Tongaat Hulett under scrutiny

Published: 20 January 2014

South African-based Tongaat Hulett, which wholly owns Triangle Limited - a company that was recently granted a temporary licence to deliver ethanol to the local market to shore up supplies - has courted the ire of affirmative action lobbyists in the wake of market rumours that the company is angling to tie Government to a long-term deal.

However, the company has been identified as one of the foreign firms that are incorrigibly resisting Government's indigenisation programme.

Johannesburg Stock Exchange-listed Tongaat Hulett, which also has a 50,3 percent stake in the sugarcane-producing Hippo Valley Estates, is wholly foreign.

The company has had several run-ins with Government over its indigenisation plan, which culminated in the former warning the latter that it risked having its licence cancelled if it continued to resist.

Mr Steve Frampton, a manager at one of Tongaat's subsidiaries, Zimbabwe Sugar Sales, recently stoked already raging flames when he accused Government of crafting an ethanol law to protect Green Fuel's interests.

He indicated that the law effectively shuts out private investors.

Statutory Instrument (SI) 147A of 2013 Petroleum (Mandatory Blending of Anhydrous Ethanol with Unleaded Petrol)(Amendment) Regulations, 2013 (No. 1), which gives legal underpinning to the mandatory blending policy, spells out that licences to supply ethanol on the local market can only be granted to entities that are in partnership with Government.

However, the regulations have been temporary tweaked for Triangle Limited to supply ethanol for a three-month period in order to augment supplies from Green Fuel that have been affected by flooding at its plantations in Chisumbanje.

But Energy and Power Development Minister Mr Dzikamayi Mavhaire maintained last week that only private companies willing to partner Government in producing ethanol will have the privilege of enjoying mandatory blending.

Presently, there are lingering market rumours that Tongaat intends to lobby Government for a share of the bio-fuel industry.

This has naturally attracted the wrath of lobbyists.

President of the Affirmative Action Group (AAG) and also interim president of the National Business Council of Zimbabwe (NBCZ) Dr Keith Guzah noted that Government must not continue to bend over backwards, especially to accommodate companies that are reluctant to comply with laws meant to empower locals.

"As indigenisation and empowerment proponents, we find it strange that years after the promulgation of the indigenisation Act, there are companies who are yet to comply, let alone make proposals of how they are going to be compliant. And these very same companies being awarded licences by Government! The question that quickly comes to mind is: until when should some firms be at liberty to contemptuously disregard the laws of the land and still remain profitably operative?

"While we have been shut out of a huge section of the global economy through illegal sanctions, why should foreign firms continue to operate in our country and pour scorn over our laws and our collective development? Such errant behaviour is setting back all efforts at implementing our most comprehensive developmental framework: ZimAsset.

"Against an international economic assault, our natural resources are our greatest asset and our way out of economic underdevelopment. Firms like Tongaat Hulett should certainly not be allowed to continue benefiting from our resources.

"They cannot continue to bite the hand that feeds them while our people are suffering. If they are capable of such sabotage regarding implementation of the law alone, it is a very dangerous thing to grant them a contract to supply ethanol because fuel is such a strategic commodity which if left to the hands of such saboteurs can give them power to sabotage the supply of ethanol, dealing a huge blow through systematic deprivation to our economy.

"Tongaat Hulett should not be granted not only the short-term contracts but should be barred from getting a long-term deal to supply the fuel. This is the most reasonable thing to do as more far-reaching remedies are under way," explained Mr Guzah.

Tongaat Huletts' head of Zimbabwe operations Mr Sydney Mtsambiwa said in an interview last week he preferred questions in writing.

However, the company couldn't respond to e-mailed questions by the time of going to press.

For years Tongaat Hulett, through Triangle Limited, has been exporting ethanol to South Africa at 60 cents per litre.

The Lowveld sugar factory decommissioned its plant in 2010 /2011 and is currently producing 750 000 litres of fuel grade ethanol per week, which translates to 24 million litres per annum.

Market watchers say Triangle Limited curiously couldn't latch on the opportunity to lobby for ethanol use particularly during the years when the country was experiencing fuel shortages only to canvass for a share of the market after the situation had normalised.

"Tongaat is a South African company. They could have driven this nation into an appreciation of the ethanol benefits the way Green Fuel did for three years, but they did not want to share the cake with Government.

"They have been exporting to themselves at a much cheaper price despite receiving funds from this Government to upgrade their operations in 2008. Now they say they don't have money to pay local cane farmers. One could ask, what has Government received for all the favourable policy announcements that have been made to protect the sugar industry from collapse?

"Right now even our farmers are getting a raw deal out of the contract farming arrangement, after making cane deliveries, they have to take legal action to fight to get their dues. Do we real need such harassment on our people?" said one industry player who refused to be identified because of the sensitivity of the matter.

Tongaat is presently embroiled in a dispute with local cane growers over prices. It is also under attack from outgrowers over non-payment of cane deliveries (772 000 tonnes) worth US$50 million.

Local conglomerates with operations dating back to the exploitative colonial days are under pressure to indigenise as Government moves in to narrow the economic gap created during the colonial era between indigenous and non-indigenous communities.

Beyond this general moral push for indigenisation is a realisation that foreign-owned companies are siphoning profits from local operations, hence the current liquidity challenges that have plagued the economy.

Government is appalled by the continued scenario of islands of wealth in seas of poverty which describes the relationship between these companies and the communities within which they operate.

Foreign companies that have had a 60-year stranglehold on the cane and sugar-producing business have not been able to sponsor real infrastructure development projects to underpin sustainable development.

The African Development Bank and Washington-based US think tank Global Financial Integrity claimed in a report last year that Zimbabwe lost a cumulative US$12 billion in the last three decades through illegal financial outflows ranging from secret financial deals, tax avoidance and illegal commercial activities.

Recently, Finance Minister Patrick Chinamasa indicated that Government's push for indigenisation is based on the need to ensure that resource nationalism translates into real sustainable economic development in the long term, even after local resources get exhausted.

Added the industry player: "Really, it's bizarre. We watched the Chisumbanje community rally behind their investor to make a case for ethanol; they soldiered through the process and endured all sorts of attacks during the inclusive Government. We never heard Tongaat Hulett offer any form of support for ethanol because their stance has always been to avoid Government at all costs.

"It is clear that Tongaat benefited from Green Fuel's woes because while ethanol had no market, Tongaat's Hippo (Valley) and Triangle mills received huge prime sugar cane volumes and sugar quantities reached unprecedented masses - they even confirmed the figures in their statements.

"We read that sugar production in Zimbabwe in the 2012 to 2013 financial year increased by 28 percent to 475 000 tonnes as cane deliveries from private and third party farmers grew substantially.

"However, there is not much foresight in waiting until policy is drafted before moving in with attack sentiments."

Although there has been pockets of resistance in the market towards mandatory blending, Government insists that the policy, which is claimed to have shaved US$9 million off the country's monthly import bill, is here to stay.

Currently, a Harare resident, Mr Thabani Mpofu, is suing Minister Mavhaire, Zimbabwe Energy Regulatory Authority (Zera) and Green Fuels over mandatory blending and blending ratios. Government introduced mandatory blending through SI 147 of 2013.

Initially the blending ratio was E10 (10 percent ethanol and 90 percent petrol). It increased to E15 on November 30 and was supposed to rise to E20 by the 31st of March this year.

However, Government has temporarily reverted to E10 as ethanol supplies from the Chisumbanje plant have dropped.

- sundaymail

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