REPORT ON THE AMADLELO-AGRI SITE VISITATIONS HELD ON THE 14-15

SEPTEMBER 2022 IN EASTERN CAPE.

1. Purpose

The purpose of this report is to provide feedback on the site visitations that were
undertaken by the Sub-Directorate: Social Regulation in collaboration with Eastern
Cape Provincial office on the 14-15 September 2022.

2. Problem Statement

In the previous years, Amadlelo-Agri submitted reports on the various challenges i.e.
water supply shortages, infrustructure and high unaffordable water tariffs. To date few
of these challenges have been attended to. In their reports they have made an
indication that these water challenges have existed for the past 5 years.

During the 2023/2024 raw water tariff consultations, Amadlelo-Agri expressed

dissatisfaction with regard to the infrustructure condition in their area of operation. This
came as a results of several previous complaints regarding the poor state of
infrustructure in their various schemes, including high and unaffordable water tariffs.

During the 2023/2024 Raw Water National Consultation meeting that was held on the
26th of August 2022 at Birchwood hotel, the Chief Director: Economic and Social
Regulation (CD:ESR) had a brief engagement with Amadlelo-Agri and a resolution
was taken during that briefing for ESR to undertake a site visit around the various
schemes operated by/within Amadlelo-Agri.

This intervention is guided by the Dispute Resolution Standard Operating Procedure

which requires that preliminary invistigations be conducted by participating in to
site/technical visits as a way to build a strong and concreate motivation for any dispute
or complains of a technical nature.

DWS Eastern Cape Provincial Office, the Southern Cluster, Strategic Asset
Management in Head Office and aDDG Infrustructure Management are fully aware of
these challenges and an intervention plan had been in place since 2018.

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3. Background of Amadlelo

3.1 Establishment

Based in the Eastern Cape, Amadlelo Agri (Pty) LTD (hereinafter referred to
as“Amadlelo”) is a broad based majority (72%) black-owned and managed
agribusiness. It was established in 2004 and started its first operations in 2006.

The figure below illustrates some of the Amadlelo milestones thus far:

3.2.Ownership

The ownership of Amadlelo is summarised below:

•Tulsacap (46.4%): a group of black professionals and business people who have
pooled investment resources into Amadlelo Agri.
•Amadlelo Milk Producers Investment Company (“AMPIC”) (26.8%): includes 50
commercial dairy farmers from KwaZulu-Natal and the Eastern Cape who founded
Amadlelo Agri (Pty) Ltd.
•Vuwa Investments (18.8%): a 100% black-owned investment company.
•Amadlelo Empowerment Trust (8%): represents 500 black workers employed by the
founding 50 commercial farmers.

3.3 Purpose

Amadlelo’s purpose is to partner with public, private and communities to unlock

dormant and underutilised land located in areas with high potential. This is done
through mutually beneficial partnerships and long term ventures.

Vision:

An inclusive prosperous future through sustainable and profitable Agri-businesses

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Mission:

Position Amadlelo Agri as a preferred empowered company that unlocks latent

agricultural assets and expands existing capacity into profitable and sustainable
agribusinesses, through mutually beneficial partnerships and long-term joint ventures.

Strategy Outline:

Nurture black talent, strengthen Amadlelo’s balance sheet and ensure consistent
positive cash generating ability of operations by building on existing dairy capability,
strong community relations and strategic partnerships.

3.4 Footprint

Amadlelo operates FIVE rural based farms that are spread in two district municipalities
in the Eastern Cape Province, namely: Amathole District Municipality (Seven Stars
Dairy – Keiskammahoek, Middledrift Dairy and Fort Hare Dairy) and Chris Hani District
Municipality (Ncora Dairy and Shiloh Dairy).

The footprint is illustrated in the map below:

Figure 1: Amadlelo Agri extent area of operationin the Eastern Cape

Besides the Fort Hare dairy, all the operations are aggregated towards communal land
representing over 1500 direct beneficiaries and 10 000 indirect beneficiaries. The
dairies employ just over 120 permanent people and a varying number of part time
employees. These farms are managed mostly by young and black graduates.
Recently, and in partnership with SOLIDARIDARD, Amadlelo has facilitated the
creation of 400 public works jobs in various sites where it operates and beyond.

