Mine Health and Safety Council 2010-13 Strategic Plan adoption, State Diamond Trader Strategic Plan 2010-2013 presentation & 2008/09 audit issue briefings

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Mineral Resources and Energy

19 July 2010
Chairperson: Mr F Gona (ANC)
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Meeting Summary

The Committee had asked the Mine Health and Safety Council (MHSC) to report back to it on issues that were questioned during the first presentation on its Strategic Plan. It had also asked that the MHSC to brief it on the investigations in to the fatal mining accidents that occurred in Impala Mine and Marikana Mine in Rustenburg. Although the MHSC gave a brief report, it indicated that both inquiries were ongoing and that no details could be furnished at this stage, other than to confirm that discussions had been held with the mining companies who had agreed to effect certain improvements to safety precautions. Although Members expressed their concern that no reports were yet available, they appreciated the reasons for this and noted that the reports should be submitted by the end of October.

The MHSC then presented a report on matters raised in the Strategic Plan. This report stressed that the MHSC had a mainly advisory role and did not have powers of enforcement. The report outlined the Council’s committees, set out the targets, indicated the main health concerns, and gave statistics on the rock-related and accidents and highlighted the types of research that the MHSC was undertaking. Some of the latest challenges for occupational health and safety were described as the increasing exposure of women miners, the ageing work force, and HIV/AIDS and TB. The MHSC were looking at control mechanisms such as laws and regulatory controls, compensation, and medical and engineering controls to address the problems.

Members wanted to know what real remedial actions regarding the safety of the mine workers had been taken, if mine workers still received food from the mining companies while they were in the mines, the difference between rock bursts and rock blasting, why noise on mines were stated as having to be " less than 110 decibels” rather than “85 decibels”, which was the maximum limit of exposure, and to explain the compensation for Noise Induced Hearing Loss, and how this was to be seen as a control mechanism. Members were concerned that the noise levels should not be higher than legally permissible. The Committee also noted that there was quite a serious challenge with pulmonary tuberculosis (PTB), which was linked to silicosis, and enquired whether it was possible to isolate whether these diseases were contracted in the mines or outside. They remained concerned at the number of fatalities and urged that the MHSC should be having engagements with mining companies about mine health and safety precautions. Members noted that the presentation did not address living arrangements for mine workers, which it had raised several times before. It also expressed its concern that the MHSC should be setting targets for addressing the housing issue. The Committee was becoming irritated with this subject. The MHSC had to set targets for addressing the housing issue. Some Members expressed the view that this presentation had not really addressed the relevant issues. They said that there were legislative changes that had to be made that would affect the mine health and safety sector, and that an update was needed on these, and an indication of the timeframes, and the topics on which the MHSC had informed the Minister. It would have liked to have heard of the progress that had already been made. The MHSC promised the Committee that many of these issues would be addressed during the Annual Report presentation. The Committee then adopted the Strategic Report of the MHSC.

The State Diamond Trader (SDT) briefed the Committee on its 2010/13 Strategic Plan and on issues that were raised by the Auditor-General in the 2008/09 Annual Report. The main point that was reiterated several times, and on which the Committee focused in discussions, was the concern around whether the SDT was and could remain a going concern. Many questions were asked around its financial position, what its profits were used for, why it had applied for funding, questions on the organogram, its shareholders and this position in regard to tax being paid by it. The Chairperson was concerned that, although the arrangement to second staff from De Beers was made with the best of intentions, it was not correct for a State entity to be so closely involved with a private company, and recommended that this be revisited. Members were also concerned whether the non-compliance with legislation reported upon by the Auditor-General had been properly corrected. They enquired about its relationship with the Department of Mineral Resources and the background to the application for State funding.
Members also questioned whether the country really needed the entity, and suggested that perhaps it would be useful to go back and study what had been said in previous budget votes. They were concerned that the Strategic Plan was still incomplete, despite the additional time given for its presentation. In the absence of the funding model, the Members were unable to entertain the strategy any further. The Committee said that the Department of Mineral Resources and the Minister had to inform the Committee of what was happening with regard to the SDT’s funding, and there had to be work done to address the issue.

The Committee then discussed the Third Term Programme and noted that the dates for the study tour had still to be finalised with the Committee Section. The Committee would be visiting Northern Cape in the following week, and was also visiting areas including Alexander Bay and Kleinzee to test the impact of the legislation to the surrounding communities.

Meeting report

Mine Health and Safety Council Strategic Plan: Further briefings
The Chairperson stated that the Mine Health and Safety Council (MHSC) would be briefing the Committee on issues that were raised earlier regarding its strategic plan. It had also been asked to brief the Committee on the status of the investigation into the fatal accidents, resulting in the death of nine mine workers, at Rustenberg in the previous year. The Committee also wanted the MHSC to speak to the recent fatal accidents that occurred in the Aquarius Marikana Mine in Rustenburg, where five mine workers died. 

