Presentation to the Portfolio Committee Restructuring of the Forestry Sector

1. Presentation to the Portfolio Committee Restructuring of the Forestry Sector Presenter: James Patterson Date: 16 October 2002

2. Government Objectives Government objectives in restructuring the Forestry Sector are: • An increase in BLACK EMPOWERMENT • Clarification and Confirmation of LAND RIGHTS • Achievement of ENVIRONMENTAL SUSTAINABILITY • Agreement on LABOUR ISSUES

3. Process History • Approach to Restructuring • Since mid year 2000 restructuring has followed the process as detailed below: • In August 2000 it was decided to only consider the Eastern Cape North and KwaZulu-Natal for further negotiation. • It was decided by cabinet in August 2000 that the Northern Province and Mpumalanga packages should be offered in the future as a single package. • The Southern and Western Cape packages were to remain with SAFCOL, with a decision to be made on alternative land uses in the future. • These decisions were made after the limited response received from acceptable bidders when the initial 7 forestry packages were offered.

4. Achievements/Progress to Date KwaZulu-Natal Transaction • Legal Agreements signed by SAFCOL and Purchasing Consortium. • The consortium consists of Mondi and its empowerment partner Imbokodvo Lemabalabala (IL). IL holds 10% of the shares in the company. • Mondi intends to reduce its shareholding in the company to 51%. The available 14% will be sold to rural black timber farmers, neighbouring communities and IL. • Sale and transfer of Assets – October 1, 2001. • Sale Value - R100 million • Annual rent of R 5.3 Mil. Will accrue to successful land claimants and other community groups.

5. Achievements/Progress to Date Eastern Cape North Transaction • Legal Agreements signed by SAFCOL and Purchaser • The consortium comprises Hans Merensky, the Eastern Cape Development Corporation (ECDC) and the Singalanga Trust. Singalanga Trust which has a 10% shareholding represents 163 local communities. The Trust has been mandated by the communities to request permission to purchase the 14% shareholding of ECDC. • Sale and transfer of Assets - August 1, 2001 • Sale Value - R 17 million • The company employs 2300 people and influences over 11600 peoples lives in the surrounding communities.

6. Achievements/Progress to date Southern and Western Cape Land Conversion Process • Recommendations where made in regard to potential land uses and a process to achieve the aims of Government. • The recommendations where accepted by Government with DPE coordinating the process. • It was recommended that 45 000 ha of unsustainable forests be converted from forestry use over a 20 year period

7. Achievements/Progress to date Southern and Western Cape Land Conversion Process • 6 000 ha are currently available for conversion • The total land available will be converted as follows: • 29 000 ha will be converted to Conservation • 6 900 ha converted to Community Forests • 9 000 ha converted to Agricultural use • 200 ha converted to Housing use • The conversion process will be managed by MTO, previously the Southern & Western Cape forestry package. (Discussed later)

8. Achievements/Progress to date Eastern Cape South Transaction • Agreement finally reached with Preferred Bidder – Rance Consortium • Settlement Agreement signed by SAFCOL and Rance • Legal Agreements in negotiation • Contractual Agreements to be signed November 2002 • Sale and Transfer of Assets – Anticipated June 2003 • (After lease agreement signed off by DWAF) • The consortium consist of a 10% shareholding by the Amatole Workers Trust and a 10% shareholding by the Amatole Community Trust

9. Achievements/Progress to date Southern & Western Cape Transaction (MTO) • An unsolicited bid for the Southern & Western Cape was received from Steinhoff in June 2001 • A decision was made in the interest of transparency to open the bid process to all interested parties • Advertisements were placed in the National press in September 2001 • 8 interested parties were invited to consider bidding for the forestry assets in April 2002 • A formal Information Memorandum and Invitation to Offer were made available in June 2002 • After due diligence by the Bidders in July/August 2002 formal bids were received from 2 Bidders (Cape Sawmills & Steinhoff) on August 23, 2002

10. Achievements/Progress to date Southern & Western Cape Transaction (MTO) • The Bid Evaluation Committee made their recommendation to the Safcol Board on September 3, 2002 which recommendation was unanimously approved • Approval of the recommended Preferred Bidder by Cabinet is now awaited • Negotiations with the Preferred Bidder will commence immediately Cabinet approval is obtained • It is anticipated that contractual agreements will be signed by March 31, 2003 • It is anticipated that the sale and transfer of the forestry assets will be completed by August/September 2003 (after lease agreement signed off by DWAF) • The Southern & Western Cape Conversion forest assets will remain within MTO as the infrastructure and resources are available within the company

