. The cost of their failure looks as severe as feared, though contrary to provisions of the Companies Act No 18 of 2011, none of the directors has been held liable.

“The directors, including former directors, shall be severally and individually liable to the company, its shareholders, and any other person for any loss suffered by the company, its shareholders, or any person as a result of the directors’ failure to perform their duties…,” Section 63 (3) states.

Lengthily investigations by the Public Eye have revealed that the LFM is in a dire financial state, according to sources who spoke to the publication on condition of anonymity. “The company cannot pay dividends due to competition from local competitors; they sell mealie-meal, which is not fortified, at ridiculously low prices,” the source said, while adding “how are we expected to make a profit and subsequently support King Letsie III’s efforts in providing nutritious food?”

“We are at a level at which, after buying produce for three months, we are unable to sell it at a standard price and make profits,” the source revealed. Another source also highlighted the issue of transfer pricing, which the LFM has been accused of using in a bid to avoid paying dividends.

“Seaboard takes, or its subsidiaries allow us to pay them after three months, which is not the case with local farmers; we are stuck with loans and wouldn’t be surprised if we get shut down tomorrow,” he said while indicating that they recently retrenched over twenty employees due to the financial strain they are experiencing. Public Eye has further established the existence of a Dividends Policy within the milling company, through which the LFM annually pays the Ministry of Agriculture to support local agricultural crop production efforts, however, this money reportedly finances other ministerial expenditure that is not agriculture-related.

Officials at the LFM have confirmed presence of this policy, but indicated that “the ministry is in a much better position to answer.” Efforts to secure a comment from the Minister of Agriculture, Thabo Mofosi, drew a blank until going to print as his phone rang unanswered.

The milling company’s CEO, Fourie Du Plesssis, confirmed the LFM’s sorry financial state, indicating too that the company is financially under strain. “Basotho companies, including ours, are struggling due to porous border controls – which is killing our business with an influx of low quality mealie-meal. Government needs to find ways of protecting local entities,” Fourie said.

Fourie, however, declined to address the issue of the LFM’s failure to pay dividends to government and allegations of transfer pricing levelled against the company, insisting that “I can’t discuss such matters in the media.”

Speaking to Public Eye this week, former LFM board member, Ramahoana Matlosa, said that he was aware of the liability clause, hence his decision to resign from the milling company.

“I was cognizant, and what made it worse was it came at a time when the officials were intent on bankrupting the entity.

Seaboard’s management contract was coming to an end, but it was consistently being given an extension of one year; I resigned and wanted to advocate from the outside when I saw that the government was being swindled.”

Matlosa further disclosed that he queried the lack of dividends, which have not been given to the government for the past 20 years.

“LFM was one of the most profitable companies; why was it privatized when it was performing greatly?

The argument being advanced was that Seaboard is not here to necessarily make profits,” he said, while adding, “I tell them that they are making ends meet.” “I further told ‘Seaboard is a channel to dump grains from their subsidiaries,’” the former board member said. More details were flagged by the Public Accounts Committee (PAC) Report on the Consolidated Financial Statements of the Government of Lesotho for the Three Years 2013/2014, 2014/2016, and Other Incidental Findings, establishing that the government has not been receiving dividends over dubious explanations.

“…The company (LFM) has not been obliging, citing reasons that their operating costs were higher than revenue…; the Committee has a suspicion that Seaboard Overseas and Trading Group…does not serve the interests of Lesotho.

The suspicion is that Seaboard Overseas and Trading has been inflating the operation costs deliberately in order to avoid declaring the dividends and has been engaged in transfer pricing activities,” the PAC indicated. It also said that the former Minister of Trade, Tefo Mapesela, echoed the committee’s sentiments that Seaboard has been engaged in transfer pricing “to paint a negative financial picture which negates the payment of dividends.”

“He (Mapesela) highlighted that it is true that the government had been planning to seek a review of the management agreement/contract with Seaboard, which seemed to be disadvantageous to the government of Lesotho in the sense that the agreement allowed Seaboard to appoint its own CEO and run operations of the LFM, thus prompting a greater possibility of financial manipulation and transfer pricing, which buys services from their own holding or sister companies,” the committee noted. The report also recommended that the review of the agreement between Seaboard and the government be reviewed.

“Honourable (the then Minister of Finance, Moeketsi) Majoro also reiterated the concern expressed by G8 countries about multinational companies like Seaboard, which practice transfer pricing and avoid paying taxes. He indicated that the Organisation for Economic Co-operation and Development (OECD) has provided Lesotho with a template that is able to test transfer pricing,” the report said.

In the latest Auditor General’s Annual Consolidated Financial Report of the Year Ended 31st March, 2022, the milling company has again been flagged for giving the government its dues.

For his part, the Portfolio Committee on the Economic and Development Cluster Chairperson, Sello Hakane, told this publication that they are cognizant of the liability clause in the Companies Act and thus will raise the matter when they reconvene next month.

 “They (LFM) account fully for what has been happening; proper financial books should be produced, but I can’t say much now on that…we have scheduled for them to come before us,” Hakane said, adding that they are worried about the non-payment of dividends to government.

According to Section 104 (1), Preparation of Annual Report (1) notes: “A board shall, within 3 months of the end of the financial year, cause to be prepared an annual report on the affairs of the company for the financial year,” while Section 105 (a) read with (b) instructs companies to “describe any change during the financial year in the nature of the business of the company or any of its subsidiaries, or the classes of business in which the company has an interest, whether as a shareholder of another company or otherwise,” and “where group accounts for the company and its subsidiaries are required to be completed and signed, include the group accounts.”

Has LFM complied with the aforementioned legal requirements? What steps have been taken in paying dividends to the government? Why is LFM engaged in transfer pricing? Why have directors not been held liable?

Sources with intimate knowledge told this paper that the Seaboard, via transfer pricing, buys and sells grains from its own subsidiaries, “thereby milking the company.” “They buy raw materials from their subsidiary at inflated prices and then also sell them to their own at lower charges,” the source said, adding that one such company used Glow Bakery, which aids in the transfer price scheme.

Government representatives on the board are Selebalo Ntepe on behalf of the Ministry of Finance and Development Planning and the Ministry of Trade’s Puleng Lebitsa. Asked to shed light on this LFM matter, Minister of Trade, Mokhethi Shelile, declined to comment and referred this Public Eye to finance minister, Dr Retšelisitsoe Matlanyane. Matlanyane has blocked these reporters on her mobile phone.

Previously contacted for comment about her role in the Ha Phase II of the Ha Ramarothele Solar Energy project and China-based Beijing Jingyuntong Technology without cabinet approval the Minister of Finance was furious and refused to answer questions.

Similarly, Lebitsa told this publication that she’s not in any position to answer questions related to why the milling company hasn’t declared dividends, arguing that “I don’t have the authority to answer your questions.”

“I have sworn to confidentiality, meaning I’m not allowed to speak on such a matter.”

The LFM started in operations in the country on March 26, 1979, with only wheat products as a platform for local farmers’ produce to be consistently sold – with a view to commercialize agriculture.

In 1982, the milling company incorporated Lesotho Sugar Packers, initiating a sugar packaging business, that was later followed by the establishment of a maize mill in 1986 as the company continued to grow. In 1989, a new component – the Lesotho Farm Feed Mills – mill section was established in order to produce animal feeds.

In June 1998, as part of a government-launched privatization exercise the LFM was partly sold to Seaboard with 51 percent shares of the company while the government remained with 49 percent shares.