Department on Minerals & Energy Strategic Plan and Budget 2009/10

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Mineral Resources and Energy

08 June 2009
Chairperson: Ms E Thabethe (ANC) & Mr F Gona (ANC)
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Meeting Summary

The Department of Minerals and Energy outlined their seven programmes, key focus areas and strategic plans. Their functions would be split into two restructured Departments and the planning for this split was already in hand. Under spending was below 1%, which was acceptable. A major objective was to improve service to stakeholders by better turnaround times for permit applications and better communication of information. The mining industry would contribute towards economic growth despite the current international slump.

An audit had found that 66% of mining operations were compliant with health and safety regulations. Challenges included a shortage of inspectors and gaps in the regulatory framework. There had been a reduction in fatalities and deaths in the previous year. Illegal mining was also a concern but new approaches had to be developed to combat this.

Members were concerned over environmental issues. A particular issue was the procedure surrounding derelict and ownerless mines. Members asked how the country’s mineral riches could be used to benefit the South African people. Measures were suggested to combat illegal mining. Members were told that transformation was being addressed.

Meeting report

Ms Thabethe explained that this would be a joint meeting by the two Committees over a two-day period. Apologies had been received from both Ministers and Directors of the Department of Minerals and Energy (DME). She called on all present to introduce themselves.

Presentation on Strategic Plan
Mr Thabo Gazi (Deputy Director General, DME) explained that his Department was still responsible for both the portfolios of Mining and Energy. He had spoken to both of the newly appointed Ministers and there was an expectation of good co-operation between the DME and the Ministers in the future. He presented the mandate of the DME, which was summarised by three words: governance, growth and quality of life.

He listed the seven different programmes on the DME’s current agenda. Programme 1 dealt with Administration and Corporate Services. Programme 2 was Mine Health and Safety. Programme 3 was concerned with Mining regulations. Programme 4 revolved around Mineral Policy. This was a very important component as development in this sector would play a role in encouraging economic development. Programme 5 was Hydrocarbons and Energy Planning. Sustainable resources had to be identified. Attention was being paid to the security of supply of energy sources. Programme 6 was Electricity. Nuclear and cleaner energy sources were a major activity in this programme. Finally, Programme 7 revolved around associated services which covered the State Owned Enterprises (SOEs) and consumed the bulk of the DME’s budget.

The Deputy Director General presented a list of all the SOEs which fell within the ambit of the various sectors which were the concern of the DME. He told the meeting that the Chief Executive Officer (CEO) of the South African Diamond and Precious Metal Regulator had been killed in a car accident the previous week.

Mr Gazi said that there were six key focus areas of the DME. Firstly, health and safety of mine workers was of paramount importance. Secondly was the question of beneficiation. This was closely linked to the third focus area which was the promotion of small scale mining. A fourth area was the provision of universal access to electricity. Security of supply was the fifth focus area, both in terms of liquid fuels and electrical power supply. Finally, the DME would focus on the drive to achieve transformation.

He presented a diagram of the strategic approach which the DME would be following together with all the processes which would be follow to achieve their objectives. The five overall objectives were to improve turnaround times in regards to permit and other applications, to provide a clear policy and regulatory framework, to provide credible and accessible information, to build strategic alliances and partnerships and to improve the awareness and reputation of the DME. The key processes to achieve these objectives had to be developed. Often plans would be developed but no consideration was given to the required internal mechanisms to make these plans succeed. People needed to achieve their goals.

Mr Gazi presented the initial thinking on how the current responsibilities of the DME in its present form should be split between the two new departments which would have to be established. There would have to be an Amendment to the Public Service Act. The current DG, Adv Sandile Nogzina, would be the hosting DG while an acting DG of Energy would be appointed together with other staff. The Department of Mining would provide services to their Energy counterparts on an agency basis. Some of the necessary processes had already commenced. The task of organisational scoping had already been finalised. The organisational structuring should be finished by the end of August 2009. The change management and communication strategy had been developed. He invited other members of the delegation to continue the presentation on their specialist areas.

