Minister on National Consumer Commissioner; Special Economic Zone Bill; BHP Billiton briefing

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Trade and Industry

26 April 2013
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Minister of Trade and Industry briefed the Committee on the latest developments regarding the former Consumer Commissioner. Certain instructions had been given to him by the Public Protector, and he and the Department of Trade and Industry would follow them exactly. He had felt the former Commissioner competent at the time of her appointment, but a number of questionable policy and financial decisions had persuaded him otherwise. He proposed that the Acting Commissioner, Mr Ibrahim Mohamed, be appointed permanently. Members had mixed feelings over the appointment of the former Commissioner, as some saw her appointment as being based on affirmative action rather than merit but others agreed with the Minister. All parties supported the proposal of the Minister, agreeing that Mr Mohamed was suitably qualified for the position.

The Minister introduced the Special Economic Zones Bill. This would provide for such areas throughout the country. Ten projects had been identified, which would include the current Industrial Development Zones in the Eastern Cape and the planned Zone in the Western Cape. Their purposes would be to attract investment and to promote rural development. Any of the three spheres of government could propose a Zone. The Department anticipated that governance would be primarily through public-private partnerships. A regulatory framework would be provided with an overall advisory board. These areas should be near major ports and airports. A dedicated fund would be created. Transitional arrangements would be made for the current Industrial Development Zones. There had been wide consultation and the state law advisers were satisfied with the constitutionality of the Bill.

Members from all parties welcomed the Bill. The Minister was not concerned by the developments in other African countries, as a benefit to one country was a benefit to the continent as a whole. Members stressed the need for skills development. An unanswered concern was that it might not be new jobs being created but simply a relocation, but new developments were evident in the existing Zones. Incentives would be on offer. A major concern was the land ownership, as this was not clearly defined in the rural areas where land fell under traditional authorities. Members felt that there was generally not enough focus on the needs of rural areas. Too much might be expected of the Minister. Members feared that private companies might dominate partnerships with the public sector, with a possibility of foreign companies making decisions affecting South Africans. Developing such zones in rural areas might also lead to problems with the provision of housing and other benefits.

BHP Billiton was now the largest mining group in the world, and one of the seven biggest of all global companies. Their South African operations included manganese, where the vast majority of high-grade ore was found in the Kalahari, coal and aluminium processing. Their manganese and aluminium smelters were the most energy-efficient, and energy efficiency was also promoted in their office facilities. The original smelter at Bayside was not as efficient and had only run at 50% capacity since the energy crisis of 2008, and production was stopped during evening peak times. When there was sufficient energy reserves, a deal had been negotiated with Eskom which saw the BHP Billiton tariff set according to the price of aluminium and the Rand – US Dollar exchange rate. The Hillside smelter in Richards Bay had been constructed against this background, and was one of the single biggest investments in the country. The company accounted for 0.5% of the country's gross domestic product. The company was heavily involved in projects to benefit the community and the environment, mainly within the areas of its operations but also on a national scale.

Members praised the attitude of the company and the benefits it had given to the community. The energy crisis was not their fault, but had stemmed from poor planning at a national level at a time when there had been excess generating capacity. Eskom had profited enormously from their arrangement with BHP Billiton but had not invested this money wisely.
 

Meeting report

The Chairperson welcomed those present. The agenda was adopted. Apologies were tabled.

Issues Regarding National Consumer Commission
Mr Rob Davies, Minister of Trade and Industry, commented on the report issued recently by the Public Protector on the National Consumer Commission (NCC). The report required government to take remedial action. There was a clear breakdown between the Commissioner and the Minister and Director-General. A number of requirements had been placed on him in the Public Protector's report. He said that he and the Department would follow them to the letter and would reconsider the appropriate steps in the case of any other former employee wishing to return to the Department of Trade and Industry (DTI). The investigation into the procurement of offices was a separate investigation. He proposed that the acting commissioner, Mr Ibrahim Mohamed, be appointed as the next Commissioner.

Dr W James (DA) felt that the matter had been handled well. The NCC was underfunded. The report's title “There were no heroes” was appropriate.

Mr G McIntosh (COPE) agreed with the comments of Dr James. He asked if the appointment of the former commissioner had been solely on the basis of her race and gender. She had proved to be incompetent. Merit should be the first consideration, and then affirmative action.

