Report No: ACS19193 . Kingdom of Lesotho Lesotho Structural Policy TA Lesotho State-owned Enterprises: A Country Policy Note . June 30, 2016 . GMF13 AFRICA . Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. . Copyright Statement: The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. 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Acknowledgements This work was prepared by a core team consisting of Aslı Şenkal (Young Professional and TTL, GMF13), Marek Hanusch (Senior Economist and co-TTL, GMF13), Bernard Drum (Consultant, GMF13), Kjetil Hansen (Senior Public Sector Specialist, GGO25), Yashvir Algu (Research Analyst, GMF13), and Shiho Nagaki (Senior Public Sector Specialist, GGO13), and in close collaboration with members of the Lesotho Ministry of Finance, including Maseeiso Lekholoane, Folojeng Folojeng, Bereng Motsoeneng, Makampong Ts'olele, Maleshoane Lekomola and Ntabiseng Sello. The team would also like to thank Central Bank of Lesotho for their collaboration. The report was prepared under the guidance of Mark Thomas (Practice Manager, GMF13) and Sebastien Dessus (Program Leader, AFCS1). The team would like to thank Janet Entwistle, Henri Fortin, Fanny Weiner, and Ali Zafar for their invaluable comments. The team would also like to thank all members of the Lesotho government and other stakeholders interviewed during the data gathering mission in February 2016. Disclaimer: Although the mission acquired a significant amount of data on the State Owned Enterprise (SOE) sector in Lesotho—together with the Private Sector Development Unit in the Ministry of Finance—due to the lack of disaggregated official data on flows between the state and the SOEs, cross checks between the government data and the Audited Financial Statements were not possible. Additionally, although the data collected comprises of a large fraction of the SOE sector in Lesotho, the mission was not able to obtain all financial statements for all years and companies. The data is thus only partial. In some cases the Auditor General also raised concerns about the financial statements. In this regard, the report is not exhaustive and may be incomplete where data gaps limited the analysis. The upcoming Public Expenditure Review will have an opportunity to refine this work should additional information be made available. Contents Abbreviations and Acronyms ...................................................................................................................... iii Executive Summary and Action Plan .......................................................................................................... iv 1. Introduction ........................................................................................................................................... 1 2. The SOE Sector..................................................................................................................................... 2 2.1. Background ........................................................................................................................................... 2 2.2. Lesotho’s SOE Sector and its Overall Performance .............................................................................. 3 3. Financial Relations Between The State and The SOEs ...................................................................... 10 3.1. Fiscal Impact of Basotho SOEs ........................................................................................................... 10 3.2. Contingent Liabilities in SOEs ............................................................................................................ 16 4. SOE Governance ................................................................................................................................. 19 4.1. Legal and Regulatory Framework ....................................................................................................... 19 5. Main Findings and Policy Recommendations ....................................................................................... 23 5.1 The SOE Sector ..................................................................................................................................... 24 5.2. Financial Relations between the State and the SOEs ........................................................................... 24 5.3. SOE Governance .................................................................................................................................. 28 5.4. Enterprise Level Issues and Actions .................................................................................................... 29 Appendix 1: Aggregated SOE Sector Financial Performance, 2009-2014 ............................................... 31 Appendix 2: Lesotho: SOE Indebtedness - Guaranteed, On-Lent Or Lent Directly By Government, 2011/12 -2015/16 (M '000) ............................................................................. 34 Appendix 3: Individual SOE Performance ................................................................................................ 39 Appendix 4: Tables on Individual SOE Financial Data ............................................................................ 66 Appendix 5: Lesotho’s Parastatals and Selection Criteria for Inclusion in this Study ............................. 78 Table of Figures Figure 1: Turnover As A Percentage Of GDP (‘000 LCU And As % Of GDP, 2014 Or Latest Year Available)...................................................................................................................................... 7 Figure 2: Net Profits And Losses (2014 Or Last Year Available) ................................................................ 7 Figure 3: Average Return On Assets (2009-2014) ....................................................................................... 8 Figure 4: Average ROA And % Shareholding Of Government And LNDC ................................................ 9 Figure 5: Average Return On Assets Compared To Peer Countries ............................................................. 9 Figure 6: Estimated Dividends And Taxes Paid By The SOEs 2009-2014 (M '000) ................................. 11 Figure 7: Net Fiscal Impact As A Percentage Of GDP: All SOES ............................................................. 12 Figure 8: Net Fiscal Impact As A Percentage Of GDP: SOES Excluding Letseng Diamonds .................. 13 Figure 9: Correlation Between Real GDP And SOE Profits....................................................................... 15 Figure 10: SOE Debt As A Percentage Of GDP ......................................................................................... 17 Table of Tables Table 1: SOES By Ownership Category ....................................................................................................... 3 Table 2: MTFF Aggregate Data On Flows Between The Parastatals And The GOL ................................. 14 Table 3: Dividends Calculated Through The Annual Financial Statements ............................................... 14 Table 4: Dividends Extracted From MTFF................................................................................................. 14 Table 5: SOE debt as a percentage of GDP ................................................................................................ 17 ii Abbreviations and Acronyms AG Auditor General BEDCO Basotho Enterprise Development Corporation EIB European Investment Bank ICR Implementation Completion Report IFRS International Financial Reporting Standards ISA International Standards for Audits LCA Lesotho Communications Authority LEA Former Lesotho Electricity Authority LEC Lesotho Electricity Corporation LEWA Lesotho Electricity and Water Authority LNDC Lesotho National Development Corporation LNGI Lesotho National General Insurance Company LNLI Lesotho National Life Insurance Company LUT Lesotho Unit Trust LPB Lesotho Post Bank LRA Lesotho Revenue Authority LT former Lesotho Telecoms Corporation LTDC Lesotho Tourism Development Corporation MHG Minor Hotel Group MoF Ministry of Finance PAC Public Accounts Committee PFMA Act Public Finance and Management Accountability Act PPSADP Privatization and Private Sector Development Assistance Project ROA Return on Assets ROSC Report on the Observance of Standards and Codes SACU Southern African Customs Union SADC Southern African Development Community SLB Standard Lesotho Bank SOE State-owned enterprise TA Technical Assistance TL Former Telecom Lesotho WASCO Water and Sewerage Corporation iii State-owned Enterprises in Lesotho a Country Policy Note Executive Summary and Action Plan i. This Policy Note was prepared at the request of Lesotho's Ministry of Finance (MoF) in the context of continuing declines in revenues from the joint customs pool of the Southern African Customs Union (SACU). The Note focuses specifically on State Owned Enterprises (SOE). These revenues from SACU contributed 29.2 percent of GDP to the Basotho budget in 2014/15 and as growth slowed down in neighboring South Africa, they are projected to nearly halve by 2016/17. SOEs contribute significantly to revenue but also constitute considerably risks to the fiscus, which can be aggravated by an economic downturn, such as the one currently experienced by the country, with growth decelerating from 5.3 percent in 2012 to a projected 2.6 percent in 2016. The objective of this policy note is to identify opportunities for the government to enhance its ownership function of State Owned Enterprises (SOEs) and better manage fiscal implications (dividends, transfers, and contingent liabilities), with the ultimate goal of strengthening the financial sustainability of SOEs while maximizing their contribution to the national budget. Although the note does not directly focus on service delivery, it is important to note that financially sound SOEs are a requirement for adequate and sustainable service delivery. ii. The SOE sector in Lesotho was first created in the 1970s to promote domestic investment and at that time accounted for a large part of the economy. Much of it has since been fully or partially privatized. When Government took a number of steps to downsize the sector and increase its efficiency, it launched the privatization program of the 1990s, with associated structural changes such as the creation of independent regulators for the public utilities. Today there remain six wholly owned SOEs, twelve partial Government shareholdings in private companies and eleven companies in which the Lesotho National Development Corporation (LNDC), an SOE itself under the Ministry of Trade, holds mostly minority shares. iii. Although some SOEs are loss-making, Lesotho has one of the better performing SOE sectors in sub-Saharan Africa, contributing between 2 and 5% of Gross Domestic Product (GDP) to the national budget—mostly due to mining. The revenues, profits and net worth of these three groups of SOEs grew over the period 2010–2015 in the aggregate. Compared to a sample of other African economies, Basotho SOEs are more profitable, driven by commercial SOEs without public service obligations. Among the wholly owned SOEs, Lesotho Post Bank (LPB), the Water and Sewerage Company (WASCO) and the Basotho Enterprise Development Corporation (BEDCO) made substantial losses. Among the partially owned SOEs, while Letseng Diamonds, Standard Lesotho Bank and the insurance companies were profitable, Econet Lesotho, Loti Brick, and Lesotho Flour Mills were not. SOEs with LNDC shareholdings in general were profitable with the exception of Loti Brick. On balance, SOEs contributed between 2% and 5% of GDP to the fiscus between 2011 and 2014 given the data available. This overall positive bottom line is almost entirely driven by Letseng Diamonds, however, without which the net fiscal impact was neutral or negative in 2010 to 2013. iv iv. Some SOEs continue to put pressure on the national budget. Overall, however, dividends and taxes have been increasing—mostly thanks to Letseng Diamonds—while subsidies appear to fall. Tax and dividend receipts from SOEs, based on the partial information received, showed an upward trend from 2009 to 2015, with Letseng Diamonds accounting for 86 percent of dividends and 63 percent of taxes between 2009 and 2014. Wholly owned SOEs with a development mandate (public service obligations) and additional 3 out of 9 active companies with direct partial shareholding, have not paid any dividends. Similarly, government has not received any dividends from LNDC through their indirect shareholding. Although the overall trend of SOE contributions has been positive, more can be achieved. With regards to outflows from the budget to the sector, subsidies appear to have been declining.1 Most outflows from the budget to the SOE sector occurred in the form of capital grants or subsidies to WASCO, the Lesotho Electricity Company (LEC), LNDC and BEDCO. v. Contingent liabilities have been on a declining trend, with a caveat of increasing repayment arrears in 2015/16.2 Also Government either lent, on-lent or guaranteed loans to WASCO, LEC, LNDC and Econet Lesotho. While the total volume of loans on-lent or lent directly to SOEs by Government decreased from 3.5 percent of GDP in 2011/12 to 2.8 percent of GDP in 2015/16, over the same period the volume of Government guarantees on SOE loans increased from 0.8 to 0.9 percent of GDP and loan repayment arrears from SOEs increased from 0.5 to 0.6 percent of GDP. Indicative of a possible worsening trend in these SOEs, the largest increases in payments arrears occurred in 2015/16 due to cash flow problems within Econet, WASCO and LNDC. Government also had to assume responsibility for repayments to the European Investment Bank (EIB) of a EUR 14.4m loan and several other smaller loans on behalf of WASCO. While contingent liabilities are falling, strengthening the national government’s debt management system should be considered to avoid similar scenarios in future. Finally, an additional fiscal risk to the government can arise from unfavorable changes to the exchange rate in the case of loans that are contracted by government (in foreign currency) and on-lent to SOEs (in local currency). To mitigate this risk, sound debt management strategies are required at the central government level. vi. The state’s relationship with SOEs is based on a relatively sound legislative framework. Most of Lesotho's SOEs are incorporated under the Companies Act, the only three exceptions being LNDC, BEDCO and the Lesotho Tourism Development Corporation (LTDC) which have their own founding Acts. Other Laws affecting the governance of the SOE sector include the Public Finance Management and Accountability (PFMA) Act, and individual sector legislation for the financial and mining sectors. While there appear to be no major gaps in the enabling legislation there do appear to be opportunities for improvement. Ownership of the SOE sector in Lesotho is fully decentralized with line ministries exercising the ownership and oversight role. vii. Yet in practice, a strengthened Private Sector Development (PSD) Unit, tasked with overseeing SOEs, would put the Government in a stronger position to manage its relationship 1 This statements holds for the entire parastatal sector, which includes statutory bodies and other state-owned entities that are not classified as SOEs for the purpose of this study. The selection criteria for SOEs in this study can be found in appendix 6. 2 This analysis is limited to wholly owned SOEs and Econet. v with SOEs. The PSD Unit in the MoF has the responsibility of SOE monitoring. The Auditor General's Office has responsibility for auditing SOE accounts and the Public Accounts Committee of the Parliament receives these audited accounts for review. While there are opportunities for improving the legal and regulatory framework for the SOEs, more could be done to ensure that the existing system functioned better. Although the PFMA empowers the MoF to receive audited financial statements from the SOEs on a timely basis, the PSD Unit in MoF is not receiving these statements regularly. The Board members of the SOEs are also not reporting back to the SOE oversight unit. The Unit is therefore not able effectively to monitor or analyze SOE sector performance or its impact on public finances, including, the net budgetary burden of the sector. viii. State oversight is also undermined by the way Government exercises its ownership function on SOE boards. There are weaknesses in the nominating processes and compositions of SOE boards of directors, particularly with respect to Government representation on the boards. The Founding Acts and Articles of Association of the wholly owned SOEs in general do not spell out the expertise needed on the boards. While in practice many wholly owned SOEs do have some technical, managerial, financial and legal expertise such expertise is not a requirement, and the boards tend to be composed more of ex-officio or former public servants than of independent technically qualified or private sector people. This applies also to the Government representatives on the partially owned company boards. The PSD unit doesn’t receive feedback from the board members constraining their ability to carry out their oversight function. ix. Overall, a number of improvements can be made to allow Government to better manage its relationship with SOEs. The Policy Note makes a set of recommendations based on the issues identified during the data gathering mission of March 2016 and the following analysis. While tailored specifically to Lesotho's needs, the recommendations are also fully consistent with international best practices as spelled out in the Organization for Economic Cooperation and Development (OECD) Guidelines on Corporate Governance of SOEs (2015)3 and the World Bank's Toolkit on the Corporate Governance of SOEs (2014).4 x. The main policy recommendations can be found on page 25 of this report. In summary, they are: The main policy recommendations Objective: Improve SOE oversight and transparency through regular monitoring of financial and operational SOE performance and fiscal implications from transfers, subsidies, loans and guarantees. Recommendation 1: Strengthen the capacity of the SOE unit to prepare regular reports on SOE performance and their fiscal impact, including all financial transactions/relations between the State and the SOEs. 3 http://www.oecd.org/daf/ca/OECD-Guidelines-Corporate-Governance-SOEs-2015.pdf 4 http://www.ds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/08/06/090224b0828c1a6c/1_0/ Rendered/PDF/Corporate0gove0erprises000a0toolkit.pdf vi Objective: Improve SOE corporate governance and performance with a view to increase profits and revenues and improve operational results and achievement of social objectives. Recommendation 2: Develop a national SOE Policy and Program, outlining government objectives for state ownership and targets by sector or company, as well as clear institutional structures for achieving these objectives and their accountability structures and reporting lines and obligations. Recommendation 5: Include individual enterprise diagnostic studies in the SOE program on the wholly owned SOEs and on some of the partially owned SOEs. Recommendation 4: Identify measures to professionalize and improve the effectiveness of SOE senior management and boards in Lesotho. Objective: Increase revenue through divestiture of non-strategic companies while creating the administrative space for better governance of SOEs. Recommendation 3: Identify potential candidates of divestiture and divest in compliance with the SOE Policy and Program. vii Action Plan Within 6 months Within 1 year Within 2-3 years • Strengthen the technical capacity of • Design and approve SOE policy and • Fully implement changes to boards of the SOE oversight unit in MOF program directors of wholly owned SOEs and to (Technical Assistance, (TA)) • Complete a review of the procedures for government representation on partially ✓ Carry out an institutional nomination of senior management and owned SOEs, including training of assessment of the SOE board directors directors. oversight unit ✓ Implement improvements • If judged appropriate, divest shares in non- ✓ Implement a training program • Complete a review of the SOE portfolio strategic companies in compliance with the for its staff ✓ Decide on a divestiture of State SOE policy and program ✓ Compile a list of the SOEs and LNDC shares from non- reporting schedules strategic companies ✓ Assign specific SOEs to employees of the SOE oversight unit for performance monitoring viii ✓ Ensure that SOE unit staff make regular performance monitoring on-site visits to SOEs. • Create a high level working group to • Complete a review of legal and • Fully implement changes to SOE founding oversee the elaboration of the SOE institutional framework governing the acts, articles of association, and other legal policy and program and associated SOE sector, including strengthening the and regulatory instruments to improve SOE technical work oversight function of the SOE unit. corporate governance, based on the • The working group should comprise at • Strengthen the role of Auditor General outcome of the legal review a minimum representatives from the and Public Accounts Committee (PAC). MoF, line ministries and LNDC • Design a performance monitoring • Fully operationalize the SOE • Fully implement performance improvement program and fiscal risk assessment performance monitoring and fiscal risk and restructuring programs within selected system assessment systems SOEs. ✓ Initiate diagnostic studies on selected SOEs • The SOE unit should receive all • Begin publishing SOE annual reports • Publish annual SOE portfolio reports copies of SOE quarterly and annual and financial statements on internet regularly reports received from line Ministries • Present the annual SOE reports at the and the LNDC, on all enterprises in parliament which the state has a shareholding • The SOE unit should receive copies of all SOE financial statements received by the Auditor General's Office. • The SOE unit should compile precise information on transfers from the SOEs to the State taxes, dividends, and royalties paid to the state, loan ix repayments and any arrears in any of the above. • The SOE unit and the Budget Unit of MoF should receive detailed and regular statements from line Ministries of all capital and recurrent transfers made to all SOEs 1. Introduction 1. This Policy note was prepared following a request in November 2015 from the Ministry of Finance (MoF) of Lesotho. Government spending in Lesotho in recent years has amounted to more than 60 percent of GDP and the public sector wage bill is one of the highest in the world at 22 percent of GDP. Historically levels of spending have been closely correlated with revenues from the Southern African Customs Union (SACU), which reached 29.2 percent of GDP in 2014/15. However, with slower growth prospects in South Africa, SACU revenues are expected to decline to 16.4 percent of GDP in 2016/17 and to remain low at 18.6 percent in 2017/18. Current spending levels are therefore not sustainable in the short term and Government is seeking avenues to create the fiscal space needed to maintain and increase economic growth. This includes examining the management of public sector finances, particularly public investment and expenditures, and the public sector wage bill. In this context, the Government has decided to examine the performance and fiscal implications of the state-owned enterprise (SOE) sector in light of the rising fiscal deficit. Although note specifically examined under this project, it is important to note that SOEs’ financial stability is crucial for adequate and sustainable delivery of public services. 