Mineral and Petroleum Resources Development Amendment Bill: Proposed Amendment

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Mineral Resources and Energy

30 October 2013
Chairperson: Ms F Bikani (ANC)
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Meeting Summary

The Department of Mineral Resources (the Department) continued to take the Committee through the proposed changes to the Mineral and Petroleum Resources Development Amendment Bill. Amendments were proposed by the Department as well as by stakeholders in the mining industry. On many of the amendments, the Committee had no problem and did not engage with the Department. However, the Department was asked to revert to the Committee on several issues that were flagged, and the Committee also agreed that on some points it would need to hold its own more substantive deliberations.

Deliberations started with clause 21, which amended section 26 of the principal Act. The section dealt with beneficiation and how this was to be governed and supported by the Department. It led to some heated discussion between Members and the Department, and questions were raised concerning Bilateral Investment Treaties, stakeholder agreements, especially that with the Chamber of Mines, agreements previously made with the chrome industry on pricing within South Africa, the failure of the Diamond Second Amendment Act, what ‘national interest’ meant for the industry, and international law compliancy. The State Law Advisors and the Parliamentary Law Advisors were also asked for their opinions on these issues. Questions were also asked about the effect of the amendment made under clause 29, which affected Section 38B, on applications for environmental authorisation, as well as the insertion of a new section 42A on the management of residue stockpiles and residue deposits, essentially re-inserting a clause which had been in the Act before. One Member questioned why this was being done, in light of the court’s ruling that stockpiles were movable objects, but the Department asserted that it also dealt with the question of liability for pollution. Clause 30 was amending section 43 and dealt with the closure of mining or prospecting operations by way of closure certificates, the protection of the environment and holding miners responsible for latent damage to the environment. Clause 34 amended section 47 of the principal Act, and dealt with the cancellation or suspension of rights in respect of transgressions. Clause 35 sought to achieve alignment of the principal Act with spatial planning and zoning legislation and Members asked how this would affect mining operations already in existence.

Clause 44 repealed sections 57-68, which dealt with the Mining and Minerals Development Board, which had over time started to duplicate the functions of the Department, but Members were concerned about what would happen to the staff, the implications of them being moved to regional bodies and the differences between the former Board and the new Advisory Council. Clause 48 was inserting a new section 71A, as this was seen by some Members as a positive move to focus more on petroleum resources. However, other Members asked what the point was of disbanding the Petroleum Agency of South Africa (PASA) and then reconstituting its functions were. A brief history was explained and it appeared that although it reported on operational issues to the Department, it had not actually been an entity of it. Clause 49 amended section 75 and dealt with the application for reconnaissance permits and the right to market data collected. Clause 62 was inserting a new section 86A, which covered free carried interest and state participation, and Members held quite substantial discussion on how the percentages were assessed, the comparisons with other countries, whether those comparisons were correct in light of South Africa’s somewhat unique position, and whether it made sense to keep the percentages lower until resources were discovered. South Africa was fixing free carried interest at 20% with an additional 30% state participation. Clause 66 amended section 93 and dealt with how mining operations would be suspended. Clause 67 was making provision for environmental management systems. Clause 70 was discussed and Members said that they had a problem with the wording, which appeared to be interfering with the court’s discretion. Clause 74 dealt with the manner in which regulations were to be made.

Members would meet again on the following day to go through the clauses in more depth.

Meeting report

Mineral and Petroleum Resources Development Amendment Bill: Proposed amendments from clause 21
Mr H Schmidt (DA) asked how long it would take for all the tasks to be completed, until the Mineral and Petroleum Resources Development Amendment Bill (the Bill) Bill might be adopted.

The Chairperson replied that, judging by the pace that the Committee was going at, it may need a day extra to finalise the report on the Bill. It was not possible, at the point, to judge how long it would take for the Bill to eventually be passed as that would depend on issues that were raised by the amendments, by the Members as well as the date that Parliament would adjourn. She also stated that if it was up to her, she would prefer that the Committee continue at its current pace, as opposed to racing against time and stressing about finalising the Bill. It was important to get agreements from Members on the issues.

Deliberations for the day were opened by Mr Nhlanhla Jali, Acting Director of Mineral Policy Development, Department of Mineral Resources (DMR). He began from where the Committee left off, at clause 21.

Clause 21
Mr Jali noted that this clause amended section 26 of the Minerals and Petroleum Resources Development Act (MRPDA or the Act) ,which dealt with beneficiation. The first amendment made was to subsection (1) where the word ‘must’ was substituted with the word ‘may’ thus stating that ‘The Minister may initiate or promote the beneficiation of minerals and petroleum resources in the Republic.’

The next amendment was made to subsection (2) where the whole subsection was removed and substituted with a new subsection which related to the manner in which the Minister would designate minerals for local beneficiation, its pricing and the duty of producers to designate a portion of minerals for beneficiation.

The last amendment to this section was to substitute the wording in subsection (3) with new wording which stipulated how a person intending to export minerals may do so.

Mr Musa Mabuza, Director General, Department of Mineral Resources, added to these submissions by emphasising that the DMR had heeded the comments of the Committee that were made at a previous meeting, during which it was stated that the initial drafting of section 26 did not adequately reflect the intentions of the value proposition on beneficiation, so the section was subsequently redrafted after consultation with stakeholders.

