Mineral and Petroleum Resources Development Amendment Bill B15-2013]: public hearings day 4

Meeting report

Mineral & Petroleum Resources Development Amendment Bill: Further Public Hearings Mining and Environmental Justice Community Network submission
Mr Mashila Palane, Community Member: Mining and Environmental Justice Community Network (MEJCON) said that the organisation was formed in 2012 and was a network of communities, community based organisations and their members whose environmental and human rights were affected, directly or indirectly, by mining and mining-related activities. He noted that the Bill needed to emphasise the impact of the role of women in mining communities, as most mines were in the rural areas, where women were in the majority. This would ensure that communities were guided properly. Provision was needed to ensure inclusion of persons and views from the regional mining development community and members of the environmental sector. Communities, particularly affected communities, should be involved to ensure that measures were taken to protect the environment and implement the law. 

Mr Palane said that there was a need for communities to participate in and be involved in the development of Social Labour Plans (SLPs). If mining companies just sent consultants, this  resulted in social disorder, and failed to recognise communities’ contributions.  

MEJCON proposed that certain shares be allocated to communities, as they should be ensured benefits from mining in their areas.

He noted that clay minerals had been mined without permits and environmental impact authorizations (EIAs). It was therefore important to apportion responsibilities to the Department of Environmental Affairs (DEA) which would be better at monitoring and ensuring enforcement and compliance with such EIAs.

Mr Palane noted that Post Direct Monitoring involved compliance and enforcement. MEJCON believed that the Department of Mineral Resources (DMR) did not have the capacity to ensure enforcement and compliance, and thus should not be given authority to carry it out; once again, the DEA was better placed to ensure compliance in the mining sector. The MEJCON extended an invitation to the Committee to visit a particular area to see what was happening there.

Mr David Maruma, Community Member: MEJCON, stressed that consultation and access to information were areas of serious concern for the community in the area. Consultations were mainly held with traditional leaders. All notices regarding mining should be made accessible to communities, in terms of language and form. Mining houses should be assisted with monitoring, and consultations related to mining should be done properly with communities, since communities were failing at the moment to get enough information, and were being undermined. The Surface Cooperative Agreement was signed, but was not communicated effectively to the community. Ploughing fields were taken without compensation and matters were imposed on the community without them given the opportunity for proper engagement.

Mr Letsetsa, Community Member, MEJCON, appealed also for accessibility of information and consultations with the community.

Discussion
The MEJCON discussions were done in two parts, with the Chairperson halting the first session to allow for an interpreter to help MEJCON in answering the questions.

NOTE: This report includes both sessions, and in some cases two answers are thus recorded for certain questions, in order to retain all answers, even those that the Committee wished to be amplified.

The Chairperson asked how many community meetings had MEJCON held in this year with the industry (mines in the area), with the Department of Mineral Resources and with relevant local unions. 

Mr Maruma replied that MEJCON was led by a steering committee and held meetings once a month. Community structures took that feedback and cascaded it down to the communities in their area. He was a member of a committee comprising 17 villages. The Executive held meetings twice a week, on Tuesdays and Thursdays, in each village, and villages then reported back what they were doing. All members of the village communities met on a Thursday, when resolutions were taken, that were then taken back to all levels of representation in the communities.

Mr Palane said three meetings were held with organisations and directors of the mines. After the collapse of the negotiations, meetings were held with several members of the DMR, including a regional manager. If a mine was closed the workers formed a union, and MEJCON would then help them with seeking unemployment funds, meeting with the National Union of Mine workers in Polokwane, and with the South African Revenue Services.

Mr J Lorimer (DA) asked if the one case where the MEJCON had thought the Department had been colluding with a mining company had been reported to the DMR’s national office, and whether this also happened in more cases.

Mr Palane said that this case had been reported to the environmental manager.  A meeting was also held with the regional manager. Prosecutions were forthcoming. 

Mr Moepeng asked how MEJCON would propose the community should benefit, beyond the proposed amendments.

Mr Palane replied that MEJCON believed that communities had to take the resolutions and identify their needs as communities.

Mr J Moepeng (ANC) said that the Act did cover the issue of Post Directive Mining and this referred also to rehabilitation. It also mentioned streamlining licensing in the mining sector. He asked what MEJCON wanted to see, if the proposed amendments were not enough. There was also more emphasis on women, and again he asked what more MEJCON would like to see. He asked what period MEJCON suggested, and what yardsticks should be used to determine that.

Mr Palane replied that the presentation had suggested a period of 90 days, since the area in Tzaneen did not have offices that would have allowed for quick access to information. The MEJCON now believed that 30 days would be sufficient to get the relevant information.

Mr H Schmidt (DA) said that there were broad statements in the presentation, but the Committee needed details that were important for a regularity point of view. The most obvious way to resolve problems was to say ‘in consultation with’ and this would mean that everyone had to work on Social Labour Plans.

Mr M Sonto (ANC) commented that MEJCOM was complaining about lack of compliance on SLPs and suggesting that communities needed more leverage, but he wondered if they had the capacity for that. He asked why MEJCON had proposed that communities should monitor instead of proposing that the Department tightened up its monitoring function so that the mining houses could comply. He also wanted to know what form of consultation MEJCON was proposing, since it had noted that the Department was consulting with the traditional leadership, and if MEJCON was opposed to that.

Mr Palane said that SLPs were very important and it was correct that the mines should plough back into the communities where they were located. The communities had to identify with the needs, because it was not just for the mines to decide how to plough back, without first identifying the needs of certain areas. Communities differed and were at different levels of development.

Mr Sonto said that he was unable to follow the slide which spoke about rehabilitation. The DMR, mining houses and Chamber of Mines (COM) were venturing into an arrangement where mining houses should do concurrent rehabilitation. Although there was not finality on that, there were moves in the right direction. He asked what MEJCON was suggesting with regard to Post Directive Monitoring.

Mr Maruma replied that Post Directive Monitoring referred to the fact that if things were not done correctly, they had to be monitored, to check when and how they were going to be corrected.

Mr Palane added that MEJCON wanted to see that rehabilitation took place in line with the Bill, so that when a company dug, it also rehabilitated. Mines who were not part of the COM had no expertise in how they should be excavating.

The Chairperson asked Mr Palane to let the Committee know if he would feel more comfortable in other language, to allow a clearer understanding by all. She did not recall the DMR doing any of its own rehabilitation of mines.

Mr Palane replied that rehabilitation could increase a lot of job opportunities amongst rural people. Companies did not have money in their rehabilitation fund, and this raised the question of who was supposed to rehabilitate if the company was without funds. 

The Chairperson declared a point of order.

Mr Moepeng said that the question was directed to giving clarity on Post Directive Mining.

Mr Palane, on behalf of the MEJCON, invited the Committee to come to the area to see what was happening there.

The Chairperson apologised for any inconvenience caused to MEJCON by the break in their session.

Legal Resources Centre submission
Mr Henk Smith, Attorney: Legal Resources Centre, referred to page 17 of the LRC submission 17 and urged the Committee to align the legislation with the latest developments on land reform. An explanation was given as to why consent was the appropriate standard, and other comments were made to support consent as that appropriate standard. The two streams of potential participation were: access to land and the regulation of mining. Mr Smith emphasised that to effect transformation for communities, communities needed to have a say over access to land, and mentioned that the right to negotiate had still been refused in 2013.