2. The objectives of this note are identifying the fiscal implications and the shortcomings of the corporate governance of the SOE sector through an initial stock taking of the sector. SOEs when managed well can create value, perform vital services that are required for poverty reduction and shared prosperity that are central to a lower middle income country. However mismanaged SOEs can be a budgetary burden and can cause contingent liabilities. Prior to this note, the sector performance was not analyzed since the privatization efforts of late 1990s and early 2000s, hence the fiscal risks and the net contribution of the sector was unknown. The first objective of the note is to identify the net contribution of the sector through looking at the flows to the SOE sector from the government and the flows from the government to the SOE’s as well as contingent risks posed by the sector. A second objective of the note is to help the SOE oversight unit to carry out its mandate through an initial stock taking of the sector and identification of the shortcomings of corporate governance of SOEs in Lesotho. This initial work should then be deepened through Technical Assistance to strengthen the PSD Unit in carrying out solid and regular SOE monitoring going forward. 3. This Policy Note first presents a description of the SOE sector in Lesotho, analyzing its scope, size, performance and major problems. For the purposes of this Policy Note, the term SOE refers to all legal entities which undertake commercial activities on Government’s behalf, although in reality some SOEs have both commercial and social objectives. The coverage of this study is limited to commercial, revenue generating enterprises where Government has a significant control through full or partial ownership. It does not include non-revenue generating statutory or regulatory bodies which depend entirely on transfers from Government. The policy note then focuses on the financial relations between the state and the SOE sector, examining the sector's impact on government finances. This is followed by a section on the governance framework for the sector, which identifies strengths and weaknesses and opportunities for improvement—this is important to identify opportunities for government to strengthen its management of SOEs, increase the transparency of the sector and, eventually, improve their performance. The final section makes policy recommendations based on the research findings and conclusions and on international best practices. A section at the end of the Executive Summary proposes an action plan and timetable for an SOE program. 2. The SOE Sector 2.1. Background 4. In the 1970s Government policy in Lesotho decided to promote domestic ownership of strategic industries and services. In the absence of a sizeable enough domestic private sector this was achieved by establishing SOEs and acquiring Government shares in private companies. By the mid-1980s the volatility of SACU revenues, which constituted about 70 percent of the Government’s total revenues, combined with a largely government driven economy, led to fiscal imbalances. In response the Government adopted a structural adjustment program which was implemented over the period 1988–93 and supported by the IMF and World Bank. In mid-1992 Government issued a privatization policy statement and began taking measures to restructure the SOE sector. By that time wholly owned SOEs numbered 32 of which 17 were directly owned by the Government, 12 were owned by the Lesotho National Development Corporation (LNDC) and 3 were majority-owned by financial institutions. In addition the Government owned minority shares in another 31 private companies. 5. The initial SOE reform measures included restructuring of the Basotho Enterprise Development Corporation (BEDCO), divestiture of Co-op Lesotho and the Bus and Foreign Transport Services, and sale of the LNDC subsidiary Pioneers Motors to a local private investor. The World Bank continued to support the privatization and divesture of SOEs notably through the Privatization and Private Sector Development Assistance Project (PPSADP) whose main objective was to promote the expansion of the private sector as the driving force for economic development. The PPSADP was implemented over the period 1994 to 2000 and included components to support privatization of SOEs and to improve the efficiency of those SOEs remaining in government hands. 6. A Privatization Act was passed in December 1995. The Act established the Privatization Unit of the MoF as the agency responsible for implementing privatizations on behalf of the Government, and defined various methods that could be used to effect the process. This Unit was also responsible for implementing the PPSADP. Over the period of the Project Lesotho privatized some or all of 10 of the 32 SOEs in finance, transport, and telecommunications. However, the government retained shares in most of these enterprises. The Project also supported the privatization of Lesotho Bank, Lesotho Agricultural Development Bank, Lesotho Telecommunications Corporation, Lesotho Airways Corporation, and Lesotho Flour Mills. 7. The first enterprise to be privatized under the PPSADP was Lesotho Airways Corporation in 1997. But the privatized company closed down in 1999 mainly due to competition 2 from Air Link of South Africa. In 1998 Government sold 51 percent of its ownership in Lesotho Flour Mills to Seaboard Corporation, based in the USA, offering an additional 39 percent to the public and retaining 10 percent as a "golden share". One concern was that of the 24 privatization transactions, despite a policy to promote local ownership, Basotho nationals bought only 3 enterprises. 8. According to the PPSADP Implementation Completion Report (ICR) in 2001, the Government achieved substantial savings over the implementation period of the Project in terms of a reduction in the outflow of funds and subsidies to the SOEs. Prior to implementation the Government was making transfers of USD 18.8 million per annum to the banks for operational support. As a result of the privatization program after privatization of 10 companies, the government received US$42.82 million, equivalent to 5.5 percent of GDP in 2000, in privatization proceeds. Liabilities of US$11.4 million were paid out of these proceeds. There were also increases in tax revenues from increased productivity in the economy as a whole, including the privatized firms: the privatized enterprises doubled their pre-privatization tax payments, in addition to paying dividends. 2.2. Lesotho’s SOE Sector and its Overall Performance 9. There are currently six SOEs that are wholly owned by Government. They are in power generation (LEC), water and sewage (WASCO), investment promotion (LNDC and BEDCO), tourism development (LTDC) and banking (LPB). A seventh SOE, Basotho Fruit and Vegetable Canners, is a wholly owned subsidiary of the LNDC. But Government, either on its own account or through LNDC, has also retained partial shareholdings in a much larger number of enterprises, some of which were earlier partly privatized. Table 1 lists the commercial enterprises that comprise the SOE sector in Lesotho at present and which are the subject of the analysis in this report. Most SOEs are registered under the Companies Act except for three statutory corporations which are registered under their own founding Acts. Appendix 6 provides a list of all Basotho parastatals (as considered by the government) and the selection criteria for inclusion in this study. More information on aggregate SOE performance can be found in appendix 1 and a detailed discussion of individual SOE performance can be found in Appendix 3. Table 1: SOEs By Ownership Category Ownership Category SOE Sector Percent Legal Form Government/LNDC Ownership 1. SOEs with 100 Lesotho Power 100 Company percent Government Electrical transmission ownership Company and (LEC) distribution Water and Water and 100 Company Sewage sewage Company (WASCO) Lesotho Multi sector 100 Statutory Corporation National 3 Ownership Category SOE Sector Percent Legal Form Government/LNDC Ownership Development Corporation (LNDC) Basotho Small 100 Statutory Corporation Enterprise business Development development Corporation (BEDCO) Lesotho Post Banking 100 Company Bank (LPB) Lesotho Tourism 100 Statutory Corporation Tourism development Development Corporation (LTDC) 2. Enterprises Letseng Mining 30 Company partially owned Diamonds directly by Kao Mining Mining 25 Company Government Liqhobong Mining 25 Company Mine Econet Telecoms 30 Company Telecom Lesotho National Insurance 20 Company General Insurance National Life Insurance 12 Company Insurance AON Insurance 5 Company Maluti Brewery 4.75 Company Mountain Brewery Lesotho Milling 49 Company Flour Mills Sun Hotel and 36.4 Company International Casino (Avani) Lesotho Lesotho Banking 9.6 Company Standard Bank Loti Brick Brick 22.8 Company making 3. Enterprises wholly Maluti Brewery 51 Company or partially owned as Mountain Brewery 4 Ownership Category SOE Sector Percent Legal Form Government/LNDC Ownership subsidiaries/associates Basotho Cannery 100 Company of LNDC Fruit and Vegetable Canners Loti Brick Brick 73.6 Company making Cashbuild Wholesale 20 Company Lesotho Lesotho Investment 40 Company Food company Industries OK Bazaars Retailer 50 Company Sun Hotel and 16.7 Company International Casino (Avani) Lesotho Property 13 Company Housing and Development Land Development Corporation Lesotho Milling 10 Company Milling Mountain Cannery 30 Company Kingdom Foods 10. In addition to the companies listed above Lesotho Unit Trust (LUT) was launched in 2001 during the privatization efforts. According to the Central Bank of Lesotho (CBL) Supervision Department Annual Report 2003; on 2001 August 16, LUT was officially launched with the aim of creating an investment opportunity for Basotho to invest in private companies of Lesotho, which was the one of development objectives of the PPSADP.5 In 2003, LUT had already acquired shares in the following privatized companies: Lesotho Bank 6 20%, AON Lesotho 15%, and Lesotho Brewing Company 4.7%. In 2007 LUT’s name was changed into Standard Bank Unit Trust and then to STANLIB Lesotho in 2009. The fund is regulated by the CBL. According to the anecdotal evidence the mission received, the development objective of the LUT never materialized. The accounts for dividends were not set-up and it is not clear whether GOL receives any dividends through LUT.7 According to the AFS of Standard Bank, 10.4 percent of Standard Bank shares are held by Stanlib Ltd. The AFS of AON records that 15 percent of AON shares are held in the Unit trust. Similarly, the AFS (FY 2014/15) of Maluti Mountain Brewery documents 5 Central Bank of Lesotho Supervision Department Annual Report for 2003. 6 Lesotho Bank was liquidated and a total of M35 million was distributed in cash to the Government of Lesotho, the sole shareholder of the bank, over the period 31 January 2001 to 31 December 2003. 7 The information on LUT will be followed up in the context of upcoming PER. 5 that 4.75 percent of the shares are held in the Unit Trust. Maluti Brewery, AON, and Standard Bank of Lesotho are all very profitable companies that distribute significant amount of dividends to their shareholders. 11. The tables and charts on SOE sector performance presented in this section are based on the audited financial statements of the individual SOEs, where available.8 For some SOEs the mission was unable to obtain financial statements and in some cases not for all years, so the data are not complete but they are sufficient to give an indication of sector performance and well as the individual performance of the most important SOEs. In some cases the Auditor General raised concerns about the Audited financial statements. A detailed description of SOE performance can be found in Appendix 3. 12. The performance of the companies has been heterogeneous. Over the period analyzed the biggest firm in terms of turnover and profits was Letseng Diamonds making a significant contribution to the economy. Standard Bank of Lesotho, Lesotho Maluti Brewery, and Lesotho Electricity Company followed Letseng Diamonds in terms of turnover (Figure 1). In terms of profits Letseng diamonds, Standard Lesotho Bank, and Lesotho Mountain Brewery were the companies with the highest profits consistent with their size (Figure 2). Among the wholly owned SOEs Lesotho Electricity Company had the highest profits. In 2014 BEDCO, Loti Brick, WASCO, Lesotho Flour Mills, and Econet declared losses. 13. Lesotho Mountain Brewery, Letseng Diamonds, OK Bazaars, and Cash Build had the highest Return on Assets (ROA) apart from Letseng Diamonds and LNIG are the top five highest return on assets were companies with LNDC shareholding (Figure 3). In Lesotho, financial companies seem to perform well such as LNLA and LNIG and Standard Bank of Lesotho excluding Lesotho Post Bank (LPB). Although LPB performed least favorably in 2014 compared to the other financial companies, LPB managed to turn profitable in the last 2 years. 14. LNDC companies have been performing particularly well. Beyond this, the extent of government ownership does not appear to affect SOE performance. Figure 4 displays the average ROA and the government’s shareholding through direct shareholding and LNDC. Although the graph does not display a direct relationship between government shareholding and average ROA, firms owned through LNDC seem to have high ROA’s. Although not directly comparable, this picture seems to be consistent with the international evidence. 9 ROA on wholly owned companies are much lower compared to companies with mixed ownership. However, it is hard to identify how much of the difference is due to poor performance and how much of it is due the differences in objectives. 8 See appendix 4 page 67 for the list of AFS’s used in the study. 9 For example, using the census data Hsieh and Klenow (2009) show that in China state owned plants exhibit 41 percent lower total productivity, whereas collectively owned (part private, part local government) plants have 11 percent higher total factor productivity. 6 Figure 1: Turnover As A Percentage Of GDP (‘000 LCU And As % Of GDP, 2014 Or Latest Year Available) 3000000 14.00% 2500000 000'M Percent of GDP 12.00% 10.00% 2000000 8.00% 1500000 6.00% 1000000 4.00% 500000 2.00% 0 0.00% Source: Audited Financial Statements. Figure 2: Net Profits And Losses (2014 Or Last Year Available) Net profit/loss (2014 or last year avail) Letseng Diamond Standard Bank Maluti Mountain Brewery LEC National General Insurance LNDC Cash Build National Life Assurance AON OK Bazars Lesotho Post Bank Sun International BEDCO Loti Brick Mountain Kingdom Foods WASCO Lesotho Flour Mills Econet -50,000 150,000 350,000 550,000 750,000 950,000 1,150,000 1,350,000 Source: Audited Financial Statements. Note: Red bars correspond to 100 percent government owned enterprises, dark blue bars correspond to enterprises with LNDC shareholding with no direct government shareholding. GOL and LNDC own shares in Loti Brick, Lesotho Mountain Brewery and Sun international. The rest are owned by GOL. 7 Figure 3: Average Return On Assets (2009-2014) Average ROA (2009-2014) Maluti Brewery Letseng Diamond OK Bazars Cash Build National General Insurance Standard Bank Lesotho Flour Mills LNDC National Life Assurance Sun International Loti Brick LEC Econet Lesotho Post Bank BEDCO WASCO -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% Source: Audited Financial Statements. Note: Red bars correspond to 100 percent government owned enterprises, dark blue bars correspond to enterprises owned by LNDC, and the rest are owned by GOL. GOL and LNDC own shares in Loti Brick, Lesotho Mountain Brewery and Sun International. 15. The financial performance of a number of SOEs is highly pro-cyclical. For example, LNDC companies which are in strategic business areas tend to be closely linked to the real economy—notably revenues for Loti Bricks generally track construction GDP (appendix 3), as bricks are a major construction inputs.10 The SOEs with the most pro-cyclical profits in the recent past have been LNLA, Standard Bank, LEC, and Letseng. Profits of WASCO and Econet have been relatively counter-cyclical. The extent to which Basotho SOEs are pro-cyclical has important implications for the budget, as is further explained below. 16. Compared to peer countries the (unweighted) average return on assets are much higher. Lesotho’s firms are doing much better than the comparator countries analyzed in the study. However, this result might be due to the differences in sectors the SOEs are in, differences in foreign shareholding, as well as differences in different shareholding. For example, Gambia study only wholly owned SOEs. If we compare the Gambia average ROA with Lesotho’s wholly owned SOEs the ROA still is higher. 10 Although Loti Brick revenues are highly pro-cyclical, expenditures and net-profits are not (Figure 9). 8 Figure 4: Average ROA And % Shareholding Of Government And LNDC Average ROA (2009-2014) 30% Letseng Maluti Mountain 25% Brewery 20% Ok Bazaars ROA 15% Cash Build 10% LNIG 5% Lesotho flour mills Standard Bank LNDC LNLA Brick LotiLEC 0% Econet WASCO 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% BEDCO 100% LPB -5% % of shareholding of government and LNDC Source: Audited financial Statements. Note: Red dots represent companies with LNDC shareholding without direct government shareholding. Figure 5: Average Return On Assets Compared To Peer Countries Source: World Bank Regional SOE Study. 9 Key findings: • SOEs without public sector objectives in general have high ROA’s. Wholly owned SOEs have lower ROA’s compared SOEs with mixed ownership, however this is consistent with their public service obligations. • Letseng Diamonds is the key driver of positive overall performance of the SOE sector. Excluding it, SOE performance is considerably more mixed. • LNDC-owned companies have been performing particularly well. Apart from wholly owned SOEs, Econet and Flour Mills. There seems to be a positive relation between state shareholding and ROA. • Profits of some Basotho SOEs are highly pro-cyclical. • Financial sector in general performed well over the analyzed period. • Compared to its peers Lesotho SOEs seem to be doing significantly better. 3. Financial Relations Between The State and The SOEs 3.1. Fiscal Impact of Basotho SOEs 17. The analysis in this section is limited by the non-availability of some key data from the MoF and LRA. MoF was unable to provide comprehensive data on direct financial flows to or from the SOEs, either individually or in aggregate, such as direct transfers or subsidies paid, or royalties and dividends received (Appendix 2 provides more detailed debt and fiscal information, as available). Similarly, the LRA was unable to give the mission data on taxes, royalties or import duties received from SOEs or import duty concessions granted to SOEs, either individually or in aggregate. Partial data certainly exists in different locations within both institutions and in line ministries, but the fact that it is not being collected, compiled, analyzed or reported to policy makers shows that Government does not have the analysis needed to assess and monitor accurately the fiscal implications of the SOE sector in Lesotho. Without such data and analysis, the basis for adequate coordinated sector policy formulation, implementation or monitoring is absent. 