US embassy cable - 05PRETORIA404

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