Mineral and Petroleum Development Amendment Bill [B15-2013]: briefing by Department of Mineral Resources

Meeting report

Opening Remarks
The Chairperson welcomed the delegation from the Department of Mineral Resources (DMR), representatives of the petroleum industry, and Members of the Committee.  The objective of the meeting was to obtain an understanding of the Bill’s provisions, and no decisions would be taken at this stage.  Public hearings were scheduled for August, and it was hoped the Bill would pass through Parliament before the end of the year.

Briefing by Department of Mineral Resources on Mineral and Petroleum Development Bill
Mr Mosa Mabuza, Deputy Director General: Mineral Policy and Promotion, DMR, outlined the format of the presentation, and provided a background to the decision to amend the original Mineral and Petroleum Resources Development Act, which was promulgated in 2002 after wide-ranging consultation with all stakeholders seeking regulatory reforms.  The Act had given effect to the internationally accepted right of the state to exercise sovereignty over all its mineral and petroleum resources, and had created an enabling environment for growth and transformation in the mining industry.  In the period 2004 to 2010, foreign direct investment in the mining industry had grown from R112 bn to R389 bn, and employment had grown from 448 909 to 513 211. Gross sales of primary metals had appreciated from R98.5 bn in 2000, to R370.7 bn in 2011, while the number of mines had increased from 993, to 1 592, between 2004 and 2011.  Gross fixed capital formation had increased from R18 bn in 2004, to R69 bn in 2011.  Despite this progress, there were inherent weakness in the Act which needed to be addressed.

Mr Andre Andreas, Chief Director: Policy, DMR, described progress of the draft Bill since its submission to the Economic Sectors and Employment Cluster (ESEC) in October last year, up to the approval by the Cabinet in May for its submission and tabling in Parliament.  The objectives of the amendments were to create a mining and minerals regulatory regime that conformed to regulatory best practice, enhanced those provisions which promoted the development of mineral and petroleum resources in a sustainable and equitable manner, and streamlined administrative processes to ensure proper alignment with the National Environmental Management Act (NEMA) and the National Water Act.  Other objectives were to increase the socio-economic development impact through mining, make provision for an application process “by invitation,” to make provision for implementation of a beneficiation strategy, and to provide for the state’s active participation in the exploitation of petroleum resources.   The amendments also made provision for certain minerals to be declared strategic, mainly to guarantee security of energy supply, for the regulation and implementation of social and labour plans (SLPs) to be enhanced, and for the partitioning of rights and imposition of more severe sanctions.

Mr Andreas presented the Committee with details of the proposed amendments.

Application by Invitation (Sec 9)
The “first come, first served” principle was repealed in favour of an application process by invitation.  The Minister was empowered top invite applications for a defined period through a Gazette in respect of specified minerals and land.  This process would ensure coordinated quality approvals by the DMR.

Partitioning of Rights (Sec 11)
This provision allows right holders to dispose of portions of their rights, subject to the requirements of the Act, and allows public entities to finance exploration, prospecting and mining projects through mortgage bonds, with the Minister’s consent.

Change of Ownership (Sec 11)
The proposed provision requires mining companies to request the Minister’s consent prior to the transfer of any interests in unlisted companies, or of any controlling interests in unlisted companies.  The purpose is to discourage the dilution of Black Economic Empowerment (BEE) ownership in mining companies.

Social and Labour Plans (Sec 23)
The draft Bill provides for SLPs to be submitted and approved within a prescribed time frame, and to be reviewed within a five-year period for the duration of a mining right.  The holder’s contribution would be linked to the size of the operation.  The objects of the Act are amended to include “labour sending areas”, the concept of which is defined.

Beneficiation (Sec 26)
Mining operations are required to set aside a certain percentage of their production for local beneficiation.  Developmental pricing conditions would be determined by the DMR, in consultation with relevant departments, such as Trade and Industry and Economic Development.  Restrictions on exports are introduced, subject to fulfilment of beneficiation requirements, and the Minister is empowered to designate certain minerals for beneficiation purposes.