Mr B Radebe (ANC) said that wherever government took action there would be mistakes. Only inaction would not have this result. He respected the work done by the DG and the Commissioner. Ms Mamodupi Mohlala-Malaudzi had the qualifications for the job when appointed, but sometimes people were overwhelmed by the demands of a new position. As new institutions were established they should be guided carefully in their formative years. What was important was that the DTI must not undermine independent bodies. He agreed that the NCC was underfunded. The Minister must take action to ensure that the organagram went beyond the current 30% staffing level.

Mr Radebe continued that the panel dealing with the appointment had done a good job. The candidate had a good insight into the work needed. Mr Mohamed's credentials were excellent, having worked with struggle stalwarts such as Rev Beyers Naude and many others that had really fought apartheid. He would give the protection needed for downtrodden consumers. As an acting commissioner he had put strategies in place. There had been engagement with industry, with some delegation to the provinces. The Committee had no option but to support the appointment.

Mr X Mabasa (ANC) said that consumer issues were informative in developing South Africa. He emphasised the point that the Minister had not made a mistake in appointing the former commissioner. She was a highly qualified person, and had been a Director-General (DG) at the Department of Communications (DoC). It was not an affirmative action appointment. The work of the DTI and the Minister should not be hindered in terms of promoting transformation. Appointments should always be on ability, but gender and race also had to be considered.

The Chairperson said that there had been lengthy engagement with the NCC. The Committee had to monitor the new baby on the block. This was why financial management issues had come to light. This should not cast doubt on the qualifications of office bearers. Anyone could make errors of judgement. The DTI had addressed the issues speedily. At the time, Commissioner Mohlala-Malaudzi was qualified for the position. This matter could not be debated. She thanked the Minister for his transparent approach. Members had the full curriculum vitae of Mr Mohamed, and his competence in this area was undoubted.

Min Davies replied that the appointment of Ms Mohlala-Malaudzi was the result of her departure from the DoC. One of the terms of the settlement was that she should be appointed to a similar position. She was a qualified lawyer. There had been debate over the independence of the body. The NCC should act without fear or favour. The Commissioner had taken a certain line, and many of her decisions had been overturned by the Consumer Tribunal. Many petty matters had been handled. The current strategic direction taken by the acting commissioner was working, with solutions being found at a lower level. Generic handling of complaints was working. Consumer protection was a fundamental concern. There was symbiosis between supporting both local manufacture and the Consumer Protection Act. The work of the NCC did need to be strengthened. The funding issue was not the DTI's fault. Parliament could also raise this with Treasury. The Department wanted to see a credible track record in order to bargain for more funding. He looked forward to seeing performance agreements being followed. Partnerships could be built with private sector players.

Dr James said that the DA supported the appointment of Mr Mohamed.

Mr McIntosh said that there had been a hero, and that was the DG and his staff.

Mr Radebe said it was clear that the ANC also supported the appointment.

Special Economic Zone Bill briefing
Minister Davies introduced the Special Economic Zone (SEZ) Bill. Ten potential projects had gone into feasibility studies in conjunction with the provinces. There was at least one project in each province. Growth over time had not been shown in the presentation. The East London Industrial Zone had experienced great growth over the past three years, as had Coega. It was the way in which these zones were promoted that was leading to these successes. IDZs would continue to be an element of SEZs. The next IDZ would be in Saldanha Bay.

Mr Lionel October, DTI Director General, said that there had been extensive consultation. A strategic review had been made of the IDZs, which were performing modestly with room for improvement. There was no national regulatory framework, prompting the need for more robust legislation. It was necessary to align industrial development with national policy. SEZ would be a useful tool to encourage investment demand, and to expand the industrial base to areas outside the major metropoles.

Mr October said there had been consultation at the National Economic Development and Labour Council (Nedlac), which had asked for extra time to consider the issues. The process had been useful as major areas of agreement had been reached. In general there was agreement on the definitions of an SEZ. There was a model agreed to by all parties although there had been disagreements initially.