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Amadlelo has ambitions to extend its footprint beyond the Eastern Cape and KwaZulu
Provinces.

In order to remain competitive in the national and global arena, Amadlelo is

aggressively exploring value chain prospects as well as non-dairy expansion
opportunities. Amadlelo spearheads and champions the “Production of Black Milk” as
a paradigm shift for the transformation of the dairy industry in SA.

The Eastern Cape and KwaZulu Natal land themselves to a variety of dairy and non-
dairy agro industry opportunities. New opportunities are under consideration for
purposes of creating more job opportunities and facilitating local economic
development through long term joint ventures and partnerships.

4. DAY 1: 14th SEPTEMBER 2022, WEDNESDAY

The site visit started at Shiloh Dairies Trust in Whittlesea, and it preceded to Ncora
Dairy farm. Ncora Dairy is situated almost 133km North East of Komani while Shiloh
Dairy is situated approximately 50km South of Komani. These facilities are situated
aapproximately ±200km apart from each other.

4.1 Shiloh Dairy Trust

Shiloh Irrigation Scheme was established in the early 70’s and later revitalised into a
modernised dairy farm in 2009 capable of milking 1000 cows. It is a partnership
between Amadlelo-Agri and the Mayime Co-operative. The farm had 2.5 million m3/a
as well as 1.4 million m3/a of water allocation to irrigate a total of 411ha from
Waterdown Dam and Oxkraal Dam respectively however, the production on the farm
is limited to 330ha due to water supply constraints. The business at Shiloh irrigation
farm had a great and positive cash flow from the first year 2011 until end financial year
of 2019-2020. The operations on the farm are predominantly dairy operations, there
is also some vineyard which is used to produce wine in Stellenbosch.

The main source of water for the farm is the Water Down Dam and the Oxkraal Dam
with a combined allocation of 3.9 million cubic meters per annum. The farm was
negatively impacted by drought from 2020 until 2022 and is currently on a financial
recovery.

4.2 Observations and challenges at the Shiloh Scheme

Even though the area has received some rain following the drought, Amadlelo - Agri
has not been receiving water for their Shiloh farm operations for over a year due to the
pump station that is not functional. The farm was subsequently not able to produce
fodder to sustain the herd of cattle and had to resort to buying feed at a huge expense.
This has meant that there were no operations on the farm and as a result, the
shareholders, who are mostly previously disadvantaged would not be getting any
dividends at the end of the year.

The contractual agreement with the current mechanical term Contractor ends 31
January 2023. The performance of the current Contractor is questionable. Ten (10)

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work orders were supplied during the past four (4) years, without successfully restoring
full pumping capacity.

Figure 2: Dysfunctional Pump Station for Shiloh Dairy Trust (14/09/2022)

The operations on the scheme are also affected by water losses due to a poorly
constructed weir and a leakage on the lay dam that supplies water to the farm.

Figure 3: Weir at the Shiloh Dairy Trust (14/09/2022)

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Figure 4: Patches of green vegetation near the Shiloh lay dam where there is a
leakage(14/09/2022)

5. Ncora Dairy Trust

The Ncora Dairy farm is located at Ncora. Milking of the farm’s 1,200 cows started in
September 2012. The irrigation, parlour, roads and fencing were funded by the
Eastern Cape Department of Rural Development and Agrarian Reform.

Over 1,200 Ncora community members, including 35 local community members who
are employed, benefit from the project

The Ncora dairy trust is supplied by water from Ncora Dam which then transfers water
to Lay Dam B downstream. The Ncora dairy trust has a water allocation of 21 960 000
million cubic meters per annum for 2890ha in full capacity howver, the actual
production is 600ha currently with the potential to expand in the near future. Ncora
Dam also supplies water to ESKOM Ncora Small Hydropower Plant situated where a
flow of 6m3/s of water is diverted into a syphonthen two penstock to produce at least
2MW of electricity in full capcpity which is then connected to the national grid.

