Colloquium on Beneficiation: Day 3

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Trade, Industry and Competition

02 September 2014
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

Forestry South Africa, Sawmilling South Africa, the Paper Manufacturers of South Africa (PAMSA) and Sasol briefed the Committee at the Colloquium on Beneficiation.

Forestry South Africa rejected the suggestion that forestry was the most untransformed sector in the industry, and that this was a cause for concern.  It insisted that forestry was actually a sector leader from a transformation perspective.   The challenges for Forestry South Africa were shrinkage in plantations, no support for small, medium and micro enterprises (SMMEs), and forest protection. Small scale growers faced soaring administrative costs and the need for more business management skills.  

Sawmilling was a well-developed industry, with more than 200 enterprises producing lumber. Pine sawmilling was the dominant process.  One of the most important ways to enhance beneficiation was to ensure job security in the plantations.

The Paper Manufacturers Association of South Africa (PAMSA) said that the first step to beneficiation was to plant trees, as they were a crop, as opposed to being a natural resource. The challenges to sector competitiveness in the paper industry were fibre supply, administered pricing and the cost of legislation.

Members heard a briefing from a small grower from a rural area, who explained that they were employed almost indirectly because while their timber was taken to the industry, the price was not negotiable. Women also struggled to have a voice because in rural areas, men traditionally made the decisions and were in control, so women, while they had good ideas, struggled to articulate and pronounce them.  Promises were made to women in this industry, but there was no follow through. The officials were not helping women small growers in the rural areas.

The Committee asked about the number of jobs that had been created in the sector thus far, the ownership patterns of companies and the extent of black ownership.  Members also wanted to learn about entrepreneurial efforts in recycling; the processes involved in the transition from plastic to paper; why a Cabinet memorandum had not been implemented; the failure to meet the 100 000 hectare target in the Industrial Policy Action Plan (IPAP); and measures taken for forest protection.

Members asked why some grants were not being accessed. It was explained that the bureaucracy and red tape involved in the accessing process prevented some growers from pursuing the process. Members were told that land claims in the forestry industry were settled with better outcomes than in agriculture. The process did not create dependency and huge benefits were derived.   

Sasol briefed the Committee on its beneficiation initiatives and said that successful beneficiation initiatives had allowed them to contribute to the National Development Plan. The Committee expressed concern that Sasol had dealt only with upstream aspects. Members asked about polymers and beneficiation beyond polymers; the R14 billion coal mine replacement; whether Sasol invested in employment opportunities that involved the poor; why the Mineral and Petroleum Resources Development Amendment (MPRDA) was not used to beneficiate platinum group metals (PGMs); if Sasol had explored processing crude oil; and why the Committee had not instructed Sasol to reduce the price of industrial inputs in the plastics manufacturing sector. The Minister had posed the challenge of changing the pricing to support beneficiation.

Meeting report

Chairperson’s opening remarks
The Chairperson said that forestry was the most untransformed sector in the industry and this was a cause for concern.  The Minister of Trade and Industry Mr Rob Davies was in attendance.  An apology from the Deputy Minister was noted.

Forestry South Africa: briefing on beneficiation
Mr Michael Peter, Executive Director: Forestry South Africa, said that Forestry South Africa’s total contribution to GDP was R41.9 billion.  There was limited beneficiation in the primary sub-sector, but forestry provided the raw material for beneficiation in other sub-sectors, which were largely vertically integrated.  Unresolved challenges for timber growers directly impacted the potential for further beneficiation.

The challenges were outlined as:
Shrinkage in plantations;
No support for small, medium and micro enterprises (SMMEs); and
Forest protection

In answer to an earlier statement that forestry was the most untransformed sector, Mr Peter said that forestry was actually a sector leader from a transformation perspective. Since this was the Portfolio Committee of the Department of Trade and Industry, forestry would attempt to enlighten it, as it did not often get recognition for its transformation achievements. In terms of actual figures related to women’s ownership, the structure of the industry was at level 4, after having slipped to level 5, and according to the KPMG survey, it was consistent with other sectors of the country.  The industry had done very well, for example, with BEE deals.  There was one company that transferred had R811 million of equity to its own employees. This was what was happening in the transformation space, from a corporate perspective.

Mr Norman Dlamini, Business Development Director: Forestry South Africa, said that in terms of international competitiveness, South Africa had been in the bottom 25 percentile of global costs, but was now in the middle 50 percentile, and rising.  Competitors in Brazil, Chile, New Zealand and Australia, had been providing direct and indirect subsidies for three decades. South Africa’s competitiveness was based on world leading clonal breeding, excellent understanding of site productivity, and global leadership in control of pests and diseases. The illustrative costs showed that the net profit per hectare per year was R1 922.

