South African Forestry Companies Limited on implementation of turnaround plan and diversification programme; with Deputy Minister

Meeting report

NOTE: PMG was not present at the meeting. The below is compiled based on the Committee’s official minutes.

Opening remarks

The Chairperson opened the meeting and welcomed all Members and support staff whilst also acknowledging the presence of the Deputy Minister for Public Enterprises, Mr P Masualle and other delegates from the Department of Public Enterprises and Safcol.

The Chairperson explained how saddened the Portfolio Committee was due to the passing away of one of its members, namely Ms D Dlamini (ANC). The Chairperson asked Members of the joint Committee and everyone else to observe a moment of silent in Ms Dlamini’s honour.

Mr T Matibe (ANC, Limpopo), Chairperson of the Select Committee on Public Enterprises and Communication, was co-chairing the meeting. Mr Matibe will handle the discussion session of the joint meeting.

Remarks by the Deputy Minister

In his opening remarks, the Deputy Minister apologised for the absence of the Minister, Mr P Gordhan and the Acting Director General, Mr K Tlhakudi. In his opening remarks, the Deputy Minister pointed out that Safcol had had its own share of challenges before, but that stability has been restored with the appointment of key personnel. The focus was now on the sustainability and profitability of the company once issues of diversification and beneficiations were adequately addressed. The Deputy Minister then handed over to the Chief Executive Officer of Safcol to proceed with the presentation.

Safcol Update and Diversification

Mr Tsepo Monaheng, Safcol CEO, started off by explaining that the entity’s executive team is now focusing on the company’s business sustainability, which revolves around four strategic objectives;

•           An appropriate operating model

•           Appropriate processing technologies to improve efficiencies

•           Improved business development and market intelligence capabilities

•           Creation of shared value initiatives with a focus on: industry transformation and local community economic development

According to the Chairperson of the board, the business is 90% stable with a clear focus on sustainability and diversification. The major challenge for the business is revenue growth and this calls for the diversification of revenue streams. To mitigate these challenges the executive is looking at relocating some of the staff from Pretoria and Nelspruit to Safcol head offices in a phased approach. Safcol is also planning to dispose of her 9% shares at Siyaqhubeka and those funds will be reinvested in mechanisation of the business’ capacity

[Please see attached for full presentation]

Discussion

The first concern Members of the Committees raised was the absence of the Chairperson of the Board of Safcol.  This concern was later corrected since the Board Chairperson, Mr Mpho Makwana,  joined the meeting about 35 minutes later due to the other meeting that he had to Chair.  The apology was noted and accepted. 

The meeting wanted to know what the CEO meant when saying Safcol was going to reduce irregular expenditure.  How was that going to be achieved?  The CEO told the meeting that they were to strengthen internal controls, consequence management and ensure the training of staff. 

How many land claims were already finalised and if so, were they transferred to communities?  The response was that the matter of land claims was with the Department of Rural development and Land Reform.  The money for that project was ring-fenced. 

Members were oncerned about the youth unemployment and requested Safcol not to use the excuse of Covid-19.  Safcol mentioned that it was very passionate about youth and therefore was ensuring opportunities were created especially with the diversification projects.

The presenter mentioned that five subsidiary companies had to be deregistered.  Did this not have the impact on job losses?  Safcol mentioned that is has applied from the UIF, which will take care of the employees who were not paid during the lockdown. 

Members were concerned about the relocation of staff from Pretoria to Mpumalanga mentioning that that would be subjected to monitoring and evaluation.  Was the DPE going to oversee the monitoring and evaluation?  What about the employees who do not want to relocate?  Safcol responded by saying that the trade unions were engaging with management team and they were working comfortably from a point of mutual respect.   The leases would be ending at the end of December 2020.  The process will be done cost-effectively and would ensure improved operations. 

The two fatalities mentioned:  One was said to have died because of compliance.  What does that mean?  Did the member not comply with the Company’s regulations?  In response Mr Frans Baleni, Safcol Board, told the meeting that the company was preaching the importance of Health and safety.  Had policies been revamped to ensure safety as a matter of priority?  The Board was also hands on this matter. 

Since the New Board assumed its duties in October 2018, does the company see any stability?  In response, the Board Chairperson mentioned that the Board inherited serious challenges of irregular expenditure but the Board’s Review was done every 12 months by the REMCO – the Independent Company, which was so far very pleased with the work of this New Board.  The chairperson told the meeting that the Board was meeting every second week and assured the meeting that there was nothing to worry about.   REMCO was working tirelessly with the Board around succession planning. 

The services provider that was appointed did not complete the job - what were the consequences or the matter is not yet finalised?

The internal controls mentioned - have you realised any improvement?

When was the diversification plan to be compiled?   Will this plan benefit the cooperatives?  The response was that the company was using its resources to build black enterprises that could benefit the communities but the Covid-19 plus the economic meltdown impacted a great deal. 

What was Safcol’s purse looking like? Will Safcol come to Parliament asking for bailout?   No the company does not anticipate any bailout requests since the company has equity reserves of approximately R3 billion and the balance sheet is strong. 

Members heard about the export market plans since 2014 and requested the timeframes.  The response was that the export market was to create a revenue mix and had received a report that the company could come to fruition. 

Which market supports IFLOMA?  The assets were not profitable at all but have since been improving but not to where expected but there was some improvement.

What was the agreement between Safcol and people owning land?  Is Safcol paying rent?

Why was Safcol failing to attract black females in management levels?  Was Safcol compliant to BEE policies and regulation?  The Chairperson of Social ethics, Ms Joanne Yawitrch, told the meeting that the company was busy transforming internally especially the female representation was in the pipeline. 

How far are the investigations regarding the staff that was found to be corrupt?  There were investigations carried out – out of the 24 staff, ten were found not guilty and three were dismissed.   The company had to strengthen the internal controls. 

Safcol mentioned that it was targeting the biggest users of timber, which were China and India.  This would assist in avoiding to be all over the show.  Sawmillers sell into construction and if the construction collapses, the sawmillers follow suit. 

The Committee took note and suggested that Safcol looks into:

• wasteful and fruitless expenditure. 
• out of 14 targets the company had achieved only five.
• acting positions
• Issues that the company needed to take into considerations,
• Stealing of timber,
• Detailed report  regarding the land claims

The Committee appreciated that there were no increments

Committee matters

As the Committee had lost one of its Members, it was suggested that there should be a joint statement written to the Dlamini family.  It was suggested that it would be ideal if some of the Members could be given an opportunity to attend the funeral

In closing, Chairperson Magaxe thanked the Department, the Co-Chairperson and Members of both Committees for fruitful engagements. 

The meeting was adjourned.