5.1 Observations and challenges at the Ncora Scheme

The lay dam has been under construction since 2014. The rehabilitation work at the
first balancing dam is almost 33% complete and not much work has been done since.
It is supplying 162 ha of the dairy in to 2 platform, it had a big water leak that could
easily irrigate more than 150 hectors. The challenges related to tye completion of the
lay dam project are also caused by the contractual dispute between the department
and the PSP. Ncora project consist of 7 laid dam in total, the project stated in 2012.
The progress status is 56% complete there’s no contractual dispute, either PSP , the
contractor is Dws Construction unit. The challenge is procurement of material. The

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project was halted by the client,the project will commence once all required material
to complete the project is procured and delivered on site).

Channels have no liners left, due to face bricks that were stolen leading to ground
water seapage.The canal supplying water to the farm stand a risk to collapse at any
given time. The collapse of the canal will have a devastating effect on the operations
for the Ncora dairy trust. Amadlelo-Agri have indicated that a breakdown casued by a
diagram valve in the previous year resulted in them losing production equivalent to
R1,72 million.

The Ncora Canal project design report was complited on the 01 August 2022, Dws
Construction Unit - South have priced the project, the BoQ is with the client for review
. The project will be emplemented on this current FY.

Figure 5: Interim diversion of water from the main canal as bypass around balancing
dam directing water into Ncora Dairy Trust (14/09/2022)

Figure 6: Ncora Dairy Farm (14/09/2022)

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Figure 7: DAY 2 - 15th SEPTEMBER 2022, THURSDAY

6. Seven Stars Dairy

The second site visit was conducted at Seven Stars Trust in Keikammashoek and
proceeded to Seven Stars Dairy; in all these visitations we were taken for some farm
walk.

Figure 8: Meeting with Amadlelo Trust members at Seven Stars Dairy Trust
(15/09/2022)

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6.1. Observations and challenges at the Seven Stars Diary

According to reports provided by Amadlelo-Agri, Seven Stars Dairy Trust was a

profitable farm and was once Amadlelo’s best farm from 2015 – 2018. The farm
reached 10 millions of litres of milk in 2016 and over 5200 litres per cow in 2018 and
in 2019, the drought that started in 2015 impaired the farm which led to its closure shut
down / closure. The farm had 2000 cows in herd which were reduced to 600 leading
to a halt in the production of cheese. Seven Stars Dairy Trust is getting its water from
a pipeline connected from Cata Dam, however, poor supply of irrigation water due to
main pipeline that cannot handle water pressure and burst every time plans to
reckoning farm are jeopardised. Irrigation schedule become more restricted as little
area had to be irrigated at a specific time that allows to get reasonable pressure which
is still not achievable and some hectors forced to shutdown completely. There is Unit
6 and 8 with 160ha linked to Mnyameni Dam which is currently operate as dryland
due to low pressure or no supply. Mnyameni Dam pipeline is operated by Amatola
Water and due to the upgrade of the Masincedane WTW no flow reaches Unit 6 & 8
due to pressure problems. The management is working on reviving Seven Stars
factory and hoping that they can once again be able to process cheese, yogurt, Amasi
etc.

Figure 9: Seven Stars Dairy Trust (15/09/2022)

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Figure 10: Cata Dam (15/09/2022)

Figure 11: Cata Dam Pump Station (15/09/2022)

Cata dam Infrastructure was built in 1977/1978 and is used strictly for irrigation. The
dam was empty in 2019 due to drought and aggravated by water wasted resulting from
poor infrastructure, however, during the time of site visit the dam was almost at full
capacity.