Mr Dlamini said that the challenges facing the small-scale grower (SSG) were much the same as large scale growers but more acutely felt, and posed a greater risk.  There were soaring administered price increases and a need for more business management skills.
In spite of the challenges, there were over 30 000 SSGs in KwaZulu-Natal and Mpumalanga;

Government was committed to meeting all previous commitments and state procurement was to have mandatory levels of South African forest products.

Sawmilling South Africa:  briefing on beneficiation
The Chairperson said she continued to try and promote support for South Africans buying their own homegrown products. She said she did not know why Parliament was buying imported Rooibos tea, and would pursue this with the catering establishment.  She did not know how they had managed to get an exemption.

Mr Roy Southey, Executive Director: Sawmilling South Africa, said that sawmilling was a well-developed industry, with more than 200 enterprises producing lumber. Pine sawmilling was the dominant process. Beneficiation would be enhanced by:
- Having export incentive schemes of lumber export to assist with the marketing of an oversupply of lumber internationally, as currently there was a risk of job losses related to potential mill closures; skills development to enhance productivity; resource utilisation improvement programmes; and out-bound transport/logistics.
- Carbon footprint acknowledgement and exploitation.
- Incentives for value adding of by-products.
- Carbon Tax rebates vs rain tax.
- Cost reduction initiatives to ensure competitiveness.
- Job security in the plantations.
- Assistance with log marketing (free market principle to remain).

Mr Chris du Toit, Director: Timber Processing Specialists, outlined the challenges to the industry.  These included the prolonged construction market weakness, cost pressures, skills shortages, profitability, infrastructure, roads and rail, and ageing equipment/facilities.  In addition, Government policy needed to give stability with regard to defining the role of SAFCOL, BBB-EE, land claims and labour legislation.

The promotion of the use of renewable resources and downstream beneficiation into non-construction products, were seen as opportunities in the industry. The ability to grow forestry resources and create jobs was also seen as key to the growth of the industry.

Paper Manufacturers Association of South Africa (PAMSA): briefing on beneficiation
Ms Jane Molony, Executive Director: PAMSA explained that PAMSA was formed in 1992 and was a common platform for the development and presentation on pre-competitive industry issues like energy, the environment, recycling, education and research. The 600 million trees across 762,000 ha were grown for pulp and papermaking. 150,00 people were employed because PAMSA grew trees, made paper products and recycled them.

Ms Molony said that the first step to beneficiation was to plant trees, as they were a crop as opposed to a naturally occurring resource. The role of the Industrial Policy Action Plan (IPAP) was to be commended, as they had recognised the blockages in the industry a long time ago. The percentage growth per year in rand terms was 33.2% for pulp, and 5.2% for paper.

The challenges to sector competitiveness were:
- Fibre supply;
- Administered pricing; and
- Cost of legislation.

The three most important factors for local beneficiation were the competitive cost position for manufacturing, an enabling environment from legislation and a partnership between business, labour and the government.

The Chairpersonship of the meeting was handed over to Mr F Shivambu (EFF)

Briefing from a Small Grower
Ms Busisiwe Mnguni thanked the Committee for the opportunity to address them as a small grower. She said that she was a victim of the plight of small growers, because she was a small grower from a rural area.  As small growers, they were employed almost indirectly because while their timber was taken to the industry, it was not negotiable in terms of the price. The government was providing seedlings and making promises, but nothing had happened yet. It would be better if shares could be sold to small growers, because then they could say they were driving a moving vehicle.  They were owners of timber but they did not have a voice.

Women in rural areas struggled with the added difficulty that in rural areas, men traditionally made the decisions and were in control, so women, while they had good ideas, struggled to articulate and pronounce them.  The timber could be maintained at an early stage. Promises were made to women in this industry but there was no follow through. The officials were not helping women small growers in the rural areas.

Mr B Mkongi (ANC) welcomed the presentations from the three stakeholders, as they had shown support for economic growth and the creation of jobs. The presentations did not show how many jobs had been created thus far, and who had benefited from those jobs.

Ms Molony replied that in terms of job creation, for example, one of the entrepreneurs employed 21 people. This was the exception, not the rule. The other way to create jobs was to plant trees and for that, water licences were needed.