18. For the purposes of this report an attempt was made to compensate for non- availability of data from MoF by deriving information from the audited financial statements of the SOEs. This has allowed approximations to be made on some financial flows from the SOEs to government, such as dividends and taxes. However, since the SOE accounting years do not always correspond with the government's fiscal year and government uses cash accounting, there are sometimes inaccuracies when comparing data from the enterprise accounts and from the MoF. One area where detailed information was made available by MoF was government's lending, on-lending and loan guarantees to SOEs and the extent of arrears in repayments of this debt for the years 2011/12 and 2015/16. This has enabled an assessment to be made of government's direct debt and contingent liabilities from SOE indebtedness. 10 19. Partially government-owned SOEs, especially Letseng, contribute the lion share of dividends and taxes. Figure 6 below and the Table A1.2 in Appendix 1 give estimates of dividends and corporation taxes paid to the State by the SOE sector. The levels of dividend payments fluctuated across the period with a general increasing trend, ranging from a low of M 38.1 m (0.26 percent of GDP) in 2009 to a high of M 327.9 m (2.26 percent of GDP) in 2014.11 Over the same period corporation taxes paid also fluctuated with increasing trend from a low of M 198.37m in 2009 to M 326.1m in 2014. The wholly owned SOEs paid no dividends and only a small percentage of the taxes. Letseng Diamonds accounted for around 86 percent of dividends and 63 percent of the taxes paid to the state over the period. Other companies with significant contributions to the budget were Standard Bank, and to an extent LNIG. Figure 6: Estimated Dividends And Taxes Paid By The SOEs 2009-2014 (M '000) dividends paid to the state taxes paid (M '000) 350000 600000 300000 500000 250000 400000 300000 200000 200000 150000 100000 100000 0 50000 2009 2010 2011 2012 2013 2014 -100000 0 2009 2010 2011 2012 2013 2014 LNDC wholly owned partially owned Source: Audited Financial Statements and World Bank Staff Calculations. Note: The data is based on the partial information based on the audited financial statements received during the mission in February. 20. On balance, the net fiscal impact of SOEs has been positive and substantial (2 to 5 percent of GDP since 2011) for Government overall, providing significant support to the national budget. Figure 7 below shows the overall fiscal impact of the SOE sector analyzed in this work using the audited financial statements that were collected.12 The bars below the x-axis represent the flows from the government to SOEs such as subventions (subsidies), grants, and the 11 The dividend data might be understated due to the lack of dividend data for Standard Bank of Lesotho in 2010 and 2011. 12 Since the graph represents only the partial information obtained from audited financial statements of SOEs, the overall impact of the SOE sector is partial. The capital grants and subventions is only a lower bar to aggregate outflows on this category due to the lack of data at the MOF. Change in capital grants in AFS’s might also differ from the actual ones due to depreciation. Dividend data is understated in 2010 and 2011 due to the lack of dividend data for Standard Lesotho Bank. The diamond royalties might also improve the overall fiscal impact. The projected outturn for the year 2015/16 from the diamond royalties are around 0.9 percent of GDP. Finally, SOE debt arrears are available only for 2011/12 to 2015/16. 11 change in grants. Here, changes in capital grants are the most important drag on the budget, followed by the debt arrears due to WASCO. The debt arrears are becoming an increasing from for the GOL. Although not shown in the graph in FY 2015/16 in addition to WASCO; LNDC and Econet were in arrears on on-lent loans. Total subventions are nearly negligible in percent of GDP, though the data on subventions are limited to the data collected through AFS’s. The bars above the x-axis represent the flows from the SOEs to the government, notably such as taxes and dividends. While taxes have traditionally been the main contributor to the budget from the SOE sector here, dividends, largely linked to mining, have been stepping up in 2014. According to the data collected, the overall fiscal impact of SOEs is positive. Figure 7: Net Fiscal Impact As A Percentage Of GDP: All SOES net fiscal impact (% of GDP) 7.00% subventions change capital grants 6.00% grants taxes 5.00% Total dividends SOEdebt arrears 4.00% 3.00% 2.00% 1.00% 0.00% 2009 2010 2011 2012 2013 2014 -1.00% -2.00% -3.00% Source: Audited Financial Statements, BOS and World Bank staff calculations. 21. Yet Letseng Diamonds accounts for a large fraction of the dividends and the taxes which can overshadow the overall fiscal impact of the SOE sector in Lesotho. Figure 8 thus displays the net fiscal impact of the SOEs excluding Letseng Diamonds. When the taxes and the dividends paid by Letseng Diamonds are taken out, the net fiscal impact becomes negative in 2010 and 2012, slightly negative in 2011, 0 in 2013 and 1.04 percent in 2014. 12 Figure 8: Net Fiscal Impact As A Percentage Of GDP: SOES Excluding Letseng Diamonds Net fiscal impact without Letseng (% of GDP) 4.00% 3.00% 2.00% 1.00% 0.00% 2009 2010 2011 2012 2013 2014 -1.00% -2.00% -3.00% subventions change capital grants grants taxes Total dividends SOEdebt arrears net fiscal impact (% of GDP) without letseng Source: Audited Financial Statements, BOS and World Bank staff calculations. 22. Matching company data with budget data is challenging. Aggregate data were made available on dividends and extra budgetary grants from the MOF macro department from the Medium Term Fiscal Framework. Table 2 shows the grants to extra budgetary units, a much broader category of entities namely parastatals, and dividends from the extra budgetary units. It is difficult to compare these aggregate data with the data obtained through the financial statements due to the different coverage of entities and differences in financial years. In order to calculate and provide a better assessment of the fiscal impact of SOEs, what is needed is a complete set of data on capital grants, subventions, dividends and taxes by each SOE which is not available at the MOF. A separate table on dividends by each SOE was also made available to our team as shown in Table 4. Although for some years the data seems to be consistent between the company data and the MTFF, for some other years there seems to be major gaps. The discrepancies between company and government data are displayed in Tables 3 and 4. 13 Table 2: MTFF Aggregate Data On Flows Between The Parastatals And The GOL 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Extra Budgetary Units grants (% of GDP)13 2.44% 1.82% 3.11% 2.49% 2.37% 3.09% 2.01% dividends % GDP 0.79% 4.13% 1.84% 0.49% 0.48% 1.28% 2.15% dividends 117467 686028 342936 97735 106104 311863 549252 Extra Budgetary Units grants 363696 301498 579920 499117 521524 754572 513501 Source: MOF (MTFF). Note: Subventions include subsidies to all the parastatals. Dividends include dividends from all the parastatals. Table 3: Dividends Calculated Through The Annual Financial Statements 2009 2010 2011 2012 2013 2014 total Standard Lesotho Bank 2895 N/A N/A 14475 16888 19300 53558 Econet 0 0 0 0 493 0 493 National General Insurance 1380 1386 3189 2355 2680 560 1155 National General Life Assurance 0 832 1914 1413 1608 336 6103 Sun International of Lesotho 0 0 0 0 0 0 0 Loti Brick 0 0 0 0 0 0 0 Aon N/A N/A 333 377 427 415 1552 Letseng Diamonds 33000 63000 264156 78900 61250 307800 808106 Lesotho Flour Mills 0 0 0 0 0 0 0 Maluti Mountain Brewery 3519 total 37275 65218 269592 97521 83346 328411 881363 Source: Audited Financial Statements and World Bank staff calculations. Table 4: Dividends Extracted From MTFF 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 total Letseng 0 63000 264156 0 20000 164790 511946 Lesotho Flour Mills 0 0 0 0 0 0 0 LNIG 0 0 2784 2996 503 551 6835 Sun International 0 0 0 0 0 0 0 AON Lesotho 0 0 0 0 427 8200 8627 Standard Lesotho Bank 0 0 10520 11322 16800 18405 57047 Loti Brick LTD 0 0 0 0 0 0 0 Telecom (Econet) 0 0 0 0 21000 0 21000 total 0 63000 277460 14318 58730 191946 605454 13 Includes subsidies to all the parastatals listed in Appendix 6 (i.e. not only SOEs as defined in this report). 14 23. However, based on the data available, it appears that dividends have risen in 2015/16, while grants have fallen. Consistent with company data, dividends recorded by the government remained relatively stable in 2012 and 2013, and rose in 2014. This was a substantial increase, nearly, rising further in 2015, quadrupling dividend payments from SOEs between 2012 and 2015—mostly due to mining. The grants data are conflicting but suggest, from the budget’s side, that grant in percent of GDP in 2015/16 have been at their lowest level since the global financial crisis of 2009 with the exception of 2010/11. 24. One fiscal risk stemming from SOEs is that some of the larger ones have highly pro-cyclical profits. This means that SOEs aggravate the effect of economic downturns on the national budget. Figure 9 shows that the most procyclical firms in terms of profits were Standard Bank, Lesotho Post Bank and Lesotho national general assurance. The utility firms on average were slightly countercyclical. Although the construction sector picked up during the analyzed period, Loti Brick was countercyclical. Overall, Standard Bank and Letseng have the largest fiscal contribution and their considerable pro- cyclicality means that fiscal risks stemming from the SOE sector is compounded in a downturn. Fiscal risks are further aggravated by contingent liabilities from SOE debt, as further explained below. Figure 9: Correlation Between Real GDP And SOE Profits 1 LNLA Standard Bank Correlation between real GDP and SOE profits LPB 0.8 0.6 LEC Letseng 0.4 LNIG LNDC 0.2 0 -1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00% -0.2 WASCO Econet -0.4 BEDCO -0.6 -0.8 Loti Brick -1 net fiscal contribution (% of GDP) Source: Audited Financial Statements, BOS and World Bank staff calculations. 15 3.2. Contingent Liabilities in SOEs 25. Overall, continent liabilities from SOEs have been decreasing from 2011/12 levels. This is mostly due to less on-lending. Arrears increased in 2015/16. Appendix 2 shows trends in Government’s exposure to SOE debt through on-lending, direct lending, guarantees and payment arrears. The information is also summarized in Table 5 and Figure 10 below. Government involvement was limited to only four SOEs - the wholly owned WASCO, LNDC and LEC, and the 30 percent owned Econet Telecom Lesotho. Some SOEs, such as LEC, however, have expressed concern that this reduction in credit from the government means that they have difficulty completing required infrastructure investment upgrading an investment. This is an implicit liability that is not captured in these numbers but will arise as an obligation when such investments can no longer be postponed without affecting service delivery. 16 Table 5: SOE Debt as a Percentage of GDP 2011/12 2012/13 2013/14 2014/15 2015/16 On-lent loans 3.40 3.23 2.99 2.64 2.49 Guaranteed loans 0.80 0.81 0.82 0.96 0.91 Direct loans 0.45 0.41 0.36 0.31 0.29 Repayment arrears (principal and interest) 0.49 0.46 0.42 0.41 0.60 Source: MoF, Debt department. 26. The volume of outstanding loans on-lent from Government to the SOE sector fluctuated over the period within a narrow range between M 622m and M 635m. As a percentage of GDP it fell from 3.4 percent to 2.5 percent. As of 2015/16 two China EXIMANK loans to Econet accounted for 69 percent of the total and a number of international loans to WASCO for 22 percent. Figure 10: SOE Debt As A Percentage Of GDP 6.00 5.00 4.00 3.00 2.00 1.00 - 2011/12 2012/13 2013/14 2014/15 2015/16 Debt on lend Debt guaranteed Debt lent Arrears Source: World Bank calculations based on data from MoF. 27. Guarantees to the SOEs are given under the Loans and Guarantees Act of 1967. According to the debt department any borrowing that exceeds M10,000 by an SOE has to 17 obtain a guarantee through the government.14 According to the Ministry of Finance this Act has managed to minimize government’s exposure to contingent liabilities.15 Government guarantees on SOE loans, which at the end of 2015/16 consisted only of only two loans - a M 232.6 m EIB loan to WASCO and a M 52.9 m PIC loan to LNDC - increased steadily from M 147m in 2011/12 to M 232.6m in 2015/16 .This was equivalent to an increase from 0.8 percent to 0.9 percent of GDP. The WASCO loan accounted for most of this increase. Meanwhile the outstanding balance of direct loans from Government to the LNDC, the only SOE receiving direct loans from Government, decreased from M83m in 2011/12 to M73.2m in 2015/16. 28. According to the DEMPA report (2012) the procedures for issuing guarantees do not ensure that the debt department of MoF is involved in the preparation and issuance process and sometimes is not even notified about the guarantees being issued. The team found out that the debt department is still not involved in the processes. DeMPA (2012) notes that the debt department became aware of a guarantee that had been issue to a local bank without its knowledge. Similarly, according to the same report there was only one outstanding loan guarantee for LNDC in 2012. However, the data we received from the debt department shows another guaranteed loan to WASCO. It is possible that there are other loans to some SOEs that are not reported to the debt department. According to DEMPA (2012) the guarantee that was issued to LNDC was not subject to a credit risk analysis. In addition to the problems stated above sometimes formal on-lending contracts are not entered into between the government and the beneficiary. For most of the lent and on lent loans the debt department is only informed, if informed, on the terms of the loans at very late stages. 29. While as a percentage of GDP the overall amount of outstanding SOE debt in which Government was involved decreased over the period, there was a substantial increase of repayment arrears in 2015/16, indicating the growing cash flow problems, particularly of Econet Telecom Lesotho, WASCO, and LNDC. Furthermore in 2014, government took over responsibility for WASCO’s repayments to the EIB on the balance of the EUR 14.4m loan which Government had guaranteed. For the same reasons Government continues to make repayments on a number of other international loans which it on-lent to WASCO. 30. While the loans of the companies as a percentage of GDP has declined over the period, to assess the overall SOE debt one also needs to look at the impact of these loans on the government’s balance sheet, including losses from the exchange rate. Most of the on-lent loans are converted to domestic currency at the time of on-lending. For some of the loans the government charges an interest rate over the original terms of the loan to cover the exchange rate risk. 16 However, since the 2011 maloti has depreciated significantly against the currencies in which its loans are denominated in. A Technical Assistance on debt management (e.g. on the World Bank’s Medium Term Debt Strategy (MTDS) tool) could be helpful in understanding the costs of these loans to the government. As stated above, all these loans are important for the SOEs that have 14 This information needs to be verified. According to the DEMPA the Loans Act of 1975 establishes that all domestic borrowing by statutory bodies, SOEs, and other government institutions, in amounts that exceed 1 million should be approved by the Minister. 15 A new debt bill is being drafted to bring the debt regulations to international debt practice. 16 In the case of Econet the government converted the loan in to local currency at the time of on lending and charged an additional interest rate of 2 percent. 18 important development mandates, however a proper costing of the loans and credit risk analysis should be carried out. Key findings (based on the available data): • SOEs contribute 2-5% of GDP to the national budget. • Without Letseng, SOE performance is worse, on average, with some years in deficit. • In recent years, dividends from SOEs have been increasing, providing support to the national budget. • Grants as a percentage of GDP have been falling, easing pressure on the national budget. • Profits of SOEs which major contributions to the budget are highly pro-cyclical, increasing contingent risks from SOEs for the national government • On-lending to SOEs has been falling, reducing contingent liabilities overall o Yet to an extent this can lead to underinvestment of SOEs which may require future government support and is an implicit liability • On some of the on lending arrangements government assumes exchange rate risk by converting the on-lent loan into the local currency. • Arrears are sizeable and jumped in 2015/6 as some large SOEs increasingly experience cash flow problems. • The debt department is involved too late stages on on-lending and debt guarantee arrangements and it does not analyze (or mitigate) on lending-related exchange rate risk. • Significant data gaps and mismatches between company accounts and government data exist (and limit the analysis) 4. SOE Governance 4.1. Legal and Regulatory Framework 31. Most of the SOEs in Lesotho are incorporated under the Companies Act of 2011, and their governance structures and reporting systems are therefore required to comply with the provisions of this Act. Only three - LNDC, BEDCO and LTDC - take the form of statutory corporations, each having their own individual founding Act. Lesotho has therefore already moved in the direction of international best practice in SOE governance by placing most of its SOEs under companies legislation. Other legal instruments governing the sector include the Public Financial Management and Accountability (PFMA) Act of 2011, and the Privatization Act of 1995 and its subsequent regulations. Sector specific laws and regulations, such as the Mining Act and Financial Institutions Act and other instruments also contribute to the governance and accountability framework for the SOEs. 32. The Companies Law makes provision for the issuing and transfer of shares and the registration and creation of articles of incorporation of all companies including the corporate SOEs. It spells out shareholder rights and obligations, including those for minority shareholders such as the right to information on company activities. It spells out the role and procedures for 19 appointing and dismissing the Boards of Directors and the need for directors to avoid conflicts of interest, but it does not spell out competency or evaluation requirements for directors. It obliges the companies to prepare annual audited financial statements and to issue these within three months of the end of the financial year. It also spells out the procedures and requirements for winding up the company. 33. LNDC was originally created by the LNDC Act of 1967 which was subsequently amended in 1990 and then amended again by the LNDC Amendment Act No. 7 of 2000. BEDCO was created by the BEDCO Act of 1980 which was amended by the BEDCO Act No. 10 of 2000. The LTDC is governed by the Tourism Act of 2002 as amended in 2006. Among other things these Acts provide a framework which outlines the purposes and powers of the corporations, the composition and procedures of their Board of Directors and their financial structures and accountability. LNDC was created "to initiate, promote and facilitate the development of manufacturing and processing industries, mining and commerce in a manner calculated to raise the level of income and employment in Lesotho". BEDCO's mandate is "the establishment and development of Basotho owned business enterprises with particular focus on the promotion of entrepreneurial skills. 34. Part VI of the PFMA Act governs the management and accountability of those public funds placed under the control of public enterprises. It requires the production by public enterprises of financial statements according to international financial reporting standards (IFRS). It restricts the ability of public enterprises to borrow, dispose of assets or deal in financial derivatives without the prior approval of the Minister of Finance. It requires regular reporting to the MoF in consultation with the line minister responsible for the enterprise, including submission of annual financial statements. It also requires the line Minister to submit annual financial and operational reports to Parliament within six months after the end of the financial year with copies to the Minister of Finance. The Act requires the Auditor General to audit the financial statements of all public enterprises. 