The Magwa and Majola tea estates need another R160-million bailout to survive, said a business rescue practitioner appointed to salvage the collapsed government-owned entity.
The so-called Magwa Enterprises Tea (Pty) Ltd was placed under business rescue by the Grahamstown High Court in February in a last-ditch attempt to patch up the problematic public entity which has spent much of the last two decades gobbling up public funds rather than producing tea.
The Eastern Cape provincial government has pumped about R300-million over the last five years into resuscitating the beleaguered plantations.
The public entity is so dysfunctional that the appointed interim business rescue practitioner Garth Voigt said that – but for the significant social needs of the poverty-stricken people in the surrounding Lusikisiki area and the fact that the province might be prepared to throw even more public money at the problem – he would recommend it be wound up.
Voigt was supposed to have finished up his report by the end of May but belatedly resorted back to court this week for an extension on his complex and seemingly nigh impossible task.
He said it had taken time to secure funding from province to pay critical staff while rescue proceedings were under way and to secure the expertise of an agricultural and tea specialist who could advise on the possibility of other agricultural pursuits to supplement the tea project.
Both had been done and consultant Agri Africa was appointed to come up with a business plan. An extract of the business plan attached to court papers suggests the tea estates needed to diversify.
If Magwa and Majola continued with only bulk black tea (Ceylon tea) production, it would require ongoing government support, which was not sustainable, said the report.
It recommends that while Magwa should undergo a process to restore the tea fields and factory and equipment – which were seriously damaged during labour unrest – it should also expand its capacity to produce green tea.
It recommended that one-third of the estate be developed under macadamias. It said the smaller Majola estate should convert to organic tea production for the organic niche market.
“The plans require a cash injection of R126.75-million for Magwa and R30.75-million over three years for Majola.”
Voigt said the problems faced by the company were deep-seated and complex.
Eastern Cape Development Corporation CEO Ndzondelelo Dlulane said in an affidavit earlier this year the company was in disarray with zero top management, no systematic accounting or record keeping.
Acceptable levels of governance and accountability had been rendered impossible despite significant injections of state funds.
It had been resolved that the Eastern Cape Rural Development Agency (ECRDA) would take over responsibility for both Magwa and Majola tea estates.
Government agreed to make R17-million immediately available to pay salaries and settle liabilities of both Magwa and Majola tea estates and another R34-million for the business rescue process, operational costs and to pay creditors.
That the company will now need another R160-million over three years if it is to have any hope of getting back onto its feet will be a blow to government.
Voigt concludes that the company will have to be wound up unless the provincial government and the ECRDA were satisfied that further investment was justified and would not constitute wasteful expenditure.
He said the plan was now with ECRDA but the funding required was so high that commitment to it required reference to “higher levels of government”.
“In the event that the province is not prepared to make the commitment, application will have to be made for the winding up of (Magwa Enterprises).”
Judge Jeremy Pickering granted Voigt an extension to the end of next month.
Bust tea estates need R160m to keep on growing
The so-called Magwa Enterprises Tea (Pty) Ltd was placed under business rescue by the Grahamstown High Court in February in a last-ditch attempt to patch up the problematic public entity which has spent much of the last two decades gobbling up public funds rather than producing tea.
The Eastern Cape provincial government has pumped about R300-million over the last five years into resuscitating the beleaguered plantations.
The public entity is so dysfunctional that the appointed interim business rescue practitioner Garth Voigt said that – but for the significant social needs of the poverty-stricken people in the surrounding Lusikisiki area and the fact that the province might be prepared to throw even more public money at the problem – he would recommend it be wound up.
Voigt was supposed to have finished up his report by the end of May but belatedly resorted back to court this week for an extension on his complex and seemingly nigh impossible task.
He said it had taken time to secure funding from province to pay critical staff while rescue proceedings were under way and to secure the expertise of an agricultural and tea specialist who could advise on the possibility of other agricultural pursuits to supplement the tea project.
Both had been done and consultant Agri Africa was appointed to come up with a business plan. An extract of the business plan attached to court papers suggests the tea estates needed to diversify.
If Magwa and Majola continued with only bulk black tea (Ceylon tea) production, it would require ongoing government support, which was not sustainable, said the report.
It recommends that while Magwa should undergo a process to restore the tea fields and factory and equipment – which were seriously damaged during labour unrest – it should also expand its capacity to produce green tea.
It recommended that one-third of the estate be developed under macadamias. It said the smaller Majola estate should convert to organic tea production for the organic niche market.
“The plans require a cash injection of R126.75-million for Magwa and R30.75-million over three years for Majola.”
Voigt said the problems faced by the company were deep-seated and complex.
Eastern Cape Development Corporation CEO Ndzondelelo Dlulane said in an affidavit earlier this year the company was in disarray with zero top management, no systematic accounting or record keeping.
Acceptable levels of governance and accountability had been rendered impossible despite significant injections of state funds.
It had been resolved that the Eastern Cape Rural Development Agency (ECRDA) would take over responsibility for both Magwa and Majola tea estates.
Government agreed to make R17-million immediately available to pay salaries and settle liabilities of both Magwa and Majola tea estates and another R34-million for the business rescue process, operational costs and to pay creditors.
That the company will now need another R160-million over three years if it is to have any hope of getting back onto its feet will be a blow to government.
Voigt concludes that the company will have to be wound up unless the provincial government and the ECRDA were satisfied that further investment was justified and would not constitute wasteful expenditure.
He said the plan was now with ECRDA but the funding required was so high that commitment to it required reference to “higher levels of government”.
“In the event that the province is not prepared to make the commitment, application will have to be made for the winding up of (Magwa Enterprises).”
Judge Jeremy Pickering granted Voigt an extension to the end of next month.
Would you like to comment on this article?
Register (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Trending Now
Latest Videos