Impala Mine Accidents: MHSC briefing
Mr Thabo Dube, Deputy Chief Inspector of Mines, Department of Mineral Resources, and Presiding Officer in the Impala Mine Inquiry, reported that the investigation phase into this accident had been completed in January 2010. The MHSC then started an enquiry phase in February 2010. This latter phase was still in progress due to certain legal and technical delays that the MHSC had not anticipated. The MHSC hoped to finalise the Inquiry by the end of October 2010.

The Chairperson asked what the preliminary findings were regarding the investigation, or whether this was sub judice.

Mr Dube answered that this information was sub judice at this stage, as the inquiry had not yet been completed, so MHSC could not disclose any of the findings.

The Chairperson stated that he did not want to put the MHSC into legal difficulties but wanted to know if any remedial actions had been taken by the mining company.   

Mr Dube responded that the mining company had said that it was willing to reduce its board spacing as well as to put in other safety measures. The MHSC noted that there had been improvements made regarding the working conditions in the mines.

The Chairperson asked if the Committee could be taken in to the MHSC’s confidence regarding the details of the safety measures.

Mr Dube replied that he could not do this at present, as it could compromise the inquiry. However, MHSC was keen to share the details of the inquiry once it was finalised.

Ms F Bikani (ANC) stated that it was important that the MHSC comply with the October 2010 deadline for finalising the inquiry.

Marikana Mine Accident Briefing
Mr David Msiza, Chief Inspector of Mines, Department of Mineral Resources, informed the Committee that an investigation in to the incident had already commenced. The Minister held a memorial service for the mine workers who died and had a meeting with the Chief Executive Officers (CEOs) of the companies involved. The Minister had also raised concerns about the safety of the mines. Meetings were also held with the respective mining companies about the safety precautions that would be implemented in mines. It was agreed that these companies would then inform the Minister of the precautions that had been taken.

Ms Bikani asked if this incident was also sub judice, and if the Committee could get more detailed information of what was said in those meetings. She asked if there were specific plans of action and timeframes for implementation of the safety precautions.

Mr Msiza answered that two key issues had been highlighted during discussions with the Minister. The CEOs had raised concerns about skills as well as mine design and rock engineering practice. An agreement was reached that all the precautions that the companies were taking had to be done under the auspices of the MHSC. These issues would then be reviewed in three months, when a Lekgotla would be held. An action plan would also be developed to deal with challenges that were experienced in mines. In terms of the skills challenge, there were issues regarding the empowerment of workers. Workplaces had to be declared safe before workers could be allowed to work there. An agreement had to be signed by companies confirming that it was safe for mine workers to work in their mines. The challenge was that there was inadequate effort put in to ensuring the safety of work environments.

Ms Bikani requested that the Committee be given quarterly reports showing what the developments were regarding mine safety and skills development. The Committee had been continually concerned about skills development. The report should also indicate areas where there were challenges.

Mr M Sonto (ANC) noted that the Committee had not actually received any useful information about the Impala Mine and Marikana Mine accidents, but had merely been told that the incidences were being looked at. The Committee could not even speak about the precautionary measures that were being taken in mines. He hoped the Committee would be taken in to the MHSC’s confidence so Members could gain insight in to what was happening with the investigations. At present none of the Committee’s questions around the incidents had been answered.

Adv H Schmidt (DA) noted that the mining companies had said they would reduce board spacing from ten
metres to six metres. He asked if the MHSC was satisfied with the proposals submitted by the mining companies, which said that the decrease in board spacing would improve mining conditions.

Mr Msiza agreed that there was a need for the MHSC to share important information with the Committee. He confirmed that the Impala Mine company decided to reduce their board space. The MHSC had since noted an improvement in their safety precautions. With regard to Marikana Mines, he confirmed that the companies would be reverting to and informing MHSC of the safety precautions now being implemented in the mines. The MHSC was confident that the safety issues were being addressed whilst the investigations were still being finalised.

Mr E Mtshale (ANC) stated that it was important that the information around the investigations was not only important to the media, but also to Members of Parliament. If MHSC was permitted not to give the report to the Committee, then he did not see the point of the meeting. He said that the Committee was demanding a report, even if at this stage it was not detailed.

Mr Msiza noted the Member’s comment. He thought that the MHSC had provided information, to the limited extent that was possible at this stage. However, MHSC had to balance the need to provide the information to the Committee against the need to complete the investigation without compromising it. The MHSC did not mean to disrespect the Committee and requested that it be given more time to finalise the investigation. The MHSC would be in a better place to share the details of the report once the inquiries were finalised.

