REPORT TO THE PORTFOLIO COMMITTEE ON MINERALS AND ENERGY BY ECACOC INVESTMENT HOLDINGS - ENERGY (Pty) LTD. (EIH- Energy)
1.1. Our Background and present situation
The Eastern Cape African Chamber of Commerce (ECACOC) is a growing organization of 2,710 business people and organizations. It was founded in 1967 and has made a most distinguished contribution to the representation of business people in the Eastern Cape. ECACOC is the Provincial Branch of the National African Federated Chamber of Commerce (NAFCOC). We represent business people from the historically disadvantaged communities in an area stretching from Grahamstown to Titsikama.
Our structures are most extensively developed in and around the Nelson Mandela Metropolitan Municipality. In that Municipality, our core market consists of some 600,000 people. Our core market expends in excess of R12billion per year in the areas of transport, clothes, food, banking, education, recreation, telephone and other services.
Our 2,710 members -44% of whom are female-carry a daily stock valued at R300million and their properties are collectively valued at R1.62billion.
1.2. Our Potential
Our most recent survey shows that we have a potential core membership of 5,500 with a daily stock value of R600million and a property value of R2.8billion.
1. 3. Repositioning ourselves for transformation
In the past ECACOC has represented primarily the township traders. We still regard these businesspeople as our core constituency. However in the new South Africa it has become necessary for us to reposition ourselves to represent all business people.
1.4. Our repositioning agenda
Consistent with the policies of Black Economic Empowerment articulated by President Thabo Mbeki, NAFCOC (and thus ECACOC) has adopted a series of policies that seek to effect the establishment of a non-racial, unified business organization in South Africa. We have the determination that Business in South Africa must speak with one voice. We are also of the view that the Black Business Council has a leadership role to play in the process of uniting black and white business.
Towards this end, a working group has been formed to contribute towards attaining this primary objective of unity of all business interests in South Africa. ECACOC has always had a good working relationship with the other business organizations in and around Port Elizabeth, the Eastern Cape and South Africa as a whole. In recent times we have been at the forefront in pursuing business unity. In the coming months we will be engaging our partners in the Eastern Cape even more vigorously and urgently to ensure that unity is achieved.
1.5. Strategic Management Consultant
The Government of the Eastern Cape has been very support of our agenda. This has been manifested by their seconding a Strategic Management Consultant to assist ECACOC in chamber development and programme implementation. This has contributed to our recent dynamic development. The support of our businesspeople is of course central to our success. We have received widespread support from small and big business alike in the Eastern Cape and South Africa as a whole. This strengthens us.
2.1. EHI
2.2.ECACOC Investment Holdings (EIH) is a wholly owned privately traded Company by the Eastern Cape African Chamber of Commerce.
2.3. EIH identifies opportunities, which are relevant to the sectors, which are represented in ECACOC. EIH initiates negotiations. When the opportunity matures, the interests of EIH are divested to the relevant sector of ECACOC.
2.4.The sectors represented in ECACOC include the following:
2.5. The Board of Directors consists of the following:
2.6. Having identified the opportunity to acquire 25% of SASOL, the Board of Directors of EIH has divested its responsibility for negotiating the SASOL contract to a Special Purpose Vehicle (SPV) of the Energy Sector of ECACOC.
2.7. This SPV is in the form of a subsidiary company responsible for the SASOL negotiations known as EIH-Energy (Pty) Ltd. This Company consists of the following Board of Directors:
2.8. The Orgonogram of this arrangement is attached.
3. PROPOSAL FOR THE ACQUISITION OF 25% OF THE EQUITY IN SASOL BY BLACK ECONOMIC EMPOWERMENT INTERESTS IN THE EASTERN CAPE
3.1.BACKGROUND
3.1.1. The following discussion is intended to constitute an outline of our business plan. In 2000, the petroleum companies operating in South Africa subscribed to a Charter for the South African Petroleum and Liquid Fuels Industry on Empowering Historically Disadvantaged South Africans in the Petroleum and Liquid Fuels Industry. That Charter subscribed to the policy objectives stated in the Energy Policy White Paper, which required "sustainable presence, ownership or control, by historically disadvantaged South Africans of a quarter of all facets of the liquid fuels industry or plans to achieve this."
3.1.2.This undertaking to divest at least 25% of their equity to Black Economic Empowerment (BEE) groups has been entered into in the context of:
3.1.3.While some of the members of the liquid fuel industry have begun to implement this programme, SASOL has not yet done so. A group of BEE businesspersons have come together in the Eastern Cape under the auspices of the Eastern Cape African Chamber of Commerce (ECACOC) with a view to acquiring 25% of the equity of SASOL.
3.1.4.To facilitate this process; ECACOC has established an independent legal entity known as Ecacoc Investment Holdings (Pty) Ltd (EIH).