Mr October said that there had been debate over the composition of the board. Labour had wanted to see Nedlac components represented. Qualification criteria of experience and knowledge had to be in place. Municipalities, provinces and national government could propose an SEZ. There was a feeling that municipalities were not competent to do this. The DTI disagreed, as East London and Port Elizabeth had clearly demonstrated their competency with the current IDZs. On the ownership issue, some sections of business felt there should be privately operated SEZs. The consensus was that the private-public partnership (PPP) was a better model. The DTI had emphasised the joint nature of such ventures, not a disguise for private ownership. The other issue was the consultation on regulation and guidelines. There was a feeling that the Minister should take any amendment to Nedlac. The DTI felt that any regulations were issued for public comment, and that should be sufficient for parties to raise objections.

Mr October said that there had been a pick-up in investor interest in IDZs in the previous two years. Those at Coega, East London and Richards Bay were functional while that in Johannesburg was still picking up. A current matter was the Saldanha IDZ. There was a public consultation in January 2013. There was strong support for an IDZ. The land was still an issue being resolved. There was positive potential, especially as a hub for the oil and gas industry.

Mr October then took Members through the Bill. There would be detailed interrogation later. The key purpose was to set up an overall regulatory framework. The purpose was to establish an overall advisory board. The Bill would allow the Minister to establish an SEZ Fund in conjunction with the Minister of Finance. The licensing process would be regulated. The concept of an SEZ would be defined. IDZs were currently located near major ports or airports. A policy or strategy would be developed by the Bill. There would be an incentive in place.

Mr October said that one of the purposes was to spread development around the country. Section 5 dealt with the Minister setting clear policy directions. A strategy would be developed with the board. Section 7 provided for the board and the requirements for membership. Big utilities would be critical for the functioning, and would be represented.

Mr October said that Section 11 dealt with the functions of the board. They would advise the Minister on applications and viability. The secretariat of the board would be located within the DTI. Their functions were in Section 17. Section 20 would provide for the establishment of an SEZ fund. There was already a team working with Treasury on this regard. Section 21 dealt with incentives. There would be proper support measures for companies.

Mr October said that Section 22 listed the organs of state that could apply for the designation of an SEZ. The process to be followed was detailed in this Section. There were also qualifications for candidates. Feasibility studies were a pre-requisite. Section 23 defined geographic areas. The model would allow for different types of SEZ. These were listed in Section 23 as well. They could be sector specific.

Mr October said that Section 24 was important, providing for proper governance and management. The criteria and governance arrangements were in this section. Section 25 instructed the Minister to develop and review strategic plans. Three year business and financial plans were required. Section 28 dealt with the possibility of an SEZ becoming dysfunctional. The Minister and the board could then take over the administration. Section 29 laid out the criteria, as arbitrary decisions could not be made.

Mr October went on that Section 30 dealt with the functions and powers of the SEZ operator, and issues regarding the issuing of permits. This was continued in Section 31. Section 32 listed the qualifications for an operator. Section 34 dealt with the functions of an SEZ operator. Section 35 dealt with permit matters.

Mr October said that Section 38 was important. It dealt with transitional arrangements for the existing IDZs. The Minister would issue guidelines. The Minister must issue regulations and this was addressed in Section 40.

Mr October stressed the consultation process had been followed. The State Law Advisers had studied the Bill and found that it was constitutional. There had been engagement with other relevant Departments, the South African Revenue Service (SARS) and the Treasury. Draft regulations would be submitted. Work was being done on potential SEZs, and he presented a list. Promising sites were Upington, Dube and one for platinum beneficiation. He hoped that within the following six months the studies would be completed and formal proposals made.

Discussion
The Chairperson said that some Members had received an initial briefing.

Mr McIntosh said that the Committee would “chew the fat” on the Bill. There was a lot of competition, even in Africa. Samsung and Honda had already announced their intention to invest in Kenya and Nigeria was being described as the 'India of Africa'. The Congress of South African Trade Unions (COSATU) was a hindrance to progress. Richards Bay was a fine example of how a government had established a new city, industrial area and port from nothing. He was disappointed that so little government investment had been made. This might have been political while the IFP still governed KwaZulu-Natal (KZN). There had been an excellent study on development potential in the Tugela area. This study should be dusted off and revisited. There was a huge need for skills in the country. The NDP stressed this. Quality education was needed for all the people of the country.

Mr N Gcwabaza (ANC) requested some clarity on the slide on Section 22 of the Bill. This provided for ownership by South African parties. Rural areas were generally under traditional leaders, although some land might be government owned. The ownership of the land identified might have to be determined. He did not know what was meant by a 'free port'. He understood that this was owned by government. He was not aware of any privately owned ports.