Mr Edson Ragimana (Chief Financial Officer) said that the figures in the presentation were extracted from the 2009 Estimate of National Expenditure (ENE). The bulk of the funding fell under the Associated Services programme. This was due to transfer funding to the SOEs. For the 2008/09 financial year (FY) a total of R3.78 billion had been allocated to the DME. The under spending for the previous year was approximately R37 million which was less than 1% of the budget. This was within accepted norms. Over the past few FYs the trend had been toward a lower level of under spending. In 2004/05 the figure had been 3.5%, 1.0% in 2005/06, 0.93% in 2006/07 and 0.99% in 2008/09. The reasons for under spending included lower transfer funds than expected and the fact that some contracts had not been completed during the DMEs FY, which ran from 1 April to 31 March.

He said that key spending areas were the Integrated National Electrification Programme (INEP), transfers to SOEs, the work of the National Emergency Response Team (NERT), which had consumed a considerable amount of the DME’s resources, and the rehabilitation of ownerless and derelict mines which was a serious issue.

The CFO said that the audit report on the DME had been quite good. The Department had enjoyed an unqualified report for the last three years. The 2009/10 FY would be a challenging one, but he believed the DME would meet the challenge. He presented illustrative figures about how the budget outlined in the Medium Term Expenditure Framework (MTEF) would be split between the two restructured Departments. The new Department of Energy would take about 80% of the budget but this was because of all the SOEs which reported to it.

Mr Muza Mabuza (Mineral Policy and Promotion, DME) led the presentation on the aspects of Mineral Policy and Promotion and Regulation. The economic crisis being experienced internationally had led to the establishment of the Mining Growth and Development Task Team (MIGDETT). Their brief was to develop a short term intervention to combat the effects of the economic crisis on the sector and to identify areas where South Africa could benefit from the crisis. The DME wished to see the South African economy move from a purely resource based economy to a knowledge based economy. A beneficiation strategy had been approved and circulated to stakeholders. Submissions had been invited, and there had been an encouraging response. Some thirty replies had been received, some of which were aggregated submissions from the different sectors. A review of the Mining Charter was in progress. The Mineral and Petroleum Resources Development Amendment Act (MRPDAA) had been signed by the President during April 2009. The African Mining Partnership had been recognised by the African Union (AU), and South Africa had been accepted onto the Secretariat. Approval had been sought from Cabinet for the country to subscribe to the African Diamond Producers Organisation and a decision had been taken during April. The Minister would outline the decision during her budget speech later in June. Finally a dynamic strategy had been developed to establish a baseline on how to deal with the question of derelict and ownerless mines. There was a linkage to illegal mining activities which had recently been in the news.

He reviewed the achievements of the previous FY. Codes of Good Practice had been published as part of the MRPDAA. |There were continuing efforts to market South Africa. These had been rewarded by increasing investment levels until the economic crisis had hit during the last quarter of 2008. South Africa was continuing to maintain the Kimberley Process Certification Scheme. Progress was being made with the reduction of the cumulative environmental impact of mining. A new regulatory framework was creating an enabling environment for transformation. Since the original MRPDA had come into effect in 2004, more than 20 000 applications had been received. In particular many junior coal mining companies had come onto the market and were able to access export facilities. The Coal Industry Task Team had been revived to assist in this process. The junior sector of the industry had an allocation of some four million tons.

Mr Mabuza said that his directorate had two major focus areas. The first was internal business procedures. They would drive transformation by the introduction of the Geosciences Act, the Regulations associated with the MPRDAA, the review of the Mining Charter and the implementation of all relevant legislation. They would continue to drive innovation. An innovation baseline would be established during the FY which would foster a culture of innovation within the DME.  Strategic partnerships would be established.

He said that the other focus area was that of the customer stakeholder perspective. The mining and minerals industry would be promoted. They would seek to adopt beneficiation from mineral resources. There would be opportunities to optimise the development of small, medium and micro-industries (SMME). The minerals and mining sector would contribute to the gross domestic product (GDP) growth. Improved consultation would be achieved. Stakeholders would be educated and empowered. The regulatory framework had to be understood. Investment decisions were taken on the basis of regulation. The DME had to identify and reduce gaps in regulations. A continuing process of monitoring and evaluation was needed to achieve this. It was important to improve turnaround times. The DME would commit itself to processing applications for prospecting rights permits within six months and mining rights applications within one year. The Minister would be announcing these commitments. The standard time frame to respond to queries would be five days.