The Chairperson noted that the report on the Impala Mine Inquiry had to be finalised by the end of October. This was not too far away. The Committee understood that the MHSC was in the process of an inquiry and that there were legal implications of that process.

Health and Safety Research Initiatives briefing
Mr Thabo Gazi, Chairperson, MHSC, reminded Members that the MHSC was established by the Mine Health and Safety Act of 1997 to advise the Minister on health and safety issues at mines. He thought it was important to stress that the MHSC had a mainly advisory role and did not have any powers of enforcement. It was the industry regulator’s duty to apply the work of the MHSC in order to improve mine health and safety. There were three main committees within the Council. The Mining Regulations Advisory Committee (MRAC) looked at legislation, regulations, guidelines and standards. The Mining Occupational Health Advisory Committee (MOHAC) looked at health policy, health information and health regulations. The Safety in Mines Research Advisory Committee (SIMRAC) looked at research needs, programmes and technology transfer.  

Ms Pontsho Maruping, Chief Executive Officer, MHSC, briefed the Committee on the entity’s health and safety targets. The MHSC wished to have a zero rate of fatalities and injuries in the gold, platinum and coal sectors by 2013. Currently, there was one fatality per seven million hours worked. The MHSC’s target was to have less than one fatality per 33 million hours worked by 2013. MHSC hoped to reduce the number of new cases of silicosis by 2013, by using present diagnostic techniques to prevent previously unexposed individuals from getting silicosis. The MHSC hoped to eliminate Noise Induced Hearing Loss (NIHL) by December 2013 by restricting the sound pressure level of all equipment installed in the workplace to 110 decibels.

Ms Maruping noted that there had been a strong decrease in fatalities and injuries within the South African Mining Industry (SAMI) from 1984 to 2009. This showed a significant improvement in mine safety. However, the rate of fatalities was still higher than the targets. There was a combined collaborative approach by all stakeholders to improve this performance.

The presentation showed that most rock related accidents were “Fall of Ground” (FOG) type accidents that related to gravity, strain bursts and rock bursts. SIMRAC had funded more than fifty projects on rock bursts and rock falls, including handbooks, textbooks and reader-friendly informative booklets. South Africa was significantly more advanced in terms of research related to the management of rock bursts. There were three research projects on gravity-induced FOGs that were in various stages of completion. Techniques were being developed for monitoring rock mass, which would indicate impending instability and collapse. A rock engineering handbook was being developed for platinum mines.

In terms of safety of machinery and transport on mines, even the Minister had said that it was frustrating that the type of accidents that occurred seemed to be repetitive in nature. In 2009 machinery and transport related fatalities accounted for 22% of all mining accidents. Rail-bound accidents accounted for 6% of mining related fatalities. In the majority of these accidents, mobile machines ran over workers. This was not unique to South Africa. Statistics showed that most fatalities were due to FOG accidents, accidents related to powered haulage, accidents due to explosion of gas, and machinery related accidents.

The MHSC was also focused on improving the health of mine workers. Silicosis and Tuberculosis (TB) were still on the increase and were the two leading occupational respiratory diseases. Millions of rands were paid per annum as compensation for NIHL. Approximately 80% of workers in the SAMI were exposed to noise louder than 85 decibels. In 2009, R26 808 639 was paid to mine workers as compensation for NIHL.

The MHSC funded a project that investigated the acquisition of reliable Occupational Health and Safety (OHS) data. It found that management of the OHS data was fragmented and uncoordinated. Some data was duplicated inconsistently and relevant data was not being recorded. Data was sometimes submitted late or was inaccurate. The MHSC therefore introduced an internal website that would focus on OHS data. Some of the latest developments impacting OHS were the increasing exposure of women miners, the ageing work force, and HIV/AIDS and TB. The MHSC were looking at control mechanisms such as laws and regulatory controls, compensation, and medical and engineering controls to address the problems.

Some of the MHSC's research highlights included two rock engineering handbooks, the development of preconditioning to mitigate the risk of mining in high risk areas, and development of Hazard Identification Risk. There were also assessments for mobile machinery. It had further developed improved underground roof and tunnel support systems to mitigate the effects of rock bursts. There was improved monitoring of seismically active areas. It had produced a nutritional handbook, a booklet on preventing silicosis and dust control methods for underground coal mining

Mr Sonto asked if mine workers still received food from the mining companies while they were in the mines.

Mr Gazi replied that mine workers that were living in hostels still received food.

Mr Sonto asked what the difference was between rock bursts and rock blasting, and also enquired if rock bursts were included as part of engineering activities.

