Report of the Portfolio Committee on Public Enterprises on the Study Tour of Alexkor, a state-owned diamond mining company in Alexander Bay, Northern Cape, dated 16 March 2005:

Report of the Portfolio Committee on Public Enterprises on the Study Tour of Alexkor, a state-owned diamond mining company in Alexander Bay, Northern Cape, dated 16 March 2005:

The Portfolio Committee on Public Enterprises, having undertaken a study tour of Alexkor on 1 and 2 November 2004, reports as follows:

A. Study Tour Part of Programme

1. Alexkor is a state-owned diamond mining company in Alexander Bay, Northern Cape, that accounts to parliament through the Public Enterprises Portfolio Committee.

2. As part of the August 2004 programme of the Committee, " Towards Developing a Longer-Term Programme: Setting the Foundations", the Committee decided to undertake visits to all the state-owned enterprises (SOEs) that fall within our portfolio. The aims of these visits, basically, are:

To get a better sense of the SOEs and the nature and scope of our portfolio.
To get a better understanding of the extent to which the SOEs are fulfilling the government’s mandate, particularly the new stress on the developmental role of SOEs.
To develop a strategic framework to guide the Committee’s programme over the next few years.
To develop a more effective oversight role for the Committee.

3. Depending on the overall programme of parliament, the Committee hopes to complete this initial study tour programme of the SOEs by June this year.

4. The study tour of Alexkor took place on 1 and 2 November 2004. Those who took part are Mr Y Carrim (chairperson), Mr I Davidson, Mr C Gololo, Mr P Hendrickse, Mr S Kholwane, Ms N Kondlo, Mr J Louw, Mr S Manie, Mr K Minnie, Ms N Mnandi, Ms D Ngcengwane and Mr R Nogumla.

5. The study tour followed shortly after Alexkor presented its Annual Report to the Portfolio Committee. This brief report is partly related to the issues raised in the consideration of Alexkor’s Annual Report. In addition to the general aims of the SOE study tours set out in section 2 above, the visit to Alexkor aimed to get a better understanding of:

The contribution of Alexkor to the economy and society of the Namaqualand region.
Progress in respect of transferring government functions from Alexkor to local and provincial government.
Progress in respect of settling the land claims dispute.

6. The Committee had meetings with the Mr Rain Zihlangu, the CEO, and the management of Alexkor, the Kuboes and Sandsdrift communities, and representatives of the National Union of Mineworkers, United Association of Workers of South Africa, women’s empowerment groups and land claims committees. The Committee also visited the land and sea mining sites of Alexkor and the diamond sifting plant, and dairy, ostrich, oyster and citrus farms, and the silos and fodder mixer. The Committee also visited the Johan Hein Primary School.

B. Alexkor: Towards Greater Focus on Core Activities

1. Alexkor is a state-owned diamond mining company in Alexander Bay in the Northern Cape. The core business of Alexkor is "the economic exploitation of diamonds and associated support elements. Its businesses include diversified agricultural operations and commercial services to the local and surrounding communities". These operations are split into two divisions, Alexander Bay Mining and Alexander Bay Trading.

2. From an operating loss of R31,7 million in the 2001 financial year, Alexkor subsequently made operating profits each year, with an operating profit of R26,2 million in the 2004 financial year, under the management of its new CEO, Mr Rain Zihlangu.

3. Alexkor does land and marine mining. Alexkor recently restructured marine mining to allow for private contractors. There are currently 35 boats and 38 shore units. The boats employ between 4 and 6 people each. The company focused on black economic empowerment and the employment of retrenchees when issuing contracts. The contractors are involved at different stages and play different roles in the mining, processing and evaluation of the diamonds. Alexkor Diamdel and the evaluator for the contractors do the evaluation of diamonds. To ensure the safety of the marine operation each boat is required to have a diver with an advanced certificate. There are currently approximately 370 divers operating. Since 1928, De Beers Corporation has acted as the marketing channel for the diamonds mined.

