Mineral & Petroleum Resources Development Amendment Bill: Departmental responses to public submissions

Meeting report

Mineral & Petroleum Resources Development Amendment Bill: Departmental responses to public submissions
Mr Mosa Mabuza, Director General, Department of Mineral Resources presented the responses of the Department of Mineral Resources (DMR or the Department) to the public hearings on the Mineral and Petroleum Resources Development Amendment Bill (the Bill). He summarised that the public hearings held from 11 to 18 September 2013, attracted a broad range of stakeholder representation and comments to the Bill, and all submissions were appreciated as part of shaping the construct of the Bill .The Bill sought to create a balance between expectations, governmental developmental priorities, the workers, the community and environmentalists, and all these groups were represented during the hearings.

The DMR considered the mining industry and petroleum industries as an important ingredient to the South African socio-economic development. The petroleum industry was a relatively new industry and it presented new opportunities, therefore government was committed to provide an enabling environment for sustainable growth and meaningful transformation for the mining, minerals and petroleum industry.

He summarised that the strategic objectives of the Bill included improvement of the means of doing business in South Africa (SA) by streamlining and integration of mining, environmental and water authorisation processing. This process was advancing. Further objectives were to strengthen the content of the Bill, to further enhance and continue to create a conducive environment for business investment, growth and job creation. The Department said it was important for the Bill to balance investment, growth and job creation with the National Development Plan (NDP) imperatives. It was important that the Bill to entrenched security of tenure, as an integral part of the regulatory framework.

The DMR firstly addressed the submission around the limited time for consultation on the Bill. It was argued that this was too short and that parties did not use appropriate forums to formulate informed arguments and have full engagement. DMR responded that the amendment process started in 2010. Since then, there had been numerous engagements at various points with numerous stakeholders. There was consultation started in a number of provinces, through Mintek, in 2011 .The DMR consulted government stakeholders, and the Competition Commission. Consultations were held with the petroleum industry, finance and legal services in March 2013.

Other submissions referred to issues with the processing of applications, and there was a comment that too much unlimited power and discretion was conferred on the Minister to determine terms and conditions subject to which grants may be granted. The Bill failed to make provision for pending applications. It was suggested that the “first come first served” principle must be retained. On these points, DMR responded that the proposed section was to ensure that there was sustainable, orderly and optimum development of mineral and upstream petroleum resources, consistent with the principal Act. The proposals on section 9 must be read with sections 19(1)(b), 25(1), 82(1)(b) and 86(1)(b) of the Act. which provided for security of tenure. In regard to pending applications, the general principle of interpretation was that a pending application would be processed in terms of rules and regulations prevailing at the time of application.

Detailed mechanisms on the terms and conditions under which the lodgment window would be considered were subject to regulation, including the third party, other than the DMR, triggering the project. A new consideration was that other parties could assist in the lodgment of the window and the DMR would appreciate that.

Submissions also referred to the removal of time frames which were part of section 9. DMR explained that there was an express reference made to the time frame that had been substituted as prescribed through the Bill. The DMR could not have time frames in relation to an integrated licensing mechanism with the Department of Water Affairs and Environmental Affairs. Integration was necessary in order to have that mechanism.

The next issue raised related to Sections 10, 15, 22 and 27, in respect of consultation. It was claimed that the Bill did not make provision for proper consultation with the land owner, and as a result failed to align with the principle of administrative justice consistent with the Ngwenyana Constitutional Court case. Submissions were also made to the effect that the Bill does not have sufficient details about the consultation that was required. DMR’s response was that section 10, as well as the other sections related to consultation, should not be read in isolation. Consultation would follow a two-pronged process, firstly in terms of section 10 and then in terms of section 15, 22 and 27.

Responses to consultation would include placing the relevant information in accessible areas where affected parties would be able to access the information. The notices would be written in languages which were dominant in those areas. Applicants must engage with land owners and other parties involved, in good faith. Land owners, during the consultation process, should be supplied with the necessary information on all intended activities. In relation to the alignment with the Ngwenyana principles, DMR noted that sections 16, 22 and 27 had been amended, for the applicant to consult with the land owner and other lawful parties involved.