Mr Mabasa welcomed the presentation. One of the reasons was that if this was exceptionally successful, it would point to a typical solution to development challenges. SEZs might develop in large numbers across the country. Those being planned should succeed. It would be good if universities and technikons nearest to these SEZs could relate to them from their inception. Training institutions could identify relevant skills and foster relationship. There could be a challenge to partnership with municipalities. Some were reported as having failed. He asked what substitute there could be, as municipalities had to provide certain services. It was critical that all three spheres of government move in unison so that all the benefits could accrue.

Mr G Hill-Lewis (DA) had a question on job creation. The figures in East London were Coega did not spell out if they were new jobs or people had relocated. The Bill was largely silent on incentives. There was a passing mention in Section 21. This only made provision for Ministers, but not Premiers or Mayors. Electricity charges could be part of these incentives.

The Chairperson noted that there were some transitional arrangements. It would be useful, given the four different categories proposed, to realise that the IDZs operated under a different framework. She asked if there would be a transitional phase or an immediate conversion to the new regime. She agreed on the question of whether the result would be job creation or relocation. She asked if there was any indication of the funding required. She foresaw considerable public sector investment being required.

Min Davies responded that he welcomed the rest of the continent developing. The countries mentioned by Mr McIntosh had all been identified as developing countries. Their investment could result in increased trade with South Africa. This country would look at complementing the sectors rather than competing in the same sectors. He was not concerned with Nigeria outstripping South Africa. Any growth in one African country would benefit the entire continent. The way an SEZ would become competitive depended on a number of factors, including management, development of product, the services provided, cost and reliability of energy and others. Good hands-on management. He felt that this was why East London had seen such spectacular growth. There was the motor industry as a core, but other sectors had also developed. There was an electricity problem with Richards Bay. However, a Chinese ship-building company had shown an interest at the recent Brazil, Russia, India, China and South Africa (Brics) summit. The concept of a free port did not mean there would be no customs duties or other costs although there might be some concessions. SEZs could be based on other concepts.

Min Davies said that job displacement was an important issue. He had seen signs of this at the IDZs. What was needed was additional investment, not just displacement. He mentioned a number of industries in East London that were examples of additional investment. A careful rollout was needed around a clear value proposition. Any sphere of government could apply to operate an SEZ.

Min Davies said that the main Act establishing the IDZs would remain in force for five years after the adoption of the SEZ Bill.

Mr Tumelo Chipfupa, DDG: Industrial Development Incentives Administration, said that one issue delaying progress at Richards Bay was the transfer of land ownership. This had held up funding. The Bill would prevent such problems. Some money had been allocated in the medium term expenditure framework (MTEF). He thought this was about R2.5 billion for IDZs. The money should be allocated to a dedicated fund. Requirements might fluctuate from year to year. Where there was no ownership of land, the issue would have to be studied carefully. A right to occupy could be issued with the community or the traditional authority in the area.

Mr October thought that the DTI could look at allowing provincial and local authorities to provide incentives. Both levels should contribute to infrastructure funding, with just a small national contribution. He and his team would look into this issue.

Mr G Selau (ANC) wanted to hear about progress being made. Economic activities should be linked to value adding. He went through the list of sectors in the Bill. His problem was that the identified area put no focus on rural development. The economic emphasis was on the rural poor and the urban middle class. He asked how potential rural areas could be empowered, especially in mining areas. There was a lot in the presentation for the Minister to do. He was worried that the Minister would become the managing director for SEZs, as he would be responsible for a lot of decisions. This might delay decisions being made, and his other duties might be neglected.

Mr Radebe also welcomed the presentation. The Bill addressed the issues Members had faced when visiting the Coega IDZ. A part of the Bill was addressing those challenges. When issues were raised with the DTI, they responded. There had been disputes between the DTI and labour bodies. PPP must establish an SEZ as a company, with a board. If the private company had majority shares it would dictate. He asked how such a situation could be prevented, especially on land issues. If the private partner was a foreign company, decisions could be made in London affecting South Africans.

Mr Gcwabaza added that a strategy was really needed for rural areas to benefit from SEZs. Economic activity could not be limited to towns and cities. It was fortunate that the infrastructure build programme would shift economic activity. There should be links to rural development.