Mr Mabuza listed the challenges facing the DME. These included the retention and recruitment of scare skills. There was a resistance in the industry to change and transformation. Even the beneficiaries of transformation often lacked commitment. The SOEs were more focussed on their commercial interests than on the interests of the state. There were challenges at the State Diamond Trader. Small scale miners faced challenges in developing their operations, but presented an opportunity to revitalise the life of mining. There was a need to strengthen certain areas of existing legislation. There was a low level of investment into research and development. Security of supply had to be addressed. The energy demand supply balance remained fragile. Regulatory gaps had been identified especially regarding illegal mining. Monitoring and evaluation of the impact of the regulatory environment was needed, particularly in respect of the implementation of the Mining Charter and the impact of unintended consequences of Black Economic Empowerment (BEE) measures.

Mr Mthokosizi Zondi (Head: Mine Health and Safety Council) represented the Mine Health and Safety Inspectorate. Their primary functions were to provide enforcement of regulations, to reduce the incidence of injuries and mining-related illness, to improve information management and access, to support new entrants to the industry and to provide them with the required training, to take part in public health initiatives and to promote research into Occupational Health and Safety (OHS). Other functions included the issuing of certificates of competency, the processing of applications and assisting applicants for rights and permits.

He said they operated under the framework of the Mine Health and Safety Act. Key stakeholders were organised labour, state departments, suppliers and manufacturers, members of the public and mine owners. Of this latter category the majority were private owners. Only the Alexkor company was state owned. Two public entities would report to the Minister of Mining. These were the Mine Health and Safety Council (MHSC) which advised the Minister. The Council had a budget of approximately R60 million. The Mining Qualifications Authority was the Sector Educational and Training Authority (SETA) which operated in this sector.

Mr Zondi said that the DME had enjoyed a number of achievements. A number of internal processes had been developed. An integrated management system had been developed. A Human Resources Development (HRD) plan had been developed. The HRD plan had allocated eleven bursaries to date. Twenty-two learnerships had been granted and 34 interns had been appointed.

He said that there had been 168 mining fatalities in the past year. This compared to 220 fatalities in the previous year, a reduction of 24%. The number of injuries was 3 605, a 7% reduction from the previous year.

Mr Zondi said that a lengthy process had been followed to finalise the MPRDAA. Administrative fines had been increased from R200 000 to R1 million. This would strengthen prosecutions and there was now provision for mandatory inspections. The Mine Health and Safety Inspectorate had been established as a public entity. The Presidential Audit had been completed successfully. There was an overall compliance rate of 66%. The audit had produced extensive recommendations and an implementation plan was in place to enact these recommendations. The Committee would be invited to conduct on site inspections. Over 95% of the various permit applications had been processed.

There were challenges. One of these was the high vacancy rate at the DME. This impacted on the completion of audits and inspections. It also affected the quality of inspections and inquiries. They were monitoring the growth of the industry in the different provinces, with the most expansion in the North West and Limpopo.

Mr Zondi outlined the strategic objectives. The first was to improve the turnaround time for permit applications. Transparent and consistent enforcement of regulations was needed. Health and safety risks had to be addressed. The DME had to communicate valid and reliable information to the various stakeholders. Engagement with stakeholders such as labour and owners had to be improved.

He said that illegal mining activities were a major concern to the DME. The death toll for the accident at the African Rainbow Minerals mine had now risen to 84. The Department needed to introduce interventions such as stakeholder engagement, access control, explosives audits and South African Police Services (SAPS) involvement.

Mr L Greyling (ID) commented on the DME’s focus areas. He had not heard anything about attempts to redirect the environmental burden resulting from mining activities. This industry made the biggest impact on the environment, particularly regarding water. He praised the universal energy access programme, which had achieved great success after its inception in 1994. However, it had slowed considerably since 2000. This was especially the case in the outlying areas of the country. Some 24% of the country still needed to be covered. A White Paper had been published on renewable energy sources. He asked what progress had been made on this. This form of energy was supposed to produce 10GW/hrs by 2013. He asked which Department was in control of Eskom, as he was not sure if it was the DME or the Department of Public Enterprises (DPE).