35. The Privatization Act of 1995 covers all entities in which Government has a share. It therefore covers all SOEs as defined for the purposes of this report. The Act created a Privatization Unit within the Ministry of Finance and gave the Unit broad powers to determine the best methods for the privatization, leasing or liquidation of SOEs and then to manage the implementation of the process. The Law also set up a Private Sector Advisory Committee (PSAC) to be chaired by the Principal Secretary (PS) of Finance and to include a very broad range of government, private sector and civil society stakeholders. Oversight Arrangements 36. The ownership structure for Lesotho's SOE sector is fully decentralized, as confirmed in the various legal texts governing the sector, and as seen in practice. The wholly owned SOEs and partial shareholdings are supervised by the applicable line ministries, and the LNDC shareholdings are supervised by LNDC which reports to the Ministry of Trade. The Ministry of Finance in theory exercises a central monitoring role of SOE finances, as mandated under the PFMA Act, and this role is exercised through several of its units such as Macro, Budget and Debt. 20 MoF's SOE oversight Unit, which is the successor to the Privatization Unit created under the Privatization Act, has central monitoring responsibility within MoF for the SOE sector. The Unit has a Director and ten professional staff. However, in practice, while the PSD Unit provided the mission with a great deal of support in organizing meetings and in ad hoc data collection, the Unit has been unable in recent years to collect full sets of data and financial reports or to carry out analysis systematically or regularly on the SOE sector. This is not simply a result of the decentralized reporting relationships of the SOEs to line ministries. The Unit does not appear even have regular access to data which is available in other units within the MoF. 37. In countries with traditional decentralized SOE ownership structures such as Lesotho, central monitoring and coordination of the SOE sector policy is often a challenge. Disadvantages of decentralized structures around the world include increased scope for political interference in SOE activities, confusion between ownership and regulatory functions in line ministries, fragmented and diffused accountability, insufficient ownership capacity and lack of adequate oversight of the sector as a whole. Lesotho has already taken the positive step of corporatizing most of its SOEs to improve SOE autonomy, and has reduced the size of the sector to a more manageable size through the privatization program of the 1990s and early 2000s. Lesotho has also made progress in creating independent regulators for public utilities, which has reduced the conflict between the ownership and regulatory functions. But since the winding down of the privatization program, the central oversight function of the SOE sector within MoF has deteriorated to the extent that there is no effective sector wide monitoring. Government does not have the systems in place to monitor the performance or fiscal implications of the sector that are needed to hold companies to account and to implement an effective SOE sector policy. Financial Reporting and Audit 38. The Companies Act, PFMA Act and other legal instruments require adequate and timely SOE accounting, audit and financial reporting. International Financial Reporting Standards (IFRS) and International Standards on Auditing (ISA) were adopted in Lesotho in 2001. The Auditor General (AG) has responsibility for auditing all public accounts including the accounts of the 100 percent state owned entities. The AG's Office reports that there is room for improvement in the quality of SOE accounts and in particular in the meeting of the submission deadlines required by Law. 39. In practice because of staff shortages the AG's Office often subcontracts SOE audits to private audit firms. The AG's office pay scales are determined by the Ministry of the Public Service and this has restricted the ability of the Office to compete with the private sector and SOEs in attracting and retaining accountants. There are at present only 130 auditors out of an establishment of 200 in the Office. A new Audit Bill soon to be tabled in Parliament, if approved, will convert the AG's Office to an autonomous entity and this is expected to allow the Office to apply pay scales sufficient to attract and retain the necessary skills. 40. The major international accounting and audit firms are represented locally. There is an Institute of Accountants which trains and certifies accountants. An examination of the SOE financial statements collected during and after the mission shows that they appear to be of fairly good quality and, with some exceptions, have increasingly been submitted in a timely manner. A joint World Bank/IMF Report on the Observance of Standards and Codes in Accounting and 21 Auditing (ROSC A&A) completed in 2010 reported some shortcomings, mainly related to accounting within smaller entities and less so to the larger companies including SOEs. However important findings of the ROSC included the need to upgrade accounting skills in Lesotho, to strengthen the role of the Institute of Accountants and to improve financial oversight by Government. Based on the mission's findings these recommendations are still relevant today. 41. Parliament plays an oversight role for SOEs through its Public Accounts Committee (PAC). The PAC examines SOE financial statements submitted by the line ministries in compliance with the PFMA Act, along with the Auditor General's reports on the SOEs. As with other institutions PAC has limited capacity and this has resulted in backlogs in parliamentary reviews. 42. In some cases the Auditor General raised concerns about the audited financial statements. Some examples include WASCO, LEC and Loti Brick. SOE Boards of Directors The following are the board compositions for five of the six wholly owned SOEs: 43. LNDC. The LNDC Act, as amended, specifies that 11 board members will be appointed by the Minister of Industry, Trade and Marketing. They will consist of: a representative of the Ministry who will be Chairman, representatives of the Ministries of Finance, Development Planning, and Agriculture and Cooperatives, the Lesotho Chamber of Commerce and Industry, the Lesotho Tourist Board, the Lesotho Manufacturers Association, the Lesotho Consumer Association and three other members appointed either as representatives of any entity owning 10 percent or more of the shares of LNDC or individuals with experience in matters relating to the functions of the LNDC. 44. LTC. The Tourism Act specifies that the Minister of Tourism will appoint 8 board members. They will include: the Director of Tourism who will be the Chairman, the CEO, a representative of the Lesotho Council of Tourism who will be Deputy Chairman, a representative of the Hotels and Hospitality Association, and 4 other members. The Act also requires that the representative of the Lesotho Council for Tourism be qualified or experienced in tourism, finance, environment, the law, culture or physical planning. Qualifications of the other board members are not specified, except by their ex-officio positions when they represent outside organizations. 45. LEC. The Memorandum and Articles of Association stipulates simply that the number of directors should be not less than 2 or more than 20. There is no formal specification of qualifications required. In practice the LEC board currently has 9 directors and includes individuals from the private sector, academia and engineers. 46. WASCO. The Memorandum and Articles stipulate is that there should be not less than 2 and not more than 10 directors. There is no specification of qualifications required. In practice there are currently 9 directors including a former PS/diplomat, a lawyer, an accountant, the PS for Tourism and three media specialists. There are no engineers. 22 47. LPB. Prior to incorporation most directors were PSs but now the composition is based more on expertise. The Articles require a minimum of 5 directors and at present there are 7. They include four ex-bankers (one formerly with the LRA, one formerly with the Central Bank, a lawyer and an MBA) a chartered accountant, an IT specialist and the MD. 48. In the minority owned SOEs the majority of the directors are appointed by the private shareholders. Government appointed directors tend to be PSs, former PSs or other senior Government officers. 49. Many anecdotal reports received during the mission suggest that there is great room for improvement in the selection and performance of government representatives on the SOE boards. In the minority owned companies government appointed directors are considered to be less pro-active in providing support or strategic guidance or adding value to the oversight, management or accountability of the SOEs than their private sector colleagues. Independent Regulation of SOEs 50. SOEs active in the financial sector including LPB, SLB, and those insurance companies in which Government holds shares, along with all private banks and non-bank financial institutions, are regulated independently under the Financial Institutions Act by the Central Bank through its Department of Supervision. The Financial Institutions Supervision Technical Committee which includes the Governor (as Chairman), Deputy Governors, Directors and senior officials of Supervision and Research Departments, meets once a week and is kept informed of all relevant supervisory activities. 51. LEC and WASCO are regulated independently by the Lesotho Electricity and Water Authority (LEWA). LEWA's predecessor, the Lesotho Electricity Authority, was created in August 2004 and mandated with regulating the electricity sector. In 2007 a decision was taken to transform the LEA into a multi-sector regulatory body. LEWA officially started regulating both electricity and urban water and sewerage services sector in May, 2013. The Authority independently deals with matters such as electricity and water tariffs and therefore has a strong influence on the finances of LEC and WASCO. It also handles and resolves complaints and the supervision of the implementation of the Quality of Service and Supply Standards by its licensees. 52. Econet, along with other telecommunications companies, is regulated independently by the Lesotho Communications Authority (LCA). LCA was created in 2000 in the context of regional reforms taking place in the telecoms sector in SADC countries and its creation was also an integral component of Lesotho's telecoms privatization program. In addition to regulating telecoms LCA also regulates the management of all other ICT services in the country along with the radio spectrum and radio and television broadcasting services. 5. Main Findings and Policy Recommendations 23 5.1 The SOE Sector Aggregate Sector Performance 53. The wholly owned SOEs as a group have shown growth in aggregate revenues and net worth and have continued to be profitable over the last six years. But the aggregate numbers hide poor performance by Lesotho Post Bank in the earlier years. LPB's losses have since decreased steadily and the LPB registered profits in 2014 and 2015. The aggregate numbers also hide mixed performance including repeated losses by BEDCO and WASCO over the period. And, as described in the next section, Government has had to step in with capital grants to LNDC, BEDCO and WASCO over the period, as well as to LPB in the earlier years. Importantly the turnover and profitability figures do not show that LNDC and WASCO over the last two years have increasingly experienced cash flow problems which have led to their running up arrears on loan repayments to Government and to international creditors. Government has increasingly had to step in and honor WASCO's and LNDC's debt servicing obligations. 54. Only incomplete data is available on the SOEs in which Government has a partial direct shareholding. However the available data are sufficient to present a useful picture. The aggregate performance figures indicate steady growth in revenues and net worth and continued profitability of this group over the period, with some deceleration in the last two years. But there are marked differences between two sub-groups within this group. Letseng Diamonds, Standard Lesotho Bank, National General Insurance, National Life Insurance and AON insurance performed well financially. Econet Telecom Lesotho, Loti Brick, Lesotho Flour Mills and Sun International performed less well. Econet made losses in four of the six years under review and these losses increased sharply over the last two years. Since 2015 Econet Telecom Lesotho has also been in arrears on repayments of a loan from EXIMBANK of China, on-lent by Government. Lesotho Flour Mills and Loti Brick have both started to incur losses over the last two years and their immediate prospects for a turnaround do not look good. Similarly Sun International of Lesotho has experienced either losses or very low profitability in each of the last three years 55. The financial performance indicators for those LNDC subsidiaries and associated companies for which data are available suggest a growth in aggregate turnover, profitability and net worth of this group over the period under review, with particularly good performance by Maluti Mountain Brewery. This however is counterbalanced by the declining performance of Loti Brick and Sun International over the last two to three years. 5.2. Financial Relations between the State and the SOEs 56. Lack of complete data within MoF has prevented a complete analysis in this Policy Note of the financial relations between the State and the SOEs. An area of exception is government involvement in SOE indebtedness where good quality detailed information was obtained from MoF's Debt Unit (see Appendix 2). Specialized units within MoF such as Debt, Budget, and Macro do have information on different aspects of SOE finances but these are not collected centrally by the PSD Unit which has responsibility for SOE sector oversight. In the case of disaggregated transfers and subsidies to individual SOEs, we were told that detailed information 24 is not available anywhere within the MoF and that only the line ministries can provide it. To some extent we were able to compensate for lack of centralized data within the MoF by working with the staff of the PSD Unit in collecting and analyzing the audited financial statements of the SOEs themselves. In many cases these financial statements could not be obtained from within the MoF even in those cases where MoF is represented on the SOE boards and despite the fact that the PFMA Act requires these statements to be provided to the MoF. The absence of coordinated central collection, analysis and reporting on the financial performance of the SOE sector presents an obstacle to the formulation and implementation of Government policy vis-a-vis the sector and to the monitoring of progress in implementation. 57. Dividend and tax payments have shown a general increase over the period, and have been mainly generated by Letseng Diamonds followed by Standard Bank of Lesotho. The other companies that were profitable and contributed through dividends were Lesotho National Insurance Company, Lesotho National Life Assurance Company, and AON. Maluti Mountain Brewery and Econet paid dividends only once directly to the government during the period analyzed. The evidence suggests that the SOE sector is presenting a budgetary burden on the State, particularly from arrears in loan repayments that Government has either lent directly, on-lent or guaranteed. 58. The recommendations are concentrated on raising revenues while mitigating the fiscal risks posed by the SOE sector and promoting better governance and transparency. The recommendations more specifically can be summarized under the following objectives: • Improve SOE oversight and transparency through regular monitoring of financial and operational performance and fiscal implications from transfers, subsidies, loans and guarantees. • Improving SOE corporate governance and performance with a view to increase profits and revenues and improve operational results and achievement of social objectives. • Increase revenue through divestiture of non-strategic companies while creating the administrative space for better governance of the SOEs 59. Recommendation 1. Strengthen the capacity of the PSD unit to prepare regular reports on SOE performance and their fiscal impact, including all financial transactions/relations between the State and the SOEs. This would include monitoring and assessment of risks associated with contingent liabilities as well as all arrears between the state and SOEs. The data should be updated regularly, say every three months for interim reviews, but once a year for full reviews. This process should regularly monitor all transfers to SOEs from central government including operating subsidies, capital grants and any other transfers. It should also include all direct lending and on-lending by government, and all government guarantees on SOE borrowing, all duty and tax exemptions, and any other concessions. In terms of transfers from the SOEs to the State the review should document levels of taxes, dividends, and royalties paid, loan repayments and any arrears in any of the above. 60. The SOE unit staff should receive quarterly financial reports from all SOEs and should continuously analyze and monitor firm performance, including through relevant benchmarking and comparisons with other firms, including private sector firms and using 25 relevant sector averages. Such monitoring may also require regular meetings between SOE unit and company management to discuss relevant operational and strategic actions and changes. A full report on the finances and operational performance of the SOE sector should be prepared once a year and made available to the public. This review should be part of the regular work of the SOE monitoring unit which is presently located within the PSD Unit of MoF and is likely to require: • A directive from the Minister of Finance that SOE financial statements should forthwith be submitted to the SOE oversight unit on a regular and timely basis. Good practice generally involves the submission of quarterly financial statements and the full annual audited financial statements and operational reports. • A review and possible changes to laws or regulations to strengthen the role and mandate of the SOE oversight unit • Assigning staff to specific SOEs to actively monitor and engage with a set of companies; the creation of an SOE monitoring and evaluation system, and; training in SOE sector performance monitoring and analysis for all unit staff • Regular sharing of information on SOE performance between the SOE oversight unit, tax department, debt management department, budget department, macro department, the Auditor General's office and other ministries and units as appropriate. • The government may also wish to consider debt management training at the central level, to reduce debt-related risk at the national and SOE level. • The SOE oversight unit should also coordinate with the macro department and the budget department on the flows from SOEs. 61. Recommendation 2. Develop a national SOE Policy and Program, outlining government objectives for state ownership and targets by sector or company, as well as clear institutional structures for achieving these objectives and their accountability structures and reporting lines and obligations. A review of the provisions of the laws and regulations governing the SOEs should be completed with a view to removing impediments to improved corporate governance for the sector: • a review of the founding Acts and memorandums and articles of association of the major SOEs to decide what improvements are necessary and whether or not these SOEs should be incorporated under the Companies Act • a review of the PFMA Act and the way it is enforced or not enforced, to ensure that the SOEs are being held accountable for their results and that the MoF has sufficient access to data needed to monitor the sector • a review of the qualifications required of board members and changing these where necessary to ensure that necessary expertise is required on the SOE boards. 62. The process of preparing an SOE Policy is a high level strategic thinking process, and will take some time. Such a broad reflection on the role and objectives of SOEs will likely involve the preparation of a series of separate reviews/technical studies and/or development of systems, as follows: • A review of the financial and operational performance of the current SOE portfolio. 26 • A review of the legal and regulatory framework governing the SOE sector and implementation of changes where necessary to improve corporate governance • A review of the rationale for government's remaining minority holdings in private companies and determination of opportunities for further divestiture • Creating a robust system to monitor the financial performance of the SOEs and their impact on public finances, including the implementation of a program to assess fiscal risks • Clarifying reporting and accountability relationships amongst SOEs, regulatory agencies and oversight institutions, including the Ministry of Finance, Line Ministries, Supreme Audit Institution, Parliament. • Setting performance standards for senior management and boards and professionalizing the boards of directors of the SOEs through improving the director nomination processes and composition of SOE boards, strengthening the competency requirements of board directors, evaluating directors' performance and providing them with appropriate training • Completing diagnostic studies of selected SOEs and implementation of SOE level restructuring and performance improvement programs where appropriate. 