Mr Mabasa found one limitation. The availability of land had to be considered, especially where there were communal authority. Minimum standards were needed or else local chiefs could block progress. Even with co-operatives Members had heard of reports of people struggling to acquire land. This should be solved at a higher level.

Mr Z Wayile (ANC) said that the process of urban migration was creating huge problems with rural development. In the Eastern Cape there had been an attempt to identify collapsing rural structures. Municipalities had different strategies. Regarding inter-governmental relations, the South African Local Government Association (SALGA) had been consulted. There was a problem with the dissemination of information. He asked how the municipalities could be reached. SEZs would create a demand for housing and other social services.

The Chairperson said that Section would establish an SEZ as a company. There was a whole suite of PPP options tried out throughout the world. The company issue had to be addressed. She asked how a company SEZ would relate to the Companies Act.

Min Davies felt that the operator should be a PPP. The form of this partnership was open to debate. It should not end up being something else. He left these considerations to the Committee. Most of the other questions were about industrial decentralisation. The SEZ Bill was one of the tools to achieve this. It was not just about proclaiming parts of the country to be industrial zones. The way an SEZ would gain traction would be as important as anything else. Investors needed to be attracted and not directed. The ability of the projects to gain traction was important. The ten identified projects would bring more development to rural areas with potential links to other activities in those areas. Agriculture and mining activities had other connections. Platinum was linked to the motor vehicle and power industries, and related factories might want to be located near to the mines. A proposal for Upington was linked to solar energy. The real challenge was in the distances involved. Some of the land identified was owned by PortNet, and other land by the Industrial Development Corporation (IDC).

Min Davies continued that SEZs should relate to existing activities. This would be a challenge. Most of the work of the Minister was 'in consultation'. The Minister would not have to spend his or her time making the decisions. Most of the work would be done by the board, which would give advice. The feasibility study would identify a number of issues.

Mr Chipfupa said that one of the requirements for an application was that it was made in concert with the province or municipality. A private company might not have all the infrastructure resources. Municipalities and provinces had to be consulted.

Mr October said that the current arrangement was that Coega Development was a wholly-owned subsidiary of the Eastern Cape development agency. Proper joint ownership was needed to protect all partners. The lawyers needed to advise on this matter.

The Chairperson noted the other members of the DTI delegation. It was an important Bill and the presence of the DTI was important. The Bill should be productive. The whole Committee would deal with the Bill, not just a sub-committee.

BHP Billiton presentation
The Chairperson said that the Committee had almost completed its oversight work on tariffs. The Committee had invited BHP Billiton because of the impact on the platinum industry and on job creation. TransNet had lowered its port charges. Members would expect successful companies to spread the benefits. The Committee was not a court. They were concerned with the issues which she had raised, but wanted to give the company a chance to highlight its challenges and achievements, and what it had contributed to the country as a whole and not just the shareholders.

Mr Xolani Mkhwanazi, Chairman, BHP Billiton South Africa, thanked Parliament for the opportunity. BHP Billiton was a diversified global company formed by the merger of Billiton and BHP. This was the biggest resources company in the world, and was increasing the gap over its rivals. It was now in the top seven companies in the world. It produced a broad range of products, including most minerals. The strategy was to own and operate upstream resource companies.

Dr Mkhwanazi said that there were three main interests in South Africa. These were Manganese, with mines in the Northern Cape and a smelting company in Gauteng. The smelter was the largest and most modern in the world, coupled with energy efficiency. The second company was coal, and this was the fourth biggest in the country. There were five collieries. BHP Billiton supplied 20% of Eskom's requirements. The third company produced aluminium, and was the eighth largest supplier in the world. There were two smelters in South Africa and one in Mozambique. There was also a petroleum operation.

Dr Mkhwanazi said that there had been a PPP programme to encourage investment and growth. The aluminium smelter had been opened in 1996 by President Mandela. This same type of PPP was extended to Mozambique in 2002. Excess gas energy was sold off to other customers. This had led to job creation. The IDC had done a study on the benefit of the smelter in Richards Bay and the findings were still relevant. The three smelters at Bayside, Hillside and Mozal competed with each other in terms of energy efficiency.