The Chairperson responded by emphasising the importance that section 26 played in beneficiation and thus encouraged the Committee to put forward their thoughts on the submission.

Mr J Lorimer (DA) asked for clarity on the colour-coding of the document and whether the sections highlighted in red under clause 21 were suggested by Non-Governmental Organisations (NGOs) and the Mining Industry.

Mr Andre Andreas, Director: Mining Policy, DMR, responded that the amendments under clause 21 were made by the DMR, who took suggestions made during public hearings and worked them into the clause.

The Chairperson suggested that the DMR provide the Committee with a short history of the issue of beneficiation as it appeared in section 26, as there were disagreements from environmental organisations and NGOs on this issue.

Mr Mabuza responded that initially, section 26 gave too much power to the Minister, allowing her/him to make changes to the pricing whenever he/she deemed appropriate. It introduced Government pricing interference, for regardless of viability of business it compelled the extractive industry to discount its prices if the Minister saw fit. The industry would have had no say in the pricing arrangements. The section also had constitutional challenges, because it was said that it breached international agreements in terms of its export limitations. The DMR then took up these issues and engaged with stakeholders, particularly the Chamber of Mines. The Department was encouraged to note that stakeholders supported beneficiation but felt that the principles put forward by the section 26 undermined the sustainability of business. The Chamber of Mines agreed with the idea that minerals be made available for beneficiation and was committed to availing minerals for this purpose but disagreed with pricing. The Chamber pointed out that all minerals were different and that the mechanisms governing beneficiation would have to be worked on cooperatively, that the Chamber of Mines would be comfortable with the principle of co-development once the DMR had discussed it with stakeholders. He noted that South Africa had not sufficiently explored the conventional instruments of accelerating beneficiation, but that what was proposed in terms of price was unconventional and that it was not agreed upon by stakeholders.

On the basis of these discussions, DMR then concluded that there should be guided discretion to give effect to beneficiation subject to consultation with stakeholders, that prescriptions must be prescribed by legislation, and the Minister would not be given the power to arbitrarily determine the development imperatives (such as energy security and industrialisation) of the country alone, but would do so in consultation with other Ministers in State Departments. DMR agreed that regulations must be put into place that governed mining conditions, and that the regulations governing beneficiation must make provision for all parties to benefit. He then stated that the manner in which beneficiation was set out in the Bill was not immediately implementable and that the Bill now laid out the foundation for it.

Mr Schmidt said that beneficiation was not a problem but the conditions under which it occurred were problematic. He cited examples from mining industries in other countries, such as the diamond industry in India and pointed out that these industries were flourishing, as opposed to the diamond industry in South Africa, where beneficiation attempted by the State Diamond Trader (SDT) had previously failed. Furthermore, he expressed his disagreement with some of the amendments made to section 26, saying that he did not agree with the fact that ‘a relevant state department’ was used, as opposed to specifying the name of the department. He was still concerned that the revised section stated that the Minister may make changes to the beneficiation process ‘after consultation’ rather than ‘in consultation’ with the Minister of a relevant state department, and pointed out that consultation with stakeholders was not specifically mentioned in certain parts of section 26. He also asked why some of the Bilateral Investment Treaties (BITs) were not being renewed.

Mr Mabuza responded that the reason for the wording ‘a relevant state department’ was due to the fact that factors affecting beneficiation did not always come from one industry, and at times it was necessary to consult different state departments. He also stated that the failure of the SDT could not be generalised to include these new attempts by the DMR, as lessons were learned and taken from that situation. Beneficiation on the side of the DMR  was a work in progress and would not happen overnight. He further emphasised the importance of looking at each commodity separately and treating them differently when it came to beneficiation. He pointed out also that even though South Africa was competitively different to other countries, the export limitations put in place by the MPRDA were in line with international treaties and standards, but that the focus of beneficiation in South Africa was structured in such a way that it was addressing South-Africa specific issues and was less interested in competition with other counties. He concluded his explanation by saying that the DMR was not the custodian of BITs, and that that question would be best answered in consultation with the relevant government department.

Mr Schmidt was not happy with the response regarding the BITs and said that the BITs were governed by a different international legislation, which was the reason he thought it was important for the government to finalise and review on this in order to confirm whether South African legislation was in line with that governing the BITs.

The Chairperson acknowledged this comment and further stated that she was not going to open discussion on it at this point.

Mr Lorimer pointed said that he felt Mr Mabuza was being overly optimistic with regards to section 26. Mr Mabuza had said that the Chamber of Mines was not opposed to the provision set out as long as it was being consulted. He asked, though, whether the DMR had reached an agreement with the Chamber of Mines on the actual provisions regarding beneficiation.

Mr Mabuza responded that the Chamber of Mines was in agreement and had only opposed price intervention.

Mr S Mohai (ANC) made a comment commending and encouraging beneficiation, citing that South Africa was a country with vast inequalities in its economy as well as structural inequalities. He also stated in that he felt that state intervention in beneficiation was important as the state had the responsibility of rectifying these inequalities.

Mr Lorimer said that although beneficiation was an excellent idea in principle, when it came to business companies may not necessarily be keen on agreeing to it as they would obviously have to sell a portion of their production at less than what they were receiving for it. He asked whether Mr Mabuza believed that the process of beneficiation could occur with mines still receiving the same amount of income for their commodities as they were currently receiving.