Mr L Ndabandaba (ANC) asked how long the phenomenon of illegal mining had been present. He asked if any research had been done into this activity.

Mr S Huang (ANC) asked how illegal mining could be stopped. He noted the 7% drop in mining injuries, but observed that several had been reported in the preceding week. He asked how the DME was negotiating the strike by the National Union of Mineworkers (NUM).

Mr E Lucas (IFP) said that small scale mining was an important part of the industry. They had a problem with obtaining prospecting rights. It was an expensive process. Such miners were often unable to secure bank guarantees for loans. They needed help to get over this first hurdle. Training was needed. He was not sure of the process of beneficiation. Serious action was needed in this regard. He wanted to know who was buying the products of the illegal miners. If they were unable to sell their products it would put an end to their activities.

Mr S Motau (DA) said that a theme of the presentation was transformation. He asked what the DME meant by this. It was nice that 66% of mines were in compliance with regulations, but this meant that 34% were on the wrong side of the divide. He asked who owned mines after they had been rehabilitated. He asked if the known illegal mining activity was only the tip of the iceberg.

Ms N Mathibela (ANC) asked what the mining houses were doing about illegal activities. The vacancy rate in government departments was an ever-present problem. She asked how many inspections had been carried out.

Mr Gazi replied that the energy questions would be dealt with in the following presentation. He noted the point about the environmental burden. It was an important point. The MHSC had conducted research into illegal mining but information was limited. Many of these illicit operations were in dangerous areas, and it was a very sensitive issue. In cases in the Barberton area illegal miners were armed. The SAPS had conducted some operations in the Free State. The Minister was on top of the matter and would make an announcement during her budget speech. He could not answer the question on the buyers of the illegal product but they should be able to deal with the problem around the so-called Zama-Zamas. The SAPS and other security agencies would be involved. The DME itself did not have the capability to investigate the matter.

Mr Zondi said that there was concern at the number of fatalities. Targets had been set. They shared the Member’s concern that the compliance rate was only 66%. A review of the reasons for non-compliance was included in the audit report.

Mr Mabuza said that there had been a lot of progress with beneficiation. However, there was no co-ordinating framework which made it difficult to quantify progress. It fell outside the political framework. The platinum group of mines showed just between 2 and 3% of local consumption initially but by September 2008 this had increased to 15% of the volume produced. Coal was taken for granted. Up to 90% of energy generated in the country was from coal-fired power stations. There was a need to widen the net.

Mr Gona asked if any other minerals could show a 15% local consumption rate. He also asked if there was any estimate on the number of jobs being provided.

Mr Mabuza replied that the 15% related specifically to platinum. The local consumption of diamonds had been 3%, but since the creation of the State Diamond Trader this figure had increased to about 10%. Limestone was widely used to produce cement and fertilizer. A number of chrome smelters had been built. There was still some being exported. The same applied to magnesium. The industry was making a positive contribution and would help to turn the economy of the country around.

Mr Gazi admitted that it was hard to quantify the levels of employment.

Mr Mabuza said that a two-phased approach was being followed. There was a high-level strategy of the adoption of beneficiation. This then went to an implementation phase. The response was sector-dependant. A smelter operation could employ thousands of people.

Mr Gazi undertook to follow up at departmental level. Approximate figures could be provided.

Mr Michael Oberholzer (Deputy Director General: Mineral Regulation) said that companies bore a liability regarding environmental impact and ultimately the rehabilitation of mining developments. Environmental management programmes had to be in place. Proper scrutiny had to be exercised over these programmes. Proper and better systems of monitoring and enforcement were needed. Illegal mining had been happening for decades. A board had been established to address the concerns of small-scale miners. The regulatory office could assist with the administration of applications while the board would also provide assistance. This could include financial assistance. The aim of transformation was to provide equitable access to the industry for all South Africans. Anyone could apply for a permit. There was compliance with the requirements of the MC. For example, no rights would be issued without BEE participation guidelines being followed. In terms of derelict and ownerless mines, a rehabilitation process had to be completed. Once this was done a closure certificate would be issued. The mining status of the land would then be revoked and ownership would revert to the previous owner. Illegal mining could be stopped by a combination of enforcement of regulations, monitoring and inspection of mines.

