Revised Industrial Policy Action Plan: Engagement with the Steel Industry

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Trade and Industry

12 August 2010
Chairperson: Mr J Fubbs (ANC)
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Meeting Summary

The Committee met with representatives of Kumba Iron Ore Limited and ArcelorMittal South Africa for further engagement around the Revised Industrial Policy Action Plan (IPAP 2). Kumba Iron Ore Limited representative explained that when ArcelorMittal failed to apply for the conversion of its old order mining rights, its subsidiary Sishen Iron Ore Company (SIOC) was no longer obliged to supply it with discounted iron ore, and SIOC had then applied for the 21.4% balance of mining rights in order to protect Kumba's position. A High Court review was launched on 21 May 2010 to challenge the award of this prospecting right, but an interim arrangement was in place with ArcelorMittal until July 2011. Kumba assured the Committee that any long-term agreement reached would be cognisant of the objectives of IPAP 2 and would take into account the effect of such an agreement on job creation and skills development, transformation of the iron ore sector and steel industry, the creation of a viable and competitive steel industry and downstream beneficiation. Kumba had already contributed significantly to skills development, preferential procurement, Black Economic Empowerment and uplifting of communities. Members asked for details of Kumba’s downstream beneficiation and job- creation, questioned whether Kumba had applied for the full 100% of rights, asked how surrounding communities benefitted from its mines, and questioned the employment equity within Kumba, the number of black engineers it produced, and its relationship with universities.

ArcelorMittal said that component manufacturing in South Africa had suffered enormously from the rationalisation drive originating from the global automotive industry. ArcelorMittal, through partnerships with two European component manufacturers, was contributing to technological advances and creating efficiencies, which would contribute to the competitiveness of the industry and the localisation goal. There was a critical need for technical skills in the metal casting and forging industries, and government support was needed for both short and long term initiatives to bridge the skills gap. More emphasis would have to be placed on driving local content procurement initiatives, which would assist job creation, efficiency, maximum use of capacity and enhance competitive pricing, which would also then support wider manufacturing. Should a suitable agreement not be reached in the dispute with Kumba, this would lead to job losses, affect exports and erode industrial capacity. Members asked why ArcelorMittal had not applied for the mining rights when they lapsed, and why Imperial Crown Trading was used, and called for more data and a copy of ArcelorMittal’s why formal response to the media reports of alleged nefarious dealings in the dispute with Kumba. Members also asked how ArcelorMittal would contribute to a developmental agenda, particularly in relation to the downstream industries, and why the interim price agreement was reached at a time when government was about to reconcile the positions.


Meeting report

Revised Industrial Policy Action Plan (IPAP2) : Further engagement with steel industry
Kumba Iron Ore Limited Submission
Mr Chris Griffiths, Chief Executive Officer, Kumba Iron Ore Limited, outlined that Kumba Iron Ore Limited (Kumba) had, during 2009, exported 34.2 Mt and sold 5.8 Mt of iron ore to the local industry. As ArcelorMittal had failed to apply for the conversion of its old order mining rights, the Kumba subsidiary Sishen Iron Ore Company (SIOC) was no longer obliged to supply ArcelorMittal with 6.25 Mt per annum of discounted iron ore.  SIOC had submitted an application for the 21.4% balance of the mining rights, in a manner that was compliant with the regulatory framework. This was done in order to protect the position of Kumba. SIOC had a number of legal, regulatory and safety concerns around the awarding of a prospecting right to Imperial Crown Trading (ICT). A High Court review was launched on 21 May 2010 to challenge the award of this prospecting right. An interim agreement had been reached with ArcelorMittal which would be effective until 30 July 2011.

He noted that Kumba was fully committed to the sharing of information that was critical so that the relevant parties could understand key drivers along the entire value chains, from mining through to beneficiation. It was also committed to discussing the current constraints that existed along these value chains, and to exploring the possibility of concluding a long-term supply agreement that met the requirements of all relevant stakeholders. Discussions with the inter-departmental task team were to focus on key public developmental objectives. Any long-term solution that was reached would be cognisant of the objectives of IPAP 2 and of the impact of this solution on job creation and skills development, transformation of the iron ore sector and steel industry, the creation of a viable and competitive steel industry, and downstream beneficiation. Kumba had demonstrated its commitment to IPAP 2 and would cooperate with government in identifying reasonable and practical opportunities for promoting these objectives. He added that Kumba already had contributed significantly to skills development, preferential procurement and Black Economic Empowerment (BEE), as well as uplifting communities through its community trusts.

Discussion
The Chairperson asked what specific contribution Kumba Iron Ore had made in terms of downstream beneficiation and job-creation.