The LRC submitted a proposal for rewording of the consent phraseology in the new section 5A as follows: “no person may mine without.. (d) on communal land, the prior written consent in terms of customary law, if applicable, and the interim Protection of Informal Land Rights Act 1996 of the directly affected community”. The Constitutional basis for the recognition of customary law was provided by reference to sections 39(3), 30, 31, 211(30) and 9(2) of  the Constitution – not Chapter 12. “Customary” should therefore be recognised as an independent source of law, and this was necessitated by the Constitution’s commitment to equality and transformation.

Mr Smith said that the Promotion of Equality and Prevention of Unfair Discrimination Act (PEPUDA) of 2000, in its Preamble, called for ‘the advancement, by special legal and other measures, of historically disadvantaged individuals, communities and social groups who were dispossessed of their human dignity and who continue to endure the consequences’. The African Charter on Human and Peoples’ Rights (ACHPR); The ACHPR Principles and Guidelines (2011); Endorois decision (2010); ACHPR Resolution on the Extractive Industries (2012) and the ILO 169, were the basis of the International law, the recognition of customary rights, and the legislation for reparation and consent.

Illegal mining cost the mining industry (and the government through lost taxes) about R5.6 billion annually.  There were, in addition, other security costs for mining houses. This added to the state burden of organised crime, as illegal mining was also linked to human trafficking, smuggling, money laundering, bribery and corruption.

Ms Wilmien Wickham, Attorney: Legal Resources Centre, discussed the Constitutional basis for the arguments made today. The Constitution recognised customary law as an independent source of law equal to common and statutory law, but answerable only to the Constitution. Recognition, based on section 39(3) of the Constitution read with sections 30 and 31, dealt with issues of cultural diversity. Section 211 stated that customary law had to be applied where applicable. She emphasised that the recognition of customary law was not primarily the recognition of tradition leaders.

Discussion
Mr Schmidt asked what the LRC would make of an argument, if the situation was found to be wanting in terms of discriminatory law against those who owned the land. The LRC argument could be that this was in accordance with customary law. This, however, would surely then force two sets of legal requirements, depending on who was the owner of the land. In fact, if anything, he thought it should be argued that any mining should be subject to consent. 

Ms Wickham said that substantive equality argued that people could be treated differently to redress the situation where, historically, they had also been treated differently. Because customary law had never been recognised before, there was a need to ensure that equality was achieved between owners by customary tenure and other forms of ownership in South Africa. That was certainly the principle that the Constitution required.

Mr Schmidt said that he understood the argument for consent, but was concerned that the second part of the argument had not been acknowledged. He asked if there should not be inclusion of the phrase “in consultation with”, which would mean that both should be discussing.

Mr Smith responded that Section 16(4) had been interpreted by the Constitutional Court, which had commented that consultation should be comprehensive, deep, and involve reciprocity between both parties, and should not be a one-way process.  This was within the regulatory framework. The LRC was asking that consent should also be included when communal land was at stake, because it was necessary, both from a constitutional standpoint, and as a policy issue.

Mr Sonto asked to whom the minerals beneath the soil belonged - the communities, the landowner or the state.

Mr Smith responded that the IPLRA had made a good attempt at defining community, recognising and promoting the various interests in community, and part of community. This was a definition which was formulated in 1996, which had been followed through in a number of other pieces of legislation, with relative success. Communities under IPLRA had the opportunity to bring their concerns to the fore, and this had been supervised by the third party - the state - in a process of decision-making.

Mr Smith said that the Supreme Court of Appeal, in the AgriSA case, did not fully deal with the issue of who the owners were of the minerals of South Africa.

Mr Sonto asked for clarity about the LRC’s understanding of certain Constitutional stipulations. He said that the playing field in South Africa was still skewed because some people were still robbed of their dignity. He asked how the LRC defined a community, and what was communal land.

Mr Smith said that communal land was similarly defined in the Interim Protection Act, and there should be an opportunity to take this further. 

Mr Schmidt said that once consent had been given, the LRC seemed to be at ease with the rest of the provisions. It was the effect of the consent or mining decision having been granted, that would start the real impact on the community. This, however, then went back to the second part of the question. It did not help to negotiate about consent, but once consent was granted, regardless of what the costs were to the mining company, the consequences of that decision were equally as important as the granting or negotiation in obtaining consent.

Mr Sonto said that as the concept stood now, it was open for negotiation. It could refer to meaningful consent, or it could be consent that did not address the requisite intention.

BBP Law (Inc) submission
Mr Berrisford Peterson, Attorney, BBP Law, said he welcomed the opportunity to try to convince the Committee to move in a slightly different direction to that proposed by the Bill. This view needed support, particularly within the realm of the oil and gas industry.

Mr Peterson said that there was a definite need to transform and manage resources in South Africa. South Africa did not have an oil and gas industry and was in the relatively early stages of oil and gas exploration.  Foreign companies needed to be encouraged to explore and invest in South Africa. The concern was that the proposed Amendment Bill, as far as it related to oil and gas exploration, sought to transform the mineral industry, at the expense of the oil and gas industry that was still in the process of establishing itself. He expressed concern that the Bill, if implemented in its current form, would thus result in the loss of and preclusion of foreign investment in South Africa’s oil and gas industry.  A separate Oil and Gas Act was currently in place in the majority of African countries, and had now become critical to the development of the industry in South Africa. Mr Peterson recommended that a proper forum and proper analysis be conducted as to what was happening in the industry in Africa, as there were many experiences from which the DMR could learn. In particular, it needed to look at what the core problems were, and create the structure for the growth of the industry in Africa.

BBP Law had done good work in getting companies to where they were now, and most of the coastline had been taken up with licensing. However, South African oil and gas needed investment, and for investment to generate into real revenue, so that beneficiation could take place. He reiterated the need for a separate Oil and Gas Act in recognition of developments elsewhere in Africa and to achieve transition.

Ms Megan Rodgers, Attorney, BBP Law, said that BBP Law had looked at the African Union (AU) and the Development Bank and had discovered that there were 20 countries in Africa recognised by the AU. 29 countries had dedicated oil and gas legislation, having separated the oil and gas industry from the mining industry and having a dedicated regulatory authority in the form of a state owned enterprise acting independently, or a centralised unit within government. They had also adopted a production sharing regulatory regime. Five African states had adopted a dedicated piece of oil and gas legislation, with separate legislation governing the oil and gas sector, also including a dedicated regulated authority, centralised either within government or operating as a separate entity with a tax royalty system. South Africa, by contrast, presently and in view of the amendments in the Bill, maintained that the hybrid mining and oil and gas sector system should be retained. The tax royalty system would also be retained. Decentralisation of the regulatory authority had also been proposed, but that was contrary to the trend in the rest of the Africa, and contrary to what South Africa’s competitors offered. The question was whether the proposed amendments made South Africa competitive.

The two main systems in the industry were production sharing contracts and tax royalty systems. BBP Law had done a comparative study, and two important points were raised. These were title and production sharing versus tax royalty. Title related to who owned that resource and the results were clear, with a clear distinction between those who owned title under production sharing, and who owned it under tax royalty. She explained that a tax royalty system meant that the independent oil and gas company owned that resource at the wellhead. The production sharing agreement system, which 29 other African countries had chosen, vested ownership and title to that resource in the state.