63. As part of the development of the SOE Policy, government might want to review its portfolio of commercial and industrial shareholdings with a view to seek opportunities to align its portfolio with its strategic policy priorities. This review may include opportunities for divestiture. Obvious candidates would be those companies whose shares are generating no dividends for government and where there is no strategic objective in maintaining state ownership in the sector. There could also be a rationale for divesting government's shares in non-strategic profitable companies which do pay dividends such as the insurance companies, Standard Lesotho Bank and some of the LNDC subsidiaries. 64. Recommendation 3. Identify potential candidates of divestiture and divest in compliance with the SOE Policy and Program. This could be done in non-strategic companies, those that are fiscal liabilities, and those where government oversight and dividend collections are difficult to enforce. 65. As mentioned above the candidates for privatization could be based, but not limited to, on the following criteria: ✓ Is this company serving a strategic objective? ✓ Is this company contributing to the fiscus by paying dividends? ✓ Is this company posing contingent risks for the government? ✓ What is the rate of return for the government on holding these assets? Can the government be better off by investing this capital somewhere else? 66. Reduction of the management burden of ownership of a large number of minority interests would free up administrative resources and allow a focus on core government functions. For the time being there remains more rationale for maintaining government ownership in the strategic companies LEC and WASCO which provide essential public services, and in Letseng Diamonds which is a strategic contributor to Lesotho's economy as well as the major contributor of taxes, royalties and dividends to Government. 27 5.3. SOE Governance Legal Framework 67. Lesotho has already made progress in improving the legal framework governing the SOEs. In line with international best practice most SOEs are incorporated under the Companies Act and the three that are not have their own enabling acts which include corporate governance provisions similar to those in the Companies Act. The PFMA Act has lays down strict financial reporting requirements for SOEs including the use of IFRS and requires the submission of full financial statements on a timely basis to the MoF. A new Audit Bill is already under review and if enacted by Parliament will strengthen the capacity and mandate of the Auditor General's Office. Sector specific legislation regulates SOEs operating in the mining and financial sectors and in line with good international practice there are independent regulators for the water, power and telecoms sectors. There remain corporate governance weaknesses in the SOE sector, as outlined below, and some adjustments may be required to the legal framework to address them, but the legal framework itself appears not to be the main obstacle to the practice of good corporate governance in Lesotho's SOE sector. 68. As stated above in recommendation 2 a review of the provisions of the laws and regulations governing the SOEs should be completed to improve corporate governance practices. Sector Oversight 69. The ownership model adopted for SOEs in Lesotho is fully decentralized and, as in most countries with such ownership models, central monitoring and coordination in Lesotho is not as effective as it needs to be. As mentioned above, this is not necessarily due to shortcomings in the legal framework. Despite the ownership roles accorded to line ministries, the Ministry of Finance is mandated to receive regular and timely financial reports from all SOEs. In some cases the MoF is actually a joint owner along with the relevant line ministry, and in the case of financial sector enterprises MoF is itself the line ministry. The MoF is also represented on many SOE boards. Despite all this there is no effective central coordinated monitoring of SOE performance by the MoF or by any other entity in Lesotho. The PSD Unit of MoF in theory has this responsibility but in practice is not exercising it fully. In the context of the growing challenges facing the SOE sector and increasing pressures on public finances, urgent corrective action is needed. In the longer term. Lesotho might consider moving to a more centralized oversight model but given the relatively small size of the sector and the possibility of further reductions in state shareholdings this might not be necessary. Whatever actions are planned for the longer term, in the short term urgent action is needed to strengthen the existing oversight system. SOE Board Nomination and Composition 70. The State's representation on SOE boards is widely considered in Lesotho to be inadequate. A review of a sample of founding documents shows that there are few requirements for SOE boards to be staffed with individuals who have the necessary competencies. Despite the lack of formal requirements, in practice some SOE boards do appear to have relevant expertise 28 included, but the process for nominating state representatives on SOE boards appears to be ad hoc and there are no processes for monitoring or evaluating SOE board directors' performance or holding them accountable. MoF representatives on SOE boards must be receiving SOE financial statements but these financial statements are not being sent to the SOE oversight unit. 71. Recommendation 4. Identify measures to professionalize and improve the effectiveness of SOE senior management and boards in Lesotho. These might include: • modify SOE founding documents and other legislation so that they require senior management boards to be composed of individuals with the necessary competencies, whether technical, managerial, legal or financial. • increase the number of directors with private sector management or professional expertise on SOE boards and reducing the number of ex-officio public officials • set criteria for the appointment and dismissal of SOE management and board directors • create a system to monitor and hold SOE board directors accountable for their performance • create of a pool of qualified individuals who can serve on SOE boards • regularly train SOE management and board members. 72. There are a number of other measures that other countries have taken which Lesotho might consider to improve SOE corporate governance. These might include the creation of a Code of good corporate governance for SOEs, the requirement of SOE to publish their annual accounts and operational reports on the internet. Also some countries have found performance contracts to be a useful instrument in defining mutual responsibilities of SOEs and government and in monitoring performance. 5.4. Enterprise Level Issues and Actions 73. In addition to sector wide measures needed to improve financial relations, oversight and corporate governance, each of the SOEs has its own set of issues that need to be addressed. To maximize productivity and the quality of public services and to reduce the financial burden of the SOEs on the state, individual enterprise restructuring will need to be an essential part of the SOE program. During our brief mission the following enterprise level issues were evident. 74. LEC has been profitable but approved tariff increases have not always covered cost increases and upgrading of infrastructure has reportedly been delayed. Government has several times stepped in with transfers to cover WASCO's cash flow shortfall due to public service obligations, not all of which are financially viable. In the case of both LEC and WASCO there may be scope for a more rigorous determination of the cost of those public service obligations that cannot be expected to generate sufficient revenues to cover costs. The costs of such obligations should be included transparently in the national budget rather than absorbed by the SOEs' commercial operations. 75. LNDC has been very successful over the years in attracting FDI to Lesotho but its weaknesses have been well documented in several studies. These include an opaque funding structure for the services it provides, with reliance on dividends from its subsidiaries, in particular 29 from Maluti Mountain Breweries. A study is about to be conducted on the possibility of restructuring the LNDC and its separation into two entities, the first focusing on investment promotion and the second on property management, with the latter function possibly being privatized. BEDCO is a major recipient of subsidies to cover its operating costs, related mainly to services provided in supporting small businesses. BEDCO could be a good candidate for a review of opportunities for improving efficiency. 76. LPB appears to have become profitable in 2014 and 2015 after a long period of losses. Although financial sustainability is one of its key strategic objectives, LPB does have a public service mandate which may sometimes be in conflict with this objective. 77. As mentioned earlier some of Government and LNDC's minority shareholdings in private companies, notably Econet Telecom Lesotho, Lesotho Flour Mills, Loti Brick, and Sun International Lesotho etc. are not generating dividends. The rationale for continuing government involvement in these companies should be reviewed. 78. Recommendation 5. Include individual enterprise diagnostic studies in the SOE program on the wholly owned SOEs and on some of the partially owned SOEs. This should be followed where appropriate by the implementation of enterprise level performance improvement and/or restructuring programs, including possibly performance agreements. The first SOEs to be the subject of study should be those which pose the greatest budgetary burden and/or fiscal risks and which have the largest impact on the economy. 30 Appendix 1: Aggregated SOE Sector Financial Performance, 2009-2014 Table A1.1: Aggregate Financial Performance Of The SOES 100 Percent Owned By Government FY FY FY FY FY FY Figures in 000' M 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Revenues 549866 634309 732023 796129 910387 1046106 Profit before tax 30754 32114 55294 13765 51268 113672 Profit after tax 21645 30785 42020 17426 45294 85968 Profitability 3.94% 4.85% 5.74% 2.19% 4.98% 8.22% ROA 0.65% 0.84% 1.08% 0.42% 1.00% 1.55% taxes paid 9109 1329 10187 -568 17097 25860 Subventions 8088 14108 9215 14255 16104 15458 capital grants 640980 815452 902300 957222 1081811 1204957 change in capital grants 321045 204480 142822 114905 172342 126580 total assets 3323376 3653319 3880569 4192600 4547082 5550824 total liabilities 697052 792572 900762 995049 976157 1003260 net worth 2626324 2860747 2979807 3197551 3570925 4547564 Long-term loans 220337 266883 303686 342729 334568 174765 GOL funding 356901 376063 386063 389381 387377 400160 change in GOL funding 7846 19162 10000 3318 -2004 12783 current assets 127869 352778 276801 261633 2079443 3004624 current liabilities 110972 246127 269797 319511 276496 294988 quick ratio 1.15 1.43 1.03 0.82 7.52 10.19 Source: Audited financial statements and World Bank staff calculations. Table A1.2: Aggregate Financial Performance Of The SOES Partially Owned By Government (Unweighted) Figures in 000' M 2009 2010 2011 2012 2013 2014 Revenues 2861848 2746748 3834768 3625141 4096241 5189508 Profit before tax 655253 802224 1527698 1022615 1123698 1734472 Profit after tax 485801 594982 1141045 770427 828066 1281659 Profitability 16.98% 21.66% 29.76% 21.25% 20.22% 24.70% ROA 7.14% 7.63% 13.41% 8.50% 7.43% 10.97% taxes paid 174615 207025 389351 250817 295631 452813 total assets 6805617 7796594 8506986 9068500 11139718 11680579 total liabilities 5074451 5762240 6390002 6596602 8248009 8779599 net worth 1731166 2034354 2116984 2471897 2891709 2900980 Long-term loans 262914 276292 248109 337654 315073 338654 Source: SOE audited financial statements. 31 Table A1.3: Aggregate Financial Performance Of The SOES Partially Owned Directly By Government Weighted By GOL Shareholding Figures in 000' M 2009 2010 2011 2012 2013 2014 Revenues 848161 826903 1139112 1106029 1195936 1449011 Profit before tax 154454 196005 401903 244302 244864 445248 Profit after tax 115798 147679 300875 185059 182262 114564 Profitability 13.65% 17.86% 26.41% 16.73% 15.24% 7.91% ROA 9.41% 10.60% 19.72% 11.04% 9.46% 5.62% taxes paid 174615 207025 389351 250817 295631 280691 dividends paid to the state 38103 65218 269599 97529 83355 327996 total assets 1230856 1393634 1525596 1676828 1927667 2038606 total liabilities 764182 836785 949345 1011300 1160949 1319509 net worth 466674 556848 576251 665528 766718 719097 Long-term loans 77597 81905 73746 99996 93226 100326 Source: SOE audited financial statements. Table A1.4: Aggregate Financial Performance Of LNDC Subsidiaries And Associates (Unweighted) *EXCLUDING MALUTI MOUNTAIN BREWERY Figures in M FY FY FY FY FY FY ‘000 2009/10 2010/11 2011/12* 2012/13* 2013/14 2014/15 Revenues 875459 929557 446903 451069 1112410 1203132 Profit before tax 105781 114792 41600 26820 111746 134631 Profit after tax 89253 110592 33269 19924 96025 111732 Profitability 10.20% 11.90% 7.44% 4.42% 8.63% 9.29% ROA 17.41% 18.06% 9.28% 5.76% 13.45% 14.38% Total dividends paid 47425 61665 14080 15200 91168 43467 Total assets 512750 612352 358470 345964 713959 776736 Total liabilities 266800 318598 159097 141825 314008 330417 Net worth 245950 293754 199373 204140 399951 446319 Long-term loans 17738 16583 17841 27846 24260 18555 Source: SOE audited financial statements. 32 Table A1.5: 40: Aggregate Financial Performance Of Selected SOES In Which LNDC Has Shares *excluding Maluti Mountain Brewery (weighted by government shareholding) Total (weighted by FY FY FY FY FY FY share) 2009/10 2010/11 2011/12* 2012/13* 2013/14 2014/15 Figures in 000' M Revenues 375059 403981 143936 145903 478158 524469 Profit before tax 47848 54642 13679 10626 52652 64550 Profit after tax 40974 53646 10805 8219 46120 54507 Profitability 10.92% 13.28% 7.51% 5.63% 9.65% 10.39% ROA 18.32% 20.53% 7.95% 6.34% 14.62% 15.77% taxes paid 14653 15672 4628 3572 11890 19514 dividends paid to LNDC 4756 19016 17559 5830 41566 16682 total assets 223595 261261 135990 129571 315467 345720 total liabilities 106408 121991 61377 52560 139935 148329 net worth 117188 139270 74613 77011 175532 197390 Long-term loans 13055 12205 12800 19626 16926 13136 Source: SOE audited financial statements. 33 Appendix 2: Lesotho: SOE Indebtedness - Guaranteed, On-Lent Or Lent Directly By Government, 2011/12 -2015/16 (M '000) Table A2.1: Consolidated Loans To The SOE Sector With Government Involvement 2011/12 2012/13 2013/14 2014/15 2015/16 On-lent loans Disbursed and outstanding 622,476 631,820 640,369 625,376 635,568 Arrears of principal repayments 5,158 7,822 11,088 20,617 43,640 Arrears of interest payments 2,135 2,264 2,508 2,619 24,110 Guaranteed loans Disbursed and outstanding 147,018 157,684 175,993 227,935 232,631 Arrears of principal 0 0 0 0 0 repayments 0 0 0 0 0 Arrears of interest payments Direct loans Disbursed and outstanding 82,974 79,683 76,456 73,165 73,165 Arrears of principal 0 0 0 0 repayments 9,983 0 0 0 Arrears of interest payments 0 Source: MoF. 34 Table A2.2: Consolidated Loans To The SOE Sector With Government Involvement (Percent Of GDP) 2011/12 2012/13 2013/14 2014/15 2015/16 On-lent loans 3.40 3.23 2.99 2.64 2.49 Arrears of principal repayments 0.03 0.04 0.05 0.09 0.17 Arrears of interest payments 0.01 0.01 0.01 0.01 0.09 Guaranteed loans 0.80 0.81 0.82 0.96 0.91 Arrears of principal repayments - - - - - Arrears of interest payments - - - - - Direct loans 0.45 0.41 0.36 0.31 0.29 Arrears of principal repayments - - - - 0.04 Arrears of interest payments - - - - 0.01 Source: MoF. Table A2.3: Individual Loans To SOES Guaranteed By Government 2011/12 2012/13 2013/14 2014/15 2015/16 WASCO - EIB Maseru Master Water Project (EUR) Disbursed outstanding debt 94,140 104,806 123,115 175,058 232,631 Principal repayments 0 4,628 4,628 4,628 2,314 Interest payments 4,496 5,661 5,661 5,088 3,309 LNDC Kingsway Mall - PIC South Africa (M) Disbursed outstanding debt 52,878 52,878 52,878 52,878 0 Principal repayments 0 0 0 0 52,878 Interest payments 3,675 3,675 3,675 3,675 3,675 Source: MoF. 35 Table A2.4: Individual Loans To SOES Lent Directly By Government LNDC: 2011/12 2012/13 2013/14 2014/15 2015/16 GOL factory shells Disbursed outstanding debt 51,000 51,000 51,000 51,000 51,000 Principal repayments 0 0 0 0 0 Interest payments 2,732 765 0 0 0 Arrears of principal 0 0 0 0 3,400 Arrears of interest 0 0 0 0 2,378 Basotho Cannery Disbursed outstanding debt 1,584 1,358 1,131 905 905 Principal repayments 226 226 226 0 0 Interest payments 0 0 0 0 0 Arrears of principal 453 Thetsane Nieng Hsing Disbursed outstanding debt 390 325 325 260 260 Principal repayments 65 65 65 0 0 Interest payments 0 0 0 0 0 Arrears of principal 130 CGM Disbursed outstanding debt 30,000 27,000 24,000 21,000 21,000 Principal repayments 3,000 3,000 3,000 0 0 Interest payments 0 0 0 0 0 Arrears of principal 0 0 0 0 6,000 Tikoe infrastr. and factory shells Disbursed outstanding debt 11,300 11,300 11,300 11,300 11,300 Principal repayments 0 0 0 0 0 Interest payments 0 0 0 0 0 Source: MoF. 36 Table A2.5: Individual Loans To SOES On-Lent By Government 2011/12 2012/13 2013/14 2014/15 2015/16 WASCO: BADEA Maseru Water Supply Phase I Disbursed outstanding debt 28,009 29,937 29,821 28,810 30,713 Principal repayments 3,857 3,646 3,089 2,655 2,409 Interest payments 0 0 0 0 0 Arrears of principal 2,958 3,459 4,310 4,840 6,223 Arrears of interest 878 898 957 900 940 BADEA Maseru Water Supply Phase II Disbursed outstanding debt 39,486 47,535 54,447 57,709 72,061 Principal repayments 0 0 0 0 0 Interest payments 0 0 0 0 0 Arrears of principal 0 0 0 4,034 3,011 Arrears of interest 745 841 980 1,110 1,201 OFID -Maseru Water Supply Phase II Disbursed outstanding debt 18,837 20,212 23,232 23,750 29,352 Principal repayments 0 0 0 0 0 Interest payments 0 0 0 0 0 Arrears of principal 1,999 2,291 2,787 2,974 1,715 Arrears of interest 450 461 498 533 279 IDA - Infrastructure Engineering Disbursed outstanding debt 8,161 9,154 10,251 9,643 12,724 Principal repayments 0 0 0 0 0 Interest payments 0 0 0 0 0 Arrears of principal 201 341 529 556 627 Arrears of interest 62 64 75 76 80 LNDC: ODA2 - Factory Shells Disbursed outstanding debt 110 99 88 77 92 Principal repayments 11 11 11 0 0 Arrears of principal 0 0 0 0 21 ODA2-Factory Shells Disbursed outstanding debt 157 135 114 92 92 Principal repayments 21 21 21 0 0 Arrears of principal 0 0 0 0 43 KfW Disbursed outstanding debt 221 177 133 44 44 Principal repayments 44 44 88 0 0 Arrears of principal 0 0 0 0 44 LNDC (continued): 37 2011/12 2012/13 2013/14 2014/15 2015/16 ODA First Line of Credit Disbursed outstanding debt 157 157 Principal repayments 157 ODA - Second Line of Credit Disbursed outstanding debt 2,209 1,847 1,485 1,123 1,123 Principal repayments 362 362 362 0 0 Arrears of principal 0 0 0 0 724 IDA - Infrastructure Disbursed outstanding debt 6,721 6,301 5,881 5,461 5,461 Principal repayments 420 420 420 0 0 Arrears of principal 0 0 0 0 840 EIB Printing Disbursed outstanding debt 1,323 504 321 137 137 Principal repayments 183 183 183 0 0 Arrears of principal 0 0 0 0 366 ADB - Line of Credit Disbursed outstanding debt 11,197 9,875 8,552 7,229 7,229 Principal repayments 1,323 1,323 1,323 0 0 Arrears of principal 0 0 0 0 2,645 Tikoe Infrastr. and Loans disbursed with no on-lending agreements Factory Shells fully OFID - US $8.4m BADEA - US$ 6m ECONET LESOTHO: EXIM China Telecom I Disbursed outstanding debt 221,195 221,195 221,195 206,449 191,702 Principal repayments 0 0 14,746 14,746 7,000 Arrears of principal 0 0 0 0 14,373 Arrears of interest 0 0 0 0 21,611 EXIM China Telecom II Disbursed outstanding debt 262,000 262,000 262,000 262,000 262,000 Principal repayments 0 0 0 0 0 Arrears of principal 1,731 3,462 8,212 13,050 AfDF Disbursed outstanding debt 48,618 48,618 48,618 48,618 48,618 Principal repayments 0 0 0 0 1,945 Interest payments 0 0 0 0 3,057 Source: MoF. 38 Appendix 3: Individual SOE Performance SOES With 100 Percent Government Ownership Figure A3.1 below is based on Table A1.1 of Appendix 1 and shows key aggregate financial performance indicators for five of the six 100 percent owned SOEs in Lesotho. Accounts for the sixth SOE LTDC were not available but LTDC is expected to account for only a relatively small portion of the total. Revenues over the period for this group grew steadily from MM 549.9 m in 2009/10 to MM 1046.1 m in 2014/15. The group as a whole remained profitable over the entire period with pre-tax profits increasing from MM 30.7 m to MM 113.7 m. While the return on assets (ROA) for the wholly owned SOEs portfolio varied between 0.42 percent to 1.55 percent, profitability of the portfolio ranged from 2.2 percent 8.2 percent to 10.9 percent. The net worth of the group increased over the period from M 2,626 m in 2009/10 to M 4,750 m in 2014/15. No dividends were paid to government by this group over the period. Figure A3.1: Aggregate Revenue, Profits And Net Worth Wholly Owned SOES, 2009-2014 (M '000) Revenues and Profits Net Worth 120000 1200000 5000000 100000 1000000 4000000 80000 800000 3000000 60000 600000 2000000 40000 400000 1000000 20000 200000 0 0 0 Profit before tax Profit after tax Revenues (RHS) LEC WASCO LPB BEDCO LNDC Source: Audited Financial Statements. 