Shiver me timbers
Mondi’s model for land claims
LAND CLAIM SETTLEMENTS can be a delicate process, especially for the owners of large tracts of land. On the one side is Government, which is meant to be paying the owner for the land, and on the other side the new owners, often rural communities, who are happy to rent the land back to its former owners for some form of income agreement.
In KwaZulu-Natal the big land owners are players in the timber and paper industry, largely Mondi and Sappi, and the sugar industry, including Illovo Sugar, Tongaat Hulett and Crookes Brothers. Some might remember what happened to Crookes Brothers a few years ago. It willingly agreed to sell a sugar estate and reached an agreement with a few communities on a deal to rent back the land and continue planting sugar cane. But the Government department at that time just didn’t pay, saying its budget had run out. Though it finally did pay a year later after its new budget was allocated, it put Crookes Brothers under some cash flow strain.
Unfortunately, that’s the danger when dealing with Government. “It’s clear Government has budgetary constraints and at times we battle. But we’re receiving money for our land claim settlements,” says Mondi CEO David Hathorn. He was commenting on the 11 successful land claim settlements Mondi has concluded, which include the provision of post-settlement support for the communities involved. Mondi’s model is based on the sale of the land and leaseback arrangements, together with empowerment requirements, for the communities involved.
“With this agreement, Mondi has effectively ensured the settlement of 40% of all claims to its land countrywide and the vast majority of outstanding claims in KwaZulu-Natal,” says Mondi chairman Cyril Ramaphosa. “That’s securing the fibre supply into our mills.”
The agreement is between Mondi and SA’s Department of Rural Development and Land Reform to try and ensure expeditious settlement of land claims and the provision of post-settlement support. Mondi still has 22 “known claims” in KwaZulu-Natal and 39 in Mpumalanga. While the 11 settled claims in KwaZuluNatal have been successful, Hathorn says the process has sometimes been “erratic and unpredictable” for all parties. “In particular, post-settlement support has lacked clarity with respect to content, roles and responsibilities, funding mechanisms and risk-sharing.”
But while the settlement of land claims is a necessary process in SA, what are the financial implications for Mondi? Is it affecting returns to shareholders, particularly overseas, where Mondi is dual-listed on the London Stock Exchange? Do foreign shareholders understand, or care about, land claim settlements in SA?
“For return on equity, it’s pretty neutral,” says Hathorn. “We rent the land back and run it like before. It’s a good model from Mondi’s point of view, providing good value. It’s also good for the communities involved, giving them a means of generating income and other benefits.”
Apart from earning income from the land they now own, local communities are also employed as far as possible to help manage the forests and act as firewatchers. Rentals include a stumpage fee to encourage people not to cut down trees for firewood, a problem Sappi had with one of its land settlement claims. Ultimately, the agreement is aimed at the progressive involvement of communities in the forestry industry, possibly leading to a new generation of timber farmers.
But what’s to stop a rival timber group, such as Sappi, coming along and offering communities a slightly better deal, thereby gaining access to Mondi’s timber supply?
“They can’t,” says Hathorn. “It’s part of the long-term agreement we have signed with the communities.”