Colloquium on Beneficiation: Day 4

Meeting report

South Africa Mining Development Association (SAMDA) briefing
Ms Bridgette Radebe, President: South African Mining Development Association (SAMDA) said that the Association was started in 2000 as a junior mining initiative by South African junior and black economic empowerment (BEE) mining investors. Transfer pricing was used to describe arrangements involving the transfer of goods or services, at an artificial price, (usually lower) in order to transfer income from one business to an associated business in a different tax jurisdiction that was often lower. As the regulation of transfer pricing was tightened in South Africa, more sophisticated forms were developed, such as abuse of advanced pricing agreements.

Through the practice of transfer pricing, elements of the Mining Charter that were not being complied with.  These were:
Ownership – 26% equity participation by May 2014;
Procurement and enterprise development;
Beneficiation;
Employment equity – 40% black managers by May 2014;
Human resources development;
Mine community development, through integrated social and labour plans;
Housing and living conditions requirements -- sustainable development through
environmental management plans, rehabilitation, waste removal and storage, and improved health and safety performance

Recommendations to remove blockages in the industry included:
The extent, type and impact of commodity price manipulation in the mining sector must be investigated by the regulator, the Department of Mineral Resources (DMR) and National Treasury to ensure that revenue destined for South African stakeholders in the mining sector was not taken from them;

The role of local and foreign marketing agents and their impact on the mining sector should be researched and better understood;

The alignment of the Mining Charter with the Department of Trade and Industry’s (DTI’s) B-BBEE codes of good practice had not been made, despite the fact that the Mining Charter had to comply with a 2014 deadline; and

Section 26 (3) of the Mineral and Petroleum Resources Development Act (MPRDA) could be used to assist the government in determining the true value of the commodities being transferred to the end user/consumer beneficiator.
(See document)

Professor Ben Turok: Towards a joined-up economy
Professor Ben Turok, Director: Institute for African Alternatives (IFAA) said that this had been an excellent colloquium, allowing for thorough examination of the issues around beneficiation. He could comment only on mining and plastics, but believed that his comments could also bear on other natural resources.  There seemed to be substantial agreement at the colloquium that beneficiation was desirable.  A “joined-up economy” required clarity of purpose and coordination across government, private sector initiatives to break the mould, and sustained cooperation across the board.

Prof Turok said that the IFAA had been beset by problems with government, the private sector and around the political will for several years. The IFAA had convened, with the Industrial Development Corporation (IDC) and the United Nations Economic Commission for Africa (UNECA), two large conferences and published the papers in New Agenda and the SA Journal of Social and Economic Policy. The IFAA was now cooperating with others in charting a practical way forward. This included primary research on the obstacles to greater domestic value addition, such as those mentioned in the colloquium.  Hard information was needed about what was actually happening on beneficiation, and how this could be extended across the economy. There was a need to accept that governments across the world were not willing to allow their economies to be disturbed by the current global financial and economic turbulence. (See document)

Discussion
Mr B Mkongi (ANC) thanked the two presenters for their inputs. He said ownership patterns had remained the same. The mining industry was intransigent.  He proposed that the Committee adopt the recommendations from SAMDA, and process them through Parliament. 

Prof Turok said that he would respond to the statement that the mining industry was intransigent. What bothered him was that the country accepted this. The media treated the mining industry like holy terrain. For a long time, the mining industry was seen as the provider of foreign exchange and jobs, and the associated benefits. This discussion had helped and should be taken outside.

The Chairperson said that other Members of Parliament had joined the meeting. They were: Mr J Malema (EFF), Mr M Ndlozi (EFF), the Committee Researcher and the Committee Secretary, Mr Andre Hermans.

Mr D Macpherson (DA) said that one had to look at beneficiation across the board, not just in the mining sector, but also involving collaboration with the government sector. Beneficiation should be seen as a tool in the toolbox that was available to the government.  He endorsed Prof Turok’s recommendation that extensive research be embarked on to understand what the value chain was. He thanked Prof Turok for his contribution.

Dr Z Luyenge (ANC) said that a situation where transfer pricing was benefiting the minorities in our country was unacceptable. The initiatives from SAMDA should be supported.

Mr F Shivambu (EFF) commented that government had been weak. There was legislation, but there had been no adherence to the legislation. The Ministries were weak and were ‘egg walking’ around industries. There was no legislation on transfer pricing, and this made it an illegal practice. There was a need for legislation on transfer pricing.

Prof Turok said that the evidence was clear that the government had not done many of things it was supposed to do, and especially in the mining sector, the Charter had not been complied with. He questioned the reason for this, as he felt that using the natural resources of the country for the country’s own benefit, was the whole point. The country had lots of natural resources.  The Freedom Charter said the mineral wealth was belonged to the country. There was a mindset problem.   The mining industry was not a foreign enclave in the country.  It was a political problem that had to be sorted out.

