Winning the power play
Astral Foods recently won a crucial victory in its battle against the Lekwa municipality — which has consistently failed to deliver water and electricity to the country’s largest poultry producer — by obtaining a court order against both the National Treasury and the government, which forces both entities to intervene. The FM spoke to
CEO Chris Schutte.
You must be the Lekwa mayor’s least favourite person.
CS: We don’t expect a helluva lot from the local municipality — we’ve been working with it for so long that there was hardly ever any indication that we were going to get co-operation. So our approach was, well, who is responsible — the provincial government, or the premier of Mpumalanga? We also had no joy [with them], so after we exhausted the avenues we thought we should decide to go another route.
We pay our taxes, we want to cooperate, we provide jobs and … we were invited to that area with guarantees of water and electricity supply. We’ve made almost R1bn of investments over 10 years, then it all came to a head in 2018 when Eskom decided to cut power to Standerton.
We then went to court and it was ruled in our favour that Eskom couldn’t cut, and we could pay them directly. We paid the margin that the municipality would have added to the Eskom bill to an attorney’s trust fund that was managed and paid over.
But even the fact that we paid our amount directly to Eskom did not reduce the municipality’s bill. So we had no faith in a short-term agreement.
But who will now deliver the services? CS: Well, what’s really important here is that we obtained this court order by agreement from the Treasury and central government. So the fact that it was uncontested makes our hand so much stronger. They cannot appeal the outcome of the judgment.
The second thing is that there’s very particular detail in the order that says the central government must intervene within 14 days of the court order if services aren’t delivered — next week Tuesday. I don’t think they want that. And within six months they have to come up with a substantial financial recovery plan and show it’s workable.
Should more corporates be taking this hard-line approach?
CS: Ja. The reason we’ve taken this route is that the supply of services was guaranteed to us and we were invited to invest. We don’t have other options; we built the biggest feed mill in Africa and all the poultry farms are around it — how do you move it?
We do think that the buck has to stop somewhere. We don’t want to fight, we just want what we think we should get. It might sound heroic but that was never our purpose.
But I think corporates could say that municipalities — it doesn’t matter where — are still the ultimate providers of services. Why don’t corporates say what is wrong and then do something about it?
Maybe they’re scared of a backlash?
CS: I think so. You read of companies that just pick up sticks and move somewhere else, but I’m not sure that’s right — you should get a service from the infrastructure already there.
Standerton is the perfect place for prime meat production in SA. You’re in the middle of the best-yielding maize fields. You’re next to the richest water system of the country, the Vaal; you’re also close to agricultural land that lends itself towards poultry production.
Would you say that SA could see a huge improvement in growth if its municipalities worked properly again?
CS: Absolutely. We’re holding back investment, purely because we’re not sure about the supply of basic services. All you want is good roads, water and electricity, and that is why on an efficiency level we are rated in the top 10 in the world, but on a cost comparison we’re not even in the top 50. We have legal cases, alternative energy, generators and water to pay for, so we will never be globally competitive. We sit with all these costs forced on us by lack of infrastructure.
That must be so stressful.
CS: We often sit here thinking what a CEO of a poultry company in North America thinks about, and I promise you it’s not about suing a municipal manager. What do we do with profits — pay a dividend or reinvest? That’s what my job as a CEO is — capital allocation.
We could withhold dividends and spend on long-term investments, but we simply don’t have the luxury of not worrying about infrastructure. If international investors come to see me and say they want to know what the future growth opportunities are, you have to think carefully not to overpromise. How do you openly look at a potential investor and say: “Yes, I’ve got sufficient growth opportunities”? I’d be lying.
We sit here thinking what a CEO of a poultry firm in America thinks, and it’s not about suing a municipal manager