- support national development imperatives such as industrialisation, energy security, food security, infrastructure development and fiscal stability and bring optimal benefit for the country
- ensure transformation of the mining industry and related sectors
- ensure cost competitive security of supply of minerals contributing to mentioned national imperatives
- Mining operations to set aside a certain percentage of their production for local beneficiation
- These resources were to be acquired by beneficiators at mine gate price or agreed price.
- Restrictions (Ministerial consent) on exports of designated minerals were introduced for non-producers
Proposed amendments to sections 1, 17 and 28 (BEE) included:
- The Bill required not merely the extent of the holder’s compliance with the Amended Charter but actual compliance from right holders (as contained in law)
- Emphasis was on “effective Black ownership”, which marked a shift from the vaguely defined definition of BEE.
- Definition of this Act had been revised to expressly incorporate the Amended Charter into the ambit of the Act.
- BEE requirements had been extended to prospecting right applications (to enable historically disadvantaged people to enter the industry)
Proposed amendments to clause 86A (state participation) included:
- The Bill provided for the state’s active participation in the petroleum industry
- The state had a right to a 20% free carried interest in all new exploration and production rights
- The state was entitled to a further participation interest in the form of acquisitions at either agreed price or through production sharing agreements
- The state had a right to board representation.
Mr Mabuza explained proposed amendments to section 99 (sanctions):
- The Bill provided for enhanced sanctions
- The sanctions were linked to a percentage of the annual turnover of the right holder consistent with the provisions of the Competition Act
- Provision was also made for administrative fines which will be payable to a designated fund and used to promote exploration activities and matters incidental thereto
- These sanctions were intended to serve as sufficient deterrent to right holders and encourage compliance with the Act (a R500 000 fine was hardly a deterrent in an industry making billions per annum)
In terms of section 107 and 56 (guided ministerial discretionary power):
In terms of the proposed Section 107, the Minister’s discretionary powers were guided in the following manner:
- The Minister must develop regulations relating to procedures applicable to invitation of rights in terms of section 9
- The Minister must consult with relevant stakeholders when developing terms and conditions applicable to both state participation and beneficiation, in relation to section 56
- The Minister must take into consideration the Ministerial Advice Council’s advice when developing such terms and conditions
With the streamlining of the inter-departmental process:
- In 2010, the Minister of Mineral Resources adopted the “Strategy for Sustainable Growth and Meaningful Transformation of South Africa’s Mining Industry”
- The Strategy identified amongst others a fragmented licensing mechanisms as one of the key binding constraints to the global competitiveness of the industry
- Consequently, the Ministers of DMR, Department of Environmental Affairs (DEA) and Department of Water Affairs (DWA) agreed on developing modalities to streamline licensing requirements for mining (in line with the 2008 amendment of the MPRDA)
- A joint Portfolio Committee on Mineral Resources and Environmental Affairs was briefed prior to the commencement of the public hearings on the alignment of the MPRDA Bill and the NEMLA Bill in 2013
- After the conclusion of the public hearings a joint Portfolio Committee meeting was held to ensure that the necessary amendments had been effected to the various pieces of legislation
Mr Mabuza outlined amendments to sections 39, 40, 41 and 42 (environmental management):
- Prior to 2008, mine environmental management was provided for under the MPRDA
- Section 39 particulary provided for the process for approval of mine environmental management plans and programmes (EMP’s).
- Section 40 provided for a consultation process with state departments on approval of EMP’s
- Section 41 provided for financial provision for EMP’s
- Section 42 provided for management of residue deposits and stock piles
- Section 43 provided for mine closure
- Applicants had to comply with these provisions in order to be granted rights and permits and in addition comply with the requirements of NEMA
- The requirement to comply with various pieces of legislation proved cumbersome and further contributed towards non-compliance with NEMA
- The Macsand Judgment reinforced the view that holders of mining rights must comply with all other relevant prescripts.
Additional proposals were made on the outcomes of the Ocean Phakisa:
- Based on the outcomes of the Oceans Operation Phakisa, the Department had comprehensively engaged the upstream petroleum industry to relook at clause 86A and find a win-win solution for the sector taking into account its frontier nature int he development of petroleum resources
- In this regard clause 86A of the Bill had been reworked to propose the following:
- 20% state carried interest
- A cost recovery mechanism of the carried interest during the production stage
- Downward adjustment at production stage in consultation with the Minister of Finance
- Certainty of project terms by providing for the determination of terms for both exploration and production rights for the duration of the right
- Renegotiation of terms when renewing a production right
- Relinquishment of contiguous portions of exploration rights at the renewal stage back to the state
- Minister to be given powers to develop a Petroleum Charter to make provision for transformation issues for the oil and gas sector
- The proposal was to provide for a 10% BEE shareholding as opposed to the current 6%
- It was proposed that these additional amendments to the Bill and related proposals be included in finalising the Bill to provide the necessary regulatory certainty.