Another submission related to the transfer of shares, stating that there the Ministerial process was burdensome and unduly restrictive, and as it caused undue delay. Furthermore, there were concerns that the changes in controlling interests in listed companies happened automatically, and a requirement for ministerial concern sought to compel the impossible. To this, the DMR responded that the provision was made was to balance the imperatives with security of tenure. It was noted that experiences of fronting in Black Economic Empowerment (BEE), undue dilution of BEE, and misuse of the resources and funds  undermined national development priorities and had led to the need to make these provisions.

There was an intention to ensure, in particular, that South Africa would give equitable assets in the resources. The Department also consulted the Johannesburg Stock Exchange on the changes controlling interests, and it had reaffirmed that such a concern needed to be limited to changes in controlling interests in limited companies, in order to be consistent with the JSE regulations.  Change in controlling interests was a common practice in SA in other sectors as well.

Submissions referring to the changes to section 17 and 23, on the Concentration of Rights, raised a concern that the Bill does not provide how the principle would be implemented and this created uncertainty.

A submission made on section 26 raised a concern that the proposed provision gave the Minister unfettered discretionary powers, and this would lead to uncertainty in the mining sector. Another question raised was how beneficiation would be applied to petroleum resources. Yet another raised the question of what developmental pricing meant. Finally, there was a concern that the mining industry could not be forced to subsidise as this would negatively affect the viability of the mining industry in SA.

The Department’s reply to the submission concerning beneficiation was that the beneficiation value proposition in fact represented a win/win game-changing opportunity for South Africa. Rights holders were not necessarily inspired to subsidise, unless they saw a value in doing so; and therefore companies should not be forced to subsidise beneficiation. Conventional measures to accelerate beneficiations were part of the proposal, but the motion to augment unconventional measures was also emphasised.

Submissions also showed concerns on the uncertainty of the applicability of the existing Petroleum Mining Permits (PMP), in terms of the proposed integrated system that required environmental authorisation. The Department’s response to this concern was that all environmental management plans approved in terms of the principal Act (MRPDA) should be approved in terms of the National Environmental Management Act (NEMA).

Submissions made with regards to historic dumps raised a concern that historic residue was private property and the proposed provision would result in expropriation. The Department’s response to this was that all minerals were vested to state custodianship, including all the minerals in the dumps.

The Department also emphasised that there had not been any transfer of environmental functions to the DMR, but the DMR would become the implementer of the NEMA in relation to mining. The DMR was adamant that there were no conflicting mandates between the two departments.

Submissions with regard to section 99, which dealt with sanctions, raised a concern that the turnover was excessive and disproportionate to the offers made. The Department’s response was that considerable care was taken to ensure that there was a correlation between section 99 and section 97.

In conclusion Mr Mabuza said that the intention of the Bill was to strengthen the architecture of the mining industry, so that it became investor friendly. The Bill further intended to promote compliance and achieve ease of doing business, as well as to improve security of tenure. It must be aligned with the National Development Plan, and balance the risks and the expectations of interested stakeholders.

A State Law Adviser said that  the submissions had been considered carefully to assess areas which needed to be strengthened, or inconsistencies redressed, and all new considerations and wording would be referred to the Committee. It was reiterated that the DMR and State Law Advisers had dealt with the concerns around the Ministerial discretion, and the regulation-making powers of the Minister, and those proposals would be presented to the Committee. The Department was satisfied that the DMR had in fact all issues that were raised in the public hearings.

Discussion
Mr J Lorimer (DA), made reference to the quotations used in the presentation and then emphasised that it was important to ensure that the people working in the mines were protected. He too had been disturbed at the number of matters on which the Bill sought to regulate. The Committee would eagerly await the new version of the Bill, and he wondered when it would be made available. He stated that many stakeholders in the industry felt that there was too much regulation in the Bill, and that even the NDP required that there be certainty with regards to regulation and legislation.

