M5m Seaboard fee illegal
Former PM Majoro tears into Lesotho Flour Mills, Seaboard pact, and Minister Shelile concurs
TEBOHO MOLEFI KHATEBE and
MOTSAMAI MOKOTJO
MASERU – Former Prime Minister Moeketsi Majoro has told Public Eye that to the best of his knowledge the Lesotho Flour Mills (LFM) and Seaboard Overseas and Trading Group’s over USD $300 000 management contract is illegal. Majoro, who was finance minister between 2017 and 2020, told this publication that the decision to renew the contract was made by the board without shareholders’ knowledge.
“In my time I had to have a sober approach and three pronged approached together with Minister (of trade and industry Tefo) Mapesela being fiery and the mild (Minister of Agriculture Mahala) Molapo when tackling this issue,” he indicated. Adding credence to the story, Majoro’s successor in the All Basotho Convention-led government from 2020 to 2022, finance minister Thabo Sofonea, has indicated that plans were already advanced in trying to terminate the management contract of the LFM by Seaboard.
“I had already instructed our legal team to assess the modalities of terminating that contract; during meetings, what we almost always discussed was how to part ways with Seaboard.
I went as far as not approving and signing off financial books,” a furious Sofonea said, in an interview, of the contract in which government owns 49 percent, Seaboard 51 percent while Globakery has 1 percent.
He further indicated that for the two years he was in that portfolio, he was told that government could not sustain the company; thus, huge sums of money were proposed by Seaboard as a settlement.
“There was a Mosotho man (name withheld, but known to this paper) who was hell-bent on protecting the interests of Seaboard; I asked him, ‘Why are you allowing these white men to swindle this country to this extent?’” Sofonea said.
In concurrence with his former colleagues, Molapo told this publication that indeed the cabinet was against the renewal of the contract since it did not favour the government.
“We (Majoro, Mapesela, and I) were at the level of finding another investor for the company; cabinet normally gave us a mandate during negotiations, but ultimately the deal had to end,” he noted while acknowledging the transfer pricing that continues to be undertaken by Seaboard.
Minister of Trade, Mokhethi Shelile, has breathed fire in castigating the contract and failure by the LFM to declare dividends.
“I am not happy with the current arrangement…Seaboard went as far as changing procurement by buying from one of their own subsidiaries, which makes produce expensive,” Shelile briefly said, but was quick to indicate that Minister of Finance and Development Planning, Dr Retšelisitsoe Matlanyane, was better placed to speak about the management contract, “but we are yet, as a government, to formulate an opinion.”
However, Matlanyane has blocked these reporters on her mobile phone.
Previously contacted about her role in the Ha Ramarothele Solar Energy project and China-based Beijing Jingyuntong Technology without Cabinet approval, the minister was furious and refused to answer questions.
A source inside the company who preferred anonymity for fear of reprisals labelled the contract as a cesspit deal in which Seaboard receives USD $300 000 annually as a management fee from the LFM.
The fee, which came into operation on January 1, 1999 – meant to exist for 10 years – gives Seaboard the $300 000 “adjusted to each one-year anniversary date of this agreement, based on the aggregate changes in the official United States Consumer Price Index (or comparable inflation index) from January 1.”
The contract, which this publication has seen, continues: “The adjustment for inflation shall be effective on each one-year anniversary date of the commencement date,” while adding, “the management fee shall be made pursuant to twelve (12) equal monthly payments prior to the tenth day of each month for services rendered in the preceding month.”
Ex-chairperson of the LFM board, Dr Mphu Ramatlapeng, Keith Clifford, and Florence Hoohlo inked the deal on behalf of government while for Seaboard, Ray Penny, Andrew Mills and Jan van der Molen signed.
“The question that should be asked is: Under which terms and conditions were the benefits offered since the common denominator of all these is Seaboard and its subsidiaries?” the source quizzed, adding that “the signatories of the management contract (Clifford and Hoohlo) rendered it invalid since the two members were not eligible.”
This publication was informed that Clifford was not a board member at the time, but an employee of Seaboard, while Hoohlo was the managing director’s secretary.
“Since they signed on behalf of board members who represent government, they should have produced a power of attorney,” another source noted.
Section 4 of the Management Contract also addresses issues relating to work permit, resident permit, house and car allowances for Seaboard staff.
Interestingly, it notes that the milling company will “pay airfares from Lesotho to each management team member’s home country in accordance with Seaboard’s policy on expatriate employees’ transportation allowances.”
“It is such garbage that also contributes to the company (LFM) failing to declare dividends; they (Seaboard) are so brazen that their management is paid a management fee while also earning benefits via local or internal payroll,” the source revealed.
“Why do Seaboard senior staffers continue to be given the opportunity to manage Lesotho Flour Mills despite their failure to give the government its dues over the past 25 years?” the source further asked.
On October 25, 2017, the then Finance Director and Secretary to the Board of Directors, Bryant Schoenherr, wrote to Molapo and Mapesela, raising the board’s insistence to “focus efforts on revisiting the existing agreement.”
“The Board of Directors of the Company (BOD) work was focused on creating a management agreement that was up to date and satisfactory to all shareholders,” the letter reads, adding, “the options the BOD faced were to renew the existing agreement when it expired, create a completely new agreement, or revise the existing agreement.”
Schoenherr further informed the ministers that by December 8, 2017, a review and comments are required in a bid to move forward with the contract.
Dr Ramatlapeng told this publication that at this time the management contract was already signed and was presented to them as board members.