39 Figure A3.2: Assets And Net Worth For Wholly Owned SOES In FY 2014/15 Assets Net Worth 13% 16% 25% 53% 28% 54% 2% 7% 2% 0% LEC LPB BEDCO WASCO LNDC LEC LPB BEDCO WASCO LNDC Source: Audited Financial Statements. Note: Net worth is calculates as assets net of liabilities. Figure A3.3: Revenues And Taxes For Wholly Owned SOES In FY 2014/15 revenues profit after tax LEC 6% 35% LNDC LPB 57% BEDCO 2% 0% WASCO LEC LPB BEDCO WASCO LNDC -20000 0 20000 40000 60000 80000 Source: Audited financial statements. Although the aggregate profits of the wholly owned SOEs as a group were positive, several of these SOEs were loss makers to varying extents over the period, with their respective importance shown in the pie charts below. LPB was the largest loss maker, losing M18m in 2009 but then gradually reducing its losses over the following four years before registering a profit of M 4.5 m in 2014 and 3.6 million in 2015. The other large loss maker was WASCO, which, while profitable in 2010/11 and 2012/13, registered losses of M 9.3 m in 2011/12, M 14.3 m in 2013/14 and M 3.2 m in 2014/15. BEDCO also made losses in every year except 2009/10 and 2010/11 with losses increasing from M 0.4 m in 2011 to a peak of M 4.3 m in 2012/13 before falling again to M 0.9 m in 2014/15. But as an SOE providing public services which are not 40 expected to generate revenues sufficient to cover costs, it would be unrealistic to expect BEDCO to generate regular surpluses (see BEDCO profile later in this section). Figure A3.4: Percentage Losses By Corporation, FY 2009/10-2014/15 Losses FY 2009/10 Losses FY 2010/11 Losses FY 2011/12 0% 3% 47% 51% 100% 97% 2% LEC LPB BEDCO WASCO LEC LPB BEDCO WASCO LEC LPB BEDCO WASCO Losses FY 2012/13 Losses FY 2013/14 Losses FY 2014/15 0% -14% 26% 35% 22% 60% 52% 78% 13% LEC LPB BEDCO WASCO LEC LPB BEDCO WASCO LEC LPB BEDCO WASCO Source: Audited financial statements SOEs partially owned directly by Government Figure A3.5 based on Table A1.3 of Appendix 1, gives an indication of the aggregate financial performance of nine of the eleven non-LNDC companies in which Government has a partial shareholding. Kao Mining and Liqhobong Mining are not yet active (they are expected to start operations in 2017/18) and are therefore not included in the aggregates. AON data were not available for every year over the period. The aggregate revenues of this group increased from M 3b in 2009 to M 5.35 b in 2013 before falling back to M 4.84 b in 2014. The group was profitable over the entire period with pre-tax profits increasing from M 813.8 m in 2009 to M 1.83 b in 2014. Aggregate pre-tax profitability levels were well in excess of 25 percent over the period, ranging from a low of 26.5 percent in 2011 and 2012 to a high of 40.2 percent in 2010. The profitability of the government’s portfolio varied between 8 percent to 27 percent during the period and the ROA ranged between 5.6 percent and 20.3 percent. But there were differences in financial performance between sectors and companies. The most profitable companies were Letseng Diamonds and the financial sector companies Standard Lesotho Bank, the Lesotho National General Insurance and Life Insurance Companies and AON. 41 Companies performing less well included Econet Telecom Lesotho, Loti Brick, Lesotho Flour Mills and to some extent Sun International. The total net worth of the enterprises in this group grew steadily over the period from M 2.09 b in 2009 to M 3.51 b in 2014, with all of the enterprises registering consistently positive net worth. The net worth of government portfolio in this group also grew over time from 85 m in 2009 to 719 m in 2014. SLB and Letseng showing the strongest growth during this period. Most of the others saw relatively flat performance with net worth peaking around the middle of the period and then declining slightly towards the end. Figure A3.5: Overall Performance Of Partially Owned SOES (M ‘000), 2009-2014 Aggregates Partial Shareholding 6000000 5000000 4000000 3000000 2000000 1000000 0 2009 2010 2011 2012 2013 2014 Revenues Profit before tax Profit after tax taxes paid net worth Source: Audited Financial Statements. 42 Figure A3.6: Overall Revenues And Assets In 2014 Revenues Net Worth (Unweighted) 3500000 1% 2% 1% 3000000 1% 2% 2500000 2000000 12% 1500000 7% 1000000 55% 500000 19% 0 2009 2010 2011 2012 2013 2014 -500000 Aon SLB Econet National General Life Assurance LNIG LNLA Loti Brick National General Insurance Loti Brick AON Sun International of Lesotho Lesotho Flour Mills Letseng LFM Econet Standard Lesotho Bank Sun international Source: Audited Financial Statements. 43 Figure A3.7: Net Worth Of The Government Portfolio And Dividends (M ‘000) 2009-2014 Net Worth (Weighted by GOL Dividends Shareholding) 1000000 350000 800000 300000 600000 250000 400000 200000 200000 150000 0 100000 2009 2010 2011 2012 2013 2014 50000 -200000 0 2009 2010 2011 2012 2013 2014 2015 SLB Econet Letseng Diamonds LNIG LNLA AON Loti Brick AON National Life Assurance National General Insurance Letseng LFM Econet Sun international Standard Lesotho Bank Source: Audited Financial Statements and World Bank staff calculations. SOES in Which LNDC Has Shares17 The mission was unable to obtain audited financial statements for all of the companies in which LNDC has shares and in the case of Maluti Mountain Brewery financial statements for FY 2011/12 and FY2012/13 were not obtained. Figure A3.8 below and Table and Table of Appendix 1 show the aggregate financial performance of those LNDC companies for which data was available. 18 Revenues of this group increased from M 757m in 2009/10 to M 1.05m in 2014/15. Pre-tax profits over the period increased from M 93.9m in 2009/10 to M 1.05b in 2014/15. This corresponded to pre-tax profitability levels of 11.7-13.5 percent over the years excluding 2011/12 and 2012/13 when profitability was 9.8 and 9.1 percent respectively. The lower levels in these two years were due to the exclusion of Maluti Mountain Brewery (MMB) financial 17 LNDC Subsidiary companies: Entities (including Special Purpose Entities) in which the group has interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies. LNDC Associates companies: Associated companies comprise those companies, not being subsidiaries, in which the Corporation holds directly or indirectly 20% or more of the equity share capital or over whom the group has significant influence, but which it does not control. Investments are accounted for by the equity method of accounting. LNCD Minority Interest: Minority interest is stated in the minority's proportion of the fair values of the identifiable assets and liabilities recognized. The group applies a policy of treating transactions with minority interest (less than 20 percent of the shares) as transactions with profits external to the group. 18 Since Government and LNDC both have direct shareholdings in Loti Brick and Sun International, the financial data for these two companies are included in the aggregates. 44 details from the data. The most profitable company by far was MMB, averaging between 11.9 and 16 percent over for the four years for which data were available. The other companies were also profitable over the period with the exception of Loti Brick whose profitability declined to 0.8 percent in 2014 before turning into a loss of 5.8 percent in 2015. The net worth of the group increased from M 563.1m in 2009/10 to M 825.6m in 2014/15. Figure A3.9 and Figure A3.10 display the performance of the government’s portfolio over the analyzed period. During the period analyzed profitability of the LNDC portfolio ranged between 10.9 percent and 13.28 percent. The return on assets were quite high varying from 14.6 percent to 20.5 percent. Figure A3.10A3.11 show the relative importance of companies in LNDC portfolio. The revenues, profits, and net worth are weighted by the percentage shareholding of LNDC. As shown on the following figures Maluti Mountain Brewery represents a big share of the revenues followed by OK Bazaars. For profits in 2014/15 Maluti Mountain Brewery and OK Bazaars constituted the bulk of the profits followed by Cash build. Not surprisingly in terms of net assets Maluti Mountain Brewery and OK Bazaars constitute 78 percent of the analyzed portfolio. Figure A3.8: Aggregate Financial Performance Of LNDC Subsidiaries And Associates (M ‘000) Revenues and Profits Net Worth 500000 1200000 450000 1000000 400000 350000 800000 300000 600000 250000 400000 200000 150000 200000 100000 0 50000 0 FY 2010/11 FY 2009/10 FY 2011/12 FY 2012/13 FY 2013/14 FY 2014/15 Revenues Profit before tax Profit after tax Source: Audited financial statements. Note: 2011/12 and 2013/13 doesn’t include data on Maluti Mountain Brewery. 45 Figure A3.9: Financial Performance Of Firms Weighted By LNDC Shareholding (M ‘000) FY 2009/10-2014/15 Revenues and Profits (Weighted by Net Worth (Weighted by LNDC LNDC Shareholding) Shareholding) 600000 250000 500000 400000 200000 300000 150000 200000 100000 100000 0 50000 0 Revenues 41255.016 Profit before tax 3042.3614 Profit after tax 2502.1024 Source: Audited financial statements. Figure A3.10: Profits And Revenues Of LNDC Subsidiaries Weighted By LNDC Shareholding FY 2014/15 Profits (Weighted by LNDC Revenues (Weighted by LNDC Shareholding) Shareholding) 0% 4% 4% 2% -9% 6% -10% 0% 33% 14% 16% 72% 32% Maluti Mountain Brewery Maluti Mountain Brewery OK Bazaars OK Bazaars Cash Build Lesotho Milling Loti Brick Sun International Cash Build Mountain Kingdom Foods Lesotho Milling Loti Brick Source: Audited financial statements. 46 Figure A3.11: Net Worth Of LNDC Subsidiaries Weighted By LNDC Shareholding FY 2014/15 Net Worth (Weighted by LNDC Shareholding) 6% 0% 20% 0% 6% 58% 10% Maluti Mountain Brewery OK Bazaars Cash Build Lesotho Milling Loti Brick Sun International Source: Audited financial statements. Selected Individual SOE Profiles 1. Lesotho Electricity Company (LEC) LEC is 100 percent owned by government, reporting to the Ministry of Energy, Meteorology and Water affairs and regulated by the Lesotho Electricity and Water Authority. LEC generates, transmits and distributes electrical power throughout the country. Its main power sources are the 72MW Muela hydropower plant at the outflow from the Katse Tunnel in the north of the country which is operated by Lesotho Highlands Development Authority and provides the base load, and South Africa's power utility ESKOM which supplies most of the balance. LEC participates in the Southern Africa Power Pool. LEC, through its rural electrification unit, is also responsible for rural electrification projects for which it receives capital grants from Government to cover the costs. The company has 519 employees. Figure A3. 12 below and Table A4.2 of Appendix 4, LEC's revenues increased steadily, more than doubling, from M 296m in 2008/09 to M 689 m in 2014/15. Over the same period in all years but 2012/13 the company's operations were profitable, with profitability increasing to 11 percent in 2014/15. ROA over the period varied from -0.1 percent and 2.7 percent with an average of 1.4 percent over the period. LEC's net worth also increased steadily over most of the period, 2009/10 being an exception, almost doubling from M 1.3 b in 2008/09 M 2.55 b in 2014/15 LEC's relatively strong financial position owes much to the restructuring of the industry that took place in the early 2000s in preparation for a privatization program that did not 47 ultimately happen. Following this restructuring, from 2007 LEC was managed under an external management contract for a short period before the contract was broken due to unsatisfactory performance. One factor helping to maintain profitable operations includes pre-payment of accounts by local authorities and domestic customers which together account for around half of all electricity sales. However LEC's profitability is reportedly also being achieved at the cost of inadequate upgrading of infrastructure and delays to investments in new technologies. The energy component of annual tariff increase proposals made to the Lesotho Electricity and Water Authority (LEWA) is now reportedly approved automatically but other cost increases are not and recent tariff increase approvals have not fully reflected LEC's estimates of requirements. LEC obtained a capital grant from Government in 2009 to refurbish part of the network. LEC also received a M 47m loan from the AfDB for distribution infrastructure and started repaying it in 2015. LEC is liable to pay 47 percent of the loan. Debt was converted to local currency at the exchange rate on the date on which on lending agreement was signed and the government bore the cost of depreciation of the maloti against BUA, a cumulative of 40 percent since May 2009. LEC has recently applied for a loan to rehabilitate its infrastructure. Figure A3.12: LEC Financial Performance (M ‘000) 2008/09-2014/15 Revenues and Profits Net Worth 800000 3000000 700000 2500000 600000 500000 2000000 400000 300000 1500000 200000 1000000 100000 0 500000 -100000 0 Revenues Profit before tax Profit after tax Source: Audited financial statements. 2. Basotho Enterprise Development Corporation (BEDCO) The principal objective of BEDCO is the establishment and development of Basotho owned enterprises with particular emphasis on the promotion of indigenous entrepreneurial skills. BEDCO is 100 percent owned by government. It was originally created in 1975 as a subsidiary 48 of the LNDC and in 1980 became an independent corporation. The focus of its operations is to support the development of small and medium enterprises (SMEs) through training, technical and financial assistance, provision of work space and industrial estates and procurement of raw materials. Recent studies indicate that BEDCO has a history of overlap of functions with LNDC, overstaffing, inadequate service delivery and heavy dependence on subsidies from government.19 Recommendations included rationalizing and revitalizing BEDCO's operations, and folding BEDCO's functions back into LNDC. Although BEDCO is in theory a commercial SOE, in practice it is clear from the numbers presented in Figure below and Table A4. of Appendix 1 that BEDCO operates less as a commercial entity and more as a provider of services paid for by Government. Its main source of income by far is capital grants, which grew from M 16.7 m in 2008/09 to M 20.7 m in1010/11 before declining steadily to M 18.4 m in 2014/15. In contrast revenues generated from payment for services were a very small percentage of total income growing from the low level of M 1.3 m in 2008/09 to only M2.6 m in 2014/15. While generating profits in the first two years of the period, losses have followed in each year since then, peaking at M 4.4 m lost in 2012/13. The company's net worth in recent years in contrast has stood at more than M 90 m, with assets consisting mainly of buildings and land. Figure A3.13: Financial Performance Of BEDCO (M ‘000) FY 2008/09-2014/15 Revenues and Profits Net Worth 3000 100000 1500 80000 60000 0 40000 -1500 20000 -3000 0 -4500 Revenues Profit before tax Profit after tax Source: Audited financial statements. 3. Lesotho Post Bank (LPB) The LPB is 100 percent Government owned and was incorporated in 2004 under the Companies Act. It is also licensed by the Central Bank in accordance with the Financial Institutions Act of 2012. It has 149 employees. The LPB’s mandate is to promote financial 19 Notably a Strategic Review of LNDC and BEDCO carried out by the World Bank in September 2010 . 49 inclusion by serving the unbanked and under-banked economically active population of Lesotho. An important objective is to provide financial services in a sustainable manner. LPB is one of four commercial banks in Lesotho, the other three of which are subsidiaries of South African Banks. LPB's network consists of 13 branches in seven districts and one customer service center in Maseru in addition to the main branch. Figure below and Table A4.5 in Appendix 4 show that LPB was a major loss maker in the early part of the period under review but performance steadily improved with a turnaround to profitability in 2014. Revenues increased steadily from M 32 m in 2009 to M 60.3 m in 2015 while profitability turned around steadily from a loss of M 18 in 2009 to a profit of M 3.6 m in 2015. The performance improvement is said to be a result of better management. Net worth grew from M 10 m in 2009 to M 61.4 m in 2015. But were it not for grants from government totaling M 45.2 m and from other donors totaling M 13.7m over the period 2009- 2013, LPB would have had a high negative net worth during those years. Figure A3.14: Lesotho Post Bank Financial Performance (M ‘000) 2009-2015 Revenues and Profits Net Worth 70000 60000 50000 60000 40000 50000 30000 40000 20000 30000 10000 0 20000 2009 2010 2011 2012 2013 2014 2015 -10000 10000 -20000 0 revenue Profit before tax Profit after tax 2009 2010 2011 2012 2013 2014 2015 Source: Audited financial statements. LPB's latest three year Strategic Plan, covering the period 2016-2018, was adopted by LPB in October 2015. The elements of this Plan include better targeting of customers through segmentation, upgrading human resources, education of clients in financial literacy, development of new products to meet customer needs, improving the quality of service, and a strong continuing focus on sustainability. 50 4. Lesotho National Development Corporation (LNDC) LNDC was created in 1967 as a 100 percent government owned statutory corporation. Its core mandate is to initiate, promote and facilitate the development of manufacturing and processing industries, mining and commerce in manner calculated to raise the level of income and employment in Lesotho. It has 45 employees and offers a wide range of investor services. These include provision of nine industrial zones, factory shells, and foreign and domestic investment promotion and facilitation services. LNDC is also engaged in investment and property management and raises most of its finance from property rentals and dividends from investments in companies. Other sources of revenue include interest on loans. As shown in Figure , LNDC revenues grew slowly from M 95.4m in 2008/2009 to M 114.2m in 2014/15. Over that period profitability grew from 2.1 percent in 2009 to 39.4 percent in 2011/12 before falling back to 10.9 percent in 2014/15. Net worth grew steadily from M 341m in 2008/09 to M742.3m in 2014/15. Although empowered to do so, LNDC did not pay any dividends to government over the period. LNDC has had many successes over the years in attracting FDI. In its early years LNDC was successful in the development of light manufacturing industry and tourism. From the late 1980s LNDC was instrumental in attracting investors in the garment industry from East Asia, notably Taiwan. In the 1990s and early 2000s, partially through LNDC's efforts, Lesotho became one of the first countries in southern Africa to qualify for benefits for its garment industry from the US African Growth and Opportunities Act (AGOA) trade agreement and Lesotho became the largest African supplier of apparel to the US. More recently due to declines in competitiveness and uncertainty in preferential access, garment factories have been closing in Lesotho. There have been a number of reviews of LNDC's performance over the years, most notably the review of LNDC and BEDCO carried out by the World Bank in 2010 which have summarized some of the problems faced, particularly given the changing circumstances and needs in Lesotho. These problems include: • an urgent need to diversify away from textiles • a diffused mandate and need to refocus on diversification and competitiveness • a complicated and opaque funding structure • overdependence on a single investment - Maluti Mountain Breweries • internal functional weaknesses and a need for improved management • need to improve the quality of service delivery Most recently it was decided to launch a review of LNDC's functions, supported by the World Bank. This will include the possibility of splitting the corporation into two entities, one focusing on the core mandate of investment promotion and the second on property management, with the latter function ultimately being privatized. The review is expected to be completed late in 2016. 51 Figure A3.15: LNDC Financial Performance (M ‘000) 2008/09-2014/15 Revenues and Profits Net Worth 140000 50000 800000 45000 120000 700000 40000 100000 35000 600000 80000 30000 500000 25000 60000 20000 400000 40000 15000 300000 10000 20000 5000 200000 0 0 100000 0 Revenues Profit after tax Profit before tax Source: Audited financial statements. 5. Water and Sewerage Company (WASCO) WASCO is a 100 percent government owned company, established by Law in 2010, to take over the assets and operations of the former Water and Sewerage Authority (WASA). It is responsible for providing potable water and waste water disposal for 17 urban areas of Lesotho and territories served by the Metolong Dam. The company is owned each to 50 percent by the MoF and the Ministry of Energy, Meteorology and Water Affairs. Along with LEC, WASCO is independently regulated by LEWA. In addition to the objectives of providing adequate and expanded service, an important objective is financial sustainability, including a reduction in the volume of non-revenue water.20 WASCO has around 550 employees. WASCO's financial performance is outlined in 20 Non-revenue water is water that has been produced but does not reach the customer. Losses can be real losses through leaks, sometimes also referred to as physical losses, or they can be apparent losses for example through theft or metering inaccuracies. 