Mr Lorimer also asked about the way in which applications would be considered. He wondered if the “first-come, first served” principle would still apply.

Mr Lorimer was concerned about the regulation time frame and regulation consultation, and felt that these issues needed to be covered. He asked for clarity on what concessions the Department was prepared to make.

Mr Lorimer also raised concerns about beneficiation that it might cause some form of difficulty in the mining industry. He looked forward to seeing changes which would be made with regard to regulation. Also, he requested more clarity in relation to mine dumps. He felt that the provisions around mine dumps could do with being strengthened.

Mr Lorimer asked the Department why it was planning on getting rid of Petroleum Agency of South Africa (PASA). He referred to the references to “global best practices” but wondered if everyone had a common understanding of what that would be. He said that there was uncertainty with regard to the distribution and sale of resources and how the Mining Charter could be applied to the gas industry.

Mr Lorimer asked the Department to clarify if the rules of the game were changing midway. For example, if someone had production rights, and his or her application stemmed from the exploration rights, he wondered if and how the rules would change in that case.

Mr Lorimer thought that more information was needed on coal mines and the increments in production and production levels, and asked the Department to substantiate on this matter.

Mr H Schmidt (DA) asked that the set of regulations be made available. He questioned the number of the communities consulted in the four provinces and also asked if mining companies were involved in the consultation process. He also felt that more clarity was needed on who exactly was consulted. He pointed out that there was a difference between “affected parties” and “interested parties”. The former were actually affected by what was happening in the industry, while interested parties chose to be part of the industry developments.

Mr Schmidt noted the Department’s response that set out that “no company will be ‘forced’ to subsidise”. He asked why that word was put in inverted commas.

Mr Schmidt failed to see how the Department could refer to the Second Diamond Amendment Act as a form of guardian principle, considering the fact that it had not met its objective.

Mr Schmidt also raised a question on whether the Mining Charter had been amended. It was supposed to be amended every five years. He raised this point in relation to the growth in the area of petroleum companies. He also asked the Department to explain slide 25 in more detail.

Ms N Khunou (ANC) asked if the Department was planning to change the time frames, and, in general, wanted more clarity on the time frames.

Ms Khunou said that accessibility was a main concern, and the nature of communities must be taken into consideration when relaying relevant information to them, particularly to ensure that certain languages were readily understood in those communities.
 
Ms Khunou also asked about regional managers and regional monitoring, and wondered if the Department had enough capacity to check if the regional managers and staff members were complying with the rules and regulations.

Ms Khunou wanted an explanation of the acronyms used.

She further asked what the Department planned to do with the dumps, should no one show an interest in them, and added that she also wanted to know if any mechanisms were put in place to take care of these dumps, having noted the remark that nobody could claim to own the dumps as government was the rightful custodian of them.   and that no one should claim that they own the dumps,  the government was the rightful custodian of the dumps .

Mr S Mohai (ANC) welcomed the presentation and said that it was elaborate, yet it showed that the DMR still needed to deal with some substantive issues.

Mr Mohai commented that beneficiation was a serious policy consideration undertaken by government, that beneficiation was in line with strategies like NDP and that there must be resources set aside for beneficiation. He asked for comment on those points.

Mr Mohai also asked what the Department had to say about the fact that it appeared that companies were advocating for different dispensations and that companies needed more time. He also called for a response on the suggestion that the framework be changed.

Ms J Ngele (ANC) asked for clarity on applications being accepted to submit objections. Ms Ngele also asked for clarity on the definition of dumps, and the definition and roles of right holders and stakeholders.

Mr C Gololo(ANC) asked the Department about figures relating to OECD countries.

Mr M Sonto(ANC) asked the Department what its views were on regulating the South African mining industry, given the responses that it had outlined here.

The Chairperson stated there was an issue with amendment and regulation. She asked how far the Department was with regulation, and how it was going to implement the changes. She wondered how the regulations would help the Committee in making decisions, especially process of streamlining licenses .

The Chairperson also raised an area of concern on the issues around the formation of the board vis a vis the powers of the Minister, and asked that the Department clarify the difference between the formulation of the Board and the formulation of an Advisory Council, and how it was thought that these structures would help.