Mr Gazi answered that mining under the ground created an unnatural environment. The whole weight of a rock mass sat on a few pillars. Because of this pressure and stress on the rock, the rock would tend to burst. If there were big rock bursts, this resulted in fatalities underground. Rock blasting, by contrast, was used to remove rocks intentionally. This also caused an unnatural environment. Depending on the technique used to blast, the rocks could be disturbed, resulting in a cave-in, which would also cause fatalities.

Adv Schmidt noted that the presentation stated that mining occupation fatalities were not unique to South Africa. He wondered why there was a differentiation made between transport and machinery fatalities, that were not unique to South Africa, and other occupational fatalities by accident class (see Page 16 of presentation). He assumed that all mine occupational fatalities were not unique to South Africa.

Ms Maruping replied that the MHSC was trying to highlight the mechanisms that were involved in mining accidents. The listing of the other occupational fatalities was meant to show the nature of the mining environment. Although the two were similar, other countries had fewer fatalities than South Africa. This meant that the MHSC had to improve mining conditions and adopt better mining techniques.

Ms Bikani stated that the Committee was supposed to be getting a briefing on outstanding issues raised in the strategic plan. This presentation was relevant and interesting, but she questioned whether the MHSC had stayed on topic. This presentation was not informing the Committee what the issues were on which the MHSC had advised the Minister. This presentation spoke to what the research section would be doing but it did not speak to the progress that had already been made. The Committee wanted to understand the legislative changes that had to be made to ensure mine health and safety. Members still did not know if the relevant sections of the legislation had been corrected, and if any improvements had been made.

She noted that the presentation showed that the industry target for eliminating Noise Induced Hearing Loss (NIHL) was to reduce noise from all equipment to less than 110 decibels. She wondered why this was “not less than 85 decibels”. She was under the assumption that it had been agreed that noise levels of 110 decibels were unacceptable.

Ms Bikani was concerned that the key research areas being concentrated on did not relate to the priorities in the Strategic Plan. Very little was said about the progress that was made since the MHSC first presented the Strategic Plan. The presentation did not indicate where there were challenges or areas that needed improvement. If the Committee had received the presentation before the meeting then it would have had more questions. She added that Members needed more time to study the presentation.

Mr Gazi replied that the MHSC was involved in research. It had an advisory role and looked at solutions to problems. This was what the presentation tried to show.

Ms Maruping added that the Strategic Plan was a planning document, which was why it showed problem areas that the MHSC had focused on specifically, rather than showing what the entity had achieved. There was an attempt to show in which areas the MHSC had made recommendations since its inception. The MHSC recently contributed to legislative topics on health such as airborne pollutants and audiometry. The MHSC also produced codes of good practice and regulations on matters such as line function tests. When the MHSC made these recommendations, it went to the Department of Mineral Resources (DMR) who was responsible for ensuring that the recommendations were implemented. 

Ms Maruping apologised that the presentation had not been given to the Committee ahead of the meeting. She understood that it created a challenge for the Members, as the meeting was not as fruitful as it should have been. This would not happen again.

Mr Sonto noted that the MHSC was supposed to play an advisory role to the Ministry. He wished to discuss NIHL. MHSC stated that it paid millions of rands each year to compensate workers who had lost their hearing. It was, firstly, problematic that hearing problems were only picked up when they were at an advanced level. He wondered why noise levels could not be maintained at around 80 to 90 decibels instead of “below 110 decibels”. Ideally, the maximum noise to which people should be exposed was at 85 decibels. He wondered how compensation could be seen as a control mechanism. He asked how effectively the MHSC was advising companies and protecting communities in surrounding mining areas. He also said that the current housing situation for mine workers had to be looked at.

Mr Gazi replied that the MHSC would note the Committees concern regarding noise levels of 110 decibels. The MHSC was talking about the noise of individual equipment, not the exposure to an individual. The law said that an individual should not be exposed to more than 85 decibels. People were not necessarily exposed to noise louder than 110 decibels, as there was hearing protection for those that would be exposed to the machinery. However, the concerns were noted and the MHSC would take them into consideration.  

Mr Gazi said that the presentation’s mention of compensation for NIHL was aimed at highlighting problems experienced in the mining industry, so that the Committee could understand why the MHSC was doing more work in certain areas. The presentation contextualised the work of the MHSC. There was a compensation “regime” in the country. More people were getting paid when they incurred injuries. The presentation showed what the MHSC was doing to address the problem.

Mr Gazi then addressed the question on housing. The MHSC did research on housing and produced a document that detailed the best options for housing. This document “filtered” in to the Portfolio Committee on Human Settlements, which was dealing with housing matters.