State participation (Secs 80 & 84)
The draft Bill provides for the state’s active participation in the petroleum industry, with a right to a share in the net profits and a right to appoint two directors to the management boards of production operations.

Sanctions (Sec 99)
Sanctions for non-compliance with the Act are linked to a percentage of the annual turnover of the right holders, consistent with the Competition Act.  Provision is also made for administrative fines, payable to a designated fund and used to promote exploration and related activities.

Environmental Management (Secs 39, 40, 41 & 42)
Prior to 2008, mine environmental management fell under the MPRDA.  Section 39 provided for the approval process of environmental management plans and programmes (EMPs), Section 40 for consultation processes with state departments on approval of EMPs, Section 41 for the financial provision for EMPs, Section 42 for the management of residue deposits and stock piles, and Section 43 for mine closure.  Applicants had to comply with these provisions in order to be granted rights and permits and, in addition, comply with the requirements of NEMA.  The requirement to comply with two pieces of legislation had proved cumbersome and contributed toward non-compliance with NEMA.  The Macsand judgement had reinforced the view that holders of mining rights had to comply with all other relevant prescripts.   In 2008, the DMR and Department of Environmental Affairs had concluded an agreement on a single mine environmental management system, in terms of which it was to be regulated by NEMA.  The DMR would be responsible for the full implementation of the environmental management function for the first 18-month period.  Amendments were made to both the MPRDA and NEMA to give effect to the agreement, and Sections 39 to 42 of the MPRDA were repealed and transferred to NEMA.  It was agreed that Section 43, dealing with mine closures, should remain within the MPRDA, due to its technical nature. Amendments were also effected to NEMA to incorporate MPRDA provisions, with Section 24 detailing amendments related to mine environmental managements, and Section 14 (2) providing a window period for the deferment of both the MRPDA and NEMA amendments coming into operation until the expiry of the 18-month period from the commencement date of either of the Amendment Acts.

Current Agreement
In 2010, the Minister of Mineral Resources had adopted the “Strategy for Sustainable Growth and Meaningful Transformation of South Africa’s Mining Industry” which, among other issues, had identified fragmented licensing mechanisms as one of the major constraints to the global competitiveness of the local industry.  The Ministers of the DMR and DEA had consequently agreed on modalities to streamline the licensing requirements, and an Interdepartmental Project Implementation Committee (IPIC) had been formed, comprising representatives of these two departments, as well as the Department of Water Affairs (DWA).  Task teams had been established to deal with appeals and legislative amendments, coordination of time frames, capacity, enforcement, joint planning and communication.   This approach reinforced the legislative amendments being effected, and provided for the DMR to be the competent authority to implement mine environmental management requirements in terms of NEMA, for the DEA to be the appeal authority, and for DWA to continue regulating the licensing of water use.

NEMA Amendment Bill 2013
The objectives of the draft Bill, which had been finalised by the DEA, were, among others, to accord appropriate designation to the Minister of Mineral Resources as the competent authority to implement environmental management legislation, and to provide for the designation of mineral resources enforcement inspectors.  The Bill had gone through the IPIC process and was consistent with the overall goal of creating an integrated licensing regime.

Stakeholder engagements
The DMR had consulted with the DEA, DWA, National Treasury and the Competition Commission, representatives of the Mining Industry Growth, Development and Employment Task Team (MIGDETT), communities in the mining areas of Limpopo, Mpumalanga, Northern Cape and North West provinces, and with interested and affected parties in the petroleum sector, environmentalists, the legal fraternity and the mining industry itself.

Way forward
Both the MPRDA and NEMA Amendment Bills had been subjected to the IPIC process and dealt with by the respective departments to ensure they were consistent with the integrated licensing approach adopted by the departments.  The work of IPIC was a continuous exercise serving as a mechanism to enhance working relations between the departments to ensure an integrated licensing regime.