Mr Mabuza outlined that additional proposals included:
- DMR had identified loopholes relating to the application of small scale mining permits and thus proposed that the applicability of small scale mining be limited to 50+1% South African owned companies
- It was proposed that the definition of historically disadvantaged South Africans be replaced with the definition of black persons as per the alignment of the transformation policies
- It was further proposed that non compliance with section 100 be included in section 47, so as to empower the Minister to either suspend and/or cancel rights should the applicant fail to comply with the requirements of the Mining Charter and the housing and living conditions standards to show the seriousness with which transformation was viewed
- An amendment of the definition of “effective date” was proposed so as to give effect to the Mawetse judgment
Additional proposals on technical errors included:
- DMR had, post adoption of the Bill by Parliament, identified grammatical errors in the Bill
- These errors were found in the definition of prospecting right and clarity was also provided in the proposed section 9 to clarify the dual application system
- Clause 22, section 27, grammatical errors were also corrected to provide clarity that the section referred to mining permits in respect of supporting smaller scale mines
- An amendment was further proposed to section 100 to empower the Minister with powers to develop a petroleum charter
- An amendment was proposed to section 9 to provide for the dual application system
- A further amendment is proposed to the mining right granting section (section 23) and rights and obligations of the mining right holder (section 25) to include compliance with the housing and living conditions standards in order to ensure that the standards were a condition of the mining right
- It was proposed that section 27 (small scale mining) be amended to limit its application to qualifying 51% Black South African persons owned
- It was also proposed that the proposed amendments in the Bill relating to the replacement of the designated agency (Petroleum Agency of SA) with Regional Manager be omitted.
- An amendment was proposed to section 96 to provide for the appointment of an appeals panel relating to the processing of an appeal involving the state owned mining company.
The proposed amendments and the additional proposals to the MPRDA will:
- Strengthen the architecture of the mining and minerals regulatory framework and direct a shift towards local mineral value addition
- Contribute towards national developmental imperatives
- Streamline licensing processes
- Provide for state participation in the petroleum sector
- Significantly boost the energy security programme through extractive industries that span mining, minerals and upstream petroleum industry
Discussion
Mr Tony Duba, Chairperson: Eastern Cape Provincial Legislature Committee on Economic Development, Environmental Affairs and Tourism, noted a reference was made to eradicating the “first come, first served” system in section 9 but he was not sure about the correlation between the two. Under sections 10 and 15, how was sufficient consultation measured especially in areas where there was conflict? In terms of section 11, while he thought the intervention with the BEEE was good, he did not understand how the Department would deal with capital investments. For example, many people were given farms on arable land but there was then no capital investment made. This opened the space for those wanting to exploit and use black people –while the provision in the Bill sought to protect black empowerment, how would the DMR allow for investment? Section 26 did not speak to dealing with issues of the environment – he wished the section could take into consideration that the Minister of Environmental Affairs should always be consulted so that environmental activists could not say they were not consulted. With the additional proposal, he asked what informed the 10% BEE shareholding.
Mr Mabuza did not quite understand the question relating to “first come, first served”.
Mr Duba clarified that the presentation used the example of “first come, first served” and he wanted to know how it related to the Bill.
Mr Mabuza explained that he used the example of “first come, first served” in the case of a vacancy at a company where if the notion of first come, first served was used, it would entrench mediocrity if for example the first person that applied had the minimum requirements but was the first to get his/her application for the vacancy through. The better process would be to allow a period of time for applications after which the applications would be adjudicated to select the best candidate for the job. Currently in the Act, the Minister was denied time to find the best applicant to be granted the right because of the first come, first served notion to meet the minimum requirements. The shift in the Bill would be for a period of time for applications and then to allow adjudication to select the best candidate for development.
Mr Duba noted that under section 11, the intention of the Minister was to protect but there was an unintended consequence that could occur where those granted the right might not be able to afford operations. What had the Department done to ensure that Foreign Direct Investment (FDI) was also included in the picture to mitigate unintended consequence in the interest of protection?