The Chairperson interjected, saying that the pricing would depend on the commodities and relevant standards. She further stated that this was something that could not be confirmed on the spot, as to whether there would or would not be a definite increase or decrease in prices.

Mr Lorimer responded by posing the question that if mining companies could get the same price locally as they would get by selling internationally, surely then they would simply do so without having to be governed by a state regulation.

Mr Mabuza responded that it was possible to sell commodities at a lesser price locally, as the auxiliary costs involved in selling internationally, such as transport costs and port fees, were not incurred by the mining companies but by the participants in export, such as the clients of mining companies. He drew an example from the chrome industry who had assured the DMR that it was possible to sell chrome locally at less than half the price that it cost internationally and had stated that it was prepared to do this, provided that the DMR assured the industry that that chrome would not be resold internationally at higher prices. He also said that different formulas would be used for different commodities, and that section 26 was merely laying the foundations for plans for beneficiation to start falling in place. He further assured the Committee that the DMR was not proposing a model that would threaten the integrity of business.

Ms Desiree Swartz, Parliamentary Legal Advisor, added that the purpose of the clause was so that the Ministerial regulations could set out what the beneficiation would be. She further explained that regulations were essentially delegated legislation from Parliament to the executive, and that the regulations would specify the criteria to guide the executive. The Act guided the regulations, and in this regard, the Constitutional Court had been very clear about the fact that guidance set out in the Act should not be too broad. She then stated that while the clause generally met this requirement, the part of the section that she felt was not yet specific enough was the part stating that beneficiation needed to take into consideration the National Development imperatives.

Mr Schmidt once again pointed out that there was a big difference between ‘must consult’ which was used in section 26 and ‘in consultation with’, which was used in section 107. He felt that ‘in consultation with’ would be the correct wording to use. He further stated that the increase in cost of business would have a major effect on economically recoverable reserves and that beneficiation would also have an impact on this. This must be borne in mind when taking developmental criteria into consideration. He then cited an example from Sasol, a privately owned company which was once state owned, which had been able to strike the balance between beneficiation and business integrity because it secured its feed stock. This could be compared to Eskom, a state-owned enterprise that had closed down 50% of its production capacity, and was now running on scarce resources. He asked what it was in the structural make-up that distinguished a private company from a state-owned enterprise.

The Chairperson at this point handed out an extract from a book that the advisor to the Committee had indicated to her. It may be of interest to Members. The extract contained some interesting information, which she had thought worth sharing with Members, on how Canada handled its mineral export industry.

Mr Lorimer asked for the name of the book and the author.

The Chairperson responded that the name of the book was Investor’s Guide to Mining in Canada by David Ward Phillips & Vineburg, LLP Edition.

Mr Lorimer then commented on the fact that Mr Mabuza claimed to have been able to convince the chrome industry on the viability of beneficiation and pointed out that it seemed to accept these proposals, but that he seemed to have failed to convince the rest of the mining sector on this. He then told Mr Mabuza that having used an example from the Diamond Second Amendment Act was the worst possible example that he could have used, as that had failed miserably. He asked him why, after having previously assured the Committee that beneficiation within the Diamond Industry would be well controlled by the DMR, but then was not, the Committee should now trust the DMR to deliver on section 26.

The Chairperson stated that the approach and processes to section 26 would have to be looked at. According to her understanding of the Bill, it suggested that a Ministerial Advisory Board be established in term of section 58 of the MPRDA, which should in turn elect a Beneficiation Committee established in terms of section 64, and that this should advise the Minister on all relevant issues including how to operate, how pricing should be done, how exports would operate, and other matters. She said that having this Committee advising the Minister, instead of having clauses stating that the Minister ‘may’ or ‘must’ take sole responsibility of controlling beneficiation, would cover all of the issues being discussed at the meeting.

Mr Lorimer said that the Chairperson’s suggestions were relevant but that he would like time to think about the issue. He also reminded that her that he was still waiting on an answer from Mr Mabuza.

Mr Mabuza responded that he had hoped the national developmental imperatives were not vague and that he felt that the Country should know what its imperatives are. He then responded to the question of business integrity by saying that the DMR was planning on a value proposition for beneficiation that would not erode the mineral resource base. He said that he could not respond with regards to Sasol’s and Eskom’s business model but that miners could possibly learn a lot from Sasol’s approach, having beneficiated and made a success of it. He also commended the Chairperson on the extract that she handed out, feeling that the DMR could learn much from the examples of Canada.

Mr Mabuza responded more specifically to the question posed by Mr Lorimer saying that it may be a good idea to start with a few industries that saw the possibility of beneficiation, such as the chrome industry, and then perhaps roll it out to the other industries in due time. He had mentioned earlier that these proposals on beneficiation would not be implementable overnight but that they may have to applied over a matter of years.

Mr Schmidt stated that business had been beneficiating and that that was not the issue he was trying to highlight in his argument. He stated that the real problem with beneficiation did not lie with the mining sector, but in fact with industrialisation and therefore the Department of Trade and Industry also needed to be approached with regards to its role in this. South Africa had somehow surpassed in industrialisation and was now focusing more on service delivery.