The other important issue which distinguished production sharing contracts from tax royalty systems was that, under the production sharing system there was adaptability and flexibility in regard to the independent oil and gas companies, which government could exercise when appropriate. Under the present system in South Africa, everything had to be amended via legislation, and development could not happen as and when needed.

She concluded that both the African Development Bank and the AU, in their 2009 Report on Oil and Gas in Africa, had stated that foreign investment was required in a developing oil and gas industry. BPP Law therefore asked respectfully that the Committee acknowledge this when considering these amendments, particularly in the oil and gas sector.  
 
Discussion
The Chairperson asked Ms Rodgers if she got the same salary as her colleague Mr Peterson.

Ms Rodgers said that she was slowly working her way towards that salary, and was confident that in time she would exceed it.

Mr Schmidt asked whether the argument for dedicated legislation did not start off with the basic premise that in the instance of mineral rights, there was what the Constitution called deprivation, not expropriation of rights. The other point related to all the consultations required but this was a different kettle of fish, by its very nature. A number of Constitutional Court matters had been concerned with mining rights or deprivation of ownership. This should be the point of departure in the argument. He asked how it was proposed to deal with the Constitutional challenge of expropriation within the oil and gas sector, as a result of a separate Oil and Gas Act.

Ms Rodgers replied that the hybrid relationship between the oil and gas sector and the mining sector maintained an understanding that there would not be expropriation within the mining sector. There was no reason why a similar situation could not exist with onshore oil and gas projects. Offshore projects had no land challenges. Fundamentally, in the Mineral and Petroleum Resources Development Act (MPRDA) of 2002, the principle was accepted that these resources were vested in the state. These resources needed development, but the only way to do this was to ensure the benefits flowed from here through the state.

Mr S Mohai (ANC) said that the changes that were proposed were intended to strengthen the regulatory framework, but asked exactly how it was proposed that the regulatory framework in the oil and gas industry would be changed through implementing the new proposals. He also asked how this would impact on investment, noting that South Africa had all the instruments that measured the heath of the state.

Mr Peterson responded that although this was a complex question, the answer could be simplified. BBP Law had had dealings with a number of financing institutions in South Africa, and was aware of the nature of the industry and the risk associated with the industry, especially for exploration. The structure here basically showed nine years of exploration that needed to be funded and spent. In South Africa, the money and risk could be better spent on a multitude of smaller projects to help people at a grassroots level, than in oil and gas exploration.

This system was casting in stone a system that actually required constant legislative engagement. He urged that there was a need to look into a system that was flexible enough to recognise that this was a transition phase, and that as new discoveries were being made, there was a need to anchor them. Government had that flexibility in the production sharing contract, because its nature allowed for flexibility. It was important to understand what a production sharing contract meant in reality, because it was very difficult to see flexibility in the transitional phase of growing the industry in South Africa from its current position to the desired position. BBP Law was advocating that serious thought had to be applied to how the implementation would happen. He suggested that “fearless freezing” of the current position was required, and new education as to what was being done differently elsewhere.

actionaid South Africa (AASA)
Mr Christopher Routeledge, Mining Extractives Co-ordinator, actionaid said that actionaid was a global movement of people working together to further human rights for all, and to defeat poverty. Actionaid contended that of all the stakeholders affected by mining, the communities who hosted mining activities carried by far the greater cost, yet received the least return from mining activities. It felt that the MPRDA fell short in several areas. It was concerned that as presently worded, no permission from the community was required. DMR and the Minister did not actually even have any obligation to consult with the community affected and usually did not do so. Unless the consultation was clearly defined, in line with general jurisprudence and the Constitution, mining houses would continue to ignore their responsibilities and the intention of the Act. Because it did not align with recent jurisprudence, Actionaid saw the current legislation as placing an unfair burden on communities, whose only remedy was to seek legal relief, which was expensive and often beyond their means.

Actionaid believed that compensation should be more clearly defined and should also take into account the historical nature of dispossession in South Africa, the value of precious metals or minerals in the ground, and loss of future income and or livelihood. It believed that there should be an obligation on DMR to make SLPs public. Actionaid supported the submission made by the LRC on the amendments, but submitted that still more was needed to ensure, amongst others, that communities would be given greater rights to be fully consulted, and that they should give free, prior and informed consent before mining concessions were granted.

Actionaid contended that the negative impact of mining on communities hardly promoted the ‘social upliftment’ or transformation of communities envisaged by the Act, nor was it consistent with the accepted principles of sustainable development. Mr Routeledge said that it was an urgent priority to address the rights violations discussed in the submission. (see document).

Discussion
Mr Moepeng wanted to make a general statement that the focus, when making submissions, should be on the amendments actually set out in the Bill. Any comments on the amendments should not be read outside of the provisions in the Constitution.

Mr Moepeng said that actionaid had asserted that there were loopholes in the Act, and asked for more clarity on where the gaps were. He asked which sections of the Constitution it asserted had been violated. Although he was in support of the comment around public participation and community participation, it was not evident from the presentation what form it should take.

Mr J Lorimer (DA) asked actionaid to expand on its assertion that there was no consultation with communities, despite what the DMR had said.

Mr Moepeng asked how different actionaid was from MAGCON, noting that the presentations shared several similarities.

A Member of actionaid replied that there was not much difference between what actionaid did and what MAGCON did. Several communities, all over the country, tried to organise themselves so that they could challenge whatever impacted negatively on them. However, communities were not being encouraged, but instead “bulldozed” with technical language. Actionaid had expected to be made welcome, not subjected to the same difficulties it experienced with the mining companies.

In regard to public participation and consultation, actionaid felt that recognition must be given to the fact that in the past, communities were denied access to information, education, and lacked understanding of the technical language that mining companies were using in engagements. It had tried to engage with DMR, both in its past and current form. There had been some engagement also with Members of Parliament, but the fact remained that most individual communities were still being “bulldozed”. MAGCON was essentially about some communities taking up some kind of a fight, or reacting to what was happening to them. When the communities decided to organize themselves as communities united in action, this meant that they would engage in protests and pickets, where necessary, because they faced difficult challenges. He wanted Members to come to Emalahleni, but said that they would have to drink water from the tap, and run a 70% risk of kidney disease, which was what communities endured on a daily basis.

The Chairperson commented that the Committee had just received a scolding, and commented that public hearings were precisely to allow for communication between the Committee and the public, somewhat different from its normal work.

Mr Routeledge asked if there were any further points that the Committee wanted to raise.

The Chairperson said there were not; the Committee had the written submission, had listened to the presentation and noted the points.

Mr Lorimer asked for an answer to his question about the DMR not consulting with communities.

Mr Routeledge said that actionaid had engaged with communities on a wide range of issues across the provinces, and therefore felt it had a very good understanding of what communities were experiencing and saying. None of the communities had indicated that the DMR had consulted with them in any manner on the MPRDA; although it could be wrong on that point, it was fairly confident that it had a wide spread of information.  

South African Oil and Gas Alliance 
Mr Ebrahim Takolia, Chief Executive Officer, South African Oil and Gas Alliance (SAOGA) said that the thrust of his presentation would look at the significant opportunities in the oil and gas industry in South Africa, and the current situation. SAOGA was involved in the upstream oil and gas sector and also the mid-stream oil and gas sectors. He noted uncertainty about the “rules of the game”, and whether they were likely to change shortly, the need to establish some certainty, and to recognise also that the oil and gas industry required significant investments.