Mr Mabuza explained that since the introduction of the MPRDA in 2004, rights were issued on the basis of empowerment at the minimum threshold of 26% but there were also rights that were 100% owned by historically-disadvantaged people, blacks in particular. On application, the Department could see that empowerment was taking place. In reality, black beneficiaries were bought out of the business therefore the gains of industry ownership were completely reversed – if this continued, the industry would go back to the pre-1994 structure of industry ownership. This was why it was important to include the clause in section 11 – the Department did not want 100% ownership to be diluted to zero in the process of raising capital. The clause provided for the Minister to determine the acceptable extent to which the 100% ownership could be diluted in order to balance transformation and capital requirements. Land owners selling land back to previous owners, as was the challenge experienced in land reform, went contrary to the efforts of transformation. The clause provided for the protection of beneficiaries by government so that at least if the owner left, he/she would have to be replaced with another black beneficiary at the consent of the Minister.
Minister Zwane added that if an investor initially agreed with the terms and conditions but then turned around and did not uphold the transformation terms and conditions, the Minister should be informed. The clause tried to encourage genuine investment in the interest of the country and its people. The MPRDA was always a subject of discussion about whether it created certainty for investment – the aim was to create this certainty especially in terms of transformation. Having travelled widely, he could say that investors were ready to come to SA to explore mining rights and beneficiation. The Department of Trade and Industry (DTI) also worked with companies which might need financial assistance to add to the closing of gaps. Any other shortcomings of the legislation would be dealt with. The spirit was to ensure that the mineral resources of SA did not benefit other countries – he used the example of gold found in Lesotho which was sold for R12 million. The company then sold the same gold abroad for R65 million. Globally SA was ranked first for minerals but looking at the turnover, China was ranked first because most of SA’s minerals were exported to China. The Department was looking to bring everyone together to resolve whatever problems might exist but beneficiation was part of the National Development Plan (NDP) which everyone needed to support. DMR alone could not be held responsible for the creation of markets in terms of beneficiation.
Chairperson Prins requested that Members put questions in writing so that the Department could give a detailed response.
Mr Duba was pleased to hear that the Minister was alive to hostility which could come from section 11 – was the Department ready for it?
Mr Mabuza explained that in respect of section 26 and the environment, consultation with the Minister of Environmental Affairs was not necessarily precluded because the proposal spoke to “the relevant Minister”. The Minister of Environmental Affairs was the custodian for environmental matters so it was provided for. The 10% BEE shareholding was informed by the cost for both exploration and development of the petroleum industry where both were prohibitively high, for example, with the drilling of an off-shore well, one was looking at R100 million and one hole did not guarantee that oil would be found. Realistically, since this was a new industry with prohibitively high costs, DMR consulted extensively with various interest groups and 10% was then seen as a reasonable compromise to enable entry. 10% was also the absolute minimum – it could also be that historically disadvantaged people could come in as partners at a higher threshold.
The DMR Director for Empowerment Transactions, added that with the consultation, the Department had undertaken to prescribe the process of meaningful consultation in the regulations. DMR would be involved with facilitation to ensure the people consulted were those who were relevant because there were concerns that sometimes mining companies consulted people not relevant to the operation. After consultation with the applicant, a report needed to be submitted to DMR by the holder to highlight who was consulted, what issues were raised and how the issues were addressed before reaching agreement.
Ms C Labuschagne (DA, Western Cape) wanted clarity on section 10 in terms of the inclusion of traditional leaders and if this inclusion changed anything in terms of the processing and impact of the Bill. What impact would the inclusion of the SLPs and Mining Charter have on the existing mining rights of companies? This was specifically in reference to the point that industry was afraid the Mining Charter had status of law and non-compliance with the Act could result in the withdrawal of mining licences – she felt that this assurance did not match what was stated under additional proposals that “non-compliance with section 100 be included in section 47 so as to empower the Minister to suspend and/or cancel rights should the applicant fail to comply with requirements of the mining charter and the housing and living conditions standards”. She wanted clarity on section 26, in terms of beneficiation, as it currently stood in the Bill – how did the section influence the General Agreement and Trade and Tariffs (GATT) and the trade and development corporation agreements between SA and the rest of the world? It was noted that the person that received the minerals from the right holder did not have the right to export in relation to beneficiation– would the percentage depend on specific minerals and what period/timeframe was envisaged in which minerals would be made available for beneficiation? Many of such matters remained uncertain – it was a problem for these matters to be in the regulations after the Act was in place and the regulations could then not be challenged. While beneficiation was a good idea, the challenge was with the non-availability of markets for people to develop and empower themselves – this was seen in many other industries including agriculture. While there could be beneficiation, there were still questions around funding, creating markets, industry and infrastructure – while a beautiful picture was created on paper, in practice there was no proof that it would work. Did petroleum in the Bill include off-shore petroleum? If not, why not? She then wanted clarity on whether the section covering environmental management would be displaced or how the process would work. How exactly would Operation Phakisa work, under additional proposals, in terms of state carried interest? Part of the proposals was that the Department also develop a petroleum charter – currently the Mining Charter was proposed to be part of the Bill and there was a lot of concern around that so how would the court case on the Mining Charter influence the process of amending the Act? If a petroleum charter was developed, the principle of it would be included in the Act while the charter itself would not be included because the Act would already have been passed by both Houses. Why did the Mining Charter fall within the ambit of the Act while a proposed petroleum charter did not fall within the ambit? How would such a petroleum charter influence the mining sector and would there then be a need to amend the Act again? If additional amendment was envisaged, would the costly exercise have to be repeated? Was there no way the Department could hold back on adopting the Bill until the petroleum charter was developed?