Mr Schmidt cited section (26)(2B) that highlighted the need to maintain viable, sustainable and meaningful transformation of mineral and upstream petroleum industries. He asked what was meant by ‘transformation’ in this clause as he initially felt that the focus of section 26 was on beneficiation but now noted this clause which, according to his understanding, gave a different point of departure, that being the development of the mining industry.

The Chairperson reminded Mr Schmidt about her earlier suggestions regarding that of a Beneficiation Committee being established to deal with these issues and then advise the Minister, as opposed to the Minister making all of these decisions her/himself. The Committee would then decide on the best steps to take and would also consult with the relevant departments.

Mr Schmidt told the Chairperson that a decision such as that should not be taken lightly as the consultation of the Minister with one from another department affected 18% of the Gross Domestic Product.

Mr Lorimer agreed with the Chairperson in terms of the suggestion that a Beneficiation Committee be established but reiterated that decisions made would still be at the discretion of the Minister and that she/he would still need to take responsibility. He also reminded the Committee that he still disagreed with Mr Mabuza’s view that miners would not be disadvantaged by beneficiation while the industry would be. He then noted also that the MPRDA pointed to many cases where the Minister would make decisions for the sake of what was viable for business, but highlighted that these decisions would be based on the Minister’s opinion and gave too much power to the state. He then asked the DMR whether the Bill was in line with and in compliance with international law and requested an opinion on this in writing from the State Law Advisor and/or, even better, from a private law firm. Finally, he asked whether the DMR had conducted a Regulatory Impact Assessment as the Bill would have a big impact on Industry.

The Chairperson told Mr Lorimer that any questions relating to the power of the Minister would have to be shelved as that issue of a Beneficiation Committee would be discussed at a later stage.

Mr Mohai drew the Committee’s attention to the fact that the basis of clause 21 and the focus of section 26 was national interest and that, despite raising concerns about the amount of power given to the Minister, the intervention of the state, or the liberalisation of the market, it was very important not to lose sight of this fact. Ultimately clause 21 was seeking to equalise the unevenness of the mining industry and address issues such as poverty, unemployment and development.

Ms K Khunou (ANC) asked the Chairperson whether the Committee would hold a session in which Members alone would scrutinise the Bill, clause by clause, as she felt that the current meeting should have been merely the session in which the DMR was presenting its insertions to the Bill, and not the session in which the Committee was to question these inputs.

The Chairperson responded that this was going to be done, but that it was important to interrogate the issue of beneficiation as it was a pressing concern in the country, and the world at large. She assured Ms Khunou that the Bill would still be going through a long process of interrogation once all the information had been gathered.

Mr Andreas responded to Mr Lorimer also, saying that the DMR had received a verbal , but not written legal opinion on section 26 from an expert on international mining law, who believed that the Bill was in line with international law. A similar opinion was procured from the State Law Advisor. He also reported that the DMR had conducted the Regulatory Impact Assessment on an internal basis and did not follow standard practice in contracting the assistance of an external service provider.

Mr Theodore Hercules, Principal State Law Advisor, Office of the Chief State Law Adviser, added that the Chief State Law Adviser had looked at the Bill. Initially the amount of power designated to the Minister was of concern, but this was then reworked. In addition, the question of the national development imperative was a broad issue but that it could be qualified in the Bill if these interests were specified. Furthermore the establishment of an advisory board could also be included if the role of this board was also specified. In short, the Bill was consistent with the Constitution and international law.

Mr Lorimer requested that opinion be submitted to the Committee in writing.

The Chairperson requested that the State Law Advisor prepare this and have it submitted to the Committee by the following morning.

The Chairperson further noted that once the submissions from the Department had been presented, the Committee would then submit its contributions to the Bill for the Department to consider. The information would be collated and the Committee would take the rest of the Bill forward.

Clause 29
Mr Jali continued by noting that on page 20 this clause made amendments to section 38B of the Act. This clause dealt with how the Bill would affect applications for environmental authorisation, as issued under the National Environmental Management Amendment Act (NEMA) before and after that Act came into effect.

The Chairperson asked for clarity on the NEMA.

Mr Andreas noted that the umbrella Amendment Act, which amended a number of different environmental pieces of legislation, was the National Environmental Management Legislation Amendment Act (NEMLA) and that this Act amended the NEMA, the Air Quality Act, the Waste Management Act and the Integrated Coastal Management Act. The reason for the amendment to section 38B was that stakeholders wanted a certain level of certainty with regard to pending applications for environmental authorisation, while the NEMA was not yet finalised.

Mr Jali emphasised that currently, environmental management functions were being controlled by the MPRDA, but the DMR was now moving towards environmental authorisation. Hence, section 38B was merely giving direction as to the environmental applications that were already in the system as well as to those that were not yet finalised.

Clause 29
Mr Jali noted that clause 29 made an insertion of a new section 42A. This section dealt with the management of historic residue stockpile and residue deposits. Mr Jali said that when the MPRDA was promulgated in 2002, the section regarding residue stockpiles and residue deposits fell away, but more recent technology had found that financial value could now be extracted from these residue stockpiles and deposits, and therefore it was decided that a section should be re-introduced to govern this.

The Chairperson accepted this new insertion.

Mr Schmidt questioned the reason for the re-inclusion of this concept. He noted a court case in the Northern Cape involving De Beers Mining Company, in 2007, when the MPRDA was challenged, and the court had ruled that stockpiles were movable objects and therefore no longer under the jurisdiction of legislation. He also stated that historic dumps were more often a liability than as asset. He also wondered whether, if no one had applied for a mining or prospecting right, this clause would not be acquiring more liability for the state.