Mr Andreas said the proposed amendments would strengthen the architecture of the mining and minerals regulatory framework and direct a shift towards local mineral value addition, contribute toward national developmental imperatives, streamline the licensing processes and provide for state participation in the petroleum sector.

Mr Mabuza concluded the presentation by saying an important lesson which had been learnt was that a shift was needed towards a “framework legislation”, one of the benefits being that it enabled responsiveness to an ever changing environment.  None of the provisions of the Act were implementable without detailed guidelines and regulations, and it was intended to continue working with stakeholders to develop these guidelines and regulations.

Discussion
Mr J Selau (ANC) said he had expected “Petroleum” to be omitted from the “Mineral and Petroleum Resource Development Act”, as it had more to do with energy than minerals.

Mr Mabuza responded that anything “upstream” of the petroleum stream fell under the Department of Mineral Resources, while anything “downstream” fell within the Department of Energy.

Mr Selau said a breakdown was needed on the 27% increase in employment on the mines.  How much was related to short-term construction projects, or to suppliers to the mines.  Furthermore, the increase was only 27%, while sales had grown by 400%. Was this the effect of mechanisation?

Mr Mabuza said the employment increase was related only to workers employed in the mines.  It was difficult to correlate sales figures to employment levels, as the mining industry was cyclical and mechanisation helped companies to become successful.  The fact that employment in the mines had grown to the extent it had, was comforting.

Mr J Lorimer (DA) asked whether the draft amendments had been based on international best practice, and if so, which countries had been considered.  The Department had reported that its wide consultations had resulted in 80 submissions, yet very few changes seemed to have been made in the draft, despite some vociferous objections.

Mr Andreas explained how the 80 submissions had been grouped for discussion with relevant stakeholders, and it had been found that they were comfortable with the Bill not specifying how the Minister would make determinations, with the Act providing a “framework” and the regulations and guidelines spelling out the required actions.  The stakeholders would be consulted again when the regulations were developed.   The amendments did not reflect a fundamental policy shift, but rather the need to “tweak” certain areas where weaknesses had been identified.   The practices of several countries had been considered in developing the amendments, and it had been found that Canada had a similar situation to South Africa when it came to ministerial approvals.  Other countries had legislated for greater state participation, and they had been considered for benchmarking.

Mr Lorimer asserted that the mining industry was saying the amended legislation would not create growth in the industry, and challenged the Department to tell him why this was wrong.

Mr Mabuza said the answer to whether the MPRDA would attract investment was an unequivocal “Yes!”   South Africa remained the wealthiest mining jurisdiction in the world by far, and with the rapid growth in urbanisation worldwide and the accompanying increase in consumption, mining would play an even more important role in the future.  The DMR had taken to heart a number of issues which had been raised by stakeholders and despite the current challenges facing the industry, he was confident of its ability to continue to attract investment.

Mr Lorimer said he appreciated the Department’s confidence, but he did not share this sentiment.  South Africa could not be complacent about the prospect that mining companies would “come to us on our own terms,” as there were plenty of other places in the world they could invest in.

Mr Mabuza he had not intended to create an impression of complacency, as it would be naïve to believe that all one needed was abundant resources.  The environment was extremely competitive, and investment resources were limited, so it was essential to ensure that South Africa’s mining legislation was globally competitive.  It was important for the DMR to listen to those issues concerning key stakeholders in the mining industry, rather than those who were not in the industry.  The DMR had done this, and had made the necessary amendments to the Bill.  He was confident that the amended Act would be hailed in future as legislation which had taken the country forward.

Mr M Sonto (ANC) said the amendments did not seem to consider the need for monitoring when dealing with the partitioning of rights, and claimed that mining houses had “got away with murder” right under the eyes of the DMR in the past.  He also asked for clarification on the provision for ministerial consent for change of ownership in unlisted companies.