The Chairperson noted that the presentation said that approximately 80% of workers in the South African Mining Industry (SAMI) were exposed to levels of noise that were higher than 85 decibels. The Committee could not allow their exposure to be higher than legally permitted. Even that level was quite high, as illustrated by the fact that many workers had to be compensated for the hearing loss.

Mr Gazi responded that this was a matter that the MHSC took very seriously.

Mr Sonto stated that the Committee should be assessing, from the presentation, whether the MHSC was making progress. The Committee could not keep talking about the same issues. The Committee wanted to see if the MHSC was listening to the Committee and if people were in turn listening to the MHSC, and if there was real progress.

Ms Bikani reminded the MHSC that it had an advisory role, which was attached to a budget. This budget was supposed to help the entity to progress. The Committee was concerned that it could not see any progress. Even this presentation did not show any improvements. It also did not address any of the Committee’s concerns. There was an issue with acid mine drainage, which was a health hazard. However, there was no indication in the presentation that it was being prioritised and whether the MHSC had advised the Minister on the matter. The presentation also did not talk to the advice that the MHSC had given in terms of its Strategic Plan.

Mr Gazi noted the concerns raised by the Members. It was always a challenge to present to the Committee, as there were always new areas on which there must be a focus. These issues were usually dealt with when the MHSC presented its Annual Report to the Committee. This presentation had not been intending to answer all questions of Members but rather to highlight problems that the MHSC had experienced. All other issues would be addressed during the presentation on the Annual Report.

Ms Maruping stated that there were already structures in place to deal with issues such as acid mine drainage. The MHSC had to prioritise the issues that it must address, since the Department of Mineral Resources, the Department of Water Affairs and the Department of Environmental Affairs were already tackling the problem.

Mr Gazi concurred, saying there was not much point in duplicating the work done by those Departments.

Ms Bikani stated that there were legislative changes that had to be made that would affect the mine health and safety sector. The Committee also needed an update on this. The Committee and the MHSC could not focus on new issues when problems experienced in the past had still not been resolved.

The Chairperson stated that the MHSC had given the Committee that particular presentation to refresh Members’ memories. However, the intention was also to address outstanding issues. The MHSC still had to talk to the proposed amendments to Section 50 and Section 86 of the Mine Health and Safety Amendment Bill (the Amendment Bill).

Mr Gazi replied that he wanted to address the issue of amendments to Sections 50 and 86 of the Mine Health and Safety Amendment Bill. He said that the MHSC had made a commitment to bring the proposed amendments before the Committee. However, the Chairperson had warned the MHSC not to bring piecemeal amendments to the Committee. The Minister had told the MHSC to engage in a comprehensive review of the entire legislation. She had also told the policy section in the DMR to look at the legislation holistically so that amendments to the legislation were not to be done piecemeal.

The Chairperson noted that the MHSC did not give the Committee any timeframes by which the amendments would be completed. He understood that the MHSC was still reviewing the legislation. The Committee needed clarity on issues such as illegal mining.

The Chairperson said that MHSC was able to answer most of the questions put to them by the Members. However, the Committee still needed to know whether the MHSC was making an impact on the country. The MHSC had to address the number of fatalities in mines, as this was very high. There must be engagements with mining companies about mine health and safety precautions. The lack of enforceability regarding safety standards was a result of the lack of corresponding penalties for non-compliance with safety standards. There was quite a serious challenge with pulmonary tuberculosis (TB), which was linked to silicosis. He did not know how the MHSC was able to separate TB contracted in the mines from TB contracted outside of the mines. The MHSC presentation did not go far enough in terms of addressing living arrangements for mine workers, and he warned that the Committee was becoming irritated on this issue. He stressed that MHSC had to set targets for addressing the housing issue. The housing issue was also linked to health issues such as TB and the spread of the HIV/AIDS infection.

Mr Gazi replied that the housing issue was a difficult matter to tackle. An initiative was launched three weeks ago to address the problem, but there was as yet no detailed action plan. The details for the plan would be developed very soon. This initiative was well-received by the mining sector and the investment community.

Mr Gazi said again that the MHSC was a regulator and not an enforcer of safety standards. There was an overarching Act that dealt with safety standards and Codes of good practice. However, the MHSC had to take in to account the different kind of mines and how they operated.

Ms Maruping added that mines were required to report annually on the diseases that were picked up in the mines. Their reports would identify TB that existed in the mine. However, TB contracted elsewhere could not be differentiated from mine-related TB. In some cases, the mines found that mine workers were infected with both TB and silicosis.

The Chairperson said that the Committee wanted to address these issues in order to ensure that they were adequately addressed in the legislation in future, in order to achieve better results.