7.Middledrift Dairy Farm

7.1 Observations and challenges at the Middledrift Dairy Farm

Middledrift Dairy farm recieves water from the Keiskamma River and also a
supplementary release from Sandile Dam whenever there is a drought or in a dry
year. It has an allocation of 2 092 474 million cubic meters per annum pumped from
the Keiskamma River to irrigate almost 260ha of pastures in full capacity. However,

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the farm production is relatively 165ha on year to year with the intention to expand to
full capacity.

Before drought Middledrift farm was capable of generating R 10 M profit and this
changed after as a result of drought. The department eventually managed to fix the
troubled pipeline and water that was lost in the past is currently saved making a great
relief for Amadlelo-Agri.

The middledrift experiences significant energy costs as it has to pump water from the
river to its operations who are situated high up on the river. There are concerns about
the Middledrift farm consuming water that is released for other users downstream.

The main concerns with the middledrift dairy farm is the high water charges that are
not affordable for the farm. The manner in which the charges are calculated. The raw
water pricing strategy takes into account the asset values and volumes when the price
is determined.

Figure 12: Middledrift dairy farm (15/09/2022)

The visits were concluded by a brief closing meeting held at Middle drift Dairy Farm
where Amadlelo-Agri thanked the Department for taking the initiative to visit their sites
to witness first hand what the challenges experienced by Amadlelo-Agri are.

8. General Challlanges recorded during the site visit

The is a serious water crisis in the area and dairy farms uses massive water for their
livestock grazing systems.The farms run out of irrigation water, not able to produce
fodder to sustain the herd and the organisation relies on buying feed.Their farm
production performance dropped drastically as a result of the lack of water. Amadlelo
buy livestock feed which costs about 4 million rands.

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The operations for Amadlelo were seriously affected by the drought which was made
worse by the contractrual dispute between DWS and the PSP/contractor.

All dairy farms have high debts, in particular Shilo Seven Stars dairy farms.There is
land allocated to them that remains unused due to water shortages, no money comes
from land that is unused

Their farms are not able to produce enough dairy and as a results the workers working
shifts, their working hours are cut short to avoid retrenchments.

The implications are massive, loss of production, loss of investments and loss of jobs.

There is little monitoring of water uses against the instruments as well as compliance
with licence conditions as a result, there is over-abstraction from scheme largely
noticeable during the drought or dry periods.
Furthermore the water use licence for Amadlelo Middledritft Dairy is supposingly to be
supplied through the natural river run-off and the releases be made only on condition
that there is inadequate water in the river system to support the irrigation requirements.
This scenario is likely to occur during the dry periods or in case there is a drought.

This largely comes with the method of cost recovery and this has impact on the cost
of operations yet it should not be the case.

DWS is currently charging the full cost of WRM as well as consumptive charge as if
the scheme is totally dependent on Sandile Dam. A proper water balance and
operation model needs to be developed by DWS along with Amatola Water Board as
the operator taking into account the streamflows or the average flows at given time
(discharge), the required release made from Sandile Dam and dissesiggrate or
discount accordingly the imposed charges both WRM and O&M cost.

9. General Recommendations:

1. The Branch: Infrastructure Development and mainantenance must provide a plan

on how the the issues of the Dysfunctional pump station in Shiloh will be addressed
.
2. Badly constructed Weir and the leakage near Lay Dam be addressed possibly be
redesigned should it be necessary.

3. The contractual dispute between the Department should not be an impediment for
service provision.

4. Collapsing Canal need to be priotised before a disaster is declared as this posess

a risk

5. Completion of lay-dam need to be priotised

6. The licence amendments needs to be addressed by DWS and Amadlelo

7. Reconciliation of the water use account for Amadlelo Middledrift Dairy and
adjustments be made accordingly

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8. Development of a water balance and operational model for Sandile Regional
Scheme including the monitoring programme

