Millions for Govt tannery down drain

A GOVERNMENT tannery, which was established a decade ago in the North and never made any profits, is now a burden to the taxpayer because millions must be paid back to a bank in China.

Cabinet has approved the leasing of the tannery facility as a temporary measure pending a decision on a proposed restructuring exercise. During the latest Cabinet meeting, the precarious situation of the Northern Tannery was brought to the attention of Ministers.It was decided to ring-fence the shares of the 25 current shareholders and to give them a choice to either be bought out or to be absorbed into any new tannery company that might be set up in future.In November 1997, the Namibian Government borrowed the equivalent of US$6 million (about N$40 million at that time) from the Export-Import (Exim) Bank of China.It then lent the money to the Northern Tannery through a loan agreement signed between the Ministry of Finance and the Offshore Development Company (ODC), and Northern Tannery as the end user.More than half of the loan was directly paid to China’s Shanghai Corporation for Foreign Economic and Technological Cooperation as payment for machinery, equipment and related services provided to Northern Tannery.The remaining N$18,5 million was transferred to Namibia for the construction of the tannery buildings and related physical infrastructure at Ondangwa.The 25 shareholders of Northern Tannery contributed less than N$1 million equity capital to the project, instead of the required N$10 million needed to allow the project to successfully take off.”Since the shareholders failed to raise the necessary capital, the company was never able to run as envisaged,” the Cabinet briefing paper stated.”Northern Tannery could also not meet its financial obligations on the loan fund and the Government, as the borrower, assumed the repayment of the loan capital and interest fees to Exim Bank China in 2004,” according to the briefing paper.To rescue the situation, the Ministry of Trade and Industry proposed options to Cabinet to allow the Government to recover as much of the loan as possible.During the latest Cabinet meeting, the precarious situation of the Northern Tannery was brought to the attention of Ministers.It was decided to ring-fence the shares of the 25 current shareholders and to give them a choice to either be bought out or to be absorbed into any new tannery company that might be set up in future.In November 1997, the Namibian Government borrowed the equivalent of US$6 million (about N$40 million at that time) from the Export-Import (Exim) Bank of China. It then lent the money to the Northern Tannery through a loan agreement signed between the Ministry of Finance and the Offshore Development Company (ODC), and Northern Tannery as the end user.More than half of the loan was directly paid to China’s Shanghai Corporation for Foreign Economic and Technological Cooperation as payment for machinery, equipment and related services provided to Northern Tannery.The remaining N$18,5 million was transferred to Namibia for the construction of the tannery buildings and related physical infrastructure at Ondangwa.The 25 shareholders of Northern Tannery contributed less than N$1 million equity capital to the project, instead of the required N$10 million needed to allow the project to successfully take off.”Since the shareholders failed to raise the necessary capital, the company was never able to run as envisaged,” the Cabinet briefing paper stated.”Northern Tannery could also not meet its financial obligations on the loan fund and the Government, as the borrower, assumed the repayment of the loan capital and interest fees to Exim Bank China in 2004,” according to the briefing paper.To rescue the situation, the Ministry of Trade and Industry proposed options to Cabinet to allow the Government to recover as much of the loan as possible.