Mr Mabuza started his responses by setting out an explanation of the acronyms. He stated that there was a formal partnership between South Africa and the OECD, and that this dealt with economic policy issues.

Ms Khunou responded that organisations like the World Trade Organisation (WTO) tend to compare countries that were actually not really comparable. South Africa was not a developed country, and so she asked why it was not being compared with others in a similar status.

Mr Mabuza responded that the work of the OECD was not limited to developing economies only. IN regard to comparisons, he said that South Africa had been compared to Chile, Mexico and Norway. The common denominator or main factor of countries being compared was that they must able to create value from the exploitation of minerals and commodities.

Mr Mabuza told Mr Gololo that percentages were available and that the figures meant that the studies actually compared countries in real terms and not on estimates. South Africa generated 3% of revenue from the sale of commodities, whereas Chile generated 10 times more; therefore it was important that South Africa should maximise revenue, as the inability to create value was a reflection of fundamental structural weaknesses in South Africa.

In answer to the question on GDP, he said that the study in question presented the real value of expedition. The Minister of Finance had initiated a corporate tax review, and the Department was waiting on the findings which would come out of this tax review.

Mr Mabuza then responded to Mr Lorimer’s question on section 26. The DMR proposed to sufficiently cater for the notion of consultation. The Department wanted to reformulate section 26 in a way that would ensure that all parties involved would benefit. The Department also proposed to prescribe in legislation the notion that regulation would not be unanimously developed in the DMR, but that instead the public needed to take a part in amending the Bill.

With regards to free carried interests, Mr Mabuza said that rules of the game were changing mainstream, however general principles would apply.

Mr Lorimer repeated that he had concerns about the free carry, the Mining Charter, as well as the other 30% being optional.

Mr Mabuza responded that the DMR wanted to imbue the best practice in the best way possible. In regard to the Broad Based Black Economic Empowerment principles, he noted that if, in any sector, the transformation levels fell below the BBBEE Act target, then that Act would be applicable.

Again speaking to the BBBEE targets, Mr Mabuza noted that it was easier with the petroleum industry to find out all that was required, as there was a strong representation of the petroleum industry in the deliberations. He maintained that there had been adequate engagement which had led to solutions that were mutually beneficial. Mr Mabuza stated that the Department wished to attract more investors but to achieve that there needed to be some changes. In response to the question about the purchases, Mr Mabuza also said that there was no need to rush answers, and DMR must rather find the best solutions so that they could deploy their resources.

In answering the question on coal mines and whether production had increased, Mr Mabuza said that he did not have sufficient statistics to answer the question but he would send written answers later to the Committee.

Mr Mabuza responded to the question from Mr Schmidt about using the word ‘forced’ in inverted commas. That was a direct quotation from the submission. The inverted commas did not mean that the Department would find new ways of forcing companies to subsidise.

Mr Mabuza said that it was unfortunate that, in the introduction of the Second Diamond Amendment Act, only one company complied with the threshold requirements for restrictions to be put in place and that company was doing well .However this company had reaffirmed its faith in the industry by making more investments, and that displayed level of confidence also in what the DMR was doing.

Mr Mabuza responded to Ms Khunou’s question on capacity by stating that the Department was building capacity and because companies were obliged to audit themselves, the Department would not perform all the regulatory duties, but these would be shared with companies. The Department was proposing a shift towards smarter solutions when it comes to regulations.

Mr Mabuza wanted to expand on the issue of the mine dumps. He used the example of the Northern Cape diamonds, where technological equipment now allowed for processing of the dumps after a period of a hundred years or so, so administering the dumps through the MPRDA created a legal issue for the DMR and the industry. Secondly, he cited the example of PGM, where, originally, it had been thought that chrome reserves were not extractable and the quality of chrome associated with PGM was low. However, that was again investigated in 2005, when more chrome was needed. This illustrated that the dumps may appear burdensome and useless, but over time their value and potential would change, and the DMR was trying to ensure that the environmental systems as well as the community were protected when creating these dumps.

