Identifier
Created
Classification
Origin
05PRETORIA404
2005-01-28 17:14:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Pretoria
Cable title:  

KOMATILAND FOREST DEAL IN DOUBT

Tags:  ECPS ETRD ECON SF 
pdf how-to read a cable
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 PRETORIA 000404 

SIPDIS

SENSITIVE

DEPT FOR AF/EPS AND AF/S/TCRAIG AND KGAITHER
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
TREASURY FOR GCHRISTOPULOS, LSTURM, AND AJEWEL
DEPT PASS USTR FOR PCOLEMAN, WJACKSON AND CHAMILTON

E.O. 12958: N/A
TAGS: ECPS ETRD ECON SF
SUBJECT: KOMATILAND FOREST DEAL IN DOUBT

REFTEL: 03 PRETORIA 6360

(U) Sensitive but unclassified. Not for Internet
distribution. Please protect accordingly.

UNCLAS SECTION 01 OF 02 PRETORIA 000404

SIPDIS

SENSITIVE

DEPT FOR AF/EPS AND AF/S/TCRAIG AND KGAITHER
COMMERCE FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
TREASURY FOR GCHRISTOPULOS, LSTURM, AND AJEWEL
DEPT PASS USTR FOR PCOLEMAN, WJACKSON AND CHAMILTON

E.O. 12958: N/A
TAGS: ECPS ETRD ECON SF
SUBJECT: KOMATILAND FOREST DEAL IN DOUBT

REFTEL: 03 PRETORIA 6360

(U) Sensitive but unclassified. Not for Internet
distribution. Please protect accordingly.


1. (U) SUMMARY. More than a year after the South African
government selected the U.S.-controlled Bonheur Consortium
as the preferred bidder in the sale of three-quarters of the
Komatiland Forest (KLF),the deal remains unconsummated.
Local saw millers, wood products companies, and trade unions
filed objections to the deal with the Competition Commission
who eventually ruled that the merger between Bonheur and
Komatiland Forests would be anti-competitive. At a
Competition Tribunal pre-hearing where filing dates were to
be discussed, it surfaced that Komatiland's parent company,
the state-owned South African Forestry Company Limited
(SAFCOL),may withdraw its support for the Bonheur bid. END
SUMMARY.


2. (U) More than a year after the South African government
selected Bonheur consortium as the preferred bidder in the
sale of three-quarters of the Komatiland Forests (KLF),the
deal remains unconsummated. In December 2003, then-Minister
of Public Enterprises Jeff Radebe hailed the deal as a model
for future empowerment transactions and an example of how
local communities can benefit from privatization. However,
local saw millers, wood products companies, and trade unions
quickly lodged objections to the transaction with the
Competition Commission, claiming that Bonheur's principal
owner, U.S.-controlled Global Forest Products, would control
too much of the market and eliminate jobs. After concluding
a statutory review of the deal in September 2004, the
Competition Commission prohibited the proposed merger
between Komatiland Forests and Bonheur. The Commission
determined that the merger was likely to "substantially
prevent and lesson competition in the market for sawn
timber.and would result in approximately 2,000 job losses."


3. (SBU) Bonheur immediately appealed the decision to the
Competition Tribunal. On January 26, representatives from
Bonheur, KLF, the Department of Water and Forestry and the
various complainants gathered for a Competition Tribunal pre-
hearing to affix future dates for the proceeding.
Department of Water and Forestry officials indicated their
ongoing support of the merger as have Department of Public
Enterprise officials in conversations with Econoff.
However, it became apparent during the proceeding that
representatives from KLF were uncertain whether its parent
company, the state-owned South African Forestry Company
Limited (SAFCOL),was prepared to continue support for the
Bonheur bid. The Tribunal adjourned the proceedings
indefinitely until KLF and SAFCOL were prepared to indicate
their future course of action.

--------------
KOMATILAND'S INAUSPICIOUS HISTORY
--------------


4. (U) This continues the ongoing start-stop saga that has
plagued efforts to privatize the Komatiland Forests since

1999. At that time, the U.S. investor Global Environmental
Fund (GEF) teamed with Mondi Ltd, an Anglo American group
company, to bid on the privatization of the South African
Forestry Company Limited (SAFCOL). GEF & Mondi withdrew its
bid in August 1999 due to what it perceived to be
irregularities in the bid process. The two companies
subsequently joined to form Global Forest Products (GFP).


5. (U) Following the unsuccessful 1999 bid process, SAFCOL
restructured its forestry assets into three wholly-owned
subsidiaries - Amatola Forestry Company, MTO Forestry and
Komatiland Forests - and the government re-opened bidding
for the Komatiland assets in late 2001. GFP abstained from
the bid process because of continuing concerns with the
legitimacy of the process. Zama Resources went on to win
the bid, but government eventually cancelled the sale after
it was found that the CEO of Zama had made secret payments
to the chairman of the government's bid evaluation
committee.


6. (U) In 2003, government opened bidding on the Komatiland
Forests once again. By this time, the Global Forest
Products consortium had expanded and consisted of GEF with a
51 percent share, Mondi Ltd. with a 19 percent share and
Industrial Development Corporation of SA Ltd. with a 30
percent share. GEF submitted a bid along with empowerment
partner Imbokodvo Lemabalabala under the name of Bonheur 50
General Trading. GFP holds a 70 percent share in Bonheur
while Imbokodvo Lemabalabala has a 30 percent stake in the
company.

MILOVANOVIC