Report
of the Portfolio Committee on Public Enterprises on an oversight visit to South
African Forestry Company Ltd (SAFCOL) dated 23 October 2008
A. Introduction
1. The
Portfolio Committee on Public Enterprises had resolved to visit SAFCOL, one of
our State Owned Enterprises (SOEs) in Nelspruit during the 3rd Term
of Parliament. The visit was undertaken from 11 – 12 August 2008.
Parliamentary Delegation
2. The
delegation from the Portfolio Committee on Public Enterprises comprised of Ms F
Chohan MP (Chairperson), Mr C L Gololo MP, Mr S E Kholwane MP, Mr Z Kotwal MP, Mr
R Z Nogumla MP, Mr Y Wang MP, Mrs V Meruti MP, Ms P Lebenya MP, Mr S Mandiwana,
(Department of Public Enterprises), Mr M Tabudi (Department of Public
Enterprises), Mr L Ngqameni (Committee Assistant) and Mr L A Brown (Committee
Secretary).
B. Objectives
Part
of the mandate of the Committee is to ensure that the State-Owned Enterprises
contribute to economic growth, development and service delivery. The Committee visited
the SAFCOL Offices and sites to get a better understanding of the commercial activities
of SAFCOL and the Corporate Social Investment initiatives currently underway.
The Committee looked at the Forests Enterprise Development Unit, Forestry and Harvesting
Operations, the nursery activities and seed extraction processes and related
research activities.
C. South African Forestry Company Ltd (SAFCOL)
1.
The delegation
from SAFCOL included Mr K Breed (Chief Executive Officer), Mr L Mudimeli
(General Manager: Corporate Services), Mr M Bhabha (Member of the Board), Mr P
Derman (Member of the Board), Mr A Mutshinya (Group Executive: Human
Resources), Mr A Shekwa (Planning Manager), Ms M Van Der Westhuizen (Public
Relations Officer), Ms L Mossop-Rousseau (Group Manager: Corporate Services),
Mr J van der Sijde (Forest Manager) and Mr A Daendaal (General Manager: Human
Resources).
2.
The Committee was
welcomed by SAFCOL Board Member, Mr M Bhabha and given a briefing on forestry
business. Mr Bhabha apologised for the Chairperson of the Board’s absence. Mr
Bhabha gave the Committee a broad overview of SAFCOL, its organisation, and the
Komatiland Forests (KLF) area.
Summary of Briefings.
The briefings received also included the following:
-
Komatiland
Forests
-
-
Forestry and
Global Warming
-
Land Claims and
Reform
Komatiland Forests:
The company is a world class asset with huge
potential. The company structure consisted of 5 legal entities namely:
-
Komatiland
Forests
-
-
SiyaQhubeka
Forests
-
MTO Forestry
-
Amathole
Forestry Company
The majority of the company activities occurred in
Komatiland Forests. The Committee received a breakdown of the operations in
“The complexity
of the land claims issue is likely to have a material bearing on the time
frames for the disposal of KLF. In particular, we need to be cautious in
prejudicing the rights of land claimants. In view of this, SAFCOL needs to
develop a five year plan which seeks to maintain the operations of the business
and increase shareholder value…SAFCOL management may communicate a message of
certainty to staff.”
Proximal settlement within a 20km radius of KLF
plantations included at least 745 localities with an estimated 2.3 million
people residing within this radius. There were at least 20 claimant groupings
affecting forestry areas in Limpopo and 26 claimant groupings affecting
The ownership strategy included a need to work
closely with the Department of Land Affairs to ensure that valid land claimants
gained access to land, skills transfer took place and alternative land (or
financial compensation) was given where claimants were not interested in
forestry or optimal land use. Once all land claims for KLF plantations were
settled, land claimants interested in investing in forestry should be empowered
to purchase shares in the KLF business. All plantations would remain managed by
one business for efficiency, effectiveness and economy – creating maximum value
for all shareholders. KLF needed to structure and manage as to ensure it was an
attractive investment. KLF needed to convince claimants and communities that
(softwood) forestry was their best alternative.
Regarding the future developments and volume
forecasts, KLF was a large player in the saw log market and a small player in
saw milling – both markets show reasonably good growth going forward. A chart
showed KLF’s 35% share of clear fellable volume in
·
Fair and
equitable access to short and long term pine saw log supply contracts for all
market participants at market related prices.
·
Encouragement of
investment in, and new entrants to, the downstream processing industry.
·
Facilitation of
transformation in the forestry industry in accordance with government
objectives.
·
Obtaining market
value for the KLF product.
·
Decreasing
administration and transaction costs for customers and KLF alike.
Operations in
The Committee was given a broad overview of the area
of plantations (in ha) that were damaged by the fires. The timber recovery
process included the use of resources from other plantations and districts.