3.1.5.In the long run, we propose to acquire 25% of all the Companies that constitute the SASOL Group.
3.2. SASOL
3.2.1.SASOL is a group of Companies with operations in eight generic areas:
The average value of each of these generic areas is about R10 billion. (Total R80billion)
3.2.2.We are initially interested in the Oil and Fuels Group. This Group has twelve companies and areas of activity under its wing. These are:
3.2.3. Of the above companies we are initially interested in three:
Together these are valued at R14billion. (2001 JSE value)
The 25% equity interest that we seek amounts to R3.5billion.
3.3. ACQUIRING THE 25%
3.3.1.Our strategy for acquiring the 25% equity that we seek involves:
As a manifestation of this relationship we propose to regularly update the Standing Committee on Minerals and Energy, the Hon. Minister and the Ministry of the progress of our negotiations.
3.4.FINANCING THE PROJECT
3.4.1.The total amount required to be realized for the acquisition of the 25% identified, amounts to R3.5 billion. It is proposed to acquire these resources in the following manner:
3.4.2. R1billion as a five-year interest free grant from the national government. Acquired under Section 12 of the Minerals and Petroleum Development Bill. The vehicle for the access to this R1billion will be discussed with the Government. However, EIH prefers a direct deposit from the fiscus.
3.4.3. R1billion as a ten (10) year commercial loan from a Merchant Bank. We are presently in negotiations with two Merchant Banks. The principal outstanding issue is the applicable interest rate.
3.4.4.R1.5billion to be raised by public subscription. The floating of the public subscriptions to be managed by the Merchant Bank involved in the commercial loan. A mechanism has to be found to ensure that this segment of the financing remains in the hands of BEE partners.
3.4.5. The Charter requires that "Companies investigate and implement internal and external financing mechanisms for giving HDSA companies access to equity ownership within the South African context." It also requires that "Companies to consider engaging HDSA companies in viable strategic partnerships". This will form part of our negotiations with SASOL. We aim for a maximum of R .5billion via this mechanism. (In such circumstances the R1.5billion to be raised by public subscription will be reduced to R1billion.)
3.5.1.EIH-Energy has entered into negotiations with SASOL. It is proposed to conclude these negotiations by the fourth quarter of October 2002.
3.5.1.EIH-Energy has also entered into negotiations with the Rand Merchant Bank (RMB). We have an agreement in principle for RMB to provide technical financial support services, a R1billion commercial loan at a negotiated interest rate, and be responsible for marketing the public issue of shares. We have every reason to expect a positive outcome from these negotiations.
4. THE VALUE OF OUR APPROACH
4.1. Full engagement of partners
Our investors are full engaged in the business process of SASOL. We see ourselves as active partners who are committed to growing the business. We expect to be represented on the decision-making bodies of SASOL consistent with our share holding.
4.2. We invest our own capital
ECACOC members and PDI’s will directly invest at least R1billion through the instrumentality of the public subscription to at least 33% of the shares.
4.3. Broad-based shareholding
We anticipate that at least one million individuals from the PDI grouping will invest on the average R1, 000 each to take up the R1 billion on offer. These investors are sure to reflect the demographic characteristics of our society especially in so far as gender, disability, worker and employer are concerned.
4.4. Long-term commitment
Based on the fact that ECACOC members from the youth, women and SMME sector are involved in the investment, we can expect that our investors will display a long-term commitment to company. To ensure that this commitment will in fact be long term we will support the establishment of a binding partnership for at least five years, and the imposition of exit penalties.
4.5. Environmental sensitivity
The profile of the ECOC members and supporters reveal a well-established commitment to environmental sensitivity. This fit well with SASOL’s well-known commitment to environmentally sustainable investments.
4.6. Our beneficiaries reflect a commitment to social responsibility
Our beneficiaries include:
4.7. Poverty alleviation and empowerment
We see our involvement with SASOL as an opportunity to contribute to poverty alleviation by spreading the wealth of our nation. It is also an opportunity for empowerment in that we as substantial owners will be beneficiaries of skills transfer and development. We in turn will serve as a source of skills transfer to PDIs.
4.8. Commercial viability
We see our partnership with SASOL as mutually beneficial. Both of us are interested in growing the business to ensure rewarding returns for our investors. We see ourselves as sharing risks as well as rewards. In this regard, EIH-Energy is particularly well placed to promote the commercialisation of SASOL. By seconding key personnel to SASOL we will enrich their diversity profile as well as contribute to their and our profitability.
4.9. Sound Business Culture
EIH-Energy as a business-driven initiative, sits very comfortably with the corporate culture SASOL. We have a long history of successful business undertakings – even under extremely difficult and unfavourable circumstances. We have always promoted the culture of hard work, reasonable reward and the proper treatment of the people who work with and for us. This complements the corporate culture displayed by SASOL over the years.
August 2002