Mr Motau observed that the rehabilitation process was normally at the cost of the DME. This entailed considerable expense. He asked who would own the land when this was done.

Mr Gazi said that a large number of Health and Safety representatives would be trained in the following few years. There were currently 190 inspectors with a vacancy rate of 30%. He agreed this was high. In some cases trainees had been staffed in posts. The compliance rate of 66% indicated some desire to co-operate with the DME.

Mr Oberholzer said that only certain mines had been considered for rehabilitation to date. Only asbestos mines had been rehabilitated due to the dangers associated with this mineral. Ownership reverted back to the freehold owner. Specific binding clauses were incorporated in BEE transactions. BEE partnerships were identified. There were regulations were involved.

Mr Gazi said that a rehabilitated farm could owned by a farmer of the state. After rehabilitation process the land reverted to the original owner. Some of these properties had been mined since the 19th century and it was impossible to identify the original owner. In such cases the state took responsibility. Currently the applicant for a mining right had to make provision for rehabilitation.

Mr Gona asked what role the mining houses were playing in illegal mining.

Mr D Nsiza (DME) said that the DME had pushed for better access control on mines. Illegal miners were getting equipment from employees of mines. The mining houses were tightening their security. Underground patrols were taking place. About 100 illegal miners had been arrested. The Harmony mine had suspended 170 of their workers for alleged collusion with illegal miners. Proper explosives control had to be exercised. The licences of two mines had been suspended for poor control. Illegal activities normally occurred in old workings. Mines had been encouraged to seal off the old workings but illegal miners would simply blast their way through these walls.

Mr E Nchabeleng (ANC) said that the occasion marked the start of a five year marriage between the Committee and the DME. It was difficult to engage deeper at this stage. The split of the DME was being planned in the absence of a budget although it fell within the MTEF projections. She agreed that health and safety were key issues. There was a history of this concern in the DME. She asked what work was being done on assessing the impact of mining activities on both the workers and the community. She asked how better access control could combat crime. The DME’s intentions were clearly stated, but they needed to be coupled to a timeframe. They could not talk about this at present.

Ms B Tinto (ANC) returned to the topic of illegal mining. She felt that the sooner the DME could investigate the plight of ex-mine workers, the sooner a solution would be found. The group had presented demands and the previous Parliament had been concerned enough to form an Ad Hoc Committee. Nothing had been said in the presentation relating to the ex-miners. They had the skills and experience to continue to work illegally in their own time.

Ms Mathibela asked about beneficiation. After legislation the amount of benefit had been stagnant at 10%. The figure of 2.5% was very low. This was undermining the benefits which could be brought by the industry. Progress could not be quantified so the DME could not say what had been done. Throughout the presentation the DME had listed what they were “going to” do, but nothing was coupled to a timeframe.

Mr J Schmidt (DA) noted that the split plan was to be completed by August 2009. He asked if there was any indication when the process itself would be finished. The sooner this happened the better it would be but he realised that it was a difficult process. He noted that 95% of South African coal was being used for the generation of electricity. Coal mines were recording record profits while Eskom was struggling and their inability to develop was arresting economic development. He asked if the mines were concentrating on exports while the coal was needed locally. Illegal mining was simply illegal. He asked if it was not time for the SAPS to establish a specialist unit to deal with this activity. There had been such a unit in the past.

Mr J Selau (ANC) asked how many companies were non-compliant and who they were. He asked if there was a timeframe to exercise oversight over these companies. He asked how such non-compliant practices could lead to danger.

Mr Ndabandaba asked if the illegal miners were at the same scale of operation as the small-scale miners.