The Chairperson wondered if the MHSC and the DMR had revoked any mining licenses for non-compliance with mining laws. He had not seen this happen. He felt the MHSC had to be more aggressive when enforcing regulations and Codes of Good Practice.

Adoption of MHSC strategic plan
Prior to the lunch adjournment, not sufficient Members were present to constitute a quorum for adoption of the Strategic Plan.

However, after lunch, a quorum was established.

Members moved for, seconded and adopted the Strategic Plan.

State Diamond Trader (SDT) briefing on Strategic Plan 2010-13, and report on issues raised by the Auditor General in respect of 2008/09 financial statements
The Chairperson noted that the State Diamond Trader (SDT) had not yet tabled its 2010/13 Strategic Plan. The SDT had requested that it be given until 31 May 2010 to submit its Strategic Plan to Parliament. He also noted that the Auditor-General (A-G) had raised some concerns with the SDT’s Annual Report for the previous period 2008/09. He hoped the presentation would address these issues.

Ms Linda Makatini, Chairperson, State Diamond Trader, reminded the Committee that the SDT was created by the Diamond Amendment Act. When Parliament was amending the Act it had wanted to find a way of transforming the industry and promoting beneficiation. The Act was developed after extensive consultations with all the stakeholders in the industry. The Act gave the SDT firm guidelines and processes that had to be followed. The SDT had sought to do this since its inception in late 2007 and formal launch in 2008. The SDT’s Strategic Plan was geared towards meeting all the objectives of the Act.

When the SDT was launched, it was immediately confronted by a global recession, which, in particular, had affected the diamond industry. It was said that diamond production declined by 50% globally. In South Africa, diamond production decreased by 57%, according to De Beer’s figures. The demand for rough diamonds also declined considerably. The diamond industry had been struggling since October 2008. The SDT could actually not have been “born” at a worse time, economically.

There were indications that the global recession was on the upturn and the SDT was optimistic about the future. However, there remained some concerns. Although diamond production was increasing, the demand for rough diamonds, in which the SDT dealt, was not increasing, although it hoped that there would be an improvement soon in the demand. When drawing up the Strategic Plan, the SDT had to take all these factors into consideration, and its strategies were underpinned by the challenges. However, the SDT was committed to achieving the objectives set out in the Diamond Amendment Act.

Ms Futhi Zikalala, Acting Chief Executive Officer, SDT, reminded Members that the SDT had presented its Annual Report in 2009. However, the Committee did not accept the Report as there certain aspects of the Auditor-General’s report still required to be clarified. She would address those now.

The A-G had found that material changes had been made to the annual financial statements. The SDT then prepared the Annual Report according to the Generally Recognised Accounting Principles (GRAP) and Generally Accepted Accounting Principles (GAAP).

The A-G said that there was non-compliance with the PFMA. This was in relation to the absence of approved risk management and fraud prevention policies. These policies were approved by the board in May 2009.

The A-G had reported that PAYE/UIF and VAT were not paid on time. This was due to a late payment of VAT in January 2009, which was a result of insufficient funds being available.

The A-G noted that the SDT was not registered with the South African Revenue Service (SARS) for income tax purposes. This matter had now been attended to and an assessment was completed by SARS. A payment was made to SARS in April.

The A-G stated that SDT’s quarterly reports excluded progress reports on strategic objectives. The matter had now been corrected.

The A-G identified that performance measures that were developed were not time-bound. This was addressed with the Strategic Plan review of January 2010.

The A-G found that there was a lack of approved internal policies and procedures related to performance information. The A-G did not express an opinion on performance, but informed the SDT that as of the next audit, an opinion would be expressed on performance information. The Board had subsequently approved the Performance Policy.

2010/13 Strategic Plan
Ms Zikalala briefed the Committee on the SDT’s vision, mission, values and strategic plan for the years 2010-2013.

The entity’s first strategic goal was to ensure the continued sustainability of the SDT. This would be done by sourcing State funding for the operations of the SDT, improving its profitability and seeking regular amendments on its mandate to ensure profitable trade. The SDT’s second goal was to be an efficient and professionally managed organisation. This would be done by acquiring appropriate human resource capacity. In order to achieve the third strategic goal of promoting and upholding efficient governance, the SDT would develop, implement and maintain administrative systems, procedures and controls in line with National Treasury regulations and other applicable policies. The fourth strategic goal was to ensure constant and suitable supply and access to rough diamonds. In order to do so, the SDT would develop and maintain trading relations with other African diamond producing countries.

Ms Zikalala informed the Committee that the current Strategic Plan was unfunded, as the entity’s funding model was still being discussed.

Adv Schmidt stated that he was concerned about the SDT, since its position as a going concern still seemed to be in doubt.

