Who is Feronia Inc.?
Who owns Feronia?
As a publicly listed company, Feronia Inc. has hundreds of shareholders. However, its two largest shareholders are CDC Group plc, the UK Government’s development finance company, and Golden Oil Holdings Limited, a subsidiary of the African Agriculture Fund, a leading pan-African agriculture and food private equity fund.
Who is Plantations et Huileries du Congo (PHC)?
PHC is a long established palm oil business in the DRC. It has three remotely located plantations; Lokutu, Yaligimba and Boteka, and, after the DRC Government, is the largest employer in the DRC.
Feronia purchased PHC from Unilever in 2009. At that time PHC had suffered from years of underinvestment and considerable disruption caused by conflict in the DRC.
PHC was once one of the largest private sector employers in Africa. The two periods of major conflict in the DRC between 1996 and 2003 severely affected operations. Subsequently the business resumed operation but went into a period of decline due to under-investment and lack of strategic support from its parent company. During this period, senior management in the DRC, many of whom still work for PHC, and a core staff of approximately 3,000 people kept the business running to the best of their ability, often at great personal risk. Despite their best efforts, when Feronia acquired PHC in 2009, it was nearly extinct as a business.
Our initial focus has been on rebuilding the business and resuming production to secure its future and the livelihoods of the 3,800+ people we directly employ.
Feronia prides itself on being the guardian of PHC and its employees, communities, and environment. We have a long term commitment to improve the living and working environment of our employees and their communities and are committed to sustainable agriculture, environmental protection and community inclusion. To date, Feronia has invested more than $100 million into the business; rebuilding and refurbishing mills, hospitals, schools, houses, roads and other infrastructure and as well as replanting oil palm trees which will provide future revenues.
Why is rebuilding PHC important?
What does PHC produce?
Where does it sell its products?
Is Palm Oil a sustainable product?
Palm oil is the most efficient oilseed crop in the world. One hectare of oil palm produces several times more oil than oilseed crops such as soya and rapeseed and also requires less fertiliser, pesticides and energy per tonne of oil produced.
Palm oil is also a permanent crop. Once mature, an oil palm tree can produce fruit (which is converted in to palm oil) for more than 20 years. This has a far less negative impact on the environment, soil and greenhouse gas emissions than other oil seed crops which have to be re-planted each year. The oil palm trees also contribute to carbon sequestration.
Palm Oil is a hugely versatile vegetable oil and is part of the staple and traditional diet of the Congolese and other developing countries. With our products sold locally in the DRC we are helping to reduce dependency on imports, less foreign exchange outflow, less exposure to world commodity price cycles, less international transportation of goods and less demand for oil produced in places where environmental and social standards are suboptimal.
Increasing local production has a direct positive economic effect for the DRC. More local production means more employment, more taxes paid, more social infrastructure in remote places and less necessity for people to move away from their homes to find employment.
Currently, it is estimated that the DRC is producing less than 20% of its total palm oil consumption; the balance being brought from Asia.
How can we be sure that PHC is really committed to sustainability?
Feronia Inc., as a publicly listed company is subject to high levels of governance, audit, transparency, regulation and scrutiny. We have a Board sub-committee which meets on a quarterly basis (and more frequently if required) which is focussed entirely on sustainability and has representatives on it from CDC, the AAF, the DFI lenders and independent directors. Its objective is to ensure that the Company delivers on its commitment to sustainability. These include achieving certification by the Roundtable for Sustainable Palm Oil (RSPO) and implementing IFC/World Bank standards for environmental and social sustainability.
As part of our commitment to sustainability and transparency we are shortly to publish the findings from an Environmental and Social Assessment which has been carried out by external experts and have in place an Environmental and Social Action Plan which is focused on implementing environmental and social best practice and improving social infrastructure. This was first developed in conjunction with CDC in 2013, extended in conjunction with the DFI lenders in 2015 and represents our roadmap to achieving sustainability excellence. Further, Feronia Inc. expects to publish an annual Sustainability Report on its environmental and social compliance, performance, progress and impacts, as well as economic impacts caused by its operations and activities, using Global Reporting Initiative’s Sustainability Reporting Guidelines as a framework.
Why are Development Finance Institutions (DFIs) investing and lending money to the business?