Clause 45 of the Bill sought to amend section 70 of the MPRDA, by removing the provision for the ‘Designated Agency’ to perform the promotional, regulatory and data management functions for petroleum exploration and production. It was hoped that the Minister would ensure a measure of certainty around the timelines. Even if the timelines were successfully removed from the MPRDA, it was hoped that they would be provided for in the Regulations. (see attached document)

Mr Moepeng interjected to note that the single designated agency had one port of call. He asked if oil and gas were singled out as commodities that should be dealt with separately, or were grouped with mining in general.

Mr Takolia replied that, having spent his early career in mining, he could say that regional offices could work for the mining industry. The issue became more complex because square meterage was so different in the mining sector. 

Allan Gray submission
Mr Sandy McGregor, Executive Director, Allan Gray, said his company acknowledged the importance of the amendment process and wanted to contribute positively to it.

The South African economy was driven by the commodity prices. The commodities boom of the past decade was ending. Profitability of the mining industry had declined significantly. Mining companies were cutting back on capital spending. In this environment it was important to craft investment-friendly legislation.

However, he cautioned that there was something dramatic about the advent of China’s industrialization, when commodity prices tripled, which had an amazing impact on the South Africa’s exports, showing major growth. In 2002, South Africa’s exports were about $30 billion a year, or R300 billion when converted to the relevant exchange rate. Over the decade to 2012, that amount increased to over $100 billion, showing three-fold growth in South African exports. This was, he reiterated, largely driven by the commodity prices and the value of South Africa’s commodity exports, rather than the rise in production by the mines. That had enabled the prosperity in the last decade, including the large wage increases and effect on the economy.

However, the decade of prosperity was now facing a turn in the cycle. China had reached a point where it was shifting its growth-path patterns from investment to consumption. The long period of very high prices had led to major investment in the mining industry, especially in commodities like iron ore, coking coal and coal, many of which were South African exports. However, the rise in investment and slowdown in growth and demand were coming together to bring price falls. These were normal cycles, there was no reason to think that they were out of the ordinary, but it must be noted that the cycles covered quite a long period, so it was quite conceivable that SA could be in a period of stable or falling prices for the next three or four years. Even if prices did not rise, which was a key point (they were high at the moment), it would be difficult for the SA economy to move to the next step in that development, because the underlying export growth needed to grow the economy would not be in place. The economy therefore faced quite a serious situation, and it was difficult to grow the economy in this environment. Since last year, significant slow-down had been seen, linked to the decline in exports. He tabled a graph showing that exports peaked a little over $100 billion, but had dropped about 15% since then.

Mr McGregor said that the main problem was that the mining industry was no longer the profitable engine of the SA economy that it had been at one point. Much had been made of the resource base over the last 130 years. However, it was harder to come by investment in the SA mining industry, because of the lessened opportunities. Mining companies worldwide were at one stage falling over themselves to buy mining ventures and invest in mining ventures. It was possible, from a government stance, to put onerous conditions on the entry of mining companies into mining projects. However, currently, cash was short, and throughout the world mining companies were slashing projects, cutting back investments and there was a decline in investment being seen everywhere. Without investment, production would fall. South Africa had not been very successful in enabling its mining industry in the last decade, and it had not benefited long-term from the boom as countries like Chile and Australia had done.

Mr McGregor said that the difficulty faced in the future was that South Africa was not the top destination for investment of dollars in the global mining industry. The mining industry was in fact not profitable. He cited the example of Angloplatinum, which had decided in 2003 to grow its production by 2 to 3 million ounces of platinum. It had spent R83 billion in the last decade. However, it was actually not growing production, but sustaining its output. The R83 bn was not really investment into the future, but part of the current costs. Total cashflow generated over the last ten years in this company was R7 billion. Similarly, the biggest gold mine, Harmony, had invested R28 bn, which in fact generated R17 bn of cash. This underlined the reality that gold and platinum were not viable businesses, on aggregate. There were windfall profits still in iron ore, but this too would no longer be the case in the near future, because of the new mining ventures in Australia.

Mr McGregor said that the Mining legislation currently placed several obligations on companies, which cost a lot of money. This Bill reduced much of the certainty that mining companies needed to attract and make investments. If this Bill had been introduced five years ago, the initial impact may not have been that great, at a time when everyone was still making money. That, no longer applied, and the Bill, as currently constructed, was actually investor-unfriendly and would have a very significant impact on investment in the mining industry. That, in turn, would have a significant impact on the growth of the South African economy. He urged that the Portfolio Committee consider what was driving the economy, and give thought to the need for more investor friendly legislation, given the serious consequences of an  unfriendly investor environment.

Mr McGregor concluded that various mining companies had already, and would still make comments on the Bill, and urged that the Committee take seriously their assertions that they would have problems in attracting investment, should the Bill in its present form be passed.

Discussion
Mr H Schmidt (DA) said that the perception in certain quarters was that mining companies were simply there to derive profits. The next perception was that mining companies were deriving excessive profits, and had a lot of cash flow and benefits to the “super cycle” of commodities. The perceptions were dependent on how it was predicted that the commodity cycle would develop. It would be beneficial to try to get a figure on what the average percentage of return was that investors received, over the last two years or so, for that information would reinforce or still the myth of extraordinary profits being made, but not shared by the mining companies.

Mr McGregor responded that the position differed across the various sectors. Gold and platinum had not made money in the past few years, and had actually lost in the last two years. The coal industry was starting to get more margins, as a result of export coal prices coming down, but he did not have the figures for that at the moment. He was not even aware of the figures of the diamond mining industry, save to say that diamond mining industry in South Africa was not profitable. Manganese prices collapsed and were no longer profitable The only aspect that stood out, in the area of super-profits, was iron ore, and there too the profits would disappear because there was a lot of investment in that sector elsewhere which would bring down prices.

He commented that the psychological mindset of investors was interesting, as mining investors were willing to take a lower initial return than in other sectors, because they invested in the hope of making windfall profits – and he explained that every seven years or so they might expect to make a lot of money. If the mining regime was structured to remove these windfalls away, no investors would bother to invest at all. Traditionally, in the gold mining industry, people were looking for a long period of 77% return of investment, but nothing like that had been produced in the mining industry recently, except for iron ore producers.

Mr Schmidt asked for clarity whether the norm, in general, was 15% on return of investment.

Mr McGregor responded that the figures could be seen in the accounts of companies. In fact, in the last year, mining share prices had experienced a major decline, and people were aware of that. For instance, dollar share prices, one year ago, for BHP Billiton, were $40, but now were at $30. In Harmony, the price of shares was about R80 but now R40. Gold shares had come down by half, and platinum shares, which were at peak a while ago, had now collapsed as investors believed that these companies did not have the future they had hoped.


Mr Lorimar asked if Mr McGregor was suggesting that if this Bill was passed in its current form, the economy would not grow enough for SA to generate enough exports to fund economic development. He also asked what would happen to the pensions under the control of investment companies if the mining industry was marginalised.

