CULEMBORG METROPOLE CASINO (PTY) LTD.

SUBMISSIONS TO THE PQRTFOLIO COMMITTEE ON TRADE AND INDUSTRY (NATIONAL ASSEMBLY)

RE :THE NATIONAL GAMBLING AMENDMENT BILL, 1999

ON BEHALF OF CULEMBORG METROPOLE CASINO (PTY) LTD

1. These submissions regarding; the National Gambling Amendment Bill,

1999 ("the Bill") are made on behalf of Culemborg Metropole Casino (Pty) Ltd ("Culemborg").

2. Culemborg is one of five bidders for the casino licence for the Cape Metropole. It submitted its bid on the closing date for proposals, 11 February 1998.

3. In the period since it registered as a potential bidder on 1 December 1997 Culemborg has expended R22 million on its bid, as well as an enormous amount of time and energy. Culemborg and its major proposed shareholders, i.e. the Ogden Corporation (of the United States), London Clubs International (of the United Kingdom), the Culemborg Metropole Casino Empowerment Trust and the Star 30 Trust have undergone a probity investigation by the Western Cape Gambling and Racing Board.

4. Culemborg's bid involves the radical redevelopment of the existing Transnet PX Site at the Culemborg Goods Yard on the Cape Town Foreshore. It has concluded a contract with Transnet to purchase the Yard for R120 million. The contract is conditional on Culemborg being awarded the gambling licence.

6. Culemborg's shares will be held by various empowerment groups. Culemborg's empowerment package includes a widespread social development programme to be administered by the Community Chest of the Western Cape. Approximately 1.8 underprivileged million people are currently benefiting from the activities of the Community Chest.

7. On 19 May 1999 the Western Cape Gambling and Racing Board announced its assessment and ranking of the bids. Culemborg was placed second behind the preferred bidder, Sunwest International (Pty) Ltd ("Sunwest"), which is a subsidiary of Sun International (South Africa) Ltd ("SISA").

8. The North West Development Corporation (Pty) Ltd ("NWDC") holds an effective shareholding on approximately 11 % in Sunwest through its stake in the Sun International group of companies. (The NWDC' owns 49% of the shares in Sun International SA Holdings (Pty) Ltd, which in turn owns 48,5% of the shares in SISA).

9. The sole shareholder of the NWDC is the Government of the Province of the North West ("the North West Government").

10. In February 1 999 the North West Government applied for a provisional order of judicial management for the NWDC. In its application papers the North West Government said that the NWDC is in "insolvent circumstance", that is in "dire financial straits", that "it is not able to meet its current financial commitments" and that it has "been guilty of mismanagement of its affairs". The NWDC was said to have debts totaling R716 million, R700 million of which was owed to various banks.

12. According to a report to the provisional judicial managers of the NWDC prepared by BCE Securities on 29 April 1999 the prognosis for the successful rehabilitation of the NWDC is poor. This is largely due to the sharp decline in the SISA share price (currently R1,06, as against R6 in 1994). BOE Securities predicts that even if the disposal of NWDC's stake in SISA is delayed for four years and its R8OO million debt is restructured (by conversion to preferential shares) the NWDC's creditors will still lose out. This option, BOF Securities reports, offers the lowest loss to creditors - to neutralize the shortfall the SISA share price needs to increase to R6,37 by June 2003. It is to be noted that BOE Securities' preferred option assumes a SISA share price by June 2003 of R3,91, almost four times the current ruling price.

13. On 10 August 1999 the order of provisional judicial management for the NWDC was confirmed.

14. Culemborg believes that it would be improper for Parliament to pass the Bill into law for at least four reasons.

15. Firstly, the Bill will unacceptably prolong the period during which the State will have significant financial interests in gambling activities. The State licences and regulates the operation of casinos, yet it is now proposed that the State simultaneously be a player and the referee in the gambling arena until 10 May 2003. One of the main purposes of the prohibition on State financial interests in gambling activities is to exclude possible fraud, corruption, bribery and abuse. Parliament should not extend the period during which there will be a conflict between the duty of the State to regulate and control the gambling industry, on the one hand, and its interest in obtaining financial returns from that industry, on the other. This tension is particularly acute where the dire financial straits in which the NWDC finds itself will inevitably push the State - the NWDC's only shareholder - to use its regulatory position to SISA's advantage and, in so doing, to mitigate the State's losses.

16. Secondly, the Bill authorizes the granting of casino licences to entities which are insolvent and which are in the course of being liquidated or, in the hope that things will improve, have been placed under judicial management. To be successful new casino operations require a massive investment of funds, as well as very skilled management and control. An insolvent company is unlikely to be in a position to meet either of these challenges. For this reason, the provincial gambling laws prohibit entities insolvent companies from obtaining or holding casino licences (see e.g. section 29(a) of the Western Cape Gambling and Racing Law, 1996).

17. Thirdly, the Bill interferes with the provincial casino licensing processes, most of which are now far advanced. Clause 1(b) of the Bill directs that provincial gambling boards must disregard the State's financial interest in gambling activities until (in effect) 10 May 2003. They must also disregard the insolvency or judicial management of the NWDC.

18. Fourthly, there is a strong possibility that the Bill is unconstitutional. The Bill seeks to change two of the ground rules for casino bids - namely, the prohibition on State financial interests in the bidders and the requirement that bidders be financially healthy. This is to be done at the very end of the process. The Bill makes these changes with the express aim of privileging the financial interest of the State in three named companies (all of which are apartheid era anachronisms). It achieves its goal at the expense of those, including foreign investors, who in good faith have invested millions of Rands in bidding for casino licences in South Africa and who legitimately expect the State and the companies in which it has a financial interest to abide by the rules the State itself wrote for the bidding process.

1 9. The Constitution, however, says that everyone is equal before the law and has the right to equal protection and benefit of the law. The Bill will violate the constitutional guarantee of equality by providing special, more favourable rules for three named State-controlled entities.

20. The Bill's violation of the constitutional guarantee of equality is difficult to justify not only because the Bill is retrospective in its effect but also because its focus is limited to three companies.

21. The rights in the Constitution's Bill of Rights, such as the guarantee of equality, may be limited only in terms of law of general application. The Bill is clearly not a law that applies generally.

22. Moreover, it is doubtful whether in the circumstances it qualifies as "law" at all. One of the distinguishing features of "law" is to let people know, in advance, what is expected of them and what they can expect of others. Yet the Bill is unequivocally, and unashamedly, retrospective in operation. If enacted its effect will be to deem the law to be what is was not in the period since 18 April 1997.

23. In short, Parliament should not sanction a self-serving measure such as the Bill which will undoubtedly prejudice Culemborg and others in a similar position (such as Tsogo Sun in Durban and Akani in Kimberley) who legitimately expect that all participants in the casino bidding processes will be treated equally and, in particular, that those who do not meet the requirements imposed by law will be disqualified.

A M BREITENBACH

Counsel for Culemborg