Mr Mabuza responded that the exclusion of historical dumps was not the subject of a court decision. The exclusion had already been done in 2002, and the court case occurred in 2007. He explained that the court case highlighted a weakness in the Act, in that the Department could not regulate the stockpiles that were created pre-MPRDA. The court case in fact confirmed this regulatory vacuum and it was to address the vacuum that the insertion was being made. In addition, addressing the question of the dumps possibly being a liability, he stated that the clause filled another vacuum, namely that the residue stockpiles were, in essence, objects of private property and were therefore governed by section 25 of the Constitution. Section 42A was added to the MPRDA to ensure orderly development of mineral resources. It was in fact the custodianship of minerals that was reverted to the state, not the statutory liability of polluting; the statutory liability remained with the polluter or the mining company that created that stockpile.

Clause 30
Mr Jali explained that section 43 was amended by clause 30 and that this dealt with the closure of a mining or prospecting operation, and the terms binding the holder of a right until the Minister had issued a closure certificate. The amendments were based on input from stakeholders, who said that the previous provisions did not have any effect on preventing mining after the certificate had been issued, as liability was still attached to the mining right. In addition, the clause also stipulated that the rights holder was to remain liable for any pollution that occurred as a result of the mining after the closure certificate had been issued. He then summarised that the ultimate effect of section 43 was to hold mining rights holders liable for any pollution done in the area.

Mr Schmidt asked the purpose of applying for a closure certificate, when the right holder remained liable for pollution in the area.

Mr Mabuza responded that it was, firstly, important to remember the environmental heritage that South Africa had been left with, where the environment in some places was a cause for concern. This compelled the DMR to hold those responsible for the degradation of the environment responsible also for clean-up. He also said that the closure certificate did remove most of the liability from the rights holder and that it was only a fraction of the liability that remained with the rights holder after the issuing of a certificate of closure. He then pointed out that latent effects of mining were not something that could be predicted far into the future, but that the mining rights holder still needed to be held responsible for this. The purpose of clause 30 was to assure the public that the environment was being protected from the effects of mining and that those responsible for environmental devastation were being taken to task.

Mr Lorimer asked if how it was possible to predict the environmental liability remaining if it was not possible t predict the latent damage.

Mr Mabuza responded that new technology allowed the Department to predict, to a certain extent, what environmental damage may occur in the future. The Department was looking at working with environmental experts, of which South Africa had many, and this, together with modern machinery, allowed for an estimate of a certain extent of latent damage.

Clause 34
Mr Jali presented clause 34, which sought to amend section 47 of the Act. It dealt with the cancellation or suspension of rights in respect of transgressions. One amendment made was to subsection (2)(c) which stated that a rights holder be given a 30-day notice period in which to show why a right, permit or permission should not be cancelled. In the amendment, the words ‘or cancelled’ was reinserted after it had been previously removed.

Mr Schmidt asked why this section specified a 30-day time period whereas in most other parts of the Bill the time period was left to be regulated.

Mr Andreas responded that most of the other instances dealt with applications, and the DMR was intending to align its processes with other government departments. However, the processes covered by section 47 were sanctioned by the Minister, and therefore no need for alignment was necessary.

Clause 35
Mr Jali explained that amendments made by clause 35 were to section 48, and they were influenced by inputs from stakeholders. The amendments would align the MPRDA with the Spatial Planning and Zoning Legislation. He stated that the purpose of the section was to allow the Minister to exclude certain areas zoned for residential purpose from mining purposes. The amendment was made to not only include land which was within town planning schemes, but also land which was specifically zoned for residential purposes.

The Chairperson asked what would happen to mining operations that existed before residential areas started developing close to the mines.

Mr Andreas responded that the reason for the amendment was to ensure that companies not only complied with the MPRDA, but with other legislation and provincial ordinances as well.

The Chairperson then said that her question focused on how the miners would best be protected as their operations had been in existence long before the legislation was put in place, and also what type of transitional period was given to them. She drew on examples of mines that were currently involved in court cases, Mac Sands and Swartland Sand Mines, in relation to the fact that they had not applied for or complied with these zoning specifications. She wanted to know why these mines were undergoing legal proceedings when this clause was only now being put into place.

Mr Andreas responded that the reason these companies were undergoing these legal proceedings was due to the fact that they had assumed that they did not need to comply with provincial ordinances if they had already complied with the MPRDA.

The Chairperson was not completely satisfied with the answer, as she said she did not see the need for mines to be spending money on legal fees when a process to correct this was already being put into place. However she did not want to pursue the point further in the meeting.

Ms Khunou said that she felt that the issue would provoke discussion and needed to be brought to the fore. She pointed out that town planning legislation had differences from province to province and that more problems were bound to arise in the future, as they generally had already around this subject. She suggested, therefore, that section 48 be reworked, with the assistance of the State Law Advisors, in such a way that all stakeholders be included in the provisions.

Mr Schmidt said that the Constitutional Court judgement on the issue of the mines that were undergoing legal proceedings merely stated that certain ordinance considerations needed to be taken with regards to mines located in the vicinity of towns.