Mr Mabuza outlined with the SLPs, there might be some misunderstanding of the fear of suspension of the right on the basis of non-compliance – both the SLPs and Mining Charter were requirements in terms of the law and non-compliance of the law was dealt with in terms of the relevant sections and provisions on sanctions. However, DMR was proposing an explicit stating in the Bill of non-compliance, particularly with transformation (which included the SLPs and Mining Charter), to assist in a common understanding of the intent. In terms of the influence of section 26 on GATT, he would provide the Member with a specific provision in the GATT that allowed for countries to take extraordinary measures, including restriction, on the basis that such restrictions had a particular timeframe. This provision in the GATT enabled enough member countries to take those extraordinary measures. In essence section 26 outlined that all producers of designated minerals must offer to local beneficiation a prescribed percentage of its production of minerals or mineral products in prescribed quantities, qualities and timeframes. This provision was not inconsistent with GATT provisions.
In terms of section 26 (2), the Minister must, in consultation with the relevant department, designate the mineral. After taking into consideration the national development imperatives and considering the advice of the council, as contemplated in section 56 (b), publish such conditions required to ensure security of supply. All minerals were treated differently which was where the consultation played a role for the determination. The issue of markets was a very important one – the Minister was clear on engaging with countries and looking at partnerships that required input minerals and then the market for them. The aim was not to isolate SA but to create partnerships for effective value chain integration –this integration would give rise to security of the market for those participating in the space of beneficiation. With Operation Phakisa, DMR went into a protracted process of engagement with petroleum stakeholders as a resolution of Phakisa because the stakeholders raised quite a number of critical hindrances in terms of making investment in terms of the Bill. The Department had since unpacked every area of hindrance and there was negotiation at length with the stakeholders to achieve developmental objectives and balance it with business interests. One of the objects of the Bill was to balance national imperatives with business interest. This was in the context of both on-shore and off-shore stakeholders – negotiation had results in, what was termed, a uniquely South African win-win solution, and stakeholders had since expressed readiness to roll-out massive investments as soon as the Bill was processed.
With the mining and petroleum charter, there was a specific matter before court which dealt with the interpretation of the empowerment element in the Mining Charter. The Mining Charter was provided for in the Bill – the modalities thereof were contained in the Mining Charter itself so one would not necessarily have to amend. There was currently not an explicit provision for the upstream petroleum charter – the proposal was to provide for the development of that charter within 12 months of the Bill being assented to. Some aspects of the upstream petroleum charter were discussed in the Phakisa process including the 10% referred earlier.
The DMR Director for Empowerment Transactions explained that with the environmental issues, in terms of the 2008 and 2010 agreement, both Ministers of Mineral Resources and Environmental Affairs agreed on the need for one environmental management system – the sections highlighted as relating to environmental issues had since moved from the MPRDA to NEMA. With stockpiles, the MPRDA provided for a system to address historical stockpiles. There would be an opportunity for holders to amend their rights and incorporate the stockpiles in the area in which they operated – for the stockpiles with no holder, they would be available for application by third parties.
Chairperson Prins expressed concern about the lack of markets – without belabouring the point, she understood that it was difficult with many people having to sell land back to the previous owners due to financial difficulties and the mining aspect. Monopolies would take place – what would happen to people after they were given rights? Would markets be created to allow people to export? Perhaps the Committee required greater explanation to understand the issues but she was concerned that challenges in other industries, such as agriculture and land reform, would be repeated in the mineral industry.
Mr Mabuza outlined that transformation by its nature was very challenging –historically, government and business viewed transformation and business development as mutually exclusive but the aim was to emphasise that both transformation and growth could be mutually inclusive. Given that mining was a long term business, in the context of SA, one could not have a growing industry that was not transformed – it would not be sustainable. Equally, government could not transform a dying industry so both government and business came to a mutual understanding that the symbiotic relationship between growth and transformation went hand in hand – the importance of this could not be emphasised enough.