Ms Bikani noted that the SDT’s presentation seemed to be on target, as it addressed many of the issues raised by the A-G. She too was concerned that the SDT seemed to be under financial duress. However, if the entity had to register for tax, then this would seem to indicate that financial progress had been made. She wondered what the issue was that had inspired the SDT to ask for extra funding. The Strategic Plan did not seem to show that there was light at the end of the tunnel. She asked for more clarity on the SDT’s financial status and the challenges.

Ms Zikalala confirmed replied that the challenges facing the SDT centred around the SDT remaining a going concern. The SDT could not currently fund its organogram. Therefore, the chance of remaining a going concern was quite weak. Matters were quite bleak for SDT at the end of the 2008/09 financial year, due mainly to the global financial crisis. By the time the financial year ended the SDT’s stocks and inventory had been seriously impaired, and it had experienced a significant financial loss. Both the A-G and SDT were seriously concerned about the position. These concerns were ongoing, because the issue of State funding for the SDT had not yet been resolved. The SDT now had some revenue that was generated from trading. However, the financial cost of using funding from the Industrial Development Corporation (IDC) accounted for almost 2% of the 4% profit made from trade. This also contributed to the fears around its status as a going concern.

Ms Zikalala said that when the SDT presented its Annual Report to the Committee it would become apparent why SDT had been expected to pay so much tax to SARS. This had resulted from changes in policy, made in 2009, that adopted a new way of trading to ensure that SDT countered the effect of the financial crisis.

She added that staff were still being seconded from the DMR and De Beers. Even though SARS was demanding money from the SDT, the entity was still in operation.

Ms Makatini added that resolving the issue of State funding would address the issue of the SDT remaining a going concern.

The Chairperson also expressed concern about the SDT’s status as a going concern. The Strategic Plan did not assist in the issues raised by the A-G. The A-G was quite specific when he said that the SDT’s financial position was not in accordance with the budgets and projections that stemmed from the applicable legislation. The A-G said that the shareholders and the SDT were currently working on a new funding model. He asked that the SDT tell the Committee what was contained in its funding model.

Ms Zikalala replied that the Minister indicated, in her budget vote speech, that she was looking at a developmental funding model for the SDT. This issue was not entirely in the hands of the SDT, so it was unable currently to report further on this matter. The Minister was still working on the new funding model and there were a number of ideas being discussed with the SDT shareholders. The SDT hoped that the Minister would be able to report on the funding model soon.   

Mr Sonto asked about the personnel structure and asked for more information on the organogram.

Ms Zikalala answered that the SDT had an approved organogram. However, because of the funding issues, the posts were not fully funded and thus the organogram could not be implemented fully. SDT had therefore resorted to using personnel from the DMR and De Beers. The question on who would fund the organogram played a large role in whether SDT could remain a going concern.

Ms Bikani stated that it appeared as if the SDT had money but was trying to hide it. She understood that 2% of its 4% profit had to be paid to the IDC. However, she wanted clarity whether the net profit made by SDT would not allow it to carry itself, or whether the issue was that lack of State funding prevented it from sustaining the organogram. She was concerned about reports of non-compliance with legislation and requirements set out in the Public Finance Management Act (PFMA). She wondered if this was where the problem lay.

Ms Makatini replied that the profit that was made from the diamond trade was not enough to sustain the SDT. The SDT discovered that the funding model that had initially been approved for operations required it to put a profit margin on the diamonds that were purchased from the producers, which would enable SDT to fund its costs. She clarified that after deducting the payments due to IDC, the SDT was still required to pay for traveling, inspections, staff costs and office rental. The existing profit margin did not cover these costs. Therefore, the SDT had to consider either increasing its profit margin or having a separate fund to pay for its operating costs.

She noted that apart from the A-G’s findings, other non-compliance issues were all linked to the SDT’s status as a going concern and the lack of policies. Many of the non-compliance issues were addressed last year, so SDT was now fully compliant.

Ms Zikalala spoke to the tax issues. She noted that an entity could not be expected to pay tax when it was not making any profit. In the first year of operations, the SDT had made a small profit. However, in the second year of its operations, it experienced a financial crisis and a loss of approximately R5 million. In the last financial year, the SDT changed its strategy to ensure that it would operate for the whole financial year. This involved not making use of the loans from the IDC, which meant that it would be able to retain the whole of the 4% profit. This had resulted in a positive bank balance at the end of the financial year. However, SARS had assessed the SDT and decided that it should pay tax. The SDT had paid, but simultaneously lodged an objection, and was awaiting the outcome.

Ms Bikani asked who the SDT’s shareholders were

Ms Zikalala answered that most of the shareholders were from the DMR. The DMR’s role was to oversee the SDT.