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9. Action Plan

Challenge Action Responsible Short/ Meduim/Long term Due Date

Unit/Organisation
Dysfunctional pump Technical DWS (NWRI & Strategic Short term - One pump has been running on and 20 November 2022
station in Shiloh assessment on the Asset Management) off since mid November, but some gremlins were
efficincy of the eradicated after extensive investigations by a
pump station and software contractor.
provide
engineering Repair of second pump 12 December 2022
solutions
Medium term – to repair the two(2) remaining 15 December 2023
pumps so the initial design plans are met of
making two (2) pumps operate simultaneously
and one(1) a standby pump should any of the two
(2) break
Constructed Weir Review of the Weir SIAM-ROCS / Further discussions aimed at findign solutions to 31 March 2023
and the leakage Designs Amadlelo- Agri illegally constructed Weir
near Lay Dam
Collapsing Canal in The rehabilitation SIAM-ROCS Short term – Engineering services to finalise the 15 January 2023
Ncora of Ncora canal detailed designs
project
The Ncora project design report was complited on
the 01 August 2022.

Medium term – Site establishment will Project completion 30

commence in january 2023. Bypasses system will June 2025
be introduced so as to not interrupting the water
supply to the consumers during construction
phase

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 Construction to start with the construction of canal
01 July 2023

This will be a phased project as the canal is

currently under utilisation
Completion of lay- Procure all required SIAM-ROCS Outstanding work for Ncora Irrigation Scheme is The project will be
dam material to as follows: completed on 31July
complete the The project is at 56% complete. The main 2023 according to the
project challenge is the procurement of material. Some Programme
local business people smme’s could not afford to
deliver the required material, the tender get
cancel and readverticed which prolonge the
process of getting the required materil on site.
Licence Amadlelo to send Amadlelo-Agri Amadlelo-Agri to submit correspondence 31 December 2022
Amendments formal letter of DWS requesting amendments to allocations to PROTO
request for DWS to CMA office
review and amend
existing WUL
where water is not
used in full capacity
Water Balance and DWS: NWRI NWRI (Operations)/ Cluster still evaluating options and the feasibility 30 June 2023
Operational Model through the SLA Amatola Water of this and cant make a commitment of what
for Sandile with AW develop a needs to be done
Regional Scheme water balance to
account for the
river runoff as well
the release to all
water users
Billing of Amadlelo Adjust the water NWRI (Revenue) Cluster evaluating the submissions made with 15 January 2023
– Middledrift Dairy use account billed regards to the account
to Amadlelo –
Middledrift Dairy
Partnership aimed Establish Proto CMA/Amadlelo Hold discussions aimed at forging a partnership 31 March 2023
at supporting partnership Agri that is going to provide water resources support to
Amadlelo-Agri expansion plans

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Amadlelo- between DWS and
expansion plans Amadlelo-Agri

IMPLEMENTATION PLAN OF THE AMADLELO-AGRI ACTION PLAN

ACTION DATE EXPECTED OUTCOME RESPONSIBLE UNIT

Meeting between ESR , NWRI
and Proto CMA to discuss site
visit report and action plan
Meeting with Amadlelo-Agri to
discuss report and Action plan
Quarterly DWS meetings to
evaluate progress on action
plan
Quartely meetings with
Amadlelo-Agri to provide
progress on action plan
25 November 2022 (Virtual)
09 December 2022 (EL)
March 2023 – Project
Completion
March 2023 – Project
Completion
Action plan that is signed off
by all relevant internal
stakeholders
Action plan signed off by DWS
and Amadlelo-Agri
Progress reports
Progress reports
ESR / NWRI / PROTO
CMA/ROC/SAM
DWS/AMADLELO-AGRI
ESR / NWRI / PROTO-
CMA//ROC/SAM
DWS/AMADLELO-AGRI

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10. Conclusion

Amadlelo-Agri has great potential to attract a lot of business investments and create
job opportunities for rural communities. There is a dire need for water and the
challenges observed/recorded are massive and this requires continued support and
colleborated efforts between the department, Amadlelo-Agri and other government
departments to ensure that all interventions planned are executed.

Signed Off:

GR Madikela
Director : Bulk Water Pricing Regulation
Date: 18/01/2023

APPROVED/ NOT APPROVED

MSN Moshidi
Chief Director : Economic and Social Regulation
Date: 2023/01/19

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