Dr Mkhwanazi said that huge amounts of capital were needed when the plants had been established. They were worth about R60 billion at current value, and were the biggest investments in the country at the time. The pricing agreements followed international standards by tying the company's fortunes to those of Eskom. The price of electricity was linked to the price of aluminium and to the Rand – US Dollar exchange rate. Between 1996 and 2008, the aluminium prices had been high. BHP Billiton had been paying more for energy. The problem started when the economic downturn had occurred. The aluminium price had decreased while the general Eskom tariff had increased. During the good years, Eskom had made a profit of about R200 000 per year. The value of the benefits was about R26 billion. Thousands of direct and indirect jobs had been created.

Dr Mkhwanazi said that the investment in manganese supported government's beneficiation programme. More than 15% of the electricity of the M14 furnace was from gas. It was the most efficient plant in the country

Dr Mkhwanazi said that a number of downstream industries were underpinned by aluminium.

Mr Lucas Msimanga, Asset President (Aluminium), BHP Billiton, emphasised the contribution made by the company to the country. They were very involved in beneficiation. Coal was turned into electricity which could not be stored, but must rather be used to benefit the country. This was where the smelters came from. The smelters in Richards Bay supplied up to 80% of the country's aluminium needs.

Mr Msimanga said that BHP Billiton contributed 0.5%, or R12 billion, to the gross domestic product (GDP). It paid an average of R550 million in corporate tax and R1.5 billion in personal taxes of its employees. It made a R4.4 billion positive contribution to the current account. It provided 7000 jobs in KZN, and a livelihood to 33 000 people. The smelter had been heavily involved in stimulating business. He was proud of the path BHP Billiton had followed.

Mr Msimanga said that the company was involved with the community. There was heavy social investment, even when there was financial stress. The company contributed more than 1% of its profits to social causes. There were challenges with commodity prices. In the following few years this trend would continue. Between 2008 and 2012 a total of R290 million had been spent on developing the community.

Mr Msimanga said that about 3 000 people worked at the smelter, and 7 000 benefited in the community from associated companies. He described the Ongoye Carbon Sink Project. Nearly R6 million had been spent on this project over the previous five years. This was aimed at moving towards a green economy. The project aimed to decrease the carbon footprint, protect the environment by reforesting, and had provided a number of jobs.

Mr Msimanga listed another project in enterprise development. Businesses had been developed and incubator facilities had been made available. They had worked with Raizcorp on this. A new building had recently been built for about R20 million, which was green complaint. He wanted to see more businesses going through this programme.

Mr Msimanga said that BHP Billiton had also health projects. It had funded the Paediatric Centre of Excellence at the King Edward III Hospital in Durban. The Window of Opportunity Project cared for pregnant mothers to provide antenatal and newborn care. There were various programmes which it supported for the youth in the community and in disaster management.

Mr Msimanga said that the process produced unbaked anodes. These were then baked in the furnaces. They were then attached to aluminium rods and sealed with cast iron. Molten aluminium was cast into ingots. These were provided to the downstream industries. At Hillside and Mozal, the smelters were top of the range and had been chosen because of their energy efficiency. He showed Members a fume treatment centre, which captured the gases released in the processing.

Mr Msimanga said that it was important to reflect on the history of the smelters. The Bayside plant had been operating at 50% capacity since 2008. The company had a good relationship with Eskom. The mothballing of half of the capacity was BHP Billiton's contribution to energy savings. They worked with Eskom to manage the grid. The biggest challenge in energy supply was during the evening peak hours. The smelters were stopped for an hour during the evening peak period. Nothing was produced during this time. There was no compensation, but this was their contribution to conserving energy. New energy saving methods were constantly under study. This was imperative in the current environment. One of the big concerns was the decisions which the National Energy Regulator of South Africa (NERSA) made.

Discussion
Mr McIntosh thanked the delegation for a good presentation. General Mining was a good example of empowerment. English speaking miners had seen the need to incorporate Afrikaans speakers many years previously. BHP Billiton was a successful company and was not just motivated by profit. He had no problem with their location. Their presence in Richards Bay had been of immense benefit to the province and the community in many ways. For an operation of their size enormous planning and management was needed. They could not be blamed for the electricity crisis. Government had not heeded the advice of engineers to build more power stations, and BHP Billiton could not be blamed for the crisis. They should be thanked for their contribution.