Ms Bikani asked what percentage of the shareholding the DMR held. She also asked about SDT’s relationship with De Beers. She was not convinced that the country needed the SDT and what the relevance was in funding this entity when there were existing relationships with companies such as De Beers.

Ms Makatini responded that De Beers offered the government a two-year service level agreement after the SDT was created by the Diamond Amendment Act. De Beers offered the government technical support and the use of its equipment while the SDT was being set up.

Mr Sonto stated that he was trying to remember what the SDT’s founding principles were, and why it was decided that it was needed. The SDT’s organogram should indicate how many personnel were needed, and the Committee would be able to identify areas that SDT could use profitably, and where it could cut costs.  He could not understand why the SDT faced so many difficulties.

Ms Makatini replied that the SDT was created by legislation, and this was done through a need. She said that the Committee was akin to the SDT’s “parent” while the DMR was its “guardian”. Section 59 of the Diamonds Act of 1986 had allowed for companies and producers in South Africa to export diamonds out of the country, without any opportunity for beneficiation of the diamonds in the country. The government had become concerned that there was a lack of transformation in the diamond industry, and a corresponding need for transformation processes and beneficiation, as a result of which, after substantial consultation, SDT was created to attend to these needs.

Ms Bikani stated that the Committee now had a clearer picture if what the SDT was, and suggested that the Committee should study what had been said in the budget votes about beneficiation. The DMR seemed to be “evasive” in addressing the issue of beneficiation efficiently. The SDT’s problems were related to legislative issues as well as operational issues on the side of the DMR. She said that these areas must be looked into, and both SDT and DMR should be called together to another meeting.

Ms Makatini clarified that not all the SDT’s problems emanated from issues with the DMR. The DMR was involved in the SDT to the extent that they helped to resolve some of the operational issues, and did offer cooperation.

Mr Mtshale asked if the SDT had asked the DMR for funding.

Ms Makatini replied that SDT was a Schedule 3B entity, under the PFMA, and that funding for State bodies came not from departments but from National Treasury. The DMR had to motivate to the National Treasury that the SDT needed funding, and had been assisting SDT with its funding applications for the past two years.

The Chairperson said that he understood the dilemmas that the SDT faced. The Committee would need to study the 1986 and 2005 amending legislation. He noted that although extra time had been allowed for the SDT to prepare its presentation on the Strategic Plan, it seemed that this was still incomplete. In the absence of the funding model, the members could not entertain the SDT’s strategy any further. He thought that the relationship between SDT, as an organ of State, and the private company De Beers was “unhealthy” although he conceded that employees were seconded with good intentions. The problem was that if De Beers faced its own challenges requiring it to curtail costs, the first place it would do so was SDT. SDT needed to
re-strategise, as it might seem as if the entity was being controlled by De Beers. This was an unsustainable situation. He said that the Minister, as well as DMR, the administrator of the Act, had to inform the Committee what was happening in regard to the SDT’s funding, and work must be done to resolve this issue.

Committee Programme for the Third Term
The Chairperson stated that he wanted to put it on record that the Committee was supposed to have left for its study tour on 19 July 2010. Unfortunately, the Chair of Chairs informed the Committee that 29 applications for study tours and oversight visits had been received. A decision had been taken that not all Parliament’s committees could be allowed out of the country at once, and thus the approved applications were split into groups, so that only six committees at a time would simultaneously be allowed to undertake its study tours and oversight visits. This Committee would be part of the second group, and would meet with the Committee Section to determine the dates for the study tour. The Committee was still committed to visiting Chile and Venezuela. The details would be discussed closer to the time.

The Chairperson informed Members that this period would be used for oversight. The Committee would be visiting the Northern Cape for the whole of the following week, from Sunday to Friday.  More time would, however, be needed to visit this entire province. The programme was being finalised. He said that there was a possibility that instead of returning from the Northern Cape on Friday, the Committee should fly from there to Johannesburg to engage with Mintec and the Council for GeoScience.

Mr Mtshale noted that the Members would have to travel over 500 kilometres on the road in the Northern Cape, which was very far.

The Chairperson replied that the Northern Cape was a rural area, and road travel was often the only option. Although the Members could fly to Upington, the mines were located in deep rural areas, over 300 km from there.  

The Chairperson indicated that the Committee would visit Port Nolloth, Upington, Alexander Bay and Kleinzee. Members would be visiting mining companies as well as the communities, to assess the impact of the laws passed regarding mining, in view of complaints from communities surrounding mines that they had seen no benefits.

He asked that Members study the Parliamentary programme and convey any comments to him. He had also decided that, in view of the difficulties in achieving a quorum on Fridays, no meetings would be called on this day.

The meeting was adjourned.


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