3 January 2006

South Africa: Forestry Merger Far From Out of the Woods Yet

Johannesburg — THE forestry industry is anxiously anticipating the resumption later this month of the Competition Tribunal's hearings on the controversial merger between Komatiland Forests and the Bonheur consortium.

Government's sale of the state-owned Komatiland to Bonheur, announced in 2003, hangs in the balance because of competition concerns and mounting industry opposition.

Several forestry companies -- both big and small -- are united in their opposition to the transaction.

The most vocal is listed forestry group Yorkcor, whose chairman Solly Tucker never misses an opportunity to relate how bad the proposed deal is.

But the biggest setback for the deal so far is the Competition Commission's decision to give the merger the thumbs down, citing the "anti-competitive" effects of the deal. The commission says the transaction would substantially lessen competition in the sawn timber market.

The body says the merged entity will dominate the country's total softwood saw logs market and result in driving out of the market independent saw millers.

The proposed deal is not universally popular and Komatiland has done little to allay the fears of its detractors. Emotions ran high last year when Komatiland said it was experiencing a shortage of logs and would not be able to supply some independent saw millers.

A representative of the saw millers, Manny Ferreirinha, says Komatiland's "arbitrary" decision is a sign of things to come if the deal does goes through.

Government should be worried about the time it is taking to wrap up the privatisation. The implementation of the deal has been dragging on for far too long.

When government announced Bonheur as the preferred bidder in 2003, it wanted to conclude the deal by June last year.

The question is whether government underestimated the competition implications of the deal, which has failed its first competition test.

The consortium is 70% owned by Global Forest Products, a company which has interests in both Mpumalanga and Limpopo.

Lawyers representing the merging parties at the tribunal hearings have been frantically looking at ways to circumvent the competition hurdles.

The hearings were postponed a few times last month as the merging parties came up with fresh proposals and conditions.

The implementation of the deal could drag on for longer. If the Bonheur consortium does not like the outcome of the tribunal hearings, it can take the matter to the competition appeal court.

But whatever happens from now onwards, government cannot hold up the privatisation of Komatiland assets as a model for future concessions as it has been dogged by controversy. The initial bidding process had to be withdrawn because of suspected corruption and resulted in the resignation of the-then public enterprises chief director Andile Nkuhlu.

But all is not lost for government. If all else fails, it can still turn to the Londoloza-Paharbur consortium, the reserve bidder.

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