Mr Mabuza responded to Mr Sonto’s question about comments and responses, and said that the reports received tended to capture the behaviour of the Department as industry stakeholders and the Department must remember that whatever it did would have an impact upon investment and relationships with other companies. The Department had more work to do to improve, but it was heartened by the willingness of stakeholders to work with the Department.

Another representative of the Department responded to Mr Lorimer’s questions on time frames, and said that there was some difficulty in achieving alignment in administrative processes, with the current time frames and the legislation tried to address that point. The Department had not been able to communicate with all stakeholders because of the timeframes.

He added that the DMR had then proposed the deletion of section 107, in order to make specific arrangements on sections needing further consultation; for instance, the beneficiation under section 26. The DMR had conceded the point on concentration of rights, and the revised section 9 would go far to address the issues.

He also responded to Mr Schmidt’s question about the affected and interested parties, by repeating that a two-pronged consultation process was used. The section 10 approach would cover interested parties and affected parties, and the sections 16, 22, and 27 consultations would be limited to those who were directly affected.

In response to Ms Ngele’s question about applications, he noted that if the applicant was applying for a mining permit or property rights,  there were documents which needed to be filled out and submitted to the regional office in the area where the applicant wanted to lodge his or her application.

In response to questions dealing with the oil and gas companies dealing with the separation of regulation, he noted that the mining industry was a mature industry, whereas the petroleum industry was a new industry, and so the regulation of each had to be appropriate according to their nature. However, the integrated approach would allow the Department to deal with the two industries.

DMR also explained, in response to the Chairperson’s question, that the DMR had changed to the Ministerial Advisory Council, which included various stakeholders. This Advisory Council would only convene if there was an issue which needed to be addressed. This was unlike the old Board, which had convened on a quarterly basis.

The Chairperson asked the Department about its various stages of planning in relation to the regulation of the Act. If PASA was to be done away with and the issues fall to regional management, he asked if there was any separation of regulation. The Chairperson also as raised a concern about the linkage of the beneficiation and the strategic minerals.

Mr Mabuza responded that companies like Eskom did not always have to have the primary resources to produce electricity but would obtain it by working with other industries, and it was therefore important to find ways of ensuring that the issues critical to the development of the industry were taken care of. He added that minerals were to be designated in the Bill, used strategically and in order to link them to the NDP imperatives.

Mr Lorimer asked Mr Mabuza to explain why the Department why it was doing away with PASA.

Mr Schmidt asked Mr Mabuza the regulation criteria under which certain minerals could be used.

The Chairperson stated that she was concerned with the issue of land ownership, and wondered why the Department was including one group of people and excluding the other in the consultation processes. She wanted to know about the position of the House of Traditional Leaders and whether the Department should account to them.

A representative of the Department said that it was advisable that the Department look at the submissions and the feedback on the issue of the House of Traditional leaders. It was trying to ensure that customs of communities were also taken into consideration. There were clauses in the Bill which dealt with conflicts of interests and the manner of dealing with traditional leaders.

Mr Mabuza said the question of the declaration of minerals was a difficult question, because until 2008 South Africa was considered to be one of the countries with the cheapest electricity and abundant coal, but that had since changed. The use of minerals, according to the NDP, must comply with the imperatives of benefiting the country. It was better to produce a deal which highlighted terms and conditions of using the minerals strategically, rather that a Bill which stated that there were a number of mineral resources which could be used.

Mr Mabuza said PASA had promoting and regulatory responsibility .The Department had integrated PASA with other entities in the DMR.

Mr Schmidt asked if PASA would be integrated as an entity into the DMR or treated as a special entity.

Mr Lorimer said that PASA had been successful, and questioned whether, now it was being integrated in to the DMR, it would be as successful.

The Department responded that at the moment it was not easy to determine where PASA would best perform.

Mr Mabuza said the integration was two-pronged in the sense that it covered both regulatory integration and a technical integration, and said that he would like to discuss the programme of the integration with the Members.

The meeting was adjourned.