4. Alexkor has 18 entities engaged in non-core activities. These non-core activities include running guest houses, holiday resorts, dairy, ostrich, oyster, fruit and parsley farms, and a fuel station. Alexkor is also involved in maize and wheat production. Over the past few years, many of these entities have been transformed from loss-making enterprises to profitability and employ a substantial number of people. Some 28 000 ostriches have been slaughtered. The ostrich farm has export accreditation. The ostrich farm also produces a huge number of eggs and has been able to reduce the mortality rate of the ostriches from 80% to 25%. The oyster farm produces a large quantity of market-sized oysters. Some 653 000 were sold over a ten month period. The oysters are sold all over South Africa under different labels.

5. Alexkor essentially owns and manages Alexander Bay, in which slightly over 3000 people live. It provides services that are normally provided by local and provincial government. This includes electricity, water, sanitation, health, education, transport, sport and recreation Alexkor also takes responsibility for a museum and an airport. Alexkor is negotiating with the Richtersveld municipality and provincial government to hand over these responsibilities to them.

6. The Alexkor management explained that the government’s restructuring plans for Alexkor includes selling 51% to a strategic equity partner, giving the community 10% and retaining 39%. In view of the negotiations on the land claims, this has been put on hold.

7. The Alexkor management explained that the there are significant disparities in salaries between what Alexkor offers and the norms in the industry. These disparities, it was said, have largely been shaped by the history of apartheid employment and practices in the sector. The company undertook a national market scan which also revealed disparities. This information was presented to the Board. It was found that the majority of pay scales and bands would need to be corrected. It was estimated that this would have major financial implications for the company. The Committee recommended that the Company introduce corrective action within a time plan so that the apartheid wage gap is corrected.

8. The management said that the company recognises the importance of building a second tier leadership and has introduced a Protégée Internship programme. Twenty people are employed from the local community and assigned to different managers. Six of the interns are women. Alexkor also provides bursaries to students from the local community. These students are earmarked for senior positions. Four of the 10 bursaries have been provided to women.

9. The Committee congratulates Alexkor, and in particular its dynamic new CEO, Mr Rain Zihlangu, for the remarkable turnaround effected over the past two years. Of course, difficulties persist and much more needs to be done, but it is clear to the Committee that the progress achieved under the new leadership is commendable. The Committee visited most of Alexkor’s core and non-core entities, and, overall, the problems notwithstanding, is impressed with what is being done. The restructuring of the marine mining sector seems quite successful to the Committee. Its beneficiaries certainly welcome it. While supporting Alexkor’s approach of moving towards shedding its non-core activities and focusing specifically on diamond mining, the Committee feels that there has to be a very carefully phased strategy to achieve this. Alexkor is intricately woven into the fabric of the Richtersveld communities and if its withdrawal from its non-core activities is not handled sensitively, the community will experience hardships. In respect of the municipal functions Alexkor currently fulfils, these should be transferred in a phased and balanced way that takes account of the current capacity of the Richtersveld municipality. While recognising the constraints of the provincial government, the Committee feels that it might be easier for Alexkor to forego the provincial government functions it fulfils; certainly it seems that the provincial government has less of a case not to, in a phased manner, take of these responsibilities from Alexkor. Whatever the situation, the transfer of these responsibilities has to be effected without negatively affecting the communities. They have very little anyway.

C. Meeting the Communities

1. In view of the crucial role that Alexkor plays in the economy and society of Richtersveld, the Committee met with some of the communities living there. About 180 people attended a public meeting in Kuboes. There was a much smaller meeting in Sandrift. The key issues raised at these meetings are covered below.

2. Several people complained about the lack of adequate services and facilities. These included issues around schooling, health, roads, transport and sports facilities. They held Alexkor responsible for this.

3. A significant number of people said that the government did not show adequate respect for and did not offer enough support for the Nama and Khoisan languages. Several people focused not just on language, but on the culture and customs of the Nama and other people which they feel are being allowed to disappear. People feel they are being marginalised.

4. It was claimed that Alexkor did not employ local people, but instead hired people from outside the local community. It was also claimed that the wealth created by Alexkor is not being re-invested in the community, but being transferred outside the area.