The DFIs exist to make a positive difference to people’s lives in some of the world’s poorest places by building businesses and creating jobs. Without the DFI’s investments and loans in Feronia and PHC, 3,800 jobs would likely have been lost and, with them the hospitals and other infrastructure that the company provides for its workers and local communities.
The DFIs are hugely selective about the types of organisations they deal with. Their involvement with a company quite rightly brings scrutiny at all levels and imposes requirements on such company to operate at the highest standards and work towards internationally recognised standards in areas such as the environment, social matters and corporate governance.
Edible palm oil is a staple good in the DRC. PHC aims to contribute to local food security by increasing the availability of edible oil and palm oil products to people in the DRC. Increasing local production also decreases dependence on imports: fewer imports imply less transport of goods and have a positive effect on the balance of trade.
We believe that the DFIs’ involvement in Feronia and PHC, and the levels of transparency and accountability it brings, is hugely positive for all of stakeholders.
Does PHC have legal titles to the land it occupies in DRC?
PHC operates on land which is leased from the DRC government through more than 200 fixed-term land titles. PHC strictly abides by the legal process in place for renewing these titles which is extensive and thorough. It includes considerable work ‘on the ground’, verification by government land surveyors and obtaining the necessary government permissions, which vary by province.
Many of PHC’s titles have been in place for over 100 years and the renewal process has been undertaken a number of times.
Where issues relating to land are expressed by local communities, PHC endeavors to engage with those communities to assist in achieving a fair solution within the bounds of the country’s land laws.
Over the last two years PHC has undertaken extensive work creating digital maps of its titles. These activities are an important part of our Environmental & Social Action Plan and our commitment to implementing IFC/World Bank standards for environmental and social sustainability and achieving certification by the Roundtable for Sustainable Palm Oil (RSPO).
Do PHC’s activities affect traditional land use rights?
PHC is a business with over 100 years of history. There are numerous documented issues with traditional communities in its early years but the challenges we face today in revitalizing the business after years of neglect, whilst restoring the social infrastructure to levels that PHC’s management, stakeholders, and communities accept and are proud of, are quite distinct from the issues caused by the plantation’s early activities in the region. We do not dismiss those historical issues but are focused on the reality of the situation we inherited and are working hard to develop a productive and inclusive path forward. This entails a commitment to engage openly and transparently with stakeholders on issues regarding land use within the framework of a Land Management Plan which the Company is currently developing.
Will replanting activities undertaken by PHC have an impact on local livelihoods?
We firmly believe that the replanting activities and the ongoing rehabilitation of the plantations are, and will continue to have a significant positive impact on local livelihoods.
If Feronia had not acquired this business and secured substantial international funding for the rehabilitation of the operation and its social infrastructure, in the areas in which PHC operates there would be no employment, no medical facilities or professionals, no education and, effectively, no hope.
We are committed to building something that respects the community and our environment and allows people to not only survive but flourish, and benefit from everyone’s commitment and hard work. The investment in, and the rehabilitation of, PHC since 2009 has secured the jobs of our 3,800 employees and is making a positive impact on the lives of their families and thousands more people who live in and around our operations.
We are in the process of identifying suitable ways to implement livelihood restoration activities to address any potential negative impact of plantation rehabilitation and to identify broader community development needs for local communities. This includes assessing technical, cultural and other aspects that need to be addressed to ensure effective implementation of livelihood programs, which will be managed under the framework of our Community Development Program. In addition, the Company has implemented a Grievance Procedure for stakeholders which includes issues of land use and livelihoods. The Grievance Procedure helps provide a clear and transparent mechanism through which people can report concerns, escalate these where necessary, and receive responses.
We recognize that the most effective way to operate is in harmony with our communities. This is something which resonates throughout the organisation and is especially the case with PHC’s management, many of whom live amongst the communities and, in several cases, were actually born on the plantations.
How are communities and people not directly employed by PHC affected by it?
We have a substantial positive impact on the quality of life of people in and around our operations.
PHC provides all medical care, including, hospitals, nursing staff, medication and equipment for its employees. People in local communities also have access to these facilities. The medical facilities are undergoing an extensive programme of refurbishing, re-equipping and re-staffing and would not be operating without PHC’s involvement. Similarly, school facilities are provided by the Company and would not be available without our involvement. We maintain an extensive network of roads, at our own expense. These roads would not exist without us and would cease to be useable if we were to discontinue their maintenance. A programme of work has been implemented to reinstate 55 groundwater boreholes and increase access to clean drinking water for workers and local communities.
