Tinder box

Most of SA’s commercial forests face land claims that have been dragging on for years, creating uncertainty and the potential for violent conflict. This year government and the industry are finally thrashing out solutions. Stephan Hofstätter reports.
Issue date : 12 September 2008

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South Africa’s R18 billion forestry industry depends on a secure supply of cheap timber to stay internationally competitive, yet unresolved land claims lodged over a decade ago on more than 50% of the 1,3 million hectares of commercial plantations are creating uncertainty that discourages investment. Moreover, not all claims have been gazetted yet. The Land Claims Commission says over 90% of its forestry research is complete and promises “no meteoric rise” to come. But uncertainty remains, leaving commercial farmers reluctant to continue investing and a resultant knock-on effect on the corporates they supply.

Torched plantations T he worst-case scenario is that communities, frustrated at waiting for their land, will vent their anger on current owners and torch plantations. In some cases this has already happened. According to Forestry South Africa (FSA), which represents 90% of timber growers, including the big corporates, arson linked to land claims contributed to last year’s jump from a 20-year average of 28 000ha damaged by fire to 64 000ha.

 “Huge expectations are being created,” says Roger Godsmark, the FSA assistant director who heads its land reform section. “longer this is dragged on, the greater the uncertainty and resentment.” O f the already gazetted claims, only a handful have been settled. This suggests no-one actually knows what the industry will look like once half its plantations are transferred to land claimants.

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Timber shortages
Other government departments find this a worrying thought. “The primary threat to the whole country is if the new landowners will not elect to carry on with forestry operations,” says Leslie Madumeli, spokesperson for state-owned Komatiland Forests. “This would lead to even more severe shortages of timber, which is a strategic resource for government, [and] have a knock-on effect on government programmes such as housing.”

Getting claimants to continue growing timber on a small scale should not prove difficult, say farmers, as gross earnings per hectare tend to be at least 25% higher for timber than for livestock or maize. “A stand of 2ha to 3ha is only enough for one unit of cattle, but could be planted profitably with eucalyptus,” says Heinz Schütte a KwaZulu-Natal timber farmer. B ut most claimants lack the technical, financial and administrative skills to run a large plantation, while involving large groups in plantation management compounds risks. Even small, badly managed pockets can cause fires, pests and disease to spread and devastate entire forestry districts.

Claims delay privatisation
Land claims have also held up efforts to privatise the state’s vast forestry holdings. S ince 1994, half of over 300 000ha belonging to government have been semi-privatised through a series of BEE deals, including Singisi Forest Products in southern KwaZulu-Natal in partnership with Hans Merenski; Siyaqhubeka near St Lucia in partnership with Mondi; and Amathole Forestry at Stutterheim in partnership with Rance Timber.

Privatising the remaining 187 000ha in Mpumalanga, controlled by Komatiland Forests, was put on ice in 2006 amid concerns that the preferred bidder Bonheur would squeeze out independent saw millers. But by the time the Competition Commission rejected the deal as uncompetitive, Bonheur had already pulled out, citing uncertainties over land claims.

Last year public enterprises minister Alec Erwin announced the forests would be disposed of by early 2009. Komatiland’s board was instructed to design a transaction model involving the claimants along the value chain. Government is likely to retain a stake in the winning consortium, which can be transferred to the claimants at a later date. The proposal was submitted in March and is currently under consideration.

Corporates play it safe
Right now the big corporates are down playing the supply risks, although all face huge claims. Sappi and Mondi, SA’s two biggest timber multinationals, who together own half our commercial plantations, have land claims on a third to half their plantings. The figure rises to between 60% and 70% for the third-largest player, Komatiland Forests. Another quarter of SA’s plantations belong to commercial farmers, at least half of whom face claims. In parts of Mpumalanga, Limpopo and KwaZulu-Natal the figure rises to 70%.

The corporates point out that the Forestry Charter signed in May not only commits the industry to becoming 30% black-owned within 10 years, but obliges government to release another 100 000ha for new timber plantings in the same period, reversing a decade-long trend. Mondi insists no-one wants to torch its plantations or turn them into grazing land because claimants recognise the enormous opportunities in timber. It concedes claims dragging on for years create uncertainty, but prefers to blame delays on the complexity of rural claims rather than government inefficiencies.

 “Many are in the final stages and await the minister’s approval,” says a Mondi spokesperson Kerry Crandon. Sappi plays a similar tune, although unlike Mondi, it is contesting the validity of some claims. “Sappi’s business interest revolves around continued access to sufficient fibre for its extensive paper and pulp investments in SA,” says André Oberholzer, group corporate affairs head for Sappi. Security of supply is in the interests of all parties, including claimants. “Sappi therefore considers the business risks low.” Both companies expect to be compensated at market value and to form partnerships with communities that will ensure uninterrupted supply.

Sticking points
Industry’s sanitised account of restitution obscures major sticking points that have contributed to delays and uncertainties. For one, the commission only pays for land and fixed improvements – not trees. Farmers fear they may face heavy losses if they want to quit rather than form partnerships. It is also far from clear cut that farmers and timber companies will receive full market value for their land. Forestry SA was party to objections to the Expropriation Bill which allows the state to expropriate land under claim at below market value.

The bill has been shelved pending further consultation. Other administrative hurdles remain. The Land Claims Commission concedes it simply doesn’t have the skills to process claims swiftly, especially in business modelling, surveying, valuation, and drafting legal agreements. A leadership vacuum in KwaZulu-Natal has left that province particularly hard hit. Forestry sources say Mondi has received ministerial approval for several major settlements gathering dust in the provincial commissioner’s office. Similar problems are cited with Water Affairs, the department issuing water licences which are in effect timber planting permits.

 Another dispute is centred on industry’s initial insistence on the lease-back model because it guarantees security of supply. Government saw it as token transformation, and demanded a stake for claimants in downstream operations. “Sappi and Mondi’s boards had to give consent, and their shareholders were not comfortable with this,” says Land Affairs director general Tozi Gwanya. “This made it a slow process.”

Partnership plans
Earlier this year industry leaders met to discuss settlement options before presenting a unified proposal to government that include joint support packages. Mondi’s plans are the most detailed. It proposes five models. In the first the commission buys the land for the claimants, who take out a Land Bank loan to buy the trees. Claimants will get full ownership, but end up heavily indebted because trees typically represent 75% of total costs.

The second proposes government pays for the trees and land – an unlikely option because of budget constraints, and claimants would have little incentive to keep their handout profitable. The third option proposes transferring the land to claimants, who lease it back to Mondi for a market rental. The fourth proposes a joint venture operating company, with claimants supplying land and Mondi the trees. Equity would be allocated on a pro rata basis. The fifth is a hybrid, whereby Mondi leases the land, with rental used to fund equity.

Common ground appears to be emerging. Mondi’s alternative models have found favour with the commission, which wants the land restored to claimants without trees or fixed improvements. The claimants must then be given the chance to buy equity paid for by lease rentals and a portion of settlement grants worth an estimated R1 billion for all forestry claims. “Like the Bafokeng, once they owned a major stake, they used it to leverage other investments,” explains acting chief land claims commissioner, Blessing Mphela. He insists the commission will not let claimants “kill the goose that lays the golden egg”.

Any attempt to change timber to grazing land will be blocked. To manage claimant expectations, part of the restitution grant would be paid in cash. A skills component with forestry career grooming would also be introduced, with participating farmers and timber companies able to claim BEE points. “It’s a huge opportunity for everyone,” adds Mphela. |fw