11. Achievements/Progress to date Northern Province (Limpopo) & Mpumalanga Transaction (Komatiland) • The initial transaction has been cancelled effective late September 2002 on the basis of non-compliance with the bid rules and procedures. This compromised the integrity of the bidding process and was confirmed to Government in opinions from Senior Counsel. • DPE has received the report from the Public Service Commission setting out their findings relating to the alleged misconduct of the Chief Director Restructuring and the effect on the previous Komatiland transaction process • DPE is awaiting the report from the Auditor General on the validity of the original transaction process • Cabinet confirmed that both Zama Resources and Paharpur could express their interest in being included in the new process. It also confirmed that whilst Zama Resources and Paharpur are invited to express interest in the new transaction process, should they be found to have committed any unlawful act in the initial process, they would be disqualified from the new bid process. • Lessons learned from this transaction will be incorporated into the new process

12. Achievements/Progress to date Northern Province (Limpopo) & Mpumalanga Transaction (Komatiland) • Planning for the Komatiland re-bidding process is now occurring • It is anticipated that expressions of interest from all potential bidders will be called for in the near future. • Once a short listed group of bidders has been confirmed by Cabinet the necessary transaction documents and the process will commence, culminating in the sale of the Forestry Assets.

13. Transaction process control mechanism Outputs required •  A successfully concluded transaction •  Open and transparent process •  Meeting Government policy requirements •  Process seen to be above reproach Inputs required • Strict control of the process by the Transaction Adviser • No interaction of the Bid Evaluation Committee (BEC) or other parties with the bidders except with the consent of the Transaction Adviser • Notification by BEC member to the Transaction Adviser when contact is instigated by a bidder • Detailed confidentiality agreements signed by all parties to the bid process

14. Transaction process control mechanism Inputs required • All evaluation meetings minuted and taped • The weighting of all evaluation criteria confirmed by all BEC members prior to bids received • Each individual BEC member to complete the evaluation form immediately after the bidder presentation and hand directly to the Transaction Adviser • The final decision/recommendation of the BEC to be audited for process integrity by an independent entity

15. Major Issues Successfully Concluded Government Objectives Met • Black Economic Empowerment (BEE) • All transactions include a minimum 10% shareholding for a BEE partner • Local communities receive a minimum shareholding of 10% • Workers receive a maximum 9% shareholding • Land Rights • Lease rentals at market rates are charged by DWAF • These rentals are used to compensate successful land claimants and local communities • Environmental Sustainability • The Land Conversion process in the Southern and Western Cape will transfer land to communities for community forest activities, agriculture and housing • Conservation will receive significant parcels of land in the Southern and Western Cape and at St Lucia in KwaZulu Natal

16. Major Issues Successfully Concluded • Transfer of DWAF staff to SAFCOL with the consensus of Labour. • Redundancy - The commitment of Government for a three year no redundancy clause is confirmed by the purchasers. • Wage Rates - Agreement achieved with organised labour on a 5 notch transfer basis. • Pension Fund Benefits - Agreement reached between Government and Pension Fund Trustees on funding of deficits.

17. Future Plans • With the success of the sale of the first two transaction packages and the cancellation of the tainted Komatiland transaction, Government expects the process for the additional packages will move forward quickly. • The major issues relating to industrial policy, black empowerment, land and environmental issues, land rights, environmental sustainability and labour issues have been successfully concluded. • The bid process, sale structure, shareholding parameters and community involvement is largely determined. • The only major time delay anticipated is achieving Government signoff of the respective leases, because of the different Government Departments involved.

18. Conclusion • Whilst the mandate for restructuring the Forestry Sector has, at times, seemed slow the lessons have been learned, the major issues are identified and the risks are known. • It is our belief that progress will be seen at a significantly faster pace, with the achievement of Government aims and policies seen to be effected for the benefit of stakeholders, employees, private sector partners and the general economic well being of the country.

19. Thank You Website: www.dpe.gov.za