Most services of any form would simply not exist without us as there are no equivalent state provided facilities in the areas in which we operate.
We are in the process of identifying community development needs for local communities which will be managed under the framework of our Community Development Program.
Areas where we are already having a positive impact include:
- Employment – PHC employs approximately 3,800 permanent staff across its three plantations, and at various times of the year employs approximately 4,000 seasonal workers. As PHC is the sole, large-scale provider of formal employment in the region, this constitutes a significant positive impact. Rehabilitating the plantations is helping secure employment for current employees, and provide employment opportunities for future generations.
- Economic Benefits – local communities benefit from PHC’s expenditure in the DRC and activities which are created through its presence (e.g., markets for goods and services which, in turn, stimulates the growth of manufacturing and in the service sectors). Salaries paid by PHC add significantly to the spending power of employees and local population (as money circulates); as money is spent in the local communities, it assists growth in the formal and informal sectors.
- Fiscal impacts –the national Government and DRC benefit from taxes paid by PHC and which increases the amount of money that is available for the Government to spend on national projects (e.g., constructing and maintaining infrastructure, improving services and development projects). In 2014 the Company paid the DRC Government USD 2.8 million in taxes and fees (e.g., property taxes, license fees, VAT and employment taxes). The continued rebuilding of PHC therefore affords a sustainable income for the Government.
- Social Infrastructure – PHC owns and operates hospitals at each plantation; maintains roads in the concessions and some link roads outside the concessions; there are boreholes on all plantations providing potable water to anyone who can access them and new boreholes are being established; and workers are provided with housing which benefits all their dependents. This impact constitutes a significant positive impact as PHC operates in isolated, rural areas and there are minimal development initiatives taking place by the Government.
Do PHC’s workers receive adequate remuneration?
There are a number of pay scales for workers as PHC has in place a pay structure for plantation workers with eleven grades, from unskilled laborer to Master Tradesman and Supervisor. Each grade is set at a base daily wage rate for workers under 1 year of service, and the base rates increase further with each additional year of service. Therefore, basic wage rates vary widely depending upon the number of years a person has worked for the Company.
Over 95% of PHC’s permanent workers are employed under a Collective Agreement which was renegotiated in November 2014 with the six unions which represent Feronia’s workers. The PHC Collective Agreement stipulates wage levels, hours of work, sick pay, overtime, maternity pay, holiday pay, end of service pay, bonuses and additional benefits such as assistance towards school fees. Additionally, employees receive free healthcare for themselves and their families and PHC operates three hospitals and 19 clinics across three remote areas.
The renegotiated terms of the Collective Agreement resulted in substantially higher wages being paid from January 2015 and the Company continues to consult with unions on a bi-annual basis regarding wage rates and has stated a commitment to further increase basic wage rates as the performance of the business increases.
In early 2017, having recognized that its workers were experiencing hardship as a result of high inflation caused by the devaluation of the Congolese Franc, the Company developed a mechanism to adjust its employee’s wages every six months using the DRC’s IRES Index as the basis for its calculations. The IRES Index is an independent inflation index calculated on a monthly basis by the Institute of Economic and Social Research (IRES) at the University of Kinshasa and is used, among other things, by certain embassies (including USA) to adjust the salaries of their local employees. On 2 March 2017, the Company and the unions which represent its workers entered into an agreement to adopt this approach to tackle inflation driven hardship. In July 2017, the Company further agreed to increase wages by more than the suggested IRES Index calculation in anticipation of an acceleration of inflation in the near future. The impact of inflation on its employees is something which the Company continues to closely monitor.
Approximately 80% of PHC’s employees on its plantations are paid according to a daily task rate system where pay correlates to performance, including the payment of premiums for over-performance. The task rate based system is used broadly in agriculture, worldwide, and can be considered an industry standard. The daily task rates used by PHC are aligned to, and in most instances lower than, standard industry levels for palm plantations across the world and are set and reviewed annually using industry standard methodology and Feronia commits to have its task rates reviewed every two years by external experts using industry standard methodology to ensure that it is fair and in line with industry best practice.
Casual workers are also set daily task rates but, as they do not fall under the permanent workers’ Collective Agreement nor qualify for additional benefits, they are paid at a higher base wage level.