Mr N Diale (ANC) commented on the small number of persons benefiting from the HR Development programme. Mines were making a lot of profit but did not seem to be contributing. He asked if they were also giving bursaries to students. He wished to know what the split between male and female students was.

Ms Thabethe noted that illegal mining had been going on for decades. She asked how much longer it would take for this practice to be investigated. Regarding beneficiation, she asked if there was any sense of job creation. She told the DME delegation that they could prepare an answer for the meeting the following day if the information was not immediately at hand. This would make the Committee’s work easier. She asked if there was any report on transformation. Issues of concern were the lack of sustainability and fronting.  She asked how more workers could be empowered. Miners had a right not to go underground if they felt they were in danger. She asked how they could be protected while exercising such rights.

Mr Gazi agreed on the right of refusal for workers to go underground. The Act made provision for the Minister to set guidelines. It was difficult to regulate for varying conditions. This could only be assessed on the shop floor. It was clear that implementation would be a challenge. It was possible that workers who attempted to stand their ground could suffer victimisation. There was a need to move speedily. He did not have the answers to the illegal mining problem. It was on a small scale. The DME would apply their minds to this. When they were caught, the courts did not know with what to charge them. The only option seemed to be to charge them with trespassing and impose a R50 fine. Offences would need to be defined and proper deterrents had to be put in place. The accident the previous week had been in a deep level gold mine. Some mines dated from the 19th century and were non-operational, but there were shafts which were linked to active mines.

Mr Mabuza said that part of transformation was to ensure sustainable development. This was the first time that a social contract would be part of the law. Many countries were looking at the model being developed by South Africa. It had taken many years to develop the document. There were social and labour plans for mines. These recognised the fact that mines were part of the community. Environmental Impact Assessments (EIAs) had to make provision for correct rehabilitation. There was a precarious balance.

He said that the regulatory gaps would need to be addressed. He asked what the Member was referring to when she quoted the 10% level of local consumption in 2005. He assumed she was talking about diamonds. A deliberate distinction had been made. It had been the case that diamonds were exported and then imported back into the country. They were produced and resold at the same price as exported diamonds. There was significant growth in this industry. A carat remained a carat but the value might change over time. He noted the question on coal mines, and said that some investigations had been done. More work would follow on this. There was a legacy report on beneficiation. He had a sense of the number of jobs which would be created but more research was needed.

Mr Mabuza said that the Mining Charter review was underway. This would quantify the progress to date in respect of all pillars of the charter, including BEE. Preliminary observations revealed that fronting was a challenge. Some of the programmes had a shelf life of 2014 but the transformation agenda went further. It represented a window of opportunity.

Mr George Mnguni (Chief Director: Management Services, DME) confirmed that the split plan was due to be finalised by the end of August 2009. This would be a process involving many role players who would have to come to the party. The Department of Public Service Administration would need to amend Section 1 of the Public Service Act. This would give legality to the processes being followed by the DME. They had done what was required from their side and were awaiting guidelines.

Mr Thabo Dube (Acting Chief Inspector of Mines: DME) said that the Presidential Audit which revealed a 66% compliance result had to focus on high-risk areas in particular health and safety systems. If the inspectors found that there were non-compliance issues then extreme measures such as the closure of mines could take place. The focus of the report was on sectors rather than individual mines. There was a programme to follow up on the findings during the audit.

Mr Gazi said that there was a relationship between non-compliance and incidents leading to death or injury to workers. There was a correlation. Inspectors were needed to identify the areas of concern, but there was a problem with the capacity of the regulator. Details of this would emerge from the audit report.

Mr Zondi said that the low number of persons benefiting from the HR Development programme were due to resource constraints. There was a high ratio of male employees. They were actively attempting to recruit women but there were few takers.

Mr Gona asked who was funding the bursaries.

Mr Gazi replied that the DME was funding the bursaries. They had had to approach the National Treasury. This was an anomaly as public service funding was not normally used for this purpose. Treasury had understood the DME’s position. The bursaries were an initiative of the Mines Inspectorate branch.

Mr Gona informed the meeting that the Members would have to be in the National Assembly at 14h00. He requested that the DME delegation provide answers to the questions which they could not answer the following day.

The meeting was adjourned.


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