Mr Griffiths answered that Exxaro owned 20% of Kumba. Kumba also had a 26% BEE shareholding in the company. This was in addition to the Community and Envision Trusts (3% each). The Community Trust translated to R250 to R350 million a year, which would flow directly into these communities.

Adv H Schmidt (DA) asked whether Kumba had applied for 100% of the rights. He also asked when the original agreement with ArcelorMittal would come to an end.

Mr Griffiths answered that when Kumba had initially made application, it could only apply for 78% of the rights.

Mr B Turok (ANC) asked how surrounding communities benefitted from the Kumba mines.

Mr Griffiths answered that Kumba had, at its Sishen mine, built 1 000 houses over the past few years, and was now planning to build a further 800 houses over the next two years. There were similar developments also near its other mines.

Mr Tebello Chabana, Executive Head: Public Affairs, Kumba Iron Ore Limited, added that Kumba also had spent on infrastructure, enterprise and skills development, bursaries and local procurement.

Ms N Mathibela (ANC) asked what the figures were in relation to Kumba’s employment equity appointments.

A Kumba representative answered that 31% of management positions were held by black staff members. Progress had been made in relation to employing women in the industry, though more could be done in this regard.

Mr X Mabaso (ANC) asked how many black engineers Kumba had produced and what relationship it had with universities.

A Kumba representative answered that there were numerous accelerated development programmes, including training of engineers, bursary schemes, and learnerships. Kumba worked with the University of Witwatersrand and the University of Pretoria.

ArcelorMittal South Africa Submission
Ms Nonkululeko Nyembezi-Heita, Chief Executive Officer, ArcelorMittal South Africa, said that component manufacturing in South Africa had suffered enormously from the rationalisation drive originating from the global automotive industry. Through its partnership with two European component manufacturers (Magnetto and Gestamp), ArcelorMittal was not only bringing technological advantages but also efficiencies. This would contribute to the competitiveness of the industry and the localisation goal. ArcelorMittal had the largest ferrous jobbing foundry in South Africa. The biggest market for this was the mining industry. It also had the largest primary forging facility in South Africa and was the largest supplier of input material to the forging industry in South Africa.  Various research studies had identified a critical need for technical skills in both the metal casting and forging industries. The industry required government support in various short- and long-term initiatives aimed at bridging the skills gap, through establishing a career path framework for the foundry and forging industries, learnership programmes, and short course programmes. There was a need to place more emphasis on driving local content procurement initiatives, as this would increase use of capacity in the industry, facilitate job-creation, increase efficiency and ultimately lead to more competitive pricing to support wider manufacturing. It was imperative for growth that the correct level of skills, as well as economies of scale, should be achieved in the industries. Competitiveness of these industries had been affected by increases in labour and electricity costs as well as volatility in the market for raw materials. Should there be a negative outcome of the dispute between ArcelorMittal and Kumba, this could lead to massive job losses, could affect exports and lead to the further erosion of South Africa’s industrial capacity.

Discussion
Mr S Marais (DA) asked whether the body parts used in the local production of automotive vehicles were produced by ArcelorMittal or whether these had to be imported.

Ms Nyembezi-Heita answered that these body parts were imported. ArcelorMittal could add value in terms of component manufacturing. 

Mr Marais asked why ArcelorMittal had not applied for the mining rights when they lapsed,, and why Imperial Crown Trading (ICT) had been used.

Ms Nyembezi-Heita answered that she could not give too many details around this matter as it was still being litigated. However, she pointed out that ICT had been given a prospecting right by the Department of Mineral Resources. If, therefore, there had been any wrongdoing, then questions around this should be put to the Department.

Mr Turok asked why no data was included in the presentation.

Ms Nyembezi-Heita answered that the brief received from the Committee had not been clear on this. As ArcelorMittal had presented a lot of this data in the last meeting with the Committee she did not feel it necessary to repeat it, but she was happy to provide more data to the Committee in writing.

Mr Turok asked if ArcelorMittal would be submitting a formal response to the media reports of alleged nefarious dealings in the dispute with Kumba Iron Ore.
 
Ms Nyembezi-Heita said that ArcelorMittal would be giving a response to these media allegations, and a copy of this response would also be sent to the Committee.

Ms September asked how ArcelorMittal would contribute to a developmental agenda, particularly in relation to the downstream industries.

Ms Nyembezi-Heita answered that if there was not a domestic primary steel producer, then there would be a need to import steel, at significantly raised prices. For this reason there was a positive effect on downstream industries when there was a local producer.

Mr B Radebe (ANC) asked why the interim price agreement was rushed when government was about to reconcile the two positions.

Ms Nyembezi-Heita answered that the two parties had been close to an agreement and simply continued until the final agreement was reached. This was not done to undermine government.

The meeting was adjourned.




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