…As energy minister warns of possible loadshedding
Moorosi Tsiane
MINISTER of Energy, Professor Nqosa Mahao, has disclosed that the Lesotho Electricity Company (LEC) is in financial dire straits primarily due to “mismanagement” by its Board of Directors.
In an affidavit filed in the High Court this week, Prof Mahao states that the LEC’s financial report to the Cabinet last month revealed a staggering M712 576 648.04 debt to the power utility’s suppliers.
This financial strain is exacerbated by the upcoming ‘Muela outage, for which the LEC has requested M300 million in support to cover the resulting shortfall, the minister adds.
The ‘Muela Hydropower Station, which supplies LEC with 72 megawatts of electricity is due for maintenance and will therefore shut down from 1 October 2024 to 31 March 2025.
While the LEC was in financial dire straits, its board members had made a decision to pay bonuses to staff which the power utility could hardly afford, Prof Mahao contends. He was thus of the view that the Board members were unfit for purpose and had taken the decision to fire them.
This, Prof Mahao says, had prompted him to slap the 13 board members with show cause letters as to why he cannot remove them from the management of the vital state-owned utility company.
He issued them with show cause letters on 27 August 2024, accusing the 13 Board members of approving millions in staff bonuses last month while the power utility was deeply indebted to its power suppliers from Mozambique and South Africa.
Faced with the predicament, eight of the 13 directors ran to court through their lawyer, Advocate Tekane Maqakachane, in a bid to stop Prof Mahao from firing them.
These are Molibeli Taele (chairperson), Mathapelo Ramakatane, Mosiea Mapota, Mokhoenene Lehohla, Mokhethi Seithleko, Pesha Shale, Seretse Mohlouoa and Khotso Nthontho (Corporate Secretary). The other applicants are the LEC Board of Directors and the LEC.
The eight directors want the court to declare their planned firings as illegal, claiming Prof Mahao cannot exercise political or ministerial powers over a “private company”.
Prof Mahao, the Government of Lesotho and Attorney General Rapelang Motsieloa are cited as first to third respondents respectively.
And now in his answering affidavit filed this week, Prof Mahao reiterates his stance that the 13 are unfit to continue running the LEC on behalf of the government.
“The show cause process was undertaken after the presentation, on the 1st day of August 2024, by the LEC to the Cabinet regarding the prevailing financial situation within the LEC, the ‘Muela outage, and LEC proposal for financial assistance of over M300 million to cover shortage that will be caused by the `Muela outage,” Prof Mahao says.
“It emerged during the presentation that LEC was in a dire financial situation as it owed suppliers, amongst others, an amount of M712 576 648. 04. It was, thus, obvious that the affairs of the LEC were not properly managed and as a result, the shareholder was entitled to invoke the provisions of Section 45 of the Act (Companies Act 2011).
“In so doing, it was incumbent upon the shareholder to request that representations be made to determine whether or not to remove the members of the Board of Directors. Despite the dire financial situation, LEC made bonus payments to the staff.”
He says the situation is so bad that if not attended urgently the country must embrace power blackouts.
“The LEC is in a dire financial situation which has to be arrested urgently to avoid power cuts as well as to enable the ‘Muela outage to be dealt with urgently. These situations, including a need for financial assistance to the LEC, demand that issue of removal or non-removal of the members of the board be determined on an urgent basis, if not there will be a natural disaster.
“The members of the Board of Directors are required to show cause why they cannot be removed to arrest the dire financial situation and mismanagement of the LEC.”
The LEC Board members argue in their founding papers that Prof Mahao’s actions, particularly issuing show-cause letters, were outside the bounds of the Companies Act.
However, Prof Mahao maintains that his oversight authority as the Minister of Energy, coupled with the government’s position as the sole shareholder, gives him the right to intervene.
“The application is ill-conceived as the applicants are calling upon the court to intervene in the unfinished process of determining whether to remove members of Board of Directors of LEC that is provided for in the constitution of Lesotho. In my capacity as the Minister of Energy, I have oversight power over the LEC, a private company that has a single shareholder being the government of Lesotho,” argues Prof Mahao.
He further claims that several board members had not been legally re-appointed under Section 58(2) of the Companies Act.
“Third to ninth applicants (all the aforementioned applicants except Attorney Nthontho) are not de jure (legitimate) members of the Board of Directors of LEC as they have not been re-appointed as such in terms of section 58(2) of the Act. Their alleged membership is in direct contravention of the provisions of the law and I have instructed my counsel of record to fully traverse this issue at the hearing thereof. Minister of Energy exercises ministerial powers in the Ministry of Energy as well as having oversight powers over the affairs of the LEC as a representative of the government of Lesotho, the sole shareholder in LEC.
“The members of the Board have a duty to discharge their obligations in the interest of the shareholder and exercise their duties with care, diligence and skill required to promote the interests of the shareholder. Where members of the Board do not discharge their duties in the interests of the shareholder the latter is entitled in terms of the Act to complain and take action to protect its interest,” he said.
According to Prof Mahao, the removal process, guided by Section 45 of the Act, allows the shareholder (the government) to demand accountability from the Board, ensuring that LEC is managed in the best interests of the country.
“The procedure undertaken by the shareholder is in line with the best practices set out by our courts to ensure that a person whose interests or rights may be prejudicially affected is given a hearing before a decision is taken. Once the members of the board have responded to the show-cause letters then the shareholder will apply its mind and resolve whether to remove them or not.
“Members of the Board do not have a free pass to do as they please, they are enjoined in terms of the Act to manage the affairs of LEC in the best interests of the shareholder and the shareholder is entitled to review the decisions of the Board as well taking a resolution regarding management of the company. The decision to remove the applicants as members of the LEC board shall only be reached after the receipt of their responses and the shareholder having applied its mind to the responses. In effect the rights of the applicants are protected by giving a fair hearing,” said Prof Mahao.
He continues: “The applicants are clearly labouring under a misconception that the removal of members of the Board of Directors can only be exercised in terms of section 73 of the Act. They have totally disregarded the provisions of section 54 which entitles the shareholder to take a resolution without the calling of meeting of the shareholders to remove members of the Board of Directors.
“The applicants are similarly misconstruing the provisions of the Act in relation to the issue of removal of directors by the shareholder. In particular the applicants are labouring under mistaken and wrong interpretation of the decision of the shareholder to require them to show-cause why they cannot be removed as directors.
“The request for representation of the shareholder does not unjustifiably contravene the provisions of the Act. As a matter of fact, it is a first step in the process of determining whether to remove the directors by the shareholder. The answers of the applicants will inform the decision of the shareholder whether to remove the members of the Board of Directors or not.”
This matter is yet to be heard by the High Court.