The Chairperson said that her main concern was the fact that the mines existed before the legislation was passed, and that if the mines were infringing that legislation, a transitional period needed to at least be given. It must also be remembered that these mines may also have been contributing to development in the area, and that needed to be taken into consideration. Furthermore, she pointed out that many of the sand mines that were being affected by these court case were primarily black-owned and that was another factor to be weighed up. She reiterated that there was a need to discuss this in more detail on another platform.

Clause 44
The Chairperson drew the attention of the meeting to clause 44 which repealed sections 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67 and 68. She asked the DMR to explain why these sections were repealed. She reminded Members about the beneficiation clause discussed before, and said some of these sections that were repealed would have had an effect on beneficiation.

Mr Mabuza explained that the sections that were repealed related mainly to the Mining and Mineral Development Board (MMDB). The Board was established in 2002, but the arrangements and functions caused a multiplicity of functions between the Board and the Department. At one point, 34 sub-committees existed under the Board, many being duplicates of functions within the Department. It was then made clear that the Board was actually intended to act as an advisory council to the Minister and so it was decided that the MMDB be dissolved and an Advisory Council be established to replace the MMDB. It was for this reason that all references to the MMDB in these sections were repealed.

Mr Andreas added that there was not much difference in function and composition between the MMDB and the Advisory Council, and that the role of the Council was to advise the Minister on Key Strategic Issues as and when they were raised.

The Chairperson asked whether a Beneficiation Committee could be formed under the same kind of structure that an advisory council was established.

Mr Mabuza responded that the functions of the advisory council were also to include upstream petroleum development and sustainable resource development of minerals.

The Chairperson said that all of those issues needed to be highlighted in the Committee Report on the Bill, as well.

Ms Khunou asked for clarity on the sections that were being repealed and asked what would happen to the Beneficiation Committee that the Chairperson had earlier advised.

The Chairperson explained this to her, saying that the sections in question were being repealed as the committees formed under the MMDB were causing unnecessary duplications of human resources and costs. She further explained that if an Advisory Council was to be established, one of its functions could be to govern beneficiation. She then asked the DMR why, under clause 43, which related to section 56A, the wording stated that the Minister ‘may’ establish an Advisory Council. She wanted to know why this clause was allowing the establishment of the Council to be optional.

Mr Mabuza said that this was being noted and that it was going to be reviewed

The Chairperson asked, in order to ensure that there was cost-effectiveness, whether there was a difference in remuneration between the level of Board and Advisory Council. She also wanted to know the number of members in the two bodies. She also queried on the functions of the Mineral Industry Growth, Development and Employment Task Team (MIGDETT)

Mr Mabuza responded on the question of MIGDETT, saying that all mineral stakeholders were not yet represented under this voluntary stakeholder formation. He said that the function of MIGDETT was to address issues affecting the mining industry’s growth and development. He also pointed out that because it was voluntary, there was no remuneration involved.

Mr Andreas also addressed the question of remuneration. He drew attention to clause 43, amending section 56F, which stated that that all Members of the Council were to be paid a stipend that was to be determined by the Minister in consultation with the Minister of Finance.

Mr Schmidt also drew the attention of the Members to this clause, to emphasise the point he made much earlier in the meeting stressing the difference between ‘in consultation with’ and ‘after consultation with’.  It was important to note that the Minister of Finance would not approve matters regarding financial issues without being ‘in consultation with’ the relevant party.

The Chairperson advised the DMR that inasmuch as the sections regarding the MMDB were being repealed, it was important to state that they were actually being replaced by the insertion of clause 43.

Clause 48
The Chairperson thought it would be good for the DMR to discuss clause 48 in some depth. It was inserting a new section 71A and related to the promotional aspects of the petroleum industry. She felt this was a commendable insertion in the Bill. It was particularly important as it was felt that in the past the petroleum industry was not given much attention by DMR.

Mr Jali read out this clause.

Mr Schmidt said that he thought the clause seemed to relate to issues that were previously covered by the Petroleum Agency of South Africa (PASA). He said that he was still confused as to why, on the one hand, the Committee was doing away with PASA, while on the other hand new legislation dealing with the same functions were being introduced.

Ms Khunou shared the concerns of Mr Schmidt.

Mr Mabuza responded that the reason for the movement away from PASA towards legislation was to promote the integration of information into the Council for Geoscience. He said that having all information integrated under one body would assist with the development of mineral resources.

Mr Lorimer asked whether this meant that the essential difference would then be that while the previous entity, PASA, was independent, the new entity would not be.

Mr Mabuza responded that PASA was not independent, as it still received its jurisdiction from the MPRDA and the DMR.

The Chairperson corrected him and explained that PASA was initially intended to be a regulatory body with PetroSA as the commercial body. At the time, the DMR and the Department of Energy (DOE) were one body known as the Department of Minerals and Energy (DME) which governed the MPRDA. When the DME split to form the DMR and the DOE, some dispute arose as to the governance of the PASA as an organ of state.

Mr Mabuza explained further that PASA was established under section 70 of the MPRDA, and that after the split PASA’s operational reporting was governed by the DMR, and that the Department had officials on the board. He admitted, however, that he was not sure whether PASA was considered an entity of the DMR or the DOE.