Ms M Tsopo (ANC) asked for clarity from SAMDA on whether the transfer pricing issue had been brought to the relevant Ministry or Portfolio Committee.

Ms Radebe said that the Department of Mineral Resources (DMR) was very competent, and there was a woman there working on transformation and doing an audit with her team on compliancy. The role of the IDC had to be investigated. With regard to applying Section 49, there was a need to find politicians who had the will to do certain things.

Ms Tsopo asked, with regard to the Mining Charter, if SAMDA was doing an assessment about what was supposed to have been achieved by May 2014.

Ms Radebe cautioned against losing one’s focus. There was a need to tighten the legislation around transfer pricing, so that it was not left up to auditors to decide.

Mr Mkongi said that Mr Shivambu had raised an important matter when he had pointed out that there was no legislation on transfer pricing. He proposed that the Committee adopt the proposals from the Minister, as an interim measure.

Mr Malema said that the ANC was not weak. It had been co-opted by the multi-national companies and therefore was able to act decisively. The Democratic Alliance was unashamedly in defence of the private sector, and permanently blamed the government. He agreed with Prof Turok when he said that the reluctance of the private sector to play a meaningful role undermined the ability of the country to move forward. There should be nationalisation that targeted strategic sectors like mining.  Those sectors could then be beneficiated by the state, because they would be owned the state. One could not beneficiate what one did not own. He criticised Sasol because they were resisting the production of plastic, which he felt they would find an easy thing to do.

Ms Radebe said with regard to the list of companies who were engaging in transfer pricing, the Committee should go to the DMR, find out who they were and then call in SAMDA. Once SAMDA was there, with their partners, she would personally expose what they were doing.

Prof Turok responds
Professor Turok said that nationalisation could certainly happen, but one should be sure that a plan existed, and that it was necessary.   It had to be ensured that there was not going to be a huge outflow of capital immediately, and that the same engineers were not going to work for other companies. There should be a plan, not a slogan, to ensure success. 

On beneficiation, he said the IFAA would do the research.  Beneficiation was happening, and what was not known was where and how it was happening.  Hence there was a need for research.  He disagreed with Mr Malema when he said that one could not beneficiate what one did not own. This was not true, because the state did not own motor repair outlets or plastics companies, and various other enterprises, but beneficiation was happening. What Parliament and researchers had to ask was, why was this not happening to a greater extent? It was happening all over the place, it was just unknown where it was happening.  Parliament and researchers needed to find out where it was happening. 

If South Africa took beneficiation seriously, it would open up the channels for huge downstream opportunities, mainly for previously disadvantage individuals, of course. Empowerment was based on the need to get good prices.  Saying that the ANC had been co-opted was not quite correct. The ANC had a million members, and a million members had not been co-opted.

Mr Malema said that Ms Radebe had said that they had a list of companies who practiced transfer pricing. He asked that this list be made public, so that a march could be organised to protest against transfer pricing.

Mr Macpherson said there was a need to heed the advice of Prof Turok and look at where the gaps and opportunities existed, how to encourage working together to find solutions, and get agreement from all parties on how to move forward.

Ms Tsopo encouraged Members to read the documentation from Prof Turok in a reflective manner.

The Chairperson said that the first constitutional obligation of Members of Parliament was not simply to make laws, but to oversee those laws.  Oversight meant ensuring that the executive of government -- the implementers -- were actually implementing. A decision had been taken to have a period of reflection, to get a draft report, and to ask if the Committee was getting what it wanted. If not, then the question should be how the Committee could get it.  

Prof Turok said he firstly wanted to address the Whip about the role of Parliament.  Parliament was not only about oversight -- it was also about legislation. Over the years, some people had tried to advise that policy belonged to the Executive, and that oversight belonged to Parliament. Legislation could not be passed if one did not examine policy. So the approach should not be narrowed too much. Parliament was about policy, and that was why he thought the colloquium had been so good.

Ms Radebe responds
Ms Radebe said that she wanted to be open and frank with the Committee, but she was concerned and anxious.  It was difficult to be honest, because one did not know how it would be interpreted. There were politicians who did not want to carry the mandate, and there were officials who might be compromised because they also had shares in these mines.  Those officials could not implement jobs, because they were conflicted. If one wanted implementation to take place, the right people had to be appointed.  People should hold on and let us interact and show the industry where the loopholes were. It was better to hold on to what was ours, so that there was no erosion. The Bill should be corrected and should not be signed until all areas had been investigated. The ruling party had to speak to the relevant stakeholders.

The Chairperson thanked Ms Radebe for sharing her research and experience, and for her openness to questions. The Committee would be writing to the relevant companies to address this issue more robustly. The Committee was going to meet with the Chamber of Mines. The draft report of the Colloquium would be available on Tuesday, 16 September. She hoped that all those who were involved would look at the report and return. The Committee would be inviting members from other committees to a meeting to discuss the draft report.

The Department of Mineral Resources, Prof Turok and Ms Radebe were thanked for their contributions.  

The meeting was adjourned.