THE Competition Commission has been asked to probe anti-competitive behaviour by state mining company African Exploration Mining and Finance Corporation (AEMFC).
A complaint to the commission centres on interest-free loans granted to AEMFC by the state-owned Central Energy Fund (CEF).
AEMFC financial statements show the unprofitable entity has got interest-free loans of R443.4m since starting up in 2010, while posting losses of R72.5m.
The AEMFC is the flagship of the government’s plan to scale up state intervention in the minerals sector and secure supply of strategic commodities, including coal, platinum, iron ore and chrome.
Democratic Alliance (DA) energy shadow minister Jacques Smalle said the AEMFC was an inefficient drain on the public purse, as was just about every state-owned entity in South Africa.
He said that the CEF loan was anti-competitive and protected “an under-performing state-owned enterprise at the expense of competitors that can contribute more effectively to economic growth and job creation”.
This disadvantaged smaller companies and could lead to a situation like that in the aviation industry recently with 1time — with private business “driven to the wall by unfair competition from a heavily subsidised state sector”.
“State mining threatens to take scarce government resources away from vital developmental projects and use it inefficiently in a business which, experience shows, governments do not understand and are not good at,” said Mr Smalle.
But AEMFC CEO Sizwe Madondo said this was unlike bail-outs for South African Airways. “SAA was in trouble, we are not in trouble. We are merely a start-up company that needed start-up capital. No one is bailing us out.”
He said the loans were not interest free, but a quasi-equity agreement between AEMFC and its majority shareholder. “The loan agreement clearly states that, at the end of the term, shareholders will either receive dividends that can then be converted into equity or, if AEMFC is unable to pay out dividends, the company will then be charged interest on that loan.”
Mr Madondo said most start-up mining companies were not profitable when starting up as capital was needed to get a business up and running.
He said the AEMFC turned profitable in the six months to September and would make more than R100m in profit by year-end.
“This is way above our initial estimation that we would make R5m in profit and proves we are a viable business able to operate on a commercial basis.”
Mr Madondo said AEMFC would not receive any further loans from CEF as it would move out of the CEF and start reporting to the Department of Mineral Resources directly.
“The department receives its funding from the national Treasury and therefore there are certain constraints. AEMFC does not expect to receive further funding from the department owing to the department’s own limitations.”
To that extent, the AEMFC has been investigating alternative funding models.
“We have embarked on road shows to find additional funding and have been in discussions with the PIC, DBSA, African Development Bank, IDC and other local banks,” said Mr Madondo. “We are looking at them funding us on a commercial project basis.
“Another option we are looking at is refinancing of our Vlakfontein mine, which will allow us to make some debt and use the money to finance other projects,” said Mr Madondo.
AEMFC plans to develop the R2bn T-project next, which could produce 3.5-million tons of saleable coal with first production expected by the last quarter of 2015-16.
“Our aim is to fund that through 50% equity and 50% debt,” said Mr Madondo.
* This article was first published in Sunday Times: Business Times