5. The Committee also visited the Johan Hein Primary School. The major issues raised were around the lack of classrooms and teachers and the need for a policy on the use of Nama in schools in the region.

6. In various ways, it emerged that relations between "Coloured" and African people in some of the areas are somewhat tense, and need to be addressed. In particular, it was claimed that an African nurse was forced to leave the Sandrift clinic because she was not acceptable to the local community on racial grounds.

7. While appreciating the frustrations of significant sections of the community with their living conditions, the Committee feels that too much of the responsibility for this is being placed on Alexkor. The Committee explained during the meetings that many of the issues being raised by the community should be addressed to the municipal and provincial government. The Committee feels that more needs to be done by all three spheres of government to improve the conditions of the people of the Richterveld. More also needs to be done to address the language and cultural concerns of the communities as part of the overall nation-building project, not in ways that reinforce the communities’ alienation. There is clearly a need to develop better relations between the "Coloured" and African communities. The Committee is to forward the concerns raised during these meetings to the local councillor, relevant MPL and MP, municipality and provincial government. The "National Question" issues will also be raised with the Commission for the Promotion and Protection of the Rights of Cultural, Religious and Linguistic Communities, and the Pan South African Language Board.

D. Land Claims

1. The Richtersveld community have laid claims to the land on which Alexkor is situated. In October 2003 the Constitutional Court found in favour of the community. The government is negotiating with the community to finalise a restitution package. The Alexkor management explained that the land claims had created a "degree of uncertainty for workers and community members over employment and the provision of services". The search for a strategic equity partner for Alexkor has been suspended pending the outcome of the negotiations on the land claims.

2. Both at the public meetings and in meetings with some of the representatives of the land claims organisations, there was concern expressed at the time it is taking to resolve the land claims issues. In the public meetings, there were appeals to the Committee to intervene.

3. The Committee had previously met with representatives of the land claims organisations and has also discussed the matter with the Minister of Public Enterprises, Mr Alec Erwin, and officials of DPE. It seems to the Committee that there are too many structures, with differing demands, seeking to pursue the land claims, and that there is a need for a greater degree of unity among the people pursuing the claims. The Committee is aware that sensitive negotiations are underway between the government and representatives of the communities, and hopes that an amicable settlement will be found soon.

E. Women’s Empowerment in Mining

1. To encourage women to take part in mining, in August 2003 Alexkor offered mining contracts in Witvoorkop to women’s groups. The organisations involved in the Witvoorkop mining operations are Arriesdift Smallscale Miners, Jomaree, Kgotsong, Tarras Trading, Mountain Desert Developing Company, Alexkor, and Alexkor Development Foundation.

2. In a meeting with the Committee, the women’s groups raised their difficulties with the project. Among the issues raised were the following:

The lack of participation of the women in the project.
The lack of involvement of the women in the decision-making.
The lack of openness and transparency in the finances.
The behaviour of the sub-contractors.
The failure of the women to benefit financially from the project.
The lack of technical capacity of the women.
Labour disputes.

3. The Committee feels that the empowerment of women in mining is crucial in view of the broader gender equity goals of the government and parliament, and the overwhelming dominance of men in the mining sector. The Committee therefore welcomes Alexkor’s decision to empower women in mining. However, the Committee explained at the meeting that it would not be able to immediately address the concerns of the women’s groups, but would send a sub-committee to follow-up on the matter. The Committee stressed that its role would not be to resolve the differences, but to facilitate co-operation among the stakeholders so that they can settle their differences. A sub-committee comprising Ms Ncumisa Kondlo and Ms Nana Mnandi subsequently visited Alexkor on 17 and 18 January and engaged with all the stakeholders involved in the women’s empowerment project. The Portfolio Committee adopted a report on this visit on 2 March. Among the proposals are:

Alexkor seconds a staff member to work with the women’s groups to address their specific concerns and improve their technical capacity.
Alexkor takes responsibility to ensure that all stakeholders understand the contract.
Audited financial statements from the sub-contractors who worked on the mine be made available as soon as possible.
A clear business plan be developed through proper consultation with all the stakeholders. Consideration should be given to ensuring that the women’s groups gain financially from the project by a set amount targeted for each financial year.
A sub-contractor be identified who will continue with the mining, as the contract is still valid for three years. The powers of the sub-contractor be limited and clearly defined.
The Department of Public Enterprises (DPE) assists to settle the problems and monitor progress.
Where appropriate, the provincial government should play a role.
The public representatives in the area should also play a role.