52 Figure below and Table A4.5. WASCO is the main cause for overall SOE losses to government. Revenues increased steadily from M 102.1m in 2009/10 to M 195.2m in 2014/15from M 505.7m in 2009/10 to M 821.7m in 2014/15. WASCO was barely profitable in 2010/11 and achieved 4.9 percent profitability in 2012/13 but incurred losses in all the other years under review. WASCO's losses of M 3.2m in 2014/15 accounted for 75 percent of the losses of the 100 percent government owned SOEs in that year. Net worth increased steadily from M 806.4m in 2009/10 to M 1.351b in 2014/15. 53 Figure A3.16: WASCO Financial Performance (M ‘000) 2009/10-2014/15 Revenues and Profits Net Worth 1400000 182000 1200000 132000 1000000 800000 82000 600000 32000 400000 200000 FY 2009/10 FY 2010/11 FY 2011/12 FY 2012/13 FY 2013/14 FY 2014/15 -18000 0 Revenues Profit before tax Profit after tax Source: Audited financial statements. Non-revenue water is estimated at around 30 percent and physical losses upwards of 26 percent. Reportedly there are delays in collections from Government customers. Tariff increase requests have not always been met by the regulator. A major challenge is to expand the provision of expanded services in the poorer urban areas while achieving full cost recovery. There appears to be scope for better determination of the costs of public service obligations in providing subsidized services to poorer communities, and for updating the tariff structure to ensure cost recovery while encouraging greater efficiency. 6. Econet Telecom Lesotho Lesotho’s national fixed line telephone monopoly, Lesotho Telecommunications Corporation (LT), was established in 1979 as an SOE. Following liberalization of the telecoms market in 2000, the company was partially privatized and became Telecom Lesotho (TL), with government retaining a direct 30% stake. In 2008, following the merger between TL and Econet Telecom Lesotho EziCel Lesotho in April 2008, Econet Telecom Lesotho was created. When South Africa's power company Eskom sold its shares in TL to Econet Wireless Global of Mauritius, Econet became the majority shareholder with 70% shareholding while the Government retained 30%. While Econet TL still has the fixed line monopoly, there is competition in mobile services between Econet Wireless and Vodacom. Mobile penetration started to overtake fixed line penetration in Lesotho in the early 2000s and now far outweighs fixed line penetration which has remained stagnant and limited to the urban areas. Econet TL's monopoly position, despite low fixed line 54 coverage in Lesotho, gives it sole access to the offshore international cable EASSy. The company is regulated by the Lesotho Telecommunications Authority (LCA). Figure shows that Econet's income increased steadily from M 295.9m in 2008/09 to M 435.5m in 2013/14 before falling off to M 390.5 in 2014/15. The company generated pre-tax profits in three of the seven years over the period, with small peaks at M 27.5m in 2009/19 and M 22m in 2012/13. However losses then resumed and increased rapidly to M 76m in 2014/15. The company's net worth grew slowly from M 217.8m in 2008/09 to M 247.9m in 2012/13 but then declined to M 165.7 in 2014/15 Dividends were paid only once over the period, amounting to M 1.6m in 2013/14. Loan repayments from Econet TL to Government on the China Exim Bank loan have been late on several occasions due to cash flow problems. The company is said to be facing high labor costs, late payment of telephone bills by government, and losses from theft of its copper infrastructure. Figure A3.17: Econet Financial Performance (M ‘000) 2008/09-2014/15 Revenues and Profits Net Worth 300000 400000 250000 300000 200000 200000 150000 100000 100000 0 50000 -100000 0 Income Profit before tax Profit after tax Source: Audited financial statements. 7. Lesotho Flour Mills Lesotho Flour mills was created as an SOE in 1979 to assure the supply of staple foods to the population. Its main products are wheat flour, maize meal and animal feed and it also packages sugar. In 1998 the company was partially sold to the US based company Seaboard Overseas. The shares are currently held 50 percent by Seaboard, 1 percent by Malchy Grain Company and 49 percent directly by the Government. There are 275 employees and this number is reportedly falling. 55 Figure below and Table show that the company's revenues rose from M 462.3m in 2009 to a peak of M 693.2m in 2010 before falling to M 645m in 2014. Pre-tax profits remained low, rising from M 10.8m in 2009 to M34.6m in 2012 before losses of M 3.8m and M 11.9m were registered in 2013 and 2014 respectively. The net worth of the company increased from M 59.5m in 2009 to M 120.5m in 2012 before falling to M108m in 2014. The company paid no dividends over the period under review. The company told us that in recent years it has been adversely affected by rising production costs including fuel, electricity and raw materials which have led to rising prices to consumers, weak local demand and increased competition from cheap flour imports from South Africa. The closure of local bakeries in Lesotho also adversely affected the company as has rising maize prices. The company has been urging Government to grant import tariff protection and to subsidize the prices of staple foods to consumers. GOL announced that they will subsidize maize, beans, and peas by 30 percent starting in June 2016 to stem the increase in staple food prices in light of the 2015/16 drought. Figure A3.18: Lesotho Flour Mills Financial Performance Data (M ‘000) 2009-2014 Revenues and Profits Net Worth 800000 140000 700000 120000 600000 500000 100000 400000 80000 300000 60000 200000 100000 40000 0 20000 2009 2010 2011 2012 2013 2014 -100000 0 Revenues Profit before tax Profit after tax 2009 2010 2011 2012 2013 2014 Source: Audited financial statements. 8. Loti Brick Loti Brick was incorporated under the Companies Act in 1978 and began operations in 1980. It is 74 percent owned by LNDC and 22.8 percent directly by Government. Its operations cover manufacturing, sales and distribution of clay brick products in Lesotho and some parts of South Africa and the company is the sole manufacturer of high quality face bricks in Lesotho. The 56 company also produces plaster and paver bricks. Total production capacity is 13 million units annually. Revenues increased from M 22.4m in 2008/09 to M 32.4m in 2013 before falling to M 27.1m in 2013/14 and then recovering to M 29.8m in 2014/15 (see Figure A3.19). The company earned pre-tax profits of around 5 percent of revenues for the first four years of the period under review. But profits fell to practically zero in 2014 and a loss of M 1.7m was registered in 2014/15. Net worth showed a mainly upward trend from M 46.8m in 2008/09 to M 52.5m in 2014/15. The company did not pay any dividends to its shareholders over the period. Loti brick is facing a number of serious challenges, due mainly to the decline in the construction industry which is largely due to a reduction in government building projects. Several brick manufacturers in Lesotho have recently gone out of business. Attempts are being made to search for new products including ceramics. The company has 110 employees but there is a risk of downsizing if prospects do not improve. Added to these problems are reported issues in the management of the company's finances. The 2014 Auditors' Management Letter reported that a number of accounting problems raised the previous year had been addressed. But the auditors still cited urgent matters to be dealt with including lack of necessary documentation to support transactions and bank accounts, differences between inventory records and physical counts, inaccurate bank balances, poor maintenance of the asset registry, and high levels of accounts payable. Figure A3.19: Loti Brick Financial Performance Data (M ‘000) 2009/10-2014/15 Revenues and Profits Net Worth 40000 54000 30000 52000 50000 20000 48000 10000 46000 0 44000 -10000 42000 revenues profit before tax profit after tax Source: Audited financial statements. The figure below shows that although the construction activities picked up since 2011/12, the company’s performance has not improved. 57 Figure A3.20: The Link Between Construction GDP And Loti Brick Performance (M ‘000) Construction Activity and Performance of Loti Brick 30000 1200000 25000 1000000 20000 800000 15000 600000 10000 400000 5000 0 200000 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 -5000 0 real revenues real profits after tax real net worth real construction GDP Source: Audited Financial Statements and BOS. Note: All values are deflated using the price index for construction. 9. Standard Lesotho Bank The present bank dates back to 1995 when Standard Bank of South Africa acquired Barclays Bank plc Lesotho to form a new entity called Standard Bank Lesotho. In 1999, Standard Bank also took over the management of the then Lesotho Bank Limited, creating a new company later to be known as Lesotho Bank 1999. In July 2006, the two banks merged to form the present Standard Lesotho Bank which is jointly owned by the Government (9.6 percent), Stanlib (10.4 percent) and Standard Bank Group (80 percent). The Bank has a presence throughout Lesotho with a total of 19 branches and 83 ATM machines and provides a full range of personal, business, corporate and investment banking services. The overall financial results of the Bank were good over the period 2000-2015. Revenues increased from M 566.7m in 2009 to M 1.08b in 2015. Over the same period pre-tax profits increased steadily from M 213.4m in 2009 to M 475.7m in 2015. Net worth increased steadily over the period from M 331m in 2009 to M 831.1m in 2015. Dividends paid to the state increased from M 2.9m in 2009 to M 24.1m in 2015. 58 Figure A3.21: Standard Bank Of Lesotho Financial Performance Data (M ‘000) 2009-2015 Revenues and Profits Net Worth 1200000 900000 800000 1000000 700000 800000 600000 600000 500000 400000 400000 300000 200000 200000 0 100000 2009 2010 2011 2012 2013 2014 2015 0 Revenues Profit before tax Profit after tax 2009 2010 2011 2012 2013 2014 2015 Source: Audited financial statements. 10. Lesotho National General Insurance (LNGI) and Lesotho National Life Assurance (LNLA) These two insurance companies were originally set up as majority government owned SOEs with a London based minority partner. They were later partially privatized. The government at present has 20 percent of the shares in LNGI and 12 percent in LNLA. The other shareholders are Regent Insurance and Life Insurance Companies of South Africa (LNGI 60 percent, LNLA 76 percent) and Molepe Investment Holdings (LNGI 20 percent, LNLA 12 percent). LNGI provides general insurance in Lesotho. LNLA underwrites life insurance and administers pension schemes. The two companies share the same board of directors. Each company has 30 employees. As shown in Figure A3.22 and Figure A3.23, in recent years both companies have been financially sound and have generated profits, regularly paying dividends to the shareholders. LNGI's revenues increased from M 80.6m in 2009 to M 107.2m in 2012 and fell to M 96.6m in 2014 and 2015. Pre-tax profits over the period increased from M 18.8m in 2009 to peak at M 44.6m in 2013 before falling to M 28.4m in 2015. LNGI's net worth increased from M 16.3m in 2009 to peak at M 89.8m in2013 before falling to M 52.6m in 2015. Dividends were paid to the state in all years under review, increasing from M 1.4m in 2008 to M 89.8m in 2013 before falling to M 52.6m in 2015. LNLA's revenues increased steadily from M 32.2m in 2009 to M 81.6m in 2015. Pre-tax profits increased from close to zero in 2009 to M 27.7m in 2012 before falling to M 11m in 2014 and recovering slightly to M 11.7m in 2015. Net worth increased from M 9.2m in 2009 to M 36.6m 59 in 2013 and fell back to M 23.1m in 2015. Dividends were paid to the state in all years with the exception of 2009, fluctuating over the period from M 0.8m in 2010 to a peak of M 3.3m in 2015. Figure A3.22: LNGI Financial Performance Data (M ‘000) 2009-2015 Revenues and Profits Net Worth 115000 100000 90000 95000 80000 75000 70000 60000 55000 50000 35000 40000 30000 15000 20000 -5000 10000 2009 2010 2011 2012 2013 2014 2015 0 revenues profit before tax profit after tax 2009 2010 2011 2012 2013 2014 2015 Source: Audited financial statements. Figure A3.23: LNLA Financial Performance Data (M ‘000) 2009-2015 Revenues and Profits Net Worth 90000 40000 80000 35000 70000 30000 60000 25000 50000 20000 40000 15000 30000 20000 10000 10000 5000 0 0 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015 Revenues Profit before tax Profit after tax net worth Source: Audited financial statements. 60 11. Letseng Diamonds The government has a 30 percent stake in Letseng Diamonds whose principal activity is mining of kimberlite rock, extraction of diamonds and marketing diamonds internationally by tender. The majority shareholder is Gem Diamonds, incorporated in the British Virgin Islands and listed on the London Stock Exchange. Mining started at Letseng as long ago as 1968 but was not productive at that time and the mine closed in the 1970s. The mine was reactivated in 2000, however, and along with other mines has proven to be productive. During the 2000s the mine has produced some of the largest and highest quality diamonds in the world. Letseng is now a major export currency earner for Lesotho as well as a major generator of tax revenues, royalties and dividends for government. The company employs around 1,500 of which 250 are permanent staff and the rest contractual. Letseng's key financial performance indicators from 2009 to 2015 are shown in Figure A3.24 and Table. Revenues more than doubled from M 1.36b in 2009 to M 2.96b in 2015. Pre-tax profits increased from M 384m in 2009 to M1.4b in 2015. Net worth increased from M 1b in 2009 to M 2.25b in 2015. Dividends paid to the government varied over the period from a low of M 33m in 2009 to peaks of M 264.1m in 2011 and M303.8m in 2014, and were M 149.4 in 2015. Figure A3.24: Letseng Diamonds Financial Performance Data (M ‘000) 2009-2015 Revenues and Profits Net Worth 3000000 2500000 2500000 2000000 2000000 1500000 1500000 1000000 1000000 500000 500000 0 2009 2010 2011 2012 2013 2014 2015 0 Revenues Profit before tax Profit after tax 2009 2010 2011 2012 2013 2014 2015 Source: Audited financial statements. 12. Sun International of Lesotho (Avani) Sun International of Lesotho for several years operated two major hotels in Maseru: the Lesotho Sun Hotel and Casino and the Maseru Sun. The company was owned 46.9 percent by 61 Sun International of South Africa, 36.4 percent by the government and 16.7 percent by LNDC. In 2014 Sun International sold its shares to the Thailand based Minor Hotel Group (MHG) which operates under the brand name Avani. MHG is a company with hotel operations mainly in Asia but also in East Africa. Avani will also take over the management of the hotels and is expected to carry out upgrading and staff development. Figure and Table show financial performance data for the company for recent years. Revenues increased steadily from M 94m in 2009 to M 127m in 2014. Profitability was mixed with pre-tax profits falling from their high of M 10.8m in 2009 to only M 3.1m in 2014 with losses of M 2.6m and M1.2m incurred in 2012 and 2013. The net worth of the company rose from M 25.8m in 2009 to M 67.8m in 2011 before falling to M 64.9m in 2014. The company paid no dividends to the shareholders over the period. Figure A3.25: Sun International Of Lesotho Financial Performance Data (M ‘000) 2009-2014 Revenues and Profits Net Worth 140000 80000 120000 70000 100000 60000 80000 50000 60000 40000 40000 30000 20000 20000 0 2009 2010 2011 2012 2013 2014 10000 -20000 0 Revenues Profit before tax Profit after tax 2009 2010 2011 2012 2013 2014 Source: Audited financial statements. 13. AON Insurance Company AON is an insurance company with a 5 percent direct government shareholding. 21 percent is owned by AON international, 49 percent is owned Minet, 15 percent by Lesotho Unit Trust, and 10 percent is owned by Alesopt. The company's revenues increased from M 21.6m in 2011 to M 26.2m in 2013. Good pre-tax profits were generated in each year: M 10.2m in 2011, M11.6m in 2012 and M 11.1m in 2013. The company had a negative but improving net worth over the period increasing from M -29.3m in 2011 to M -12.4m in 2013. Dividends of less than M 1m were paid to the state in each of the three years. According to the Audited Financial Statements AON’s dividend policy is to pay 90 percent of retained earnings as dividends. The projected dividends payable to the GOL in 2016 is M 441,235. 62 Figure A3.26: Aon Lesotho Financial Performance Data (M ‘000) 2011-2013 Revenues and Profits Net Worth 30000 0 2011 2012 2013 25000 -5000 20000 -10000 15000 -15000 10000 -20000 5000 -25000 0 2011 2012 2013 -30000 Revenues Profit before tax Profit after tax -35000 Source: Audited financial statements. 14. Other LNDC Subsidiaries Data, in some cases only partial, were obtained for four other LNDC subsidiaries: Maluti Mountain Brewery, OK Bazaars, and Cash Build. Maluti Mountain Brewery, originally Lesotho Brewing Company was founded in 1980. Maluti Mountain Brewery is 51 percent owned by LNDC, 39 percent owned by SAB Miller, 4.25 percent owned by LUT, 4.75 percent owned by the privatization unit according to the AFS’s of FY 2014/15. The dividends it generates are a major source of finance for LNDC. According to the information obtained during the mission, although the government of Lesotho owns 4.75 percent of Maluti Brewery no dividends have been paid to the GOL.21 The company's revenues increased from M 486.6m in 20009/10 to M 733.5m in 2014/15. Net worth increased from M 132.4m in 2009/10 to M 224m in 2014/15. Dividends paid to LNDC rose from zero in 2009/10 to M 51.8m in 2010/11 and M 76.9 m in 2013/14 before falling back to M 32.6m in 2014/15. 21 In the AFS’s of FY 2010/11 the shareholding of LUT is 5 percent and a remaining 5 percent is not mentioned. However, according to news excerpt from December 31, 2014 LNDC owns 51 percent, privatization unit owns 5.25 percent, SAB miller owns 39 percent, and LUT owns 4.75 percent of the shares. According to the information received from the Privatization unit GOL owns 5.25 percent of the shares consistent with the information on the news excerpt. The mission needs to verify whether Maluti Brewery has ever paid dividends to the GOL. 63 Figure A3.27: Maluti Mountain Brewery Financial Performance (M ‘000) 2010/11-2014/15 Revenues and Profits Net Worth 800000 250000 600000 200000 400000 150000 100000 200000 50000 0 FY 2009/10 FY 2010/11 FY 2013/14 FY 2014/15 0 FY FY FY FY Revenues Profit before tax Profit after tax 2009/10 2010/11 2013/14 2014/15 Source: Audited financial statements. OK Bazaars is a retail company 50 percent owned by LNDC. Revenues increased from M 130m in 2009/10 to M 149.6m in 2014/15. However pre-tax profits declined over the same period from M 17.4 m to M 11m. Net worth increased from M 33.5m in 2009/10 to M 41.4m in 2014/15. Dividends paid to LNDC rose from M4.4m in 2009/10 to M 5.6m in 2011/12 before falling to M 3m in 2014/15. Figure A3.28: OK Bazaars Financial Performance Data (M ‘000) 2009/10-2014/15 Revenues and Profits Net Worth 200000 160000 140000 150000 120000 100000 100000 80000 50000 60000 0 40000 20000 0 Revenues Profit before tax Profit after tax Source: Audited financial statements. Cash Build is a wholesale company 20 percent owned by LNDC. Revenues increased from M 123.8m in 2008/09 to M 173.7m in 201213 and fell to M162.3m in 2014/15. Pre-tax profits increased from M 10.7m in 2008/09 to M 15.1m in 2013/14 and fell to M 13.5m in 2014/15. Net 64 worth grew steadily over the period from M 27.3m in 2008/09 to M 61.4m in 2014/15. Dividends paid to LNDC varied between a low of M 240,000 in 2010/11 to a high of M 1.2m in 2012/13. Figure A3.29: Cash Build Financial Performance (M ‘000) 2008/09-2014/15 Revenues and Profits Net Worth 180000 70000 60000 130000 50000 80000 40000 30000 30000 20000 -20000 10000 0 Revenues Profit before tax Profit after tax Source: Audited financial statements. 