Mr Mkongi said people who participated in recycling were being disadvantaged, because the dumping areas were not being preserved. There were no by-laws and instruments on the ground to assist in this process. The presentations had provided no evidence of the ownership patterns of companies with regard to employment and equity. He asked if the owners of these companies were black.

Ms Molony replied that only 5% of households recycled and municipalities did have the power to create by-laws to force people to separate and recycle. Households could separate at the source, but unfortunately municipalities did not want to burden ratepayers. In this country, the responsibility was with industry and PAMSA has been asked to create industry waste management plans. It did have recycling training programmes and had trained over 3 000 entrepreneurs.  PAMSA worked closely with municipalities.

Mr Mkongi asked for clarity about the process involved in the transition from plastic to paper in retailing, and what the status of this process was in South Africa.

Ms Molony replied that it came down to cost.  It cost more to have a paper bag than a plastic bag in this country. The levy had helped in that it ensured that plastic bags were being recycled.

Mr D Macpherson (DA) said he was very concerned that in the presentation from Forestry South Africa, under challenges, it had been stated that a Cabinet memorandum had not been implemented. He asked what was recommended in that memorandum and what further steps had been taken by Forestry South Africa.

Mr Peter replied that he had not seen the Cabinet memorandum, but it had stated that areas that had been exited in the Western Cape and Mpumalanga were not all suitable for replanting, and some of them should be recapitalised.  The process had gone in fits and starts and the company was no longer interested in recapitalising it, because the window of opportunity had closed. This had been raised with every government department to whom Forestry had made formal presentations to in the past six years.  It had also been raised in the annual report and in letters to the Minister.

Mr Macpherson asked for more information about the failure to meet the 100 000 hectares target in the Industrial Policy Action Plan (IPAP). This was a travesty, because when the government failed to do something so fundamental, then there was silence. At then end of the day, small black farmers were disadvantaged.

Mr Peter replied that in terms of demographics, those 30 000 small scale timber growers controlled only about 4% or 5% of the forestry area.  It was difficult when officials were not supporting the national policy.

Mr Macpherson asked about forest protection and if this involved the contamination of water systems and the unabated use of pesticides.  He asked if education was provided on this, for example, about fire prevention.

Mr Peter replied that the issue was really around protection of the crop itself. The crop was extremely susceptible to pesticides. Through the University of Pretoria -- with strong support from the Department of Agriculture, Forestry and Fisheries (DAFF) -- biological control agents were being developed to prevent an over-dependence on pesticides. If a large company lost some hectares, it affected profitably.

Mr Macpherson said that with regard to international competitiveness and South Africa being in the 50th percentile, what two things should be recommended to push the country back into bottom 25 percentile.  

Mr Dlamini replied that one of the biggest cost drivers was transport. If something could be done about transport - which was mainly affected by the price of fuel – it would make a very big difference.

Mr Peter replied that with regard to international competitiveness, over 60% of costs were in harvesting, so forestry had been working on trying to free up access and open access to rail for timber growers in this country.

Dr Z Luyenge (ANC) also expressed his appreciation for the presentations from the three stakeholders. He asked for more information about the grants that were not accessed and what effect this had had on production at these institutions.  

Mr Southey replied that the grants were not accessed because of all the red tape and bureaucracy involved. An example of this was that when a company wanted a grant, they had to submit five years of financial statements to the Department of Trade and Industry and the Industrial Development Corporation (IDC).

Dr Luyenge expressed concern about land claims generally, and specifically in the Eastern Cape.  He asked what the involvement of young, previously disadvantaged people was in the land claim issue, and what the effect of that process was on the duties of the organisation. It was claimed that there was insufficient involvement. There had to be a will to compensate the rightful owners.

Mr Peter replied that claims in the forestry industry had been settled with much better outcomes than had been seen in agriculture. In forestry there was a partnership agreement, where the former landowner could remain on the land almost like a tenant. This did not create a dependency, and huge benefits were being derived.

Ms J Fubbs (ANC) asked for clarity about small growers and if the small grower was an unencumbered small owner. She asked further how the joint venture or relationship worked.

Mr Dlamini replied that a small scale timber grower was a person who owned a small piece of land according to a traditional structure or a community. These people owned land, grew timber and could sell to anyone. These small scale growers could be liberated if they were granted the liberty to sell to anyone, or if they were given grants with no contractual obligations, or if they received financial assistance from some other institution.

Ms Fubbs said that the grant issue should be raised with the relevant Minister.

Mr Southey said that the reason why grants that were available were not being used, was because of all the red tape and bureaucracy involved.

