Critics slam miller’s offloading
TEBOHO KHATEBE MOLEFI and
MOTSAMAI MOKOTJO
MASERU – Critics have slammed government’s 1998 decision to offload the Lesotho Flour Mills (LFM) amid steady profits.
“Why privatize a cash cow?” some are asking as the long, yet bleak, LFM and Seaboard relationship draws more scrutiny.
Government’s decision to privatise state-owned LFM to Seaboard Overseas Limited has ignited fierce debate, with critics now questioning the rationale behind privatizing a consistently profitable enterprise.
Financial reports, according to the paper’s findings, indicate that the LFM generated annual profits of between M5 million and M10 million at the time Seaboard acquired the milling company, raising concerns about the urgency or necessity of the sale.
Critics argue that divesting a profitable asset undermines long-term economic sovereignty and deprives the state of steady revenue.
“Why sell a thriving company that contributes millions to the national coffers?” asked one industry analyst to whom Public Eye spoke.
“Generally, this move risked handing control of a strategic food-security asset to a foreign entity without clear public benefit…which is the reality we are faced with at this very moment.”
All previous governments have failed to disclose detailed justification for the deal, though speculation centres on debt management or pressure to attract foreign investment.
However, there have been muffled voices from some sectors of the public, calling for government to halt the Seaboard deal pending an independent audit of LFM’s value and alternatives to reclaim the miller.
This paper reported last week, though, that Seaboard, 51 percent controlling shareholder of the LFM, is finalising an exit strategy from the company. This was confirmed by trade minister, Mokhethi Shelile.
There was no need for the government to sell its stake at the LFM since it was making profits to the tune of between M5 and M10 million, according to former Minister of Finance, Dr Timothy Thahane, speaking to Public Eye.
Government enacted the Privatisation Act of 1995, which led to the sale, in May 1998, of the milling company and signature of the subsequent Shareholders Agreement, which was inked by the Director of the Privation Unit, Mothusi Masholugu, for government and Ralph Moss and Clyde Harley for Seaboard and Saxonvale, respectively.
The deal gave Seaboard a 50 percent shareholding, while the government took 49 percent, with Glowbakery currently owning 1 percent.
“It was lucrative… I don’t remember the exact figures, but (ex-minister of agriculture Rakoro Daniel) Dr Phororo told me that the entity used to make a profit… But due to inflation, a lot of things have changed,” Dr Thahane, who served from 2002 to 2012, said, explaining “say if it was M10 000 profit then, now it’s around M5 to M10 million.”
“When we saw the lack of dividends, we wanted to know the reasons; we found out the management contract has a clause relating to transfer pricing which stated that Seaboard will purchase maize and other items for Lesotho Flour Mills.
We checked the contract and responsibility of shareholders… We went as far as asking about the appointment of directors during one board meeting,” he told this publication.
He further said that they ultimately moved for the axing of the then chief executive officer despite Section 2 of the management contract that gives Seaboard strategic positions without vetting or qualifying their competencies before other board members.
Titled Engagement of Seaboard: Seaboard Local Services states, “The LFM hereby retains Seaboard to manage, operate and supervise the operations of the project, and Seaboard agrees to be retained pursuant to the terms and conditions herein set forth.
The parties expressly acknowledge that Seaboard shall have the sole responsibility for the day-to-day management and operation of the project, subject to the direction of the board of directors of the LFM…
Seaboard will make available in Lesotho a resident management team for the project, comprised of the following: Managing Director, Director of Finance and Administration, Technical Director, and other such staff as may be mutually agreed upon by Seaboard and the LFM.”
Former board chairperson, Dr Mphu Ramatlapeng, echoed Thahane’s stance, noting that the move to privatise LFM was ill-conceived.
“The sale was at the insistence of the World Bank to allow Lesotho access to certain loans,” she said, adding that “it’s not as straightforward as people look at it. The Lesotho Flour Mills was making profit.
“Government was also not keen to privatise the company since it was lucrative,” she said.
A shareholders’ agreement between the government, Seaboard Overseas Limited and Saxonvale Investment Inc. seen by this publication reveals a startling figure of USD $10 million in which the company was purchased.
Clause 2.3 reads: “It is agreed that as at the date of signatures of this Agreement, and in terms of the Sale Agreement, the net asset value of the company, upon full performance of all obligations set out in the Sale Agreement by the Government of the Kingdom of Lesotho, is in Maloti equivalent, at the effective date of the Sale Agreement, to the sum of US $10 000 000.”
Incumbent chairperson Mazvi Maharsaoa refuses to answer questions, insisting that “I cannot answer questions related to what you are asking.”
Ex-board member, Ramahaoana Matlosa, has, on the other hand, told this publication that what Seaboard has been doing is a ‘shameless’ stunt.
“What is also surprising is that their (directors’) salaries are being paid from LFM coffers instead of Seaboard’s as per contract,” a fuming Matlosa said.
“Those people were doing as they pleased… I don’t think the management contract was drafted badly; it was a deliberate strategy to short-change government,” he said.
Former Prime Minister Dr Moeketsi Majoro’s also asserts that “the management contract…is (if it was renewed) illegal.”
Adding weight to the story, Majoro’s successor, former finance minister, Thabo Sofonea, revealed in an earlier Public Eye interview that plans were already advanced in trying to terminate the management contract with Seaboard.
“I had already instructed our legal team to assess the modalities of terminating that contract; during meetings, what we discussed was how to part ways with Seaboard. I went as far as not approving and signing off on financial books,” a furious Sofonea told this paper two months ago.
In a brief interview last week, Shelile told Public Eye that the government is “not happy with Seaboard since it hasn’t paid dividends for the past twenty-seven years.”
“We had an AGM (Annual General Meeting) on Friday last week where Seaboard raised the issue that they are working on ways of pulling out,” Shelile said, adding, “we are going to meet again this month regarding the management contract.”
“Those people’s (Seaboard) performance hasn’t inspired confidence; when I was an employee at LNDC (Lesotho National Development Corporation), they were received by me, yet they haven’t given dividends to governments,” he said while further indicating that severing of ties will be “soon.”
Finance Principal Secretary, Nthoateng Lebona, has confirmed too that a shareholders meeting will take place this month but refused to divulge details, insisting that “you write down questions; you will get further details from the Public Relations Officer.”
Meanwhile, deal has been labelled ‘shitty’ by a source inside the company, where Seaboard receives in excess of USD $300 000 management fee from the LFM.
The fee, which came into operation on January 1, 1999, meant to exist for 10 years, gives Seaboard the money “adjusted on 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.”
“The question which should be asked is, ‘Under which terms and conditions did the benefits offered since the common denominator all these is Seaboard and its subsidiaries?’” the source quizzed, adding that “the signatories of the management contract rendered it invalid since the two members were not eligible.”
Section 4 of the management contract also addresses the 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 its management is paid a management fee while also earning 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 revealed.
On October 25, 2017, the then Finance Director and Secretary to the Board of Directors, Bryant Schoenherr, wrote to government raising the board 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 partly reads, adding that “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 government that by December 8, 2017, a review and comments are required in a bid to move forward with the contract.
Ramatlapeng had said earlier when asked by this publication that the management contract was already signed and was presented to them as board members.
“The contract was already a negotiated deal of which we expected it 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 AGM.