The Chairperson said that the crisis in electricity had arisen long before 1990, but those that followed could also not be absolved from not addressing the situation.

Mr Hill-Lewis disputed the scenario sketched by the Chairperson, but was hesitant about what he could ask given the ongoing legal proceedings.

The Chairperson said that the focus should be on the questions of beneficiation and input costs. There was an appeal process.

Mr Hill-Lewis said that this was the perfect example of why public utilities like Eskom struggled with long term planning. Eskom had profited enormously from this deal for fifteen years, but had not invested the profits for the years when the deal was not as profitable. This was a critical case for electricity tariff regulation. It illustrated the problems with public utilities in the management of ports and other facilities.

Mr Mabasa thanked the delegation as well. The presentation claimed that 80% of the global supply of high grade manganese was in the Kalahari Basin, and asked how much had already been extracted. He asked where else BHP Billiton was impacting both in South Africa and the rest of the continent. In terms of social responsibility, he asked if the company limited itself to places where it was operating or if it looked at the general social needs of the country.

Mr Radebe also welcomed the presentation. The issue had been dealing with administered prices. It was clear that electricity prices were a big issue. The National Ports Authority had been engaged by the Committee, resulting a reduction of tariffs. Under apartheid only the export of mineral ore was subsidised while beneficiation products attracted heavy tariffs. He asked what arrangements were in place. As a student he had done work at Bayside, and it was an impressive facility. On social responsibility, he asked if any funds had been set aside to assist historically disadvantaged institutions like the University of Zululand with research projects. The number of people employed and other important figures were not quoted. He asked how transformed the company was, as there was a lack of progress in this field in other places. He asked how many engineers and scientists the company had produced, and what the demographics were. A smelter should run for 24 hours a day, and he asked how stoppages affected production.

The Chairperson made it clear that there could be no backward steps on re-industrialisation.

Mr L Greyling (ID) said that the issue was a big concern at the Portfolio Committee on Energy, and understood the sub judice issue. There had been massive excess generation capacity in the 1990s due to poor planning in the 1980s. Facilities had been mothballed as a result, and there had been agreements made such as that with BHP Billiton. Other contracts had been concluded in the early 2000s. Dr Mkhwanazi had been Chief Executive Officer of NERSA at the time. It would now cost a fortune to build new generation capacity. He asked if there was any link between the tariff and the cost of generation, and if the model of linking electricity tariffs to product prices and exchange rates in other countries.

Mr S Njikelana (ANC), Chairperson of the Portfolio Committee on Energy, asked about the costs of coal generation.

The Chairperson did not believe that enough was being said about what could be done given the constraints.

Dr Mkhwanazi said that the role of electricity in industrialisation and supporting government should be paramount in investigation considerations. Electricity underpinned all industrialisation. Not too long previously government had adopted a policy on beneficiation of minerals. This required more electricity in a cost-effective manner. The country had to remain competitive internationally without compromising the environment. The national development plan (NDP) was more balanced and looked at sustainable development and supporting industrialisation responsibly.

Dr Mkhwanazi confirmed the 80% manganese stock. At the current rate of mining, the reserves would last for 500 years. It was the best quality, but was far from any ports. A rail link was needed. This hampered competitiveness. The global market share was less than 50%, which meant there was a lot of opportunity still. There was a BHP Billiton presence in Mozambique, Algeria, Ethiopia, Guinea and other countries, mostly only at an exploratory level at present. There were national corporate social interest (CSI) projects although most were centred on the local community.

Dr Mkhwanazi said that disadvantaged universities were supported. The science centre at the University of Zululand was sponsored by the company. They were big on skills development and were the main sponsor of the national skills development conference. People were the basis of the company strategy, with internal talent the priority. The company believed in growing its people. Both he and a senior manager were from the Richards Bay area. The company worked by its own values and were normally ahead of the codes of good practice.

Dr Mkhwanazi said that there was excess capacity in 2001 and 2002. In his role at NERSA the need for another power station had been raised, but his concerns had been ignored. The aluminium price would eventually rise. They exploited other minerals as well.

Dr Mkhwanazi believed that there was potential to harm the environment, and it was important to consider this. They were founder members of the Energy Accord. The smelters were the most efficient in the world. They were the anchor tenant of the green building in Port Elizabeth, powered by a wind generator. The company was a good citizen.