Teams came with their own harvesting equipment but were accommodated in 176
accommodation units with trained cooks and a supply of food. All available
harvesting capacities were sourced with additional equipment purchased. All
available contractors were consulted in respect of roads – 85 road construction
machines were working on the plantations. The total cost for civil engineering
(road works) came to R20 million. The Committee also received figures on the
initial fire recovery target, financial impact (operational) and compartment
survival percentages. Of the challenges faced included the following:
·
Transport
capacity
·
Ensuring
efficiency and continuous supply during high rainfall months
·
Aligning the
right capacity and type of configuration with the operation circumstances
·
Time constraints
to recover burnt timber
·
Harvesting on
steep slopes
·
Treacherous
weather condition
Environmental impact and control included the
identification of areas with high erosion hazard. Teams were deployed to
rehabilitate these sites through the purchase and sowing of 10 000kg of grass
seeds at a cost of R 700 000.00. The important area of concern was the impact
of fires in the sustainable volume. There were changes in plans and in respect
of progress in harvesting and planting – at least one third of the burnt area
still needed to be re-planted.
Forestry
and Global Warming
Global warming was on the increase. The average world
temperatures are increasing as a result of what was known as the greenhouse
effect. This was cause by human population growth and industrial activities.
Certain gases in the atmosphere acts like glass in a greenhouse, allowing
sunlight through to heat the earth’s surface but trapping the heat instead of
radiating back into space. As the greenhouse gases build up in the atmosphere
the earth’s surface gets hotter.
Greenhouse gases include the following:
·
Carbon Dioxide
(burning fossil fuels (coal, petrol, exhaust)
·
Methane (rice
paddies, bovine flatulence, bacteria in bogs, fossil fuel production)
·
Nitrous oxide
(oceans and rainforests, factories: nylon and nitric acid)
·
CFC’s
·
Water vapor in
the atmosphere increasing
Threats
of global warming include changes in temperatures, floods, storms, rise in sea
level, droughts and extinction of species. To counter the effects of global
warming we need energy and fuel conservation and efficient use, stop destroying
forests (deforestation) and start planting trees (afforestation) to soak up
carbon dioxide and finding alternative energy/fuel sources.
The
consequences of global warming on commercial forestry include changes in
management practices, photosynthesis, water use and nutrient cycles. There has
been an increase in insect and disease outbreaks and the occurrence of forest
fires.
To
minimise these effects - the mechanical breakdown of slash (waste) and
spreading of chips on the soil surface enriches the soil and reduces the rate
of carbon dioxide circulation.
Land Claims
and Reform
The
land reform programmes included restitution, redistribution and tenure reform. The
following stages in the restitution process are:
· Stage 1 - Lodgement and registration
· Stage 2 and 3 - Screening, categorization and
determination of
Qualification
in terms of Section 2 of the Restitution Act
· Stage 4 - Negotiations
· Stage 5 - Settlement by Land
the Restitution Act
· Stage 6 - Implementation of settlement
Land claims:
ABACUS:
Land claims over three portions of land belonging to Abacus in the Ngome area
was received by the KwaZulu-Natal RLCC which was accepted as being valid. An
offer was made by the RLCC to the SAFCOL Board and this was accepted in
principle. The matter now rests with the KZN RLCC, who must proceed – it
appears that the matter is stuck within the internal processes of the RLCC. A
follow-up has been made.
KLF: 61% of the entire KLF forestry estate was
directly affected by claims. There was no guarantee that the remaining 39% was
not, or would not, be affected by land claims at a later stage. There was a
possibility of the land being used by the State for other land reform
programmes such as redistribution or tenure reform.
The
status of KLF land claims are as follows:
·
Stage 1 - 0
·
Stage 2 and 3 - 28,501
ha
·
Stage 4 - 58,946 ha
·
Stage 5 - Settlement: 26 852 ha
·
Stage 6 - No land transfers yet
Discrepancies
regarding the settlement of land claims existed and SAFCOL has been approached
regarding settlement - only in respect of
In
respect of restitution on State land, DWAF was the consulted party as they
owned the land over which the claim was registered. There were at least 20
claimant groupings affecting forestry areas in Limpopo and about 26 claimant
groupings affecting forestry in
The
Office of the Chief Land Claims was working on a generic model for the
resolution of land claims over forestry. A submission had been put before the
Minister and is awaiting feedback. Possible models for restitution would
include:
Joint
Venture: This would entail the
community contributing the land and KLF contributing the trees into a joint
venture. An operating company would be established to represent shareholder’s
interests and to operate the business. This would enable skills transfer,
regular income and empowerment. The community would have leverage in the
partnership as they owned the land.
Resumption
Lease: The community owned the land
while KLF would lease the land for a rotation – and harvests at maturity. After
rotation, the community has the option to continue with forestry or to use the
land for another purpose. If they elect to continue with forestry, they have
the option to elect to continue with KLF or to conclude an arrangement with
another forestry company. Advantages of this model are that supply was certain
for one rotation. Communities would see the benefits of using the land for
forestry. Rental would provide a regular income for the duration of the
arrangement. The disadvantage was that there was long term uncertainty
regarding the supply of the resource. This was not a partnership in the true
sense.