Ms Fubbs expressed concern about the Eastern Cape, as per the presentation on sawmilling. With regard to the equipment issue, it had been said that the government’s help was not needed. However, some factories had closed down due to outdated equipment.  She asked for clarity about this issue.  

Mr Southey replied that there had been a misunderstanding.   He had said the replacement of equipment was the industry’s responsibility, but it needed assistance from the government.

Mr Shivambu asked how many jobs had been created in the forestry sector. He asked for exact figures, because the different presenters had given different numbers. Some indication of the labour absorptive capacity was required.

Mr Dlamini replied that most were small scale growers.  90% of the people who owned these plantations were not employed anywhere, and were also not employed in forestry enterprises. They were only fully employed maybe in the first two years, when it was labour intensive. Then in the maintenance phase, they were maybe employed only one third of the time.  So they were owners and self-employed, but only employed one third of the time, for the rest of the time they did nothing. These people could be occupied in agro-forestry initiatives.

Ms P Mantashe (ANC) asked how many women had been absorbed in the sector.

Mr Peter replied that  women were occupied mostly on the lower rungs, and in terms of production in KwaZulu-Natal, most small growers were women. They were self employed and managed their own estates, but mainly on the lower rungs. Women often dominated the contracting sector. Forestry South Africa had a very good charter and a functioning Sector Council. The codes were currently being renegotiated.  Forestry South Africa was trying to embed government’s undertaking into a shared score card. Negotiations were under way with DAFF about this.

Sasol briefing on beneficiation
Mr Johan Thyse, General Manager, Group Public Policy and Regulatory Affairs, explained the beneficiation process, products and downstream input.  Sasol had a presence in 37 countries across the world comprising a combination of exploration, development, production, marketing and sales operations. 

Sasol’s successes were outlined as follows:
34 000 directly employed;
R800 million invested in infrastructure;
South Africa capital spend – R19,8 billion;
R95 billion spent in South Africa over the last five years; and
Listed on the Johannesburg and New York stock exchanges.

Over the last 64 years Sasol had delivered real value through beneficiation in the following three ways:
- Sasol technology innovation allowed the company to reach new frontiers;
- It contributed to energy supply security; and
- Provided important inputs into the downstream sectors.

The successful beneficiation initiatives had allowed Sasol to contribute to the National Development Plan through supporting the country’s long-term objectives and investing in the country’s business to create and retain jobs.  R800 million was being invested in infrastructure in and around our communities.  Sasol was also investing across the region, especially in Mozambique, and enhancing the country’s existing asset base while driving growth in the region through the beneficiation of mineral resources.  Some of key lessons learnt were the need for continuous investment in research and development, an enabling regulatory environment, infrastructure and utilities, and the creation of jobs.

The Chairperson said that Sasol had dealt largely with the upstream, and hoped that downstream aspects would be revealed in the discussion.  Downstream related to the processing of chemicals and the absorption of manufactured products, like plastics. She looked forward to a robust discussion. 

The presence of the Deputy-Director General, Mr Garth Strachan, the Chief Director responsible for Chemicals, Cosmetics and Plastics, and the Parliamentary Liaison Officer, Mr Suraj Naidoo, were noted. The chairing of the discussion was handed over to Mr Macpherson

Briefing by the Minister
The Minister, Dr Rob Davies, congratulated the Portfolio Committee for organising the colloquium, as it dealt with beneficiation, an issue very important to South Africa at the moment.  He was basically supporting the argument for the logic that underpinned the New Mineral Beneficiation Action Plan.  There was a need to create a competitive advantage for upstream manufacturing in South Africa, based on the existence of a mineral resource base. The resource base had to sustain transformation and industrial development, with a high level of human labour involved in the transformation process.

The automotive industry had said that if the price of a catalytic converter was 10% cheaper  and delivered from South Africa, it would enable them to grow their production by five times the current levels and consume 50% of South Africa’s platinum group metals (PGM) output. Since PGMs account for 50% of the cost of a catalytic converter and stainless steel 20%, a 15 to 20% discount below market prices would be required for both PGMs and stainless steel.

For the past three years, ArcelorMittal South Africa’s (AMSA) steel prices had been on average 13% higher than the proposed dti benchmark price (excluding China). Analysts estimated that AMSA currently received iron ore at 55$/ton (cost plus 20%, so cost was 45.8$/ton), 44% lower than the spot price of 95$/ton.

Polymers could account for up to 60% of the cost of plastics, so even a 10-15% discount on polymer prices could make a significant impact on the price of plastics and a competitive advantage for downstream manufacturing. 

