Confusion over mining sector continues with draft resources bill

Peter Leon, 2013-02-06
(Why an article about mining? Mining and Electricity creation and usuage are inextricably linked in the SA economy; best keep an eye on what is happening in the Mining sector. Ed)

AS THE great, the good and the not so good gather in Cape Town for this week’s annual Mining Indaba, the 7,500 delegates could be excused for wondering what exactly is going on in South Africa’s troubled mining industry.

Following the recent, much-publicised spat between the government and Anglo Platinum — with its underlying threat to security of tenure — some will be questioning whether the recent truce between the government, labour and business will hold, or whether it will simply postpone the day of reckoning.

One thing unlikely to be on delegates’ minds is how the National Development Plan (NDP) — adopted by the Cabinet last year and more recently by the African National Congress (ANC) at its Mangaung electoral conference — should be used to benchmark the reforms that the Department of Mineral Resources has in mind for the industry through the draft Mineral and Petroleum Resources Development Amendment Bill, published for public comment on December 27 last year.

This is all the more salient as the department has requested public comment on the bill just as the Mining Indaba ends.

How does the NDP enter the equation? It contains the most trenchant criticism of South Africa’s mineral regulatory regime by what is now the government’s and the ANC’s official policy until 2030. The NDP observes that during the past decade, the domestic mining industry had failed to match the global growth trend in mineral exports, owing to “poor infrastructure, alongside regulatory and policy frameworks that hinder investment”.

South Africa, therefore, had to provide “greater policy and regulatory certainty to investors”. Uncertainty in the “regulatory framework and property rights” needed to be addressed to drive the sector’s growth and development. The NDP recommended that there be “certainty in respect of property rights”, while the Mineral and Petroleum Resources Development Act (MPRDA) of 2008 should be amended to ensure a “predictable, competitive and stable mineral regulatory framework”.

In recommending what should happen in the NDP’s first five years to drive economic growth and employment through 2017, the National Planning Commission recommended “urgent investments in rail, water and energy infrastructure, alongside regulatory reforms that provide policy certainty”.

The draftsmen of the bill appear either not to have read the NDP at all or to have taken cognisance of any of its criticism of South Africa’s mineral regulatory regime. Although the bill claims to “remove ambiguities” in the MPRDA, “streamline” administrative processes and “improve” the regulatory regime, in practice it does exactly the opposite.

Through a series of measures — aimed seemingly at placing the mining industry directly or indirectly under state control — the bill not only undermines the NDP’s sensible recommendations, but exacerbates and compounds the very regulatory problems the bill set out to address.

First, the bill creates an export licensing system for unspecified designated minerals which will in future require written ministerial consent before they may be exported. Presumably this — consistent with the ANC’s State Intervention in the Minerals Sector report (2012) — is aimed at the compulsory domestic beneficiation of coal and iron ore.

While this shows little regard for the mining industry’s export markets (which account for almost 60% of South Africa’s export revenue), let alone the country’s 6.4% current account deficit recorded in the third quarter of last year, it likewise displays a misunderstanding of South Africa’s international trade law obligations.

Both article XI.I of the General Agreement on Tariffs and Trade, 1994, and article 19 of the European Union and South African Trade, Development and Co-operation Agreement, 1999, prohibit quantitative restrictions on exports or imports (or, in the case of the European Union, measures having “equivalent effect”).

Under the bill, the mineral resources minister will, in her sole discretion, in future set the baselines, levels and production percentage by commodity required for the domestic beneficiation of minerals, in addition to the actual price! The bill jettisons the MPRDA’s important qualification that beneficiation must take place economically.

The drafters of the bill would do well to heed the NDP’s warning that while important, downstream beneficiation is not a fix-all solution to South Africa’s growth and employment problems. In considering exports restrictions on coal — a topic recently broached by the minister herself — the NDP cautions that overly aggressive restrictions could have unintended and unwanted consequences. For example, the NDP warns that a ban on exports of lower grade coal could potentially discourage investment in the new multiproduct-mines necessary for supplying future Eskom demand, which will depend on a balance of export earnings for their financial viability.

Next the bill requires that the minister must consent to the transfer of “any interest in a listed company” which holds a prospecting or mining right, no matter how limited that interest may be. This does not make sense and ignores the fact that large numbers of shares in South African mining firms are traded daily, anonymously and on markets other than the JSE. There is no way the minister could control the trade in those shares.

Despite the fact that there is unprecedented interest in South Africa’s upstream petroleum industry, no doubt sparked by the big gas discoveries in Mozambique’s Rovuma basin, the bill proposes, without explanation, to abolish the Petroleum Agency, the industry’s long-standing regulator, and transfer all its powers to the Department of Mineral Resources’ nine regional managers. It also proposes, for the first time in this sector’s history, to give the state a free carried interest in all new exploration and production rights. These steps could have a chilling effect on investment in exploration and production in the industry.

A major criticism of the MPRDA was that it contained too much administrative discretion, something which the Department of Mineral Resources has long promised to address. As noted, the bill compounds this in relation to the beneficiation and export of designated minerals. It also deletes all compulsory time periods for applications for rights and leaves this to ministerial prescription by regulation. The Constitutional Court has long held that broad and unbound administrative discretion is contrary to the rule of law, which is a foundational value of the constitution.

These problematic provisions of the bill are emblematic of the legislation as it stands.

Among others are provisions relating to environmental regulation which are in serious discord with the National Environmental Management Act, 1998, as well as draconian new penalty provisions, set with reference to a percentage of a mining company’s annual turnover and exports, which are likely to be a further deterrent to investment.

All is not lost, however. Not only does the industry have until this Friday to comment on the bill, but its drafters will need to be reminded that the NDP is now the epicentre of government policy. As the ANC’s Mangaung resolutions tell us, the plan is not only a “living and dynamic document”, but it will drive all government’s medium-term “critical instruments and policy initiatives”.

Leon is a partner and head of Africa mining and energy projects at Webber Wentzel.

Source: http://www.bdlive.co.za/opinion/2013/02/06/confusion-over-mining-sector-continues-with-draft-resources-bill

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