Mr Msimanga added that another area where more could be done was the culture of energy efficiency both at the workplace and at home. There were engagements with employees. For examples, there was no need for hot water in the bathrooms at headquarters. There were motion detectors to control the lights. Energy saving was a big key performance area. The figures were open to be shared. He emphasised that the 50% cut at Bayside would be maintained. They were also working with Eskom on load-shedding. They were proud of what they had done in Mozambique. Their investment just after the civil war had boosted confidence in the country.

Mr Hill-Lewis noted the 50% spare capacity at Richards Bay, and yet an enormous facility had been built in Mozambique. The minerals were in South Africa.

Mr Greyling asked if the electricity tariff was linked to the general electricity price.

Mr McIntosh asked what the company logo represented.

Dr Mkhwanazi said that a company in Canada used the same tariff model. The cost curve produced by the consultants showed that that BHP Billiton was not receiving the cheapest electricity in the world. The contract with Eskom was specific, and was based purely on the aluminium price and exchange rate. The decision to invest in Mozambique was because of incentives provided by the government. They had been given a proposal. IDC was a shareholder in that operation.

Mr Msimanga said that some of the power used stemmed from the Cahora Bassa scheme in Mozambique.

Ms Lula Matlape, Corporate Affairs, BHP Billiton South Africa, said that the logo represented the diverse activities of BHP Billiton.

Dr Mkhwanazi said that the Mozal plant was completely powered from Cahora Bassa. They played competitive port prices. The charges in Mozambique were about 30% lower.

Mr October said that lower port tariffs had not yet come into effect.

Mr Greyling said that aluminium was essentially solid electricity. He asked if there was a significant aluminium industry in South Africa, or if the majority was exported. He cited the Arcelol Mittal case in the steel sector.

Mr Njikelana said that BHP Billiton was a resource company of note. He asked them to share their contribution in terms of beneficiation.

Dr Mkhwanazi said that there were three business, namely manganese, aluminium and coal. Low grade coal was used to generate the electricity for the smelter. There was no wastage. More than 20% of the manganese was beneficiated, and BHP Billiton was the leader in this field. R1 billion had been invested in a coal-fired power station.

Mr Msimanga added that in terms of co-generation, the question arose of what could be done. Some of the reports looked at the amount of heat generated. Manganese produced carbon monoxide which could be burnt to generate more electricity. There had been studies of how the heat produced could be used to generate electricity. There was no viable option yet. One of the reasons was that the way the electrolytic cells were designed was to retain as much energy as possible. This did not free up any excess heat that could be used to produce electricity. One of the projects was with a dump site near to the smelter. There had been an attempt to exploit the methane gas from the dump, but this was not yielding much. There had been similar projects since 2005 with a bit more success. The aluminium market in South Africa was about 350 kilotons, 80% of which came from the smelters. The vision was to reduce the gap. The 20% imported was mainly in special alloys.

The Chairperson said that what would help Members if they could receive a report on what had happened. The Committee supported beneficiation, especially regarding raw minerals. Members needed to know how industrialisation could be supported. Members had visited a training college at one of the mines where they also trained persons from other mines. Members were passionately behind the re-industrialisation of the country. There were many downward pressures, and the country could not afford to go backwards. Eskom and TransNet had been told that there was a need to reduce their prices. Prof Ben Turok had pointed out the constitutional requirement for social beneficiation of the economy. Schools were important, but so was strategic skilling. It was selfish to skill people for the company's benefit only.

Dr Mkhwanazi assured Members that all the comments were taken to heart. He invited the Committee to visit their plants.

The Chairperson thanked the delegation for attending the meeting. There would be ongoing engagement. She had two announcements for the Members. The report needed to be finalised. They needed the input from BHP Billiton to do this, and asked them to provide the required information by 1 May 2013. The Intellectual Properties Amendment Bill would soon be before the Committee. The Joint Tagging Committee had finally tagged the Bill as Section 76. Due process had been followed. She urged Members to attend Parliament to discuss the Bill on 30 April 2013. She stressed to the media that the Bill was not just Black Economic Empowerment (BEE) but Broad-Based BEE. The Committee had now been recognised as a full-time Committee.

The meeting was adjourned.
 

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