Employment law in the DRC prohibits the long term use of casual employees and companies are legally required to employ individuals on a permanent basis if such rules are breached.
What will PHC do to minimize its impact on biodiversity?
PHC’s oil palm replanting programme is brownfield in nature with old oil palms replaced with new. The Company has no reliance on deforestation and the practice of replanting previously planted areas with new oil palm trees has a minimal impact on native flora and fauna species. The strategy of only replanting previously planted land means we have not expanded the plantations beyond previously planted areas and will not in the future.
We have a clear policy of no deforestation, and whilst our land titles currently exceed 100,000 ha, our planted area will never exceed that which was previously planted, approximately 40,000 ha. This makes us quite distinct from most other oil palm plantations which are almost entirely dependent on deforestation to expand their operations. Our opportunity was borne of the uniquely tragic recent history of the DRC which saw previously productive plantations largely abandoned. While still challenging from a business perspective, by virtue of our re-planting only strategy we enjoy a situation where there is substantially no environmental impact and similarly, we are not displacing any traditional inhabitants from their lands or disturbing their way of life.
Nonetheless, as part of the Company’s Environmental and Social Assessment, which it will publish in early 2016, the Company has commissioned external experts to identify areas of biodiversity, including high conservation value (HCV) areas. Findings from this study will be used to tailor approaches to minimize the impact on the surrounding environment by both the Company and surrounding communities.
Does PHC have security guards on its plantations?
We do have our own security personnel who are responsible for safeguarding Company personnel and property. We have in place a Security Policy to ensure our personnel operate in accordance with international good practice. This includes ensuring they receive adequate and appropriate training and that the rule of law in the DRC is recognised and respected. Our plantations are subject to the same laws, legal systems and policing as the rest of the DRC and, if someone does something on or around our plantations which is illegal, including our own employees, the matter is referred to the local authorities and dealt with through the Congolese legal system.
We have no evidence of violence, misconduct or unlawful acts on or around our plantations by our security guards and any such allegations would be taken seriously, investigated thoroughly and acted on accordingly.
The Company has in place a comprehensive reporting system that advises an independent Environmental and Social Governance (“ESG”) board committee of any incident of a social, environmental, health and safety or governance nature so that incidents can be logged, investigated and acted on as required.
Is Feronia’s headquarters in the Cayman Islands?
No it isn’t. We are, in effect, a Congolese business with over 99% of the Group’s 3,800+ employees living and working in the Democratic Republic of the Congo. The remaining employees, six in total, are based in Europe. During the course of 2014, the Company paid a total of USD 2,846,188 to the national Government for property taxes, licences, VAT, and profit tax, to name a few. Feronia PHC thus constitutes a sustainable source of additional income for the Government of the DRC.
We did have a Cayman Islands’ Company in the Group which was a legacy from when Feronia Inc. was set up in 2009. It was a structure that is fairly standard for publicly listed companies but we gained zero tax benefit from it being in the Group structure. However, recognising the negative perception of having a Cayman Islands company in the group and as part of our commitment to transparency and good corporate governance, have entered into voluntary liquidation of the Cayman entity to remove it from our corporate structure.
Anything to add?
Our company is an institution in the areas in which we operate. We provide the only medical facilities and medical professionals in our regions. We are the only provider of educational facilities to our communities. All roads in our communities have been built by Feronia and are maintained continuously by Feronia. Through the presence of our company there is access to mobile telephony and electricity. We have a great responsibility to our communities and are steadfast in our determination to not let them down.
After six years of major capital investment, and funding operating losses, we still have a long way to go to restore our company to profitability and restore the social infrastructure that we maintain to a state that is acceptable to all stakeholders. We are nonetheless as committed to this task as ever, and have the support of strong backers who share our vision and determination. We have in place an Environmental and Social Action Plan (ESAP) designed to address key deficiencies in the short term, and provide the roadmap for the long-term and perpetual re-investment in our social infrastructure. For example, the ESAP includes, amongst many other deliverables, the drilling of additional boreholes, the rehabilitation of workers homes, the rehabilitation of our 4 hospital complexes and the addition of new equipment, and a study of the impact of our operation on our communities which will help guide our social investments going forward.
We are proud of what we have done with limited resources, and are determined and committed to continue building a sustainable, self-funding enterprise that has an overwhelmingly positive impact on the lives of its employees, their families, and the surrounding communities.