4. The Committee has since raised the matter with the Director General of DPE and the DPE official responsible for Alexkor and they have agreed to follow up on the issues. The matter has also been raised with the Minister. The Committee has requested DPE to keep the Committee abreast of developments and formally report to parliament in six months time on progress. The NCOP Select Committee on Labour and Public Enterprises is to visit Alexkor soon and has also been apprised of the issues, and is to follow up on them.

F. Relatively Good Labour relations

1. The Committee met with representatives of the National Union of Mineworkers (NUM) and the United Association of South Africa (UASA).

2. Both unions said that relations with Alexkor had improved significantly since Mr Rain Zihlangu took over as CEO. They said that there is now a high degree of consultation between the unions and management.

3. The unions feel that there should be more co-operation between Alexkor, the unions, the community and the provincial government to improve service delivery and development in the area.

4. The unions feel that priority should be given to appointing qualified local people to jobs at Alexkor to stop the current skills flight.

5. The unions feel that Alexkor should offer more contracts to local people as part of their empowerment programme.

6. The unions are concerned about the salary disparities within the company. This includes workers getting different salaries for doing the same jobs.

7. Of course, It is to be expected that unions and management will differ. As these relations go, the Alexkor management and the unions seem to have a very co-operative, productive relationship at the moment. The unions seem to recognise the value of the broader role Alexkor plays in the community, and want to work with management to see the community as a whole, not just union members, benefit. The specific role of Alexkor in the local economy and society seems to give union-management relations its specific character. Relations seem good at present – but how durable this is, is not easy to say.

G. Conclusion

1. Visiting Alexkor was very valuable for the Committee. In many ways, it was a unique experience. The Committee now has a much better sense of the nature and scope of Alexkor’s activities and the challenges it and the communities it is engaged with have. The visit will certainly assist the Committee to be more effective in our oversight role.

2. Ours was, of course, a limited two-day study tour. While we gained useful insights, we also want to guard against being too definitive in our observations and recommendations.

3. It seems to us though that the current CEO of Alexkor, Mr Rain Zihlangu, has performed extremely well. From what the Committee can tell, it is to be seriously regretted that he will be leaving the company on 31 March this year. The Committee is certainly concerned that Alexkor has not been grooming a second tier leadership, especially one that is sufficiently representative in demographic terms. Given Alexkor’s challenges, it is vital that an energetic and effective CEO succeeds Mr Zihlangu.

4. The Committee will certainly act on all the commitments it has made in this report. As explained in section D3, a subcommittee of the Committee has already followed up with a further visit to Alexkor in January, and as explained in section D4, the Committee has already acted on some of its recommendations.

5. It has to be stressed, however, that while the Committee will raise the relevant issues in this report with the Richtersveld municipality, the Northern Cape provincial government, the relevant public representatives and other authorities, it does not have the authority to ensure that these structures and individuals act on these issues. Of course, the Committee has an oversight responsibility over the Ministry and Department of Public Enterprises, and in regard to the issues in this report raised with DPE, the Committee will actively monitor developments. But the Committee also feels that all the stakeholders we met during our study tour need to do more to address the challenges facing them. Of course, the Committee will play its part – but so must the people of Alexander Bay.

H. Appreciation

1. The Committee expresses its sincere appreciation to Mr Zihlangu and his team at Alexkor for the considerable hospitality they accorded us and the efficient organisation of the programme of the study tour. Our appreciation is also accorded to all the people we met for the manner in which they received us.

2. We also thank Mr Ekshaan Jawoodeen from the Parliamentary Research Unit for the initial report from which this report drew.