Mr McGregor responded that about 65% of earnings of South African companies came from outside the country, and the only thing that was stabilising the investment situation at the moment was the investment being made to countries North of South Africa. Corporate South Africa could, by investing outside South Africa, protect itself to a degree. The worrying fact was that if there were no export earnings, the rand would be very weak. The economy could not easily adjust to the exchange rate, because it was fairly inflexible. Several labour market issues were still debated and of concern. In the absence of an export market, the rand would suffer, and the way the economy adjusted was by inflation, at a cost to the ordinary people. Affluent investors could protect themselves to a degree, but poor people could not, and that was a cost to society.

Ms K Khonou (ANC) said that the reason why these sessions were called public hearings was that they gave the opportunity to the public to state a particular line of thinking. The generalisation by Mr McGregor that the whole Bill was not investor friendly was problematic. She would have preferred him to have identified certain clauses in the Bill that he saw as investor-unfriendly, which would have enabled the Members to look more closely into how they could be changed.

Mr McGregor responded that the perception was that many detailed comments and submissions had already been made, but there was also a perception that these had largely been ignored by the drafters of the current Bill. The main problem was that times had changed. If the drafters had ignored what all the experts in the industry were saying about the consequences of the Bill, it should not be assumed that the comments had not been relevant. The whole industry had major problems with the Bill. If the concerns were ignored, this could have very damaging consequences. Detailed comments on various clauses had been given already by others.

Mr Mohai said that at least the country had now moved to a situation where it was possible to hold this kind of debate about changes in the Bill. It was noted that in the last ten years, there had been a stable environment that was conducive for growth, transformation, and development in the industry. Last year, the topical issue was nationalisation, and political leaders were called upon to explain whether they were going to nationalise mines. Currently there was certainty on policy, as the political leaders, business and labour always spoke in unison that the mining industry was the primary sector of the economy, and without it the South African economy would not be the same. However, when bodies called for the creation of an environment conducive to investment, or a “friendly environment for investment”, this raised the question of what had been done wrong in the past, and what the grey areas were, on which the policy makers had to focus. This was the crux of the matter. He questioned whether Mr McGregor was suggesting that, in view of the last decade where South Africa did not boost production but had an investment-friendly environment, matters should be left as they were.

Mr McGregor said that it was not so much a matter of leaving things as they were, but actually not doing anything that could have an adverse effect on the economy. The main problem with the Bill was that it eliminated certainty. People needed to know what they were investing in. The delegation of all powers to the bureaucracy, who could make up its mind one way or the other, removed certainty. Substantial powers of delegation were a bad principle in any legal system, because they destroyed the whole legal framework within which people could operate. The certainty that was needed for investment was not to be found in the Bill.

Mr McGregor expanded that, in the area of beneficiation, the Bill eliminated the requirement that beneficiation should be done when it was economically viable. The issue of beneficiation was at the heart of lots of policies, but the cost of beneficiation was going to be put on the mining industry, which was perceived to be making money. People would not, however, want to invest where they would not get a return on their investment. As far as he knew, there was no mineral beneficiation that had actually happened successfully, and several projects had been disasters. 

Mr Moepeng asked whether were there any other aspects that had led to the decline in the mining industry. He asked if Mr McGregor was attributing the loss of profit to the current legislation, pointing out that in fact a number of events had taken place in the mining industry. The Bill was attempting to create an environment that would ensure that everybody was covered and that nobody was exploited. Furthermore, he wanted Mr McGregor to explain which parts of the current legislation, rather than the Amendment Bill, would be considered as conducive to investors, considering developments in and outside South Africa.

Mr McGregor said that the first reason why the mining industry was in difficulty was that the commodity prices had fallen, and that was an external event, outside of any individual’s control. However, another reason was that the wage spiral in South Africa had pushed up the cost of production enormously. Ten years ago, in the gold mining industry, the gold price was $300 an ounce, which went up to about $1 800, and was currently at $1 300. In that period, however, there were also huge increases in prices. The external environment was the major cause of problems, but there were other things that Government policy had effected. Firstly, the mineral rights regime had basically became very complex, there were certain elements of claims and charters, and the way the mineral regime was being managed was not favourable to investment. In addition, the mining industry was an iconic industry in South Africa, and had been seized with far more obligations than merely making profits. For instance, it was given  obligations in regard to the communities around the mines. This obviously came at a cost. It was exceedingly difficult to repeal those social obligations, because they were necessary and desirable. However, another more generalised problem was that the administration of the mining industry was more bureaucratic than anything else, and the way in which the legislation had been implemented in the last ten years had been business-unfriendly. It was well and good to say that good laws had been passed, but the implementation of those laws had in reality hindered the industry and had cost a lot of money.  For instance, whilst no one would deny the importance of sensible safety standards in the mining industry, the implementation of such standards in irrational and costly ways was not correct. In this industry, good intentions of the legislation somehow ended up being badly administered by the bureaucracy. This particular Bill was so problematic because it was actually enhancing the power of the bureaucracy, which already had a very poor record in implementing previous legislation. This implied that it did not really know what to do, and the attempts to implement further decisions that were thought to be right could be doomed to failure.

Mr Moepeng complained that Mr McGregor seemed to have insinuated that safety standards were upheld in an irrational way, and this cast a poor light on the Members of Parliament who had made the laws. He did not take kindly to this.

The Chairperson responded that Mr McGregor had the right to state his opinion, and since it was his submission to the Committee, the Committee could not judge it. Unfortunately, Mr McGregor had now left, but this was a matter that the Committee could further debate when considering all the submissions in depth.

Impala Holdings’(Implats)submission
Ms Stefanie Vevier, Legal Department: Implats, said that her presentation would specifically focus on three issues that caused the greatest concern to Implats: namely, beneficiation, concentration of rights and the processing of tailings. Implats was in the business of mining, processing and refining, with the platinum group minerals, and all the seven platinum group metals as well as related base metals which were primarily nickel, copper and cobalt. Implats was the second biggest platinum producer worldwide, after Anglo Platinum, and produced about 20% supply of platinum globally. It employed just under 60 000 people, including contractors. Its employee bill, including benefits for 2012/13 financial year, was R5 bn and the skills contribution was R430 million. The taxation and royalty contribution to the state was R1.9 bn in 2013. Implats had various social incentives and initiatives which, in 2013, totalled R100 million. She added that it had three mines to market in South Africa – the largest  platinum producing mine in Rustenburg, a smaller, new-generation mine in Limpopo, Marula Platinum, and a shareholder mine that was managed by African Rainbow Minerals, with 55% shareholding. Lastly, there was a start-up mine, Afplats, outside Brits in North West Province.

Ms Vevier said that the Implats BEE stake was listed in the presentation, which showed Members that Implats was fully compliant at all levels with the BEE requirements. The Mining Charter compliance was also listed in respect of the operating mines. At the Impala Platinum, the Royal Bafokeng nation and Royal Bafokeng Holdings had been mining the grounds since 1968. At Marula Platinum, there was a thorough BBEEE compliance, with 9% focus on local business and 9% to local communities.

Ms Vevier said that Implats’ presentation was supportive of the earlier submission by the COM, of which Implats was a member. Implats was a “proudly South African” company that was based in South Africa and listed on the Johannesburg Stock Exchange (JSE). It had  demonstrated and supported the fundamental principles and objectives of the MPRDA.

