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Govt reviews shareholders’ deals with firms

by Lesotho Times
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Ntsebeng Motsoeli

THE government has engaged the African Development Bank (AfDB) to help it to review all the shareholders agreements that is has with private enterprises and parastatals to determine if the contracts were still relevant to the current financial status of the companies.

The Principal Secretary in the Ministry of Finance, Motena Tšolo said the AfDB’s African Legal Support Facility is assisting the government to determine if all the shareholders agreements it has with its parastatals and private entities are still reflective of the entities’ current financial status.

The move comes after Finance Minister Moeketsi Majoro last year registered the government’s increased exasperation over poor performance of entities in which the government has interests.

Dr Majoro indicated that some public enterprises have not been consistent in the declaration of both profits and dividends. These companies included Lesotho Flour Mills, Econet Telecom and Avani Lesotho among others.

Afterwards, the government dragged its feet after Lesotho Flour Mills applied for a contract extension.

The government eventually handed Seaboard Overseas and Trading, which operates the Lesotho Flour Mills, a short lifeline after it awarded the company a one-year contract extension with effect from 1 January 2019.

Seaboard’s previous contract ended in December last year.

The company which, along several others in which the government has a stake, was condemned for its failure to pay any dividends for nearly two decades, has now also committed to paying dividends “after the two good financial years ending 2016 and 2017”.

The company said, in its financial results published in December 2018, it had made M33, 5 million in after tax profit in 2017.

Last year, the government also roped in United Kingdom-based consultancy firm Unicon Ltd, to spearhead its state-owned enterprise (SOE) reform initiative.

The initiative was said to be part of a wider five-year Public Financial Management Reforms project which is financially supported by the World Bank, European Union and African Development Bank (AfDB).

Set to run from 2014 to 2019, the project was aimed at reviewing the legal framework for various state-owned enterprises and also recommend measures the government should take performing entities.

Some of the key objectives of the project is to improve SOE oversight and transparency through regular monitoring of financial and operational SOE performance and fiscal implications from transfers, taxes, dividends, royalties, subsidies, loans and guarantee.

The government said the project would also develop a national SOE policy and programme, outlining government objectives for state ownership and targets by sector or company, as well as clear institutional structures for achieving these objectives and their accountability structures and reporting lines and obligations to improve SOE corporate governance.

The project was announced at a time when there was increased government displeasure over the poor performance and failure to declare dividends by some state-owned enterprises.

The government has interest in 30 enterprises consisting of 14 state-owned enterprises and 16 state-invested enterprises. Some of the state-owned enterprises include regulatory institutions, commercial and policy driving institutions.

And Ms Tšolo recently told the Public Accounts Committee (PAC) that the review has already started in the mining sector where the experts have been called to evaluate the mining contracts that the government has with the local mining companies.

“The work has already started with mining sector,” Ms Tšolo said.

“Next month another mission (from the ADB) will come to carry on the reviews in other departments. The work will be done throughout the 2019/20 financial year where all the shareholders agreements will be reformulated and renegotiated.

“The new agreements will be implemented in the 2020/2021 shareholders agreements. The review is not going to be an easy task where the government will not just dictate the new terms. The processes have already begun in mining sector where the African Legal Support Facility is formulating a model contract which will be used on other contracts.

“We have engaged the AfDB to help us review all the shareholder agreements that the government has with parastatals run under various ministries to unpack them and see if they are still representative of the current financial statements of the companies,” Ms Tšolo said.

She said most of the shareholder agreements were signed several years back when some of the companies were still start-ups and were not yet profitable to pay any dividends.

Ms Tšolo said last year the government reviewed its agreement with the Minor Hotels Group through its subsidiary, AVANI Hotels and Resorts, which they inherited from the Sun International Hotels, Lesotho Sun and the Maseru Sun hotels.  This was after the hotels claimed to have failed to make any profits and as such did not pay any dividends to the government.

“Hotels did not pay any dividends because they claimed that they were not making any profits. The nature of the agreement between the hotels group and the government itself was done in such a way that made it impossible for the government to receive any dividends from the hotels.

“The shareholders agreement had many limitations which made it impossible for the hotels to declare any profits and subsequently they were not able to pay dividends to government. The agreement was amended last year and the Avani Hotels has since paid the government M7 million in dividends,” Ms Tšolo said.

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