Mr Mabuza said a distinction had to be drawn between listed mining companies, which traded on the stock exchange, and which averaged 30% of its daily turnover, and unlisted companies.  The amendment was aimed at discouraging BEE “fronting” by applicants for mining rights.  Compliance was going to be more strictly enforced.  The 2002 Act had prescribed a maximum fine of R500 000, but this was now “petty cash” and no longer an effective deterrent.   Sanctioning was now being aligned with the Competition Commission’s penalties, where the maximum was 10% of sales,

The Chairperson asked for an explanation of the differences in the approval process for social and labour plans (SLPs).

Mr Andreas said that all SLPs submitted by mining companies had to be approved by the DMR and reviewed very five years, to ensure that the host community derived some benefit from the mining activity.

Mr Mabuza added that the amendment sought to broaden the development impact of SLPs, and approvals would be given where these were in line with local municipalities’ Integrated Development Plans.  The SLPs had previously been fragmented, and related primarily to the decisions of the mining companies.

The Chairperson commented that it seemed the NEMA issues needed to be discussed separately.  She asked the Department to provide full details and dates of its consultations with the MIDGETT entities, as well as details of the IPIC task teams’ inter-departmental engagements.

Mr Selau asked what the provision allowing public entities to finance exploration, prospecting and mining projects through mortgage bonds, without the Minister’s consent, was meant to achieve.

Mr Mabuza said this provision was intended to “level the playing fields” so that development finance institutions were not placed at a disadvantage compared to commercial banks.

Mr Selau asked for clarification on the change of ownership provisions and their effect on the dilution of BEE ownership in mining companies.

Mr Mabuza said experience had shown that applications were often made by smartly dressed black applicants, but once the application had been approved and the company started to operate, its shareholding changed without the Department being informed.   This provision was intended to discourage such “fronting.”

Mr Selau expressed concern at the provision that restrictions on exports would be introduced, subject to the fulfilment of beneficiation requirements, as South Africa had trade agreements with many countries.  Was the Department of Trade and Industry (Dti) in agreement with this?

Mr Mabuza agreed that there were treaties and multi-lateral trade protocols with other countries, and DMR’s policy identified these as areas of opportunity for the marketing of South Africa’s beneficiated products, and was therefore collaborating with the Dti and other relevant departments on the matter.  

Mr Selau asked whether the fact that the state was being given the right to appoint two directors to the boards of mining operations meant that the government was moving in the direction of private-public partnerships.

Mr Mabuza said that with oil and gas being a new industry, the intention was to create an environment where partners could work together, and there was a lot of merit in the government being represented in petroleum development.

Ms Nthabiseng Khunou, Acting Whip of the ANC, said the proposed alignment of SLPs with municipalities’ integrated development plans, would require oversight from the DMR, and she queried whether the Department had the capacity to handle this function.

Mr Mabuza said he agreed with the concern that had been expressed over the level of monitoring that would be required when the amendments came into effect.  When the Act had been promulgated in 2002, insufficient capacity had been created in the Department to implement its provisions.  As a result of this experience, the structure of the Department was being analysed to ensure it now had adequate capacity.

Ms Khunou said she was worried that the mining industry was becoming less labour intensive as a result of mechanisation, and the loss of jobs would lead to instability, which was bad for the economy.   People needed to be retained and re-trained to acquire new skills, rather than be retrenched.

Mr Mabuza conceded that a balance needed to be found in order to offset the negative effects of mechanisation. 

The Chairperson said the existence of a board had been mentioned, but it was not known how it was formulated or what its responsibilities would be, or how it was accommodated in the Bill.  There was also mention of a mining and development committee – how did this differ from the board?

Mr Andreas said Remdec (Regional Development and Environmental Committee) was a stand-alone entity comprised mainly of government employees, which made recommendations to the Minister on objections and environmental issues.  Remdec had been taken out of the board, which had now been dissolved and replaced by an advisory council – with similar functions to the board – but which would convene only at the request of the Minister.

Mr Lorimer asked what the thinking was behind moving away from legislation, in favour of regulation.  One of the criticisms of this approach was that it created uncertainty.  He referred specifically to the time frames for the granting of licences, claiming that the process took only six months in Botswana compared to two years in South Africa.  Would the amendments improve this situation?