Mr C Smit (DA, Limpopo) questioned the issuing of licences with the Minister having the power to determine who would get the licence – while the ideal scenario might be to pick the perfect candidate, the reality in SA was that the system could be used for patronage. How would assurance be given that the system would not be used to favour individuals or being used to get some form of trade-off? What system would be used to determine the best person/company to get the licence? In terms of change of ownership, he did not understand why ministerial consideration was needed for transfer from one black owner to another as it did not change the status quo. Why could the Bill not state that ministerial consideration was only needed if there was a change in the equity in terms of diversity of ownership? There was a move away from ensuring all previously disadvantaged individuals were benefiting to a more narrow black ownership while all other previously disadvantaged individuals seemed to be excluded. How would the Department ensure gender, people with disabilities etc were represented? To focus narrowly on black ownership did not address the whole scenario of previously disadvantaged individuals. With regard to communities objecting to licences being issued in a certain area, he noted that ordinary South Africans did not always have the resources to oppose powerful industries. One of the proposals was to look at the American model where the state ensured there was a fund available for ordinary citizens to compete fairly in terms of the issuing of licences. He did not see how the Act attended to ordinary South Africans opposing issuing of licences.
Minister Zwane responded that Ministers took oaths upon assuming office – he did not think the question by the Member was suggesting that Ministers could not act fairly to give licences in terms of the law. The issuing of rights started from the regions in terms of assessing whether the applicant met the requirements – the role of the Minister was to check if all requirements were complied with and if issues arised they were dealt with. If the ownership was transferred from one black owner to another, requirements must be complied with as would be the case with any other transfer.
Mr Mabuza added that with transfer of ownership from one black owner to another, experience was that things were not always as they seemed. The amended Companies Act criminalised fronting because it was a reality in the economic activity in the context of transformation. The MPRDA thus supported the notion of “dealing a blow” to fronting. With previously disadvantaged South Africans, the Constitution defined black persons as Africans, coloureds and Indians so black in the context of the Bill did not refer to black Africans exclusively but included the other categories of historically disadvantaged South Africans. This also included white women but the experience was that there was an exclusive employment of white women to the detriment of the true and real beneficiaries of transformation – while white women were partly disadvantaged, they were also partly advantaged by association. Also because of the nature of the industry and what experience had taught, although industry was at first given the benefit of the doubt, the Department had no choice but to strengthen the provisions for transformation otherwise challenges visible in the areas where mining took place would remain. Currently for communities to raise concerns, Regional Mining Development and Environment Committees were developed so that if a community sought to raise an objection on the issuing of a right, they could do so through the above structure. While there were arguments as to the efficacy of the structure, the Minister did point out there were areas which still needed to be strengthened moving forward. Communities should not need to spend large amounts of money challenging issuing of licences but should be able to do so through structures created in law – the strengthening of these structures was then key.
Minister Zwane said there were also challenges with communities being used by big companies – the Department would strengthen its own mechanisms for community engagement to ensure concerns raised were genuinely from communities because sometimes companies were behind the communities.
Chairperson Prins knew that the people out there were very creative – each time government brought a policy, people were creative in how to “hijack” those policies for their benefit. This was why Members of Parliament should also play the role of watchdog to monitor and conduct oversight in terms of implementation. Companies guilty of fronting needed to appear before the Committee to be held accountable for what they did to government and using people through fronting.
Mr Duba wanted to know what mechanism the Department put in place to ensure there was sufficient consultation. Lately one had seen that transformation could be delayed through the courts – mechanisms for transparency were needed to limit the temptation of trying to run Departments through courts.
Chairperson Prins said the Committee could also ask for the list of applications and the names of the companies’ licences were issued to ensure the process was fair and transparent.
Minister Zwane appreciated the time and engagement with the Committee – he looked forward to working with Members in the future.
Chairperson Prins thanked the Department for a very informative presentation. The Committee now needed to work with the provinces to ensure proper consultation was done with the affected role players. Even though there were no minerals in the Western Cape, there were other minerals like sand and stones – she hoped the Bill would pay attention to this to allow people to come into those industries. The Committee was serious about calling companies to account to ensure legislation was taken seriously and ensure there was proper oversight so that people did not think they could just do as they pleased.
Other Committee Business
The Committee did not have a quorum to consider the other items on the agenda - Chairperson Prins said that it would have to be deferred.
The meeting was adjourned.
