FORESTRY TRANSFORMATION AND BENEFICIATION

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FORESTRY TRANSFORMATION AND BENEFICIATION

• Presentation to Portfolio Committee on Water
  Affairs and Forestry

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CONTENT

• Historical background
• The State exiting commercial forestry operations
• Restructuring objectives
• Land reform
• Category A packages
• Outcome Cat A process
• Lessons learned
• Consequences/ applications of lessons learned
• Conclusion

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HISTORICAL BACKGROUND

• State Forestry in South Africa was initiated as
  a result of market failure
• Late 1980s decision to commercialize State owned
  plantations SAFCOL established in 1992
• In 1996 with the White Paper on Forestry,
  Government announced its exit from commercial
  operations to focus on efficient management of
  natural forests, regulatory role and sector
  leadership

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STATE EXISTING COMMERCIAL OPERATIONS

• Objective was to optimise operations and increase
  opportunities (diversify players in the sector)
• Also driven by the need to privatize SAFCOL
• Viability of operations was affected by the
  rationalization process mainly due labour matters
• Inter Ministerial Cabinet Committee decided in
  1997 to offer private investors combined packages
  called category (A)

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RESTRUCTURING OBJECTIVES

• Policy on the restructuring of State Owned
  Enterprises Championed by DPE
• The need to focus on core business of Government
  and increase operational efficiencies
• Black Economic Empowerment (6 held by Government
  to influence the sector, 9 ESOP, 10 community)
• Optimize forestry land use removal of
  uneconomical or environmentally sensitive
  plantation areas Lowveld Exit Strategy and Cape
  Conversion Process
• Advance land reform objectives

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LAND REFORM IMPLICATIONS

• Inter-Ministerial Cabinet Committee of 15 April
  1999 re-affirmed that
• Majority shareholding in State owned forestry
  operations should be privatized
• State land not be sold at the same time, but
  leased
• Lease rentals be retained for transfer to future
  land reform beneficiaries
• The State will help to expedite finalization of
  land claims affecting forestry land
• The State will help to facilitate a back lease
  agreement with the beneficiaries to avoid
  interruption of operations and to optimize land
  use

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Category A packages
PACKAGE Singisi Forest Products (Pty) Ltd Siyaqhubeka Forests (Pty) Ltd Amatola Forestry Company (Pty) Ltd MTO Forestry (Pty) Ltd Komatiland Forests (Pty) Ltd
DISCRIPTION The Singisi package comprise of all the commercial plantations managed by DWAF in the former Transkei, around Umtata in the Eastern Cape, as well as state owned plantations under SAFCOLs control near Kokstad in Kwazulu-Natal. Some of the more northern plantations included in the package are located as far away as Pietermaritzburg. The Siyaqhubeka package is made up of four plantation areas having a high forestry potential (yield) in an area along the north coast of Kwazulu-Natal, stretching from Mtunzini in the south to Hluhluwe in the north. The plantations in the package were formerly managed by SAFCOL. The package also borders on the Greater St Lucia Wetlands Park. The Amathole lease area comprises two land management units situated near Hogsback and Stutterheim in the Eastern Cape. It is the smallest of the five Category A lease packages. The bidder for the package is Amathole Forest Holdings (Rance). The Mountains to Oceans Package ("MTO") stretches form Longmore near Humansdorp in the Eastern Cape to Kluitjieskraal near Wolsley in the Western Cape. A major feature of the package is that significant areas would be withdrawn from commercial plantation areas over the next 18 years, most of the land to be converted into conservation areas with smaller areas going for agricultural settlement and housing development. Over 45 000 ha of State forest land will eventually be transferred to conservation agencies, leaving behind only 8 of the original 18 plantations as permanent plantation areas. The Komati Package is the largest of the state owned plantation packages. It consists of all the commercial plantations managed by DWAF in the former homeland areas in Mpumalanga and Northern Province as well as state owned plantations under SAFCOLs management in the same provinces. The package stretches from Ngome in the south, near Vryheid in Kwazulu-Natal, to Thathe Vondo in the Soutpansberg in the Northern Province.
PROCEEDS (100) R17.1 million R100.0 million R1.3 million R23.3 million Not sold
BEE PARTNER Singilanga Directorate Trust Imbokodvo Lemabalabala Holdings Wildbreak Investment Holdings Wild Peach Investment Holdings State owned entity
BEE INTEREST 10 10 10 50 N/A
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Outcomes Cat A

• Four packages restructured covering almost 250
  000 ha, operations improved, better production
• Collecting lease rentals of almost R16 million
  p.a.
• Internal BEE transactions to each transaction and
  down-stream benefits
• Optimising land use at St Lucia, Blyde and Tokai
  as well as generally in Southern and Western Cape
  affecting 65 000 ha
• Staff transfers Resulted with job losses after
  some time
• Government wage bill reduced

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Lessons learned

• Protracted transaction process and high cost
  implications
• Slow progress in land reform implementation
  inhibiting finalisation of transactions and
  extending after care issues
• Litigation terminating contracts to facilitate
  transactions resulted with buy out of around R38
  million
• Labour costs protracted negotiations before the
  transaction, additional costs to retain benefits
  during the transaction, ongoing aftercare issues
• Some promised benefits by operators to
  communities were not realized

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LESSONS LEARNED

• Land excluded from transaction reverting back to
  the state extra cost implications on MTEF
• Limited ability to secure intergovernmental
  co-operation for post transaction issues
  (conversion)
• Unforeseen implications on the forestry sector
  increased pulp plantations, decrease in gross
  plantable areas
• Nett job losses, impact on livelihoods
• Impact on small players in the industry small
  saw millers
• Increased centralization of control over
  resources in specific areas is driving small
  operators out of business as demand for timber
  intensifies (MTO)

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Consequences/ applications of lessons learned

• New approach to restructuring of Category B and C
  plantations is more inclusive and is driven
  solely by the need to achieve broad
  representation in the sector partnerships, FED,
  developmental approach Targeting Land reform
  beneficiaries
• Principle approval has been obtained to transfer
  MM to land reform beneficiaries in KZN
• Refurbishment strategy approved to improve asset
  and operations to accommodate overstaffing
  pressures
• Provide post transfer support to ensure
  sustainability of the operations Various options
  are been explored to utilize SAFCOL to support
  FED and beneficiary communities
• Afforestation strategies in KZN and Eastern Cape
• Review of conversion strategy Southern and
  western Cape

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Conclusion

• Have improved operational efficiencies by
  bringing in private sector
• Have generated some income once off on sales
  and recurring through lease rentals
• Achieved BEE objectives though on a limited scale
• Optimizing land use environmentally sound
  practises

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CONCLUSIONS

• Land reform issues remains a major challenge
• There is a need for the State to continue to play
  influential role to ensure sustainability of the
  sector and in particular the assets to be
  transferred to the land reform beneficiaries
• Minimize the impact of restructuring both
  socially and economically

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KE YA LEBOGA