65 Appendix 4: Tables on Individual SOE Financial Data Table A4.1: List Of Annual Financial Statements Collected And Used List of AFS's collected and used 2009 2010 2011 2012 2013 2014 2015 Lesotho National Development Corporation 1 1 1 1 Loti Brick 1 1 1 1 1 O.K. Bazaars 1 Maluti Mountain Brewery Company 1 1 Lesotho National Life Assurance Company 1 1 1 1 1 1 Lesotho National General Insurance Company 1 1 1 1 1 1 Lesotho Electricity Company 1 1 1 1 1 1 1 Lesotho Flour Mills Limited 1 1 Econet Telecom Lesotho 1 1 1 1 Standard Lesotho Bank 1 1 1 1 1 1 1 Letseng Diamonds 1 1 1 1 1 1 1 Water and Sewerage Company 1 1 Sun International of Lesotho 1 1 1 1 Aon Lesotho 1 1 Mountain Kingdom Foods 1 Lesotho Milling 1 Cash Build 1 Lesotho Postbank 1 1 1 1 1 1 1 Basotho Enterprises Development Corporation 1 1 1 1 1 1 66 Table A4.2: LEC Financial Performance Data Lesotho Electricity Company Figures in FY FY FY FY FY FY FY M ‘000 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Revenues 295672 335362 390689 445572 487234 591139 689122 Profit before tax 25831 36153 5024 31687 -2402 68297 100795 Profit after tax 19402 27090 3741 23694 -1756 51201 75558 Profitability 6.6% 8.1% 1.0% 5.3% -0.4% 8.7% 11.0% ROA 1.3% 1.7% 0.2% 1.4% -0.1% 2.7% 2.7% taxes paid 6429 9063 1282 7993 -646 17097 25237 capital grants 44340 119272 164848 200209 201512 268142 364902 change in capital grants 74932 45576 35361 1303 66630 96760 total assets 1442015 1558507 1605457 1701753 1811536 1906668 2837590 total liabilities 137086 148932 146565 183805 294042 271343 292159 net worth 1304929 1409575 1458892 1517947 1517494 1635325 2545431 Long-term loans 3350 5849 5709 9814 54052 53779 53979 current assets 221378 116728 110344 1906668 2837589 current liabilities 118954 141949 202443 174570 190512 quick ratio 1.86 0.82 0.55 10.92 14.89 67 Table A4.3: WASCO Financial Performance Data WASCO FY FY FY FY FY FY Figures in M ‘000 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Revenues 102135 114441 139705 157756 171233 195208 Profit before tax -2421 2230 -9313 4696 -14282 -3160 Profit after tax -2421 2230 -12400 7788 -3160 -5004 Profitability -2.4% 1.9% -8.9% 4.9% -1.8% -2.6% ROA -0.26% 0.20% -1.01% 0.60% -0.24% -0.37% taxes paid 0 0 0 0 0 0 total dividends paid 0 0 0 0 0 0 percent shareholding of state 100% 100% 100% 100% 100% 100% Capital grants(GOL grant) 505733 629885 681998 736616 794722 821656 change in capital grants 196513 124152 52113 54618 58106 26934 total assets 926377 1140786 1225373 1305018 1330276 1351220 total liabilities 119999 195366 260240 244161 218321 202706 net worth 806378 945420 965133 1060857 1111955 1148514 long-term loans 43896 101501 143495 138045 131926 118415 GOL funding 356901 376063 386063 389381 387377 400160 change in GOL funding 7846 19162 10000 3318 -2004 12783 current assets 104516 106616 130818 123506 140183 134979 current liabilities 66723 82584 104202 92805 69969 66050 quick ratio 1.57 1.29 1.26 1.33 2.00 2.04 68 Table A4.4: BEDCO Financial Performance Data Basotho Enterprises Development Company (BEDCO) Figures in FY FY FY FY FY FY FY M ‘000 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Revenues 1357 1404 1147 1246 449 1311 2551 Profit before tax 387 210 -398 -449 -4313 -3589 -893 Profit after tax 321 163 -445 -449 -4390 -3589 -893 - - 977.99 273.71 Profitability 23.65% 11.61% -38.79% -36.02% % % -35.01% ROA 1.08% 0.57% -1.42% -1.46% -4.52% -3.78% -0.95% taxes paid 65.7 46.6 46.6 0 77.8 0 0 total dividends paid 0 0 0 0 0 0 0 % shareholding of the state 100% 100% 100% 100% 100% 100% 100% Subvention 5653 6500 5623 2900 6000 8442 15458 Capital grants 16662 15975 20719 20093 19095 18947 18400 change in capital grants -688 4744 total assets 29760 28567 31330 30815 97230 95029 93688 total liabilities 7363 6626 6253 6812 5105 5859 6233 net worth 22397 21941 25077 24003 92125 89170 87456 long term loans 1930 1930 1930 1930 2650 2371 current assets 8985 12995 13883 12391 12944 16084 current liabilities 6626 6253 6812 5104 5386 6232 quick ratio 1.36 2.08 2.04 2.43 2.40 2.58 69 Table A4.5: Lesotho Post Bank Financial Performance Figures in M ‘000 2009 2010 2011 2012 2013 2014 2015 Revenues 32027 33692 40258 35720 36169 45457 60304 Profit before tax -17998 -11544 -10242 -10035 -9830 4497 3596 Profit after tax -17998 -11544 -10242 -10035 -9830 3873 3596 Profitability -56.2% -34.3% -25.4% -28.1% -27.2% 8.5% 6.0% ROA -8.18% -4.56% -3.83% -3.46% -3.13% 1.12% 0.92% taxes paid 0 0 0 0 0 623 0 % shareholding of the state 100% 100% 100% 100% 100% 100% 100% dividends paid to the state 0 0 0 0 0 0 0 Subvention (for the losses) 1588 8485 6315 8255 7662 0 capital expenditure from grants 10999 11220 16060 13696 2367 2886 total assets 220015 253186 267480 289989 313688 347290 392650 total liabilities 210015 243186 257480 269989 293688 323417 331296 net worth 10000 10000 10000 20000 20000 23873 61354 Table A4.6: Standard Lesotho Bank Financial Performance Data Standard Lesotho Bank Figures in M ‘000 2009 2010 2011 2012 2013 2014 2015 Revenues 566665 471996 610955 627980 866424 1008956 1083289 Profit before tax 213364 231213 260627 289628 408362 439304 475526 Profit after tax 152497 164191 191271 211681 292444 317752 344260 Profitability 26.91% 34.79% 31.31% 33.71% 33.75% 31.49% 31.78% ROA 3.71% 3.45% 3.77% 4.08% 4.22% 4.54% 4.19% taxes paid 60867 67022 69356 77947 115918 121552 131266 total dividends paid 30000 NA NA 150000 175000 200000 250000 % shareholding of the state 9.65% 9.65% 9.65% 9.65% 9.65% 9.65% 9.65% dividends paid to the state 2895 NA NA 14475 16888 19300 24125 total assets 4115533 4754997 5067601 5190630 6924973 6995120 8214930 total liabilities 3784483 4360359 4602390 4651892 6278091 6231345 7383817 net worth 331050 394638 465211 538738 646882 763775 831112 70 Table A4.7: Letseng Diamonds Financial Performance Data Letseng Diamonds Figures in M ‘000 2009 2010 2011 2012 2013 2014 2015 Revenues 1364529 1345633 2137855 1665460 1895947 2945020 2956759 Profit before tax 383521 516312 1205327 618924 683379 1332457 1372500 Profit after tax 285600 385997 901490 462932 511041 996784 1027672 Profitability 20.93% 28.69% 42.17% 27.80% 26.95% 33.85% 34.76% ROA 20.17% 23.30% 45.73% 20.59% 19.47% 33.73% 29.79% taxes paid 97921 130375 303836 155992 172338 335673 344828 total dividends paid 110000 210000 880520 263000 204167 1026000 498000 % shareholding of the state 30% 30% 30% 30% 30% 30% 30% dividends paid to the state 33000 63000 264156 78900 61250.1 307800 149400 total assets 1415769 1656746 1971255 2247917 2624534 2955054 3449665 total liabilities 389030 453376 745632 819837 885840 1240278 1198997 net worth 1026739 1203370 1225623 1428080 1738694 1714776 2250669 Long-term loans 0 0 0 0 0 0 0 71 Table A4.8: Econet Financial Performance Data Econet Figures in FY FY FY FY FY FY FY M ‘000 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Revenues 295891 331091 363450 377288 423665 435502 390486 Profit before tax -4973 27549 4676 -8189 21894 -32897 -76116 Profit after tax 2352 22540 4954 -6393 16435 -27278 -59177 Profitability 0.79% 6.81% 1.36% -1.69% 3.88% -6.26% -15.15% ROA 0.47% 3.70% 0.71% -0.89% 2.10% -3.74% -7.68% - taxes paid -7325.2 5009.1 278.3 1795.2 5458.7 -5618 16939.1 total dividends paid 1643 % shareholding of the state 30% 30% 30% 30% 30% 30% 30% dividends paid to the state 0 0 0 0 0 493 0 total assets 496310 608796 701754 720496 783671 730109 770594 total liabilities 278453 368399 456402 481538 535736 505276 604937 net worth 217857 240397 245352 238958 247935 224834 165657 Long-term loans 182169 245176 259709 230850 311335 292446 321014 Table A4.9: Lesotho National General Insurance Financial Performance Data National General Insurance Figures in M ‘000 2009 2010 2011 2012 2013 2014 2015 Revenues 80599 86990 88047 107157 103406 96573 96633 Profit before tax 18843 33784 31404 17122 44598 41447 28395 Profit after tax 14220 26580 23553 12841 33449 31085 21296 Profitability 17.6% 30.6% 26.8% 12.0% 32.3% 32.2% 22.0% ROA 6.91% 14.02% 10.40% 5.96% 13.26% 12.22% 8.81% taxes paid 4623 7204 7851 4281 11149 10362 7099 total dividends paid 6900 6932 15947 11777 13400 2800 27650 % shareholding of the state 20% 20% 20% 20% 20% 20% 20% dividends paid to the state 1380 1386 3189 2355 2680 560 5530 total assets 205835 189548 226524 215486 252173 254460 241697 total liabilities 189548 128506 157876 145774 162413 195500 189091 net worth 16287 61042 68648 69712 89760 58960 52606 Long-term loans 0 0 0 0 0 0 0 72 Table A4.10: Lesotho National Life Assurance Financial Performance Data National Life Assurance Figures in M ‘000 2009 2010 2011 2012 2013 2014 2015 Revenues 32179 36732 48512 50734 67465 73712 81593 Profit before tax 46 677 4699 27673 12749 10966 11678 Profit after tax 0 0 3455 26437 9845 9111 10201 Profitability 0.0% 0.0% 7.1% 52.1% 14.6% 12.4% 12.5% ROA 0.00% 0.00% 1.44% 9.66% 3.27% 2.65% 2.76% taxes paid 46 667 1244 1236 2904 1855 1477 total dividends paid 6900 6932 15947 11777 13400 2800 27650 % shareholding of the state 12% 12% 12% 12% 12% 12% 12% dividends paid to the state 828 831.84 1913.64 1413.24 1608 336 3318 total assets 183159 209346 240075 273574 301509 343377 369014 total liabilities 173902 200089 229863 236925 267156 307026 345943 net worth 9257 9257 10212 36649 34353 36351 23071 Long-term loans 0 0 0 0 0 0 0 73 Table A4.11: Sun International Financial Performance 2009-2014 Sun International of Lesotho Figures in M ‘000 2009 2010 2011 2012 2013 2014 Revenues 94039 89805 103537 105617 117790 127031 Profit before tax 10787 3355 9248 -2629 -1236 3111 Profit after tax 8076 2007 8706 -2760 -2024 1484 Profitability 8.6% 2.2% 8.4% -2.6% -1.7% 1.2% ROA 7.78% 1.54% 6.88% -2.36% -1.87% 1.36% taxes paid 2711 1348 542 131 788 1627 total dividends paid 0 0 0 0 0 0 % shareholding of the state 36.4% 36.4% 36.4% 36.4% 36.4% 36.4% dividends paid to the state 0 0 0 0 0 0 total assets 103771 130347 126617 116884 108502 108748 total liabilities 77947 102516 58822 51849 45037 43805 net worth 25824 27831 67795 65035 63465 64943 Long-term loans 582 1527 1633 915 Table A4.12: Aon Financial Performance Data AON Figures in M ‘000 2011 2012 2013 Revenues 21157 24543 26194 Profit before tax 10172 11644 11146 Profit after tax 7750 8070 8295 Profitability 36.6% 32.9% 31.7% ROA 560.78% 490.28% 543.22% taxes paid 2553 2202 2851 total dividends paid 6667 7553 8548 % shareholding of the state 5% 5% 5% dividends paid to the state 333 378 427 total assets 1382 1646 1527 total liabilities 30706 20549 13928 net worth -29324 -18903 -12401 Long-term loans 0 0 0 74 Table A4.13: Lesotho Flour Mills Financial Performance Data Lesotho Flour Mills Figures in M ‘000 2009 2010 2011 2012 2013 2014 Revenues 462345 413637 523055 693158 674205 644996 Profit before tax 10794 13910 22179 34628 -3847 -11865 Profit after tax 9808 11608 18440 30929 63 -12175 Profitability 2.12% 2.81% 3.53% 4.46% 0.01% -1.89% ROA 4.88% 5.70% 9.95% 11.60% 0.03% -4.48% taxes paid 6149 1478 2716 3700 -3911 310 % shareholding of the state 49% 49.0% 49.0% 49.0% 49.0% 49.0% dividends paid to the state 0 0 0 0 0 0 total assets 201137 203468 185329 266717 218401 271967 total liabilities 141621 132344 95765 146225 98215 163967 net worth 59515 71123 89564 120492 120186 108000 Table A4.14: Loti Brick Financial Performance Loti Brick Figures in FY FY FY FY FY FY FY M ‘000 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Revenues 22406 24440 28311 27899 32444 27098 29765.92 Profit before tax 1220 1136 1652 1479 1102 207 -1720.53 Profit after tax 1220 1136 1652 1479 1102 207 -1720.53 Profitability 5.4% 4.6% 5.8% 5.3% 3.4% 0.8% -5.8% ROA 1.67% 1.51% 2.05% 1.57% 1.24% 0.24% -1.91% taxes paid 0 0 0 0 0 0 0 total dividends paid 0 0 0 0 0 0 0 % shareholding of the state 22.8% 22.8% 22.8% 22.8% 22.8% 22.8% 22.8% % shareholding of LNDC 73.60% 73.60% 73.60% 73.60% 73.60% 73.60% 73.60% total assets 72877 75388 80735 94324 88859 86492 90008 total liabilities 26094 27468 31163 46232 39665 37091 36547 net worth 46783 47920 49572 48092 49194 49401 53461 Long-term loans 17738 16583 17259 26319 22627 17640 75 Table A4.15: Maluti Mountain Brewery Financial Performance Data Maluti Mountain Brewery Figures in M ‘000 FY 2009/10 FY 2010/11 FY 2013/14 FY 2014/15 Revenues 486616 538302 656938 733544 Profit before tax 68431 98207 86538 111965 Profit after tax 60879 87812 78208 96833 Profitability 12.5% 16.3% 11.9% 13.2% ROA 27.76% 32.27% 21.27% 23.33% taxes paid 7552 10395 8330 15132 total dividends paid 36990 51765 76868 32567 % shareholding o LNDC 51% 51% 51% 51% dividends paid to LNDC 14426 36006 12702 total assets 219269 272102 367609 414972 total liabilities 112437 130346 175914 191010 net worth 106832 141756 191695 223962 current assets 18708 75541 18741 30941 current liabilities 110003 128217 111102 184281 quick ratio 0.17 0.59 0.17 0.17 Table A4.16: OK Bazaars Financial Performance Data OK Bazaars Figures in FY FY FY FY FY FY M ‘000 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Revenues 130400 129951 143394 13922 138083 149556 Profit before tax 17416.429 1550.428 16238.983 15281.868 11088 10970 Profit after tax 13026.787 11621.304 12153.401 11841.356 8316 8215 Profitability 10.0% 8.9% 8.5% 8.5% 6.0% 5.5% ROA 24.29% 22.54% 20.35% 21.39% 15.55% 14.03% taxes paid 4390 3929 4086 3441 2772 2755 total dividends paid 8895 8700 11235 9300 9000 6000 % shareholding o LNDC 50% 50% 50% 50% 50% 50% dividends paid to LNDC 4448 4350 5618 4650 4500 3000 total assets 53628 51557 59722 55356 53476 58546 total liabilities 20139 15146 22393 15486 14290 17145 net worth 33489 36410 37329 39870 39186 41401 Long-term loans 0 0 0 0 0 0 76 Table A4.17: Cashbuild Financial Performance Data Cash Build Figures in FY FY FY FY FY FY FY M ‘000 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 Revenues 123821 139964 143188 172073 173726 172317 162306 Profit before tax 10722 8011 10028 14635 13065 15139 13550 Profit after tax 8021 6135 7500 10930 9740 11308 10165 Profitability 6.5% 4.4% 5.2% 6.4% 5.6% 6.6% 6.3% ROA 14.70% 10.11% 9.66% 14.05% 11.48% 11.62% 9.96% taxes paid total dividends paid 2795 1540 1200 2845 5900 5300 4900 % shareholding of LNDC 20% 20% 20% 20% 20% 20% 20% dividends paid t LNDC 559 308 240 569 1180 1060 980 total assets 54570 60694 77611 77807 84865 97352 102021 total liabilities 27280 28809 39426 31650 34825 41269 40639 net worth 27290 31885 38185 46157 50040 56083 61383 77 Appendix 6: Lesotho’s Parastatals and Selection Criteria for Inclusion in this Study Directly Cannot be controlled Any Sells all or a source of by public sales of most of its profits to Ability to institutional goods or output at its NO Parastatals by Ministry Controlled borrow or unit other services? economic- owners? by Type of lend on its than To ally (No Financed Govern- Manage- own general general significant Dividends mainly by Type of ment? ment behalf? gov’t? public? prices? ?) government? institution MINISTRY OF AGRICULTURE & FOOD SECURITY Private 1 Lesotho Dairy No Board Yes No Yes Yes No No Entity Government 2 Agric College Yes Council No No Yes No Yes Yes Department Government 3 Lesotho Co-op College Yes Board No No Yes No Yes Yes Department Lesotho National Dairy 112 4 Board Board Yes No Yes Yes No No Private 5 Lesotho Flour Mills Yes Board Yes No Yes Yes Yes No Entity MINISTRY OF FINANCE Financial Public corporation - 100% Monetary 6 Central Bank of Lesotho Yes Board Yes No Yes Yes No shares Authority Integral part of the main 7 LMDA - Lesotho No Board Yes Yes No Yes Yes Yes Gov’t Non-Market Partial Credit Guarantee Establish- 8 Fund Yes Board No Yes No No Yes subvention ment Directly Cannot be controlled Any Sells all or a source of by public sales of most of its profits to Ability to institutional goods or output at its NO Parastatals by Ministry Controlled borrow or unit other services? economic- owners? by Type of lend on its than To ally (No Financed Govern- Manage- own general general significant Dividends mainly by Type of ment? ment behalf? gov’t? public? prices? ?) government? institution Integral part Lesotho Institute of of the Main 9 Accountants Yes Board No No Yes Yes Yes subvention Gov’t Lesotho National Insurance 20% Private 10 Group No Board Yes No Yes Yes No Shares Entity Non-Market Establish- 11 Pension Fund Yes Board Yes No Yes Yes Yes Yes ment Non-Market Establish- 12 Lesotho Revenue Authority Yes Board No No Yes No Yes subvention ment Non- 113 Financial 36.4% public 13 Sun International (Avani) No Board Yes Yes Yes Yes No Shares corporation Non-Market Establish- 14 Petroleum Fund Yes Council Yes No No No Yes Yes ment Integral part of the Main 15 Procurement Tribunal Yes Board No Yes No No Yes Yes Gov’t Assigned Non-Market certain Establish- 17 Road Fund Yes Board No No Yes No Yes gov’t taxes ment Monetary 20% Financial 18 Standard Lesotho Bank No Board Yes Yes Yes Yes No Shares Corporation Directly Cannot be controlled Any Sells all or a source of by public sales of most of its profits to Ability to institutional goods or output at its NO Parastatals by Ministry Controlled borrow or unit other services? economic- owners? by Type of lend on its than To ally (No Financed Govern- Manage- own general general significant Dividends mainly by Type of ment? ment behalf? gov’t? public? prices? ?) government? institution Integral part Center for Accounting of the main 19 Studies No Board No No Yes No Yes Subvention Gov’t MINISTRY OF DEVELOPMENT PLANNING Integral part Council of Bureau of of the Main 20 Statistics Yes Board No No No No Yes Yes Gov’t Integral part Council of National of the Main 21 Manpower Yes Council No No No No No Yes Gov’t MINISTRY OF NATURAL RESOURCES 22 Kao Mines No Board Yes Yes Yes 114 Non- Financial Lesotho Electricity & Water Public 23 Authority Yes Board No No No No Yes subvention Corporation Non- Financial Lesotho Electricity Public 24 Company Yes Board Yes No Yes No Yes subvention Corporation Non-Market Lesotho Highlands Establish- 25 Development Authority Yes Board No No Yes No Yes Subvention ment Non-Market Establish- 26 Metolong Authority Yes Board No No No No No Subvention ment Directly Cannot be controlled Any Sells all or a source of by public sales of most of its profits to Ability to institutional goods or output at its NO Parastatals by Ministry Controlled borrow or unit other services? economic- owners? by Type of lend on its than To ally (No Financed Govern- Manage- own general general significant Dividends mainly by Type of ment? ment behalf? gov’t? public? prices? ?) government? institution Non-Market Letseng Diamonds (PTY) Establish- 27 LTD No Board Yes No Yes Yes No 30%shares ment Non-Market Liqhobong Mining 25% Establish- 28 Company No Board Yes No Yes Yes Yes Shares ment Non- Financial Public 29 WASCO No Board No No Yes Yes Yes Subvention Corporation 115 MINISTRY OF TRADE & INDUSTRY Non- Financial Lesotho National Public 30 Development Corporation Yes Board Yes No Yes Yes Yes subvention Corporation Integral part of the Main 31 Trade Licencing Board Yes Board Yes Yes Yes No No Yes Gov’t 100% 32 Loti Brick (PTY) LTD No Board Yes Yes Yes Yes Yes Shares MISTRY OF SMALL BUSINESS DEVELOPMENT, COOPORATIVES AND MARKETING Non- Financial Basotho Enterprises Public Development Corporation Yes Board No No Yes No Yes Subvention Corporation MINISTRY OF HEALTH & SOCIAL WELFARE Directly Cannot be controlled Any Sells all or a source of by public sales of most of its profits to Ability to institutional goods or output at its NO Parastatals by Ministry Controlled borrow or unit other services? economic- owners? by Type of lend on its than To ally (No Financed Govern- Manage- own general general significant Dividends mainly by Type of ment? ment behalf? gov’t? public? prices? ?) government? institution Non- National Drug Service Financial 33 Organization Yes Board No No Yes Yes Yes Subvention Corporation Non- Christian Health Association Financial 34 of Lesotho Yes Board Yes No Yes No Yes subvention Corporation Non- Lesotho Pharmaceutical Financial 35 Corporation Yes Board Yes No No Yes Yes Corporation Non- Financial 36 Red Cross No Board No No No No No subvention Corporation 116 MINISTRY OF EDUCATION & TRAINING Non-Market Establish- 37 Exams Council of Lesotho Yes Council No No Yes No Yes subvention ment Non-Market Institution of Development Establish- 38 Management No Board No No Yes No Yes subvention ment Non-Market Establish- 39 Lerotholi Polytechnic Yes Council No No Yes No Yes subvention ment Non-Market Lesotho College of Establish- 40 Education No Council No No Yes No Yes subvention ment Non-Market National University of Establish- 41 Lesotho Yes Council No No Yes No Yes subvention ment Directly Cannot be controlled Any Sells all or a source of by public sales of most of its profits to Ability to institutional goods or output at its NO Parastatals by Ministry Controlled borrow or unit other services? economic- owners? by Type of lend on its than To ally (No Financed Govern- Manage- own general general significant Dividends mainly by Type of ment? ment behalf? gov’t? public? prices? ?) government? institution Non-Market Establish- 42 Machabeng College No Board Yes No Yes Yes No subvention ment Non-Market Council for Higher Establish- 43 Education Yes Board Yes Yes Yes Yes No subvention ment MINISTRY OF LOCAL GOVERNMENT Non-Market Establish- 44 Lesotho Housing Yes Board Yes Yes Yes Yes No ment 45 117 MINISTRY OF TOURISM, ENVIRONMENT & CULTURE Non-Market Lesotho Tourism Establish- 46 Development Corporation Yes Board No No No No Yes subvention ment Non-Market Establish- 47 Tourism Licencing Board Yes Board Yes Yes Yes No No subvention ment MINISTRY OF PUBLIC WORKS & TRANSPORT Non-Market Lesotho Freight Bus Establish- 49 Services Yes Board No No Yes No Yes ment Non-Market Establish- 50 Roads Directorate Yes Board No Yes No No No ment Non-Market Establish- 51 Imperial No Board Yes No Yes Yes Yes ment Directly Cannot be controlled Any Sells all or a source of by public sales of most of its profits to Ability to institutional goods or output at its NO Parastatals by Ministry Controlled borrow or unit other services? economic- owners? by Type of lend on its than To ally (No Financed Govern- Manage- own general general significant Dividends mainly by Type of ment? ment behalf? gov’t? public? prices? ?) government? institution MINISTRY OF GENDER, YOUTH, SPORTS & RECREATION Non-Market Establish- 52 Lesotho Sports Council Yes Board Yes No No No No Subvention ment Non-Market Establish- 53 Olympic Committee Yes Board No No Yes No No Subvention ment Non-Market Establish- 54 Youth Council Yes Board Yes No No No No Subvention ment 118 MINISRTY OF COMMUNICATION, SCIENCE & TECHNOLOGY Public Financial 55 Lesotho Post Bank Yes Board No No Yes Yes No Subvention Corporation Non- Financial Public 56 Telecom ( Econet) No Board Yes Yes Yes Yes Yes Shares Corporation MINISTRY OF PUBLIC SERVICE Integral part of the main 57 Public Service Tribunal Yes Board No Yes No No No subvention Government Source: PSD Unit MoF.