Ms Vevier said that, with regard to beneficiation, Implats fully supported the government’s objectives on beneficiation and remained committed to assisting the government on upstream beneficiation. She explained that, to support that strategy at Marula Platinum, a chrome company had been set up, which removed the chrome content from the PTM tiles as they exited the plant, having a 50% benefit for local content. Implats was now busy setting up the same at its Impala mine operations, where 30% was flagged for communities. Since 1969, there had been emphasis on mining, conversions and refining of metal, and it had produced final products of metal with a full value chain.

Ms Vevier said that Implats thought the bill lacked clarity on the new requirements for beneficiation. It was not clear whether the value chain that Implats had, which was the vital part of the life of the mining industry, would count as beneficiation under the beneficiation clause. Implats’ investors were also not certain on this issue. She noted that platinum was basically used in the auto-catalytic converter industry, in jewellery markets and other users. Implats was trying to establish a local South African platinum market, and had established a jewellery manufacturing company in Cape Town. Implats supplied the manufacturing loan for this business venture.

Discussion
Mr Schmidt said that the Implats’ jewellery as projected in slide 23 was presumably made in the hope that it would be economically profitable. He asked if the closing down of the Sol Plats business venture was due to the small duty allocation not being granted, which made the requirement for economical beneficiation clearer, or what else might have caused the collapse of that enterprise.

Ms Vevier responded that Sol Plats had failed because of the structure. The platinum was supplied by Implats on a loan, which meant that basically jewellery was manufactured for free, with profits, after sale, being retained in order to pay off the platinum loan. The product that was produced by Sol plat had no local market; whilst there were certain jewellers in Cape Town and Johannesburg who bought the product, it had not moved as expected and in fact, at the moment, there was no jewellery market in the country. The possibility had been considered of exporting the jewellery to the markets that were more alive to platinum jewellery, but export duties were high.

Mr Schmidt asked, in relation to the statement that local deliveries of Implats were exceeding 20% of its local production, what kind of industry development projects were taking place, and whether this was mostly limited to the production of auto-catalytic converters.

Ms Vevier responded that the 20% of Implats’ production which was delivered locally was all to the automotive manufacturing business in Port Elizabeth. In every exhaust system of a motorcar, there was platinum or palladium coating on the catalyst, which limited the noxious emissions that came out of motor vehicles.

Ms Khunou asked what the problem was that had prevented the creation of a platinum market in South Africa for the last 44 years during which Implats had been operating in the country.

Ms Vevier answered that there had not been any platinum market in the country up to the 1980s, when the emissions regulations in Europe and the United States were passed, and a solution had to be found to meet emissions. Thankfully for Implats it was realised that platinum and palladium were the best solution to limit those noxious emissions.

Ms Khunou asked what the company was doing to benefit the communities that were around the mines, commenting that people there were worse off now than they had been prior to the mines opening.

Mr Mohai asked the presenter to comment on the social wage gap, whether Implats agreed there was a wage gap and what could be done to address it.

Ms Vevier said that the main benefiting community was the Bafokeng nation, on whose ground the mining was taking place, and they were the major shareholders in the company. The dividend shares had amounted to billions and billions of rand, all of which had gone to the local community. Then, most obviously after 1994, there were corporate social investments initiatives. The compliance with the Mining Charter required that Implats have a comprehensive social labour plan, which was far reaching and was consistently making even better improvements. Up to 2012, Implats had delivered 1 771 houses for the communities and planned to deliver another 2 400 houses which would cost an extra R1 billion to the company. Implats was a responsible corporate social citizen, considering the huge social needs, and tried to do the best they could with the resources at its disposal. Implats was not one of those companies that would hide behind the door and not take care of its social responsibility.

Mr Mohai asked whether regulation was the reason why there were non-compliant mining companies in South Africa.

Ms Vevier said that Implats accepted that regulation was needed. Everyone needed to contribute and non-compliance on the promises made to the regulator should attract consequences.

Anglo American South Africa submission
Ms Khanyisile Kweyama, Executive Director, Anglo American, said that Anglo American welcomed the opportunity to present its submissions on the MPRDA Amendment Bill. Anglo American wanted to contribute positively and actively to the amendment process and achieve a mining regulatory system which was predictable, competitive and stable. This was crucial for the development, success and growth of the mining industry in South Africa. Anglo American was proud to have a long history of operating in South Africa. It had made significant investments contributing to the development not only of its own business, but also of the country.

Anglo American’s platinum, iron ore, diamond and thermal coal operations would be directly affected by the proposed amendments, as would its ability to develop, expand and grow the company in South Africa. Anglo American wished now to outline concerns and suggest alternatives that it believed would be of benefit to the industry and the country. Anglo American supported the comments already submitted by the Chamber of Mines, and its proposals now should be seen as additional to those submissions.

Anglo American wanted to focus on four core issues: Mineral discretion, Beneficiation, Transfers of interest, and Residue stockpiles.

Anglo American had its roots in South Africa, having been established here in 1917. Its operating assets in South Africa accounted for 35% of its global operating assets. In 2012, 45% of Anglo American’s revenue and 54% of operating profits were generated in South Africa. As at the end of 2012, Anglo American employed more than 97 000 people- about 75 500 of whom were full-time employees, and the rest were contractors. Anglo American had invested in capital expenditure to the tune of R188.3 billion in South Africa since 1999. In 2012 alone, R14,4 billion was paid to the fiscus in the form of direct and indirect taxes. The resultant capital inflow to South African from Anglo American’s foreign shareholding was R9.6 billion in 2012 and reported revenues generated amounted to R94.2 billion.

Ms Kweyama said that Anglo American, as a corporate citizen of South Africa, wanted the country to grow and prosper. For this to happen, South Africa had to be an attractive investment destination. However, in any industry, especially in mining, which was inherently high risk, and capital intensive, this could not and would not happen without a stable regulatory environment which provided some certainty, stability and predictability.

The finalisation of the MPRDA was an important opportunity for Government to show that it was committed to improving the effectiveness of legal and regulatory compliance, was fair and impartial, was committed to the consistent application of laws, and, most importantly, was committed to providing an environment supportive of investment. As the Bill currently stood, much was left to the Minister’s future discretion, and regulations were to be made to the MPRDA, with no guidance provided as to how that discretion had to be exercised. The level of discretion had the potential to be significantly disadvantageous to companies wanting to do business in South Africa, as there was no requirement for advance notice of relevant regimes. In the mining industry, with its very long-term investment horizons, this was very unattractive.

Ms Kweyama said that Anglo American strongly believed that key issues should be dealt with either in the MPRDA itself, or in schedules to the MPRDA, rather than being delegated to uncertain future regulation, which would not require the same law making process as the Committee was now going through. Such unfettered discretion led to uncertainty and would discourage investment in SA’s mining industry. This was directly contrary to the requirements of the National Development Plan (NDP) and the framework for a sustainable mining industry. The MPRDA needed to be constructive towards the mining industry, rather than undermining it.

Ms Kweyama said that her company supported beneficiation as a means of creating new wealth and employment in South Africa. It also supported Government’s efforts to reindustrialise South Africa. However, it agreed with the National Development Plan’s comments that beneficiation was not a panacea, and it should make economic sense. Anglo American’s PGM, iron ore, diamonds and thermal coal businesses have the potential to be impacted by beneficiation clauses in the Bill. It was concerned that there remained a significant amount of certainty around beneficiation, as the Bill was currently worded. Of particular concern was the new definition of beneficiation and the resulting discretion this afforded the Minister. It was worrying that the Minister, in particular, would have the power to determine the price and volume of commodities that should be set aside to local beneficiates, without consideration for the market or economic factors. Furthermore, the proposed control of exports could contravene international trade agreements and commitments related to tariffs and trade.