“The contract was already a negotiated deal which we expected to be reviewed by the government every year, but that wasn’t the case,” she said, adding that what was saddening was that the shareholders used to show a lack of interest by sending principal secretaries instead of ministers to the Annual General Meetings (AGM).
Incumbent Chairperson, Mazvi Maharasoa, referred this paper to LFM CEO, Fourie Du Plessis, for a response to a series of questions that need answers.
For his part, Du Plessis said he was in no position to answer such questions since the matter is private.
“We will address the situation with government and other shareholders, not in the media space,” he briefly stated.
More details on the LFM and the dubious issues surrounding its continued management by Seaboard were flagged by parliament and in the Public Accounts Committee’s (PAC) Report on the Consolidated Financial Statements of the Government of Lesotho for the Three Years 2013/2014, 2014/2016, and Other Incidental Findings, which expressed frustration over the functions of the company.
“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 Chief Executive Officer (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 in the report.
The PAC also recommended that the review of the Management Contract between Seaboard and the government be attended to.
“Hon 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 Cooperation and Development 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 not giving government its dues.
Government has failed to neither rein in LFM’s Seaboard management on seemingly corrupt practices nor ensure receipt of due dividends for over 25 years while legal guidelines are in place – the Public Financial Management and Accountability (PFMA) Act of 2011 and the Companies Act No 18 of 2011.
Article 43 of Part VI of the PFMA Act – under Public Enterprises – directs that a public enterprise shall provide the Minister Finance with annual report that includes a review of its activities for the year a statement of expected activities for the coming three years, and also audited statements prepared in accordance with international financial reporting standards.
These will include a statement of any losses of enterprise money or loss of or any damage to property, including any amounts recovered or written off or any property disposed of.
The law provides that the CEO of such an enterprise shall furnish a copy of the annual report to the Minister of Finance within three months of the end of the financial year to which it relates, while the minister responsible for the enterprise, after consultation with the Minister of Finance, may direct the enterprise to release other financial report from time to time as required for effective management government’s investment in such an enterprise.
The minister responsible for a public enterprise is also required by law to present audited annual reports to parliament within six months of the end of the financial year to which they relate, copies of which shall be also forwarded to the Minister of Finance. The minister is expected to do the same with regard to other financial reports the enterprise matters
The Auditor General is then required to undertake an audit of all financial statements of the enterprise.
On the other hand, Section 63 (3) of the Companies Act No 18 of 2011demands that the directors of a public enterprise, 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 – which include financial oversight, and ensuring that the entity they head operates within the boundaries of the law and relevant regulations.
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Of the mysterious funds
Ministry of Agric screws Lesotho Flour Mills 2% profit
TEBOHO MOLEFI KHATEBE and
MOTSAMAI MOKOTJO
MASERU – Could it be that one of the reasons government has consistently failed to receive dividends from the Lesotho Flour Mills (LFM) is due to a loophole in the Sales Agreement which directs the company to hand over two percent of its sales turnover to the Ministry of Agriculture?
The Sales Agreement of 1998, which Public Eye has seen, states explicitly that this money should be given to the ministry to uplift local farmers, an agreement that has seemingly been abused by various ministers and principal secretaries in successive government to purchase vehicle fittings, mobile phones and other luxury items.
“The LFM Company shall commit two percent of after-tax profit to be invested in agricultural projects or to facilitate the support programme for farmers,” Section 20.10.2 of the agreement notes.
This paper has seen a letter written by former Agriculture Principal Secretary (PS), Nchemo Maile, in which he requests then LFM Managing Director, Ron Mills, to settle debts accrued by government officials using the said two percent allocation “due to limited resources.”
“I, therefore, request your good office to settle the following invoices amounting to M185 196.92 under the above-mentioned fund,” it reads.
“Morgan Interior and Design M45 000 supplied furniture at the official residence of Hon Deputy Minister; Seforong Business Services M28 696.92 for the minister’s official residence and Matekane Transport and Plant Hire M66 000 for three months of house rental for Hon Minister,” Maile wrote.
Maile confirmed to these reporters that he did author that letter; however, he dismissed the allegations that the 2 percent after-tax profit stopped government from seeking dividends from the milling company.
“It’s unfortunate that in the LFM board Seaboard has a bigger stake than government, thus we don’t have a bigger voice (but) that shouldn’t bar from seeking dividends,” he said, adding that “those claims don’t hold water.”
Seaboard is an American company.
Maile also indicated asking for financial assistance from the company was above board, normal modus operandi, when “there were shortfalls in the budget.”
“LFM used to help with logistical matters and other consumables like gas and food; they helped when we were engaged in block farming in 2016; at some point we received M700 000.
A huge chunk of the money financed the ministry’s operations and logistics, such as buying fertilizers and seeds for farmers,” he said.
Former Agriculture Minister under the All Basotho Convention-led government, Mahala Molapo, on the other hand, confirmed the existence of the two percent provision, indicating, however, that the money “wasn’t meant to buy luxury items for ministers but to help in capacitating the ministry and local farmers.”
When asked to shed light on the current status of the government and LFM relationship regarding this two percent clause, the current Agriculture PS, Thabo Moleko, indicated that he’s oblivious to the arrangement but will “revert after making investigations.”
He eventually wrote to this paper insisting that “When I was still working for the taxman, the Flour Mills was continuously declaring losses, as such there could possibly be no two percent because they were not making profits whatsoever…However, I will check with my office if the ministry has ever been paid.”
Faced with these facts and financial situation, how and why does Seaboard still have its grip of the management of the Lesotho Flour Mills, and to whose financial benefit?