The Minister said that there were things that could be done, and we should work together to achieve a lot more. Important was the question of finding a discounted price for minerals that fed into downstream industry. This was a very fundamental way of getting beneficiation off the ground. If unable to achieve this, then chances of achieving beneficiation would be greatly reduced.

Ms Fubbs asked for more information about losses in the polymer business.

Mr Mike Biesheuvel, Managing Director: Sasol Polymers, said that polymers were much bigger than PVC, polypropylene and polyethylene and other derivatives.  Hence when one looked at polymers, one had to see them as a combination. Sasol does not have alternative fuel stocks that go to Polymers. Sasol has invested in the last 10/15 years to add value to polymers. It now had the option of investing in fuel.  With changes in the legislation on clean fuels, Sasol would actually back out of some of the polymers and put this back into fuels to meet some of the needs.  

Mr Mathale (ANC) asked what contribution could be made to broaden the issue of beneficiation beyond what was being done with polymers.

Mr Thyse referred to slide 8 to answer the question. This slide illustrated how Sasol had added value through beneficiation.  

Mr Biesheuvel said that Sasol produced four different kinds of polymers, and these were very closely associated with polypropylene. South Africa had a surplus of polypropylene, so it supplied locally and exported. In all other instances, SA did not have the ability to supply the SA market. It therefore needed to be supplemented with imports.   

Mr Mkongi said that the Minister had posed the challenge of changing the pricing to support beneficiation. He asked what Sasol’s position on this was.

Mr Biesheuwel replied that with pricing, one had to bear in mind that the majority of what was coming in needed to be imported.  Sasol did not have the ability to beneficiate any further.  It was constrained by the fuel stock in the Secunda operations. New technology had to be looked at, to see if Sasol was able to beneficiate. There had not been a reduction in prices, but it was still early days.

Ms Mantashe asked for an explanation regarding the R14 billion coalmine replacement.

Mr Thyse replied that because there was not enough coal and gas, the rights for coal had to be secured in order to mine it.  With this investment, a new mine could be opened. Sasol had actually exceeded the BEE requirements by 26%.  

Dr Luyenge said that Sasol should look into employment opportunities, especially those that involved the poor.

Mr Thyse replied that Sasol invested quite a lot of money in schools and had a number of initiatives planned and some already activated.

Mr Shivambu said that the Minerals and Petroleum Resources Development Act (MPRDA) gave power to the Minister to identify minerals that should be beneficiated. He asked why this was not enforced, because PGMs could then be beneficiated. Legal instruments existed to do this.

The Minister said that it could be taken for granted that the toolbox in the MPRDA would be used to support beneficiation. The amendment bills in the toolbox had not yet been signed into law at this point. There should be a preparedness to have engagements with companies about changing their practices.  If they did, then they could be supported and worked with in a number of ways.

Mr Shivamba asked if Sasol had explored the issue of processing crude oil.

Mr Biesheuval said that Sasol had a crude oil facility in Van der Bijl Park. There was also a joint venture between Sasol and Total.  Sasol was looking at upstream opportunities, as it did not have crude oil reserves.

Mr Shivambu asked why the Committee could not just instruct Sasol not to overprice the industrial inputs in the plastic manufacturing sector.

Mr Biesbeuwel said that he would prefer to provide a written response.  In 2004 and 2009, Sasol’s prices had come down by around 8%.

Ms M Tsopo (ANC) asked Sasol to provide information on investments in communities around job creation.  
Mr Thyse replied that a written response would be provided.  

Mr Macpherson asked if Sasol was looking at synthetic fuel.

Mr Thyne replied that most fuels were synthetic fuels.

On the issue of discount prices that the Minister and Members had raised, Mr Thyse said a written response would be provided, as he had to engage with his seniors about this.  

Concluding remarks
The Chief Whip, Ms Tsopo, said the Portfolio Committee welcomed the presentation, and she thanked all for the robust engagement. The purpose of the colloquium was to add value to beneficiation, especially with regard to downstreaming.  The Committee remained concerned that Sasol had not addressed the issue directly, and hoped that next time Sasol would be very transparent in addressing this matter. The attendance of the Department of Trade and Industry and Minister was welcomed, as this strengthened the debate.

Many challenges had been raised and one was on the question of energy. This should be addressed in the relevant Committee.   Another issue of serious concern was that some of the questions were about ownership. This question had not been responded to by all the presenters.  Forestry and sawmilling should also consider how they were going to support small growers because this had not been adequately addressed.  

The meeting was adjourned.


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