Mr Mohai said that in the previous meeting, Mr Mabuza had clarified the reason for the disbandment of PASA, citing integration. He then said that what must be clarified was what transitions were going to be taking place now that PASA was being disbanded. He questioned whether the disbandment was a legislative issue only, or whether policy in the DMR was changing, and whether there would be other significant changes in addition to the structural change.

The Chairperson echoed these sentiments and also asked that some mention be made of the human capacity involved in all of these changes. She wanted to know whether, amongst other things, salary scales of staff would change and whether the staff capacity would increase or decrease.

Mr Schmidt asked whether a copy of the Regulatory Impact Assessment was available, as he felt this would assist the Committee in making its decisions on many issues regarding changes in the MPRDA.

Mr Mabuza said that the main purpose of disbanding PASA was for the purpose of streamlining processes. As part of this, human capacity from PASA would be integrated into the DMR’s regional initiatives that were to replace PASA. He further assured the Committee that a team was tasked with researching the best methods of integrating staff human capacity and that the Minister of Mineral Resources was in discussion with the Minister of Energy as to the best way forward to accomplish this.

The Chairperson said that if the Minister had not finalised discussions with the Minister of Energy, it would be difficult for the Committee to take a decision on these issues. She asked what the staff capacity of PASA was.

Mr Mabuza said that it was less than 70 employees.

The Chairperson that she foresaw labour issues as being a problem when it came to the restructuring and integration of the employees of PASA, as the these people would now be integrated into regional structures, which meant that salary scales would have to be adjusted. She wanted to know how the DMR was going to be handling this.

Mr Mabuza told the Committee that he had now received more clarity on PASA. Administratively, it had reported to the DOE, but functionally it was aligned with the DMR. He also asked for the Committee to allow the DMR time to gather more information on the human resources aspects of PASA as well as on the Regulatory Impact Assessment.

Clause 49
Mr Jali presented clause 49, which amended section 75. This dealt with the application for reconnaissance permits. The clause focused on separating the period for which the reconnaissance permit was valid, so instead of it being valid for seven years, the permit was now valid for one year while the miner had an exclusive right over data produced under that permit, as well as for the marketing of that data, for a further six years. In addition, the clause also allowed for the issuing of a reconnaissance permit over an area where another permit was issued, if the new application would use different methods and technologies in its data collection.

Mr Mabuza added to this by saying that the rationale behind the amendments to section 75 was to allow exclusivity of marketing of data to permit holders so that this may generate interest in mining in South Africa as a result of data produced, marketed and circulated under reconnaissance activities. In addition, it also allowed more than one operation to exist over a single area, based on the difference in technology used.

Mr Mohai asked for the definition of the word ‘reconnaissance’.

Mr Mabuza explained that a reconnaissance operation meant any operation carried out for or in connection with a search for a mineral or petroleum by geological, geophysical or photo-geological surveys and included any remote-sensing techniques. However, it did not include any prospecting or exploration operation.

Clause 62
Mr Jali explained that clause 62 was an insertion of a new section 86A, which related to free carried interest. He said that most of the references to free carried interest were removed from other parts of the Bill so that they could be clustered into this one section. This section dealt with the amount of free-carried interest that the State was entitled to – namely 20% free carried interest in all new exploration and production rights. It also dealt with how this free carried interest would be handled. Furthermore, there would be a 30% State Participation and a 26% Black Economic Empowerment (BEE) obligation.

The Chairperson asked the DMR how it managed to arrive at the percentages stated in the Bill and how these would secure South Africa for investment.

Mr Mabuza said that the reason for the clause was, firstly, that stakeholders felt that the vagueness of the Bill on free carried interest gave too much discretion to the Minister, and, secondly, companies wanted certainty on the amount of free carried interest being given to the state, and for clarity on what the state’s role in this would be. He further stated that in order to get to the percentages, the DMR looked at other countries that were more or less on the same developmental and mineral industry level as South Africa and used this information to calculate what would best suit the Republic. The percentages referenced were as follows:  Algeria 51% State Participation (SP), Angola 50% SP, Brazil 30% SP, Cote d’Ivoire 45-60% SP, Gabon 66-80% SP, Ghana 10% Free Carry and 15% SP. He also said that the 20% free carried interest was a bare minimum and depended on contextual factors of the different mines.

Mr Lorimer asked whether the 20% free carried interest, the 30% state participation and the 26% BEE were all separate, adding up to a total of 76%, as this would put South Africa far out of line in comparison to the other countries cited.

Mr Schmidt shared Mr Lorimer’s sentiments in the amount of free carried interest by the state.

Mr Lorimer further questioned the figures, saying that it seemed that the countries with the largest proportions of state participation were also those countries that had oil wells, whereas those with lesser proportions were those where oil wells had not yet been discovered. This could point to the fact that the higher the risk of not finding oil, the less state participation was assigned. He then said that this was inconsistent with that assigned to South Africa by the clause as there existed no certainty as to whether oil wells could be found in South Africa.

The Chairperson asked how the countries in the DMR’s submission were chosen.

Mr Lorimer also asked for figures from Canada, the USA, Australia and other countries with developing oil jurisdictions.

The Chairperson said that perhaps these countries were chosen as South Africa, as a developing country, was more easily comparable to them.

Mr Mabuza said drew more examples from other countries, saying that the USA, depending on which region, had a 70% state participation, Australia and Canada had over 70%, whilst Russia and the Middle East countries had over 90% state participation. He further stated that it was important to set a benchmark as to a considerable amount of state participation in order avoid the state wanting to participate in a regrettable manner at a later stage, after oil was already found. In addition, setting state participation at a reasonable level made exploration in South Africa attractive to investors.