Ms Kweyama said that Anglo strongly believed that the proposed reference to the developmental pricing conditions should be deleted, in favour of export parity pricing. If this was to be retained, the Bill must spell out clearly how price would be determined, taking into account the need to provide a competitive risk-adjusted return to the producers. It was important that clarity should also be provided on the definition of strategic minerals and developmental pricing conditions. Anglo American was acutely aware that it was the Government’s duty and right to extract the maximum developmental impact and value from the country’s natural resources for its people, as was the purpose of beneficiation. However, it also stressed that the single largest constraint to greater beneficiation in South Africa had nothing to do with access to raw materials, but was rather to do with the lack of capital investment, both in downstream industries, and also in mining, which would only be exacerbated through this proposed legislation.

Ms Kweyama noted, in regard to transfers of interest, that clause 8(a) of the Bill said that the Minister’s consent would be required for disposal of any interest in an unlisted company and of a controlling interest in a listed company. Anglo American was concerned that the Ministerial discretion, coupled with lack of timelines within which the discretion must be exercised, would most likely deter investment in the mining sector. The terms of rights at the date of transfer might be amended, and more onerous conditions might be imposed by the Minister. This would negatively and directly affect shares such as Anglo American’s, that were traded daily on stock exchanges. Delays and uncertainty would be caused to commercial mining transactions. Anglo American called for the deletion of these amendments, so that only the disposal of a controlling interest in unlisted company holders required Ministerial consent. It also called for confirmation that these provisions were compliant with South African’s international law obligations.

Ms Kweyama moved on to the question of residue stockpiles. The current legislation did not regulate mine dumps created before the commencement of the MPRDA. However, the amendment Bill was now proposing that they be include, and provided for a two year transitional period where owners of mine dumps should apply for a reclamation permit, in order to commence or continue mining operations on mine dumps. However, these would endure for a period not exceeding four years, with one renewal not exceeding 2 years, and would not be transferable. If this was implemented, Anglo American and other companies in a similar position could find their ownership of mine dumps expropriated. Four year reclamation permits were insufficient to reclaim mine dumps, and the non-transferable nature of the permits would prevent future group restructuring and sales of mines. Anglo American was also proposing that these clauses be deleted.

Ms Kweyama concluded that while Anglo American supported many objectives of the DMR, mining had a significant developmental potential for South Africa but in effect South Africa would miss out on such potential until it created a regulatory environment that encouraged investment and supported the mining industry.

Discussion
Mr Mohai asked for comment on the social wage gap, whether Anglo American agreed there was a wage gap and what could be done to address it, which was a critical area of focus for South Africa.

Ms Kweyama answered that Anglo American acknowledged that there was a wage gap in income between the lower levels of employees and executive management. This was an issue constantly recognised and discussed in board meetings, and the company had been working towards improving the wages and working conditions of its employees at lower levels. They whole mining industry was in a state of emergency, having shed about 20 000 jobs at the very time when Anglo American had been aligning itself to create jobs, improve jobs and make sure that people were skilled. However, Anglo, like other companies, was hit by the reality of business and the costs with which the industry was faced including the issues of demand and supply alluded to in other presentations. In order to become more efficient, mines were closing, not only at Anglo American, but also at other mining companies. In order to address the situation, there was a need to partner with the regulator, and achieve the stabilisation of the mining industry that would regenerate the economy, so that it was possible to create more jobs rather than lose them.

Mr Mohai asked whether Anglo American was trying to suggest that this proposed regulatory framework was only unique to South Africa, and did not exist in other countries with mines. He wondered if the fears by the industry into interventions by the Minister was unique to South Africa. He asked that Anglo American must try to help define the new path, in an unambiguous way.

Ms Kweyama responded that she was not suggesting that there should be no regulatory framework in the mining industry. The submission constantly referred to the need for certainty, predictability and guidelines. However, the concern was that when discretion was given, and no guidelines for exercising that discretion were stated, this would result in uncertainty, particularly in the mining industry, where investments were, by their nature, long term. There was indeed regulation in all countries. In some, it was even more onerous than in South Africa. However, that regulation was accompanied with guidelines. Investors thus knew what they were investing into that particular industry. At the moment, there were fears that the exact nature of the regulatory regime not only was not known, but could easily change to new rules, and there was a probability that part way into the investment, new laws would start to govern the investment.

Mr Schmidt noted that the offshore gas petroleum industry was basically asking that the current mineral regulation should continue. They was also a submission by Sanlam Investment Management that said that from 2001 to 2008 the South Africa economy grew by minus 1%, China grew by 14%, Chile by 11%, Russia by 10%, India and Brazil by 7%, and Peru by 6%. Those were hard figures and facts. Anyone who was suggesting that, in these seven years, there had been a good mineral regime, had to take a long hard look into those facts.

BHP Billiton submission
Mr Manie Dreyer, President: BECSA, BHP Billiton, said his company (BHP) wanted to acknowledge the constructive engagements that the COM and DMR had had recently to address the Chamber’s main concerns with the Bill. Without detracting from the progress that had been made BHP would like to expand on what it considered to be some of the remaining critical shortcomings of the Bill.

Several shortcomings had been highlighted in BHP’s written submission. COM had compiled a comprehensive submission to the Portfolio Committee in response to the Bill and BHP, as a member of the COM, had contributed to this submission and wanted to confirm its unequivocal support for the views expressed there.

One area of particular concern to BHP Billiton related to Beneficiation and Exports. The Bill provided for some noteworthy changes to section 26 of the MPRDA.

BHP cited the following as its main concerns with the proposed amendments:
- The proposals conferred unfettered discretion, which would be a disincentive to mineral investment
- Arguably, any enactment which required that a producer sell at less than it could obtain on the open market would constitute an expropriation in terms of section 25 of the Constitution
- The proposals had a measure of retrospectivity as far as existing long-term supply contracts were concerned, and could give rise to breach of such contracts if these proposals were to become law
- The proposals might also contravene South Africa’s international trade obligations, and the implementation and enforcement of the proposals would likely constitute a breach of these trade obligations
- The provision that required consents on coal exports to be subject to conditions determined by the Minister provided no guidelines as to what such conditions should be, and hence contravened the Rule of Law requirement of certainty, as set out in section 1(c) of the Constitution.

In summary, BHP believed that  the overall objective of the amendment of this particular section was aimed to ensure, amongst others, the security of coal supply to Eskom in decades to come, and that it was therefore of national strategic interest to the country and its future. With this, it agreed, and saw this coal supply as extremely important. However, the proposals were problematic in that they were actually requiring the minerals industry to subsidise local beneficiation, in detriment of the object of mineral development set out in section 2(e) of the MPRDA. Furthermore, BHP held the view that in fact the amendments would not achieve their strategic objective of proving coal security to Eskom.