Mr Andreas said time frames had largely been removed from the legislation because of the need for the alignment of applications with all relevant legislation, such as the National Water Act and NEMA, although a few pieces of legislation still retained time frames.

The Chairperson asked if sufficient provision had been made for coordinating the finalising of licensing between the various Acts when dealing with environmental issues.

Mr Andreas said a structure was being set up to achieve this, and ensure a streamlined administrative process.

Mr Mabuza said it would not be possible to complete a licence application in six months, if one dealt thoroughly with all the environmental and social aspects. 

Dealing with the “notion of uncertainty” over the regulation versus legislation issue, he conceded that the DMR did not yet have all the details on several issues, and this had raised some concerns.  He pleaded, however, for the DMR to be given the chance to develop the regulations so that one could see what the intentions were.  The regulations would provide the mechanisms and modalities that would give effect to all the issues that had been described as “uncertain provisions.”   He gave an assurance that the matter would be handled responsibly.

Mr Lorimer said that this amounted to asking the Committee to give the DMR a blank cheque, and asked if it would not be better to develop the regulations first, before going to Parliament with the Act.

Mr Selau said regulations were drafted to give details on how to implement an Act, and therefore the Act would have to precede the regulations.

Mr Mabuza said that Section 107 provided a guarantee that regulations would be developed, and he could only assume that they would not differ significantly from what had been proposed.

Mr Lorimer said he did not understand why the “application by invitation” provision had been introduced in favour of the “first come, first served” regime, which had been easy to understand.  Applicants now would not have a clear picture of what was needed to get a licence, and therefore the system would be perceived as unfair, and the DMR would be seen as “picking winners from among its friends.”  Would this not be a huge disincentive to people wanting to put money into exploration?

Mr Mabuza countered that over the past 15 years, South Africa’s share of global investment in exploration had dropped from 3 – 5%, to less than 1%.   The first come, first served, regime had yielded thousands of exploration rights which had not all materialised into actual exploration.  In fact, most exploration was now involved in the expansion of existing mines.  It had become clear that the system, which required applicants to meet only basic minimum legal requirements, was sustaining mediocracy, and this could not be perpetuated into the future.  The application by invitation provision was proposed to open up in particular areas, with a clear list of requirements up front.  Transparency would be brought into this process, and there would be a turnaround in the level of exploration activity.

Mr Lorimer said it was unclear why oil and gas were included in the Bill, as their capital requirements were vastly different to those of small miners – for instance those mining sand with bakkies in the Northern Cape.  Was there an intention top separate them out?

Mr Mabuza agreed that there was a big difference in the capital expenditure for oil and gas, but the principles of licensing remained the same.  One could not use this as a basis for differentiated legislation, as this would amount to financial discrimination.

Mr Lorimer said the said the sudden move of oil and gas from the Liquid Fuels Charter to the Mining Charter, and its implications in terms of the change in BEE ownership requirements, was causing concern in the oil and gas industry, which risked literally hundreds of millions of rands on exploration.

Mr Mabuza acknowledged that there were big differences between the two charters, but it was not the intention of the DMR to require everyone to follow the requirements of the Mining Charter, because the nature of the businesses was different.  The issue formed part of its interaction process with the petroleum industry, and the intention of the legislation was to avoid creating any significant disadvantages with the proposals being developed.

Mr Lorimer asked why the Petroleum Agency of South Africa (PASA) was being closed, as it was highly regarded and had played a major role in encouraging off-shore oil exploration.

Mr Mabuza said that while PASA had a successful track record, the regulations of the MPRDA were now a core mandate of the DMR.  However, it was recognised that the petroleum industry required specialised skills, and for this reason PASA was not just being wound up, but rather integrated into the Geoscience Act, so that its skills would not be lost.

The Chairperson said the Bill could not be effectively passed without the involvement of both the Department of Water and Environmental Affairs and the DMR, and proposed a joint meeting to address the issues involved.

The meeting was adjourned.