The Chairperson replied that junior miners were not normally funded as exploration was a high risk area and therefore investors were not keen to spend money on them.

Mr Mabuza responded that incentives were put in place to reward investors and that, according to information that the DMR could present to the Committee, investors were able to receive up to 150% return on their investments. He also said that state participation and the benefits thereof were fairly complex issues and could not be reduced simply to figures.

The Chairperson asked whether state participation was determined only after profits on investments were made.

Mr Mabuza responded saying that different countries handled their state participation differently, but this was generally done on a ‘win-win’ basis, saying that while a certain percentage of the production was provisioned for government take, the State would generally reward the investor in a feasible proportion.

Mr Schmidt said that the provisions set out in the Bill seemed to be relevant to a more mature mining environment where more local mining would take place, such as the case with gold and diamonds in South Africa. He asked whether there were any other benefits that were applicable to offshore mining or whether the current provisions were also applicable to that sector. He also asked whether government would pay or the 30% state participation would cover that.

Mr Lorimer asked whether it would not make more sense to set the state participation at a lower rate, such as that of Ghana and Brazil, and then increase it at a later stage if commodities were discovered. He also asked for a list of benefits that were offered to risk-takers in exploration.

Mr Lorimer also asked for more clarity on the 20% free carried interest, asking whether this was 20% of profits or production and whether the company that made the investment paid back what was made from the investment before the 20% was taken.

Mr Mabuza responded that the 20% was the minimum and that provision was made for a further 30%. He said that the State did share the risks of exploration and mining with the investors, although he did not specify whether the State would be sharing in the costs of the exploration.

Mr Lorimer said that Mr Mabuza had asserted that the MPRDA was providing for certainty, but at the same time outlined a regime that would depend on a case-by-case analysis and regulations that were still to be finalised. He said that he did not know how he was going to vote for the Bill because he still did not know what it was actually providing.

Mr Schmidt suggested that in subsection (5) a form of market value or economic value should be specified as opposed to relying solely on ministerial discretion. In addition, he shared Mr Lorimer’s sentiments on regulations and asked whether it was possible to see a draft of the proposed regulations.

Mr Mabuza said that regulations were still in draft form and that if they were going to be presented to the Committee, they needed to be understood in that context. He also noted that the stakeholders had to be consulted on them, and this had not yet been done.

Mr Schmidt also pointed out the Mr Mabuza had not yet answered the questions on the 26% BEE that were posed earlier.

Mr Mabuza said that he did not have a straight answer on the question of BEE, as the DMR was still in consultation with its stakeholders as to the nature of certain sector charters that regulated. He also said that the Mining Charter was coming up for review in the following year so the whole question of BEE within the mining sector was going to be addressed very soon.

Clause 66
Mr Jali presented clause 66, which was amending section 93 of the Act. It was a technical change as to how the Minister may order that a mining operation be suspended or terminated for a specified reason.

Clause 67
Mr Jali then explained that clause 67 set out the deletion of section (94)(2), and this was done to make provision for the 18 month period in which environmental management systems were to be put in place and aligned with the MPRDA.

Mr Lorimer asked what would happen if these systems were not put in place within the 18 months.

Mr Andreas said that the DMR was confident that they would be.

Clause 68
Mr Jali continued to clause 68, which was amending section 96, which dealt with internal appeal processes. Some parts of this section were deleted in order to streamline them.

Clause 69
Mr Jali explained that clause 69, amending section 98, dealt with the transgressions and the penalties meted out as alluded to in previous sections. References to previous annual reports and past financial statements were deleted, as the DMR felt these were redundant because the annual reports referred to could simply be looked at directly.

Mr Andreas added to this, saying that the reference to financial statements was also removed as relevant parties may create excuses as to reasons why these statements could not be provided, thus avoiding sanctions that they were being threatened with.

Clause 70
Mr Jali explained that clause 70, which amended section 99, dealt with the consequences of sanctions imposed on parties who had transgressed the provisions of the MPRDA, such as the specifics of fines and imprisonment and said how the money collected through these offences would be used.

Mr Andreas added that the money collected from fines would be ring-fenced and used for the development of exploration activities.

Mr Schmidt said that the Minister of Finance would not allow for the ring-fencing of funds. He also said that no magistrate would make a decision about the issuing of fines based on administrative instructions. The normal situation was that the matter went to trial, and the magistrate made a decision based on the evidence presented.

Mr Andreas responded that the amounts detailed in the MPRDA were merely guidelines, and this followed the system of the Department in taking decisions. He said that the Department could also look at relevant prescripts and then return to the Committee on the following day.

Mr Schmidt said that the MPRDA was suggesting that the magistrate confer a particular fine on an individual who had transgressed the Act, but no magistrate’s court would allow for this. He had no problem with any other fines imposed by the DMR.

Mr Andreas asked whether the Department could be allowed to return to the Committee on this issue on the following day as well.

Clause 74
Mr Jali explained that clause 74 was making an insertion into section 107, which dealt with the determination of regulations, which were discussed earlier.

The Chairperson noted that further deliberations would continue on the following day.

The meeting was adjourned.


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