BHP noted that its written submission aimed to provide some alternative solutions to this energy security dilemma, and would provide recommendations as how the Bill could be further improved to provide for the development of new coal mines and ultimately energy security to the country. Despite the fact that it was a low margin industry, the coal industry made a significant contribution to South Africa’s economic engine. South Africa was blessed with an abundance of coal that was sufficient to meet not only local coal demand, but also demand for exports. Given the extent of the investment required, the requisite expansion in mining could only be achieved if an appropriate and competitive return was offered to investors to induce that investment. It did not matter who was to develop the supply capacity, but competitive return could only be realised if a transparent market price existed for domestic supply to Eskom. This market price would also ensure that the location of the resource was not a factor, and it would eliminate ‘volume risk’  of ensuring that the required volumes of coal needed to match demand, were developed. The abundant coal resources meant that the country and the economy would not be exposed to undue price risks if coal prices were deregulated, and market prices introduced.

He added that domestic market prices for coal would not result in significantly higher electricity prices, compared to other scenarios where a state-owned mining enterprise should develop the requisite coal mines to fuel future demand. Even if a state owned enterprise was able to attract the required investment in funding and human resource skills and capability, it was likely to result in significantly higher cost of coal production. The study, most notably, showed that even state ownership, regulation or even development pricing of cost  would not yield the requisite development of new coal mines required to meet demand.

All of these findings supported BHP’s view that regulation by way of the Bill, and declaring coal a national strategic mineral, would not provide the answers to ensuring coal and energy security to the country. Instead, an unregulated market built on a transparent market pricing mechanism could and would deliver the targeted outcomes of both Eskom and Government, and benefit stakeholders, including communities and employees.

BHP therefore suggested the following changes to the Bill:
- Ministerial directives should be  replaced with legislative provisions in the MPRDA itself, as far as possible
- If Ministerial discretions were retained, they must be made subject to legislatively stipulated criteria
- There should be a requirement that developmental pricing conditions must be at competitive, non-discriminatory, market prices
- Minerals suitable only for export should be excluded
- Minerals already committed to supply contracts should be excluded, both from local beneficiation requirements and from export restrictions
- All proposals should, as far as was legally possible, be aligned with South Africa’s international trade obligations, and, if this was not possible, then they should be deleted
- The new section 107(1)(A) should be deleted in favour of legislative provisions in the MPRDA itself.

Discussion
Mr Lorimer said that Eskom had indicated that it needed R90 bn worth of investment by 2022. He asked whether the country was likely to get  that investment, judging by trends over the last three to four years. He also asked whether it could be achieved if the Bill was passed in its current form.  

Mr Dreyer said that development had not taken place, as could be seen in some of the supply contracts of Eskom with the Medupi and Kusile power stations. If this Bill was passed as currently formulated, the development would face even more challenges. Even if Government had more money to spend on those contracts, this would not produce the necessary coal that Eskom required. In 2022 he would envisage that power shedding would have to take place for much longer time frames, such as midday to after midnight.

Mr Schmidt said that Eskom argued that it needed far more investment to ensure its own coal supply, and thus wanted to have coal declared as a strategic mineral. It wanted the Minister  to have discretion, to ensure that developmental pricing was applied. Market related prices would apply in general, but certain should be regulated, such as the strategic minerals, to ensure supply. However, market forces dominated in terms of price making arrangements.

Mr Dreyer said fortunately the country had the coal; without it, South Africa would have been in a real predicament. Eskom had seen the solution as declaring coal a strategic mineral. He agreed that coal was strategically important to the country. However, Eskom and BHP differed in how this must be executed. Mining companies had an important role to play in developing coal mines in order to supply Eskom with coal for the next generation. The country had no resources to develop those mines own its own. Even if it had this, the studies showed that coal prices would still increase, and electricity would still become more expensive. None of those strategic choices would deliver the kind of expansion that would provide enough coal, to generate enough electricity, to keep all business and community needs running.

National Union of Metalworkers of South Africa (NUMSA) submission
Mr Woody Aroun, Parliamentary Officer, NUMSA, said that NUMSA had campaigned for more public ownership of the country’s natural resources, and had argued that beneficiation of these mineral resources was important to sustain industrial growth and create employment. NUMSA was a union that organised metalworkers in energy, steel, engineering and associated industries like the motor and automobile sector. It believed that the MPRDA would provide the necessary legislative framework to facilitate the implementation of strategies as outlined in the Beneficiation Strategy for the Minerals Industry of South Africa (DMR), the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry (DMR), and Industry Policy Action Plan (Department of Trade and Industry).

NUMSA suggested, in regard to the Ministerial Advisory Council, that there should be a repeal of sections 57 to 68 of the principal Act, which provided for the establishment of a Minerals and Mining Development Board, and matters related to the functions, composition and administration of that Board. NUMSA noted that the Act provided for guidelines for community participation, but excluded community and social formations from the structures. It  believed that these exclusions would affect the credibility of the proposed new structures, as well as being likely to damage the spirit of transformation that the legislation sought to address.

Mr Aroun then commented on beneficiation fast-tracking. The figures released by the Department of Trade and Industry (dti) suggested that employment opportunities tended to be low at milling, or refinery stage, but could become very high at mass semi-manufacturing and final production and machine building stages. Whilst NUMSA had advocated and lobbied for the introduction of export taxes on minerals leaving the country, the dti believed that an amendment to section 26 of the MPRDA would achieve the same effect and contribute significantly to enhancing the domestic manufacturing sector. NUMSA would, therefore, support these amendments to section 26, although its own policy position on beneficiation remained unchanged. It would be happy to furnish the Portfolio Committee with a copy of its internal discussion document entitled “Towards a Metallic Minerals Beneficiation Strategy for South Africa, May 2012”.

Discussion
Mr Lorimer asked if, when Mr Aroun was talking about the exclusion of social formations from structures, he was actually advocating for ownership for those formations. He asked whether NUMSA would envisage that ownership being part of the 26% BEE ownership stipulated in the Mining Charter. 

Mr Mohai asked for NUMSA’s comments on the issue of a conducive environment for investment. He questioned if beneficiation would address the policy imperatives of job creation, and other issues.

Mr Schmidt asked Mr Aroun to share his views on the issue of consultation. NUMSA had suggested that there was not sufficient consultation, in terms of the bargaining power.

Mr Aroun responded that on the issue of consultation there were a whole range of issues to consider. The communities that were affected, even to the point where they was deprived of their land, had a right to be consulted in a meaningful way. Ideally, a win/win solution should be found, although he accepted that this was not always possible because it depended on a variety of factors.

On the issue of addressing ownership, Mr Aroun said it was not a matter of buying off, because people were sensitive to the ownership of land. People had certain attachments to platinum mines, the slime dumps, and erosion of fertile land. It would be necessary to look at a range of issues to encourage development, but it was not so simple as merely relegating ownership to 26%. The Legal Resources Centre (LRC) had, in its presentation, touched on  communal land and ownership rights.

Mr Aroun noted that NUMSA had certain political views about investment. The crux of its thinking was that any investment in this country should address the triple threat of poverty, unemployment and inequality. It should not be investment for the purpose of pumping up and shipping out billions of dollars. Proper investment should link also to enhancing the gender component. The problem was that transformation meant different things to different people, depending on whose interests were being served at the time. Some would speak about investment and be technical in their terms, and from that massive exploitation had been seen. For NUMSA, investment was not about exploitation and any levels of investments should address levels of inequality, poverty and unemployment. The country had unemployment high on the agenda at the moment. None of the arguments made on investments had yielded positive results on unemployment.

The meeting was adjourned.