Total
Package: LCC buys the land and
trees for the community (Abacus Properties and Shannon Plantations). Claimants
get full ownership and have the ability to sell timber on the open market. The
disadvantage of this model was the high risk of failure if the business was not
well supported by SAFCOL/KLF or other management agencies (MONDI/SAPPI/DWAF).
There was also the high cost to the state of purchasing both trees and land.
Funded
Purchase of Trees: Here the community
owned the land and purchase the trees. An institution funds the purchase of the
trees and KLF/SAFCOL manages the plantation on behalf of the community.
Claimants receive full ownership and have the ability to sell timber on the
open market. The disadvantage is that the acquisition of trees was funded and
claimants would therefore have to pay interest on the purchase. Tree growers
would lose the benefit of being part of a large concern such as KLF.
Conventional
Lease: Here the community owned the land
and leased it back to KLF. The LCC buys the land; KLF retains ownership of the
trees and pays a market rental for the use of the land. Claimants are
guaranteed an annual income at market rental. This could be expanded to ensure
empowerment, employment, skills transfer and socio-economic development. The
disadvantage would be limited empowerment of communities unless a well
structured programme was in place. There would also be little involvement in
the operations unless well structured. The decision to enter a lease was made
by the State on behalf of the community.
The Corporate Social Investment Program (CSI) was
designed to be an integrated, sustainable and consultative process, with due
consideration to the various goals of the group. Categories of the projects
included, education, environmental conservation, health care, small business
and contractor development, infrastructure, arts and culture. The main areas of
focus were the adjacent communities, children/youth and women empowerment. The
Committee also received a summary of the 2008/09 projects with budget, project
description and costs per project. Some of the projects completed included the
following:
·
·
Furniture
supplied at Rethabile Day Care Centre
·
Play structures
for the Penreach Programme
·
Fire awareness
campaign
·
Rehabilitation
Centre (Dullstroom)
·
Environmental
education (Nelshoogte)
·
Fence-making
project (
·
Chainsaw
operator training
D. Corporate Social Investment Projects (CSIP)
The Portfolio Committee visited the Rethabile Day
Care Centre - one of the CSIPs initiated by SAFCOL.
The Rethabile Day Care Centre currently had 163 toddlers
with one full-time “teacher”. The facility currently only catered for children
of parents employed at KLF. Other infrastructure improvements included the
supply of water to the
E. Timber Salvaging Operations at Tweefontein
The delegation visited the
site of the salvaging operations at Tweefontein where massive fires had all but
destroyed crops in 2007
Here the delegation could see how the felling
operations progressed. Since the wildfire started during the evening of 27 July
2007, a year had passed and salvaging operations were still underway within
Komatiland’s plantations. The wildfire not only damaged precious timber
resources but also had a profound affect on the environment.
Projects identified after the fires not only included
salvaging of timber, but also included road construction and future projects to
restore the area and prevent environmental degradation. Due to the extent of
the damage and the capacities of the different sawmills, the building,
maintenance of and access to wet-decks were established in order to store
timber over a long period until sawmills could process the timber. The
delegation also visited of these wet-decks.
Priorities after the fire pertaining to timber meant
that all harvesting operations were directed to start at the oldest and worst
burnt sites and then work down the site list to compartments less affected by
the fire. For this reason, operations were now found in sites that management
identified as sites that could survive the fire, but was now showing signs of
losing the battle for survival.
Predominantly ground-based logging systems were used
but cable yarding operations were also vital for timber recovery within the
more steeper and inaccessible areas. Timber recovery since the beginning of
salvage operations, at Tweefontein only, amounted to 188 000 tons for the
period of operations to date – excluding timber that was felled to waste due to
age, value and inaccessibility.
The Committee experienced a mock fire-fighting
operation (with a controlled fire) which included the use of firefighters on
the ground and a fire-fighting helicopter dropping buckets of water on the fire
from the air. Water was scooped from strategically place filling dams for use
during these fire-fighting operations. The delegations went on to visit the
Operations Centre where they were informed that the Centre had a total of 23
strategically mounted cameras which covered the entire forestry area. The
Centre operated on a 3 shift basis over a 24 hour period. During the day,
operators monitored black and white imagery and used infrared / non-thermal
imagery at night to spot any fires. The delegation was taken to the nursery
where they were able to observe the harvesting and growing of the trees from
seedlings and cuttings.
__________________________________ ____________________
Ms F Chohan MP Date
Chairperson: Portfolio
Committee on Public Enterprises
_________________________________ ____________________
Mr Llewellyn A Brown Date
Committee Secretary:
Portfolio Committee on Public Enterprises
_________________________________ ____________________
Mr J Ramrock Date
Control Committee Secretary:
Cluster 9