Minerals and Forestry Beneficiation colloquium, draft Budgetary Recommendations Report consideration

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Trade and Industry

17 October 2014
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee held a brief colloquium on minerals and forestry beneficiation. The Department of Mineral Resources (DMR) highlighted the significance of the mining industry to the economy of the country. It indicated that the industry had created one million jobs; accounts for about 18% of GDP; contributes approximately 50% to foreign exchange earnings and is responsible for 37% of the liquid fuels of the country through coal. To date, the action plan on transfer pricing indicated that the DMR had undertaken a preliminary evaluation of the prospects of transfer pricing in the mining industry of South Africa, and an extensive literature review would follow. Preliminary assessments of the diamond and precious metals sector had been done jointly by relevant parties. The purported transfer pricing activity encompassed under-stating the value of minerals at the point of export, but South Africa had a number of capable institutions to deal with this, and the DMR was in cooperation with the Bureau of Standards.

The Committee heard that the 2004 Mining Charter had weaknesses which emanated from its scorecard, which had not provided clear targets in most elements, and was thus unable to address the objects of sustainable development and transformation effectively. It had been reviewed and the improved scorecard revised. The manner in which it had been improved was noted. The DMR also expanded on the minerals beneficiation strategy adopted in 2011, its aims and objectives, but noted that there were still some constraints to local beneficiation, which included limited exposure to research and development; inadequate skills, access to markets and limited access to raw materials for local beneficiation. The Minerals and Petroleum Resources Development Act (MPRDA) needed amendment to strengthen the provisions on beneficiation. If this was done, then beneficiation presented "game-changing" opportunities, which would require close collaboration, and the regulations would need to address developmental imperatives.

Members asked for clarity on the term "mine-gate pricing" and how this linked to transfer pricing, and questioned how the beneficiation provisions would apply, and said that if the DMR was not sure whether beneficiation did indeed present a win-win situation, it should look at the prices at which businesses could acquire minerals. However, some Members were pleased with the proposals on amendments, and asked about the negative issues surrounding scrap metal and if there was a need to legislate its flow out of the country. Members asked if research had been done into discount pricing, but urged that this should not be allowed to derail progress.

The Department of Agriculture, Forestry and Fisheries (DAFF) said it had identified the Forestry Sector Charter as one of the key policy levers to promote growth and transformation and address challenges of unemployment and poverty. The Charter had undertaken to provide instruments to support ownership and skills development targets, afforestation, and provide support to enterprise development and industry specific initiatives. The DAFF had thus commissioned studies to identify suitable land with potential for afforestation. A major factor constraining afforestation licensing was the cost of the Environmental Impact Assessment studies, particularly since most of the land with potential was communally owned. Various measures that the DAFF was taking to support elements of the sector were outlined. It was collaborating to develop a Forestry Enterprise Development Fund to support small growers. A National Afforestation Technical Task Team had been established, with representatives from the industry, Department of Trade and Industry and other government roleplayers, and finance institutions would be invited if needed. A study had been commissioned to assess transport infrastructure requirements, particularly given its importance to the timber production sector. Skills gaps were being identified and addressed through work with the Sector Education and Training Authorities. The Department of Rural Development and Land Reform provided grant funding for land reform beneficiaries, but DAFF funded the development of business plans and tool-kits, and the Charter aimed to facilitate the participation of small growers in international markets. A sawlog strategy was being implemented. Figures were given for land claims and redistribution, although DAFF stressed that it did not handled this aspect. Members asked whether South Africa was growing sufficient trees for its own use, the impact of the sector, and whether pine trees were being exported or beneficiated locally. Members questioned the targets on transformation and land transfer, which did not appear to be substantiated by the figures given, asked if field officers were in place, and noted the different requirements for indigenous forestry.

The Committee briefly considered the draft BRR Report, and agreed to focus on five critical recommendations, and compare them with the previous year, but did not adopt the report.

 

Meeting report

Mining Beneficiation: Department of Mineral Resources (DMR) briefing

Mr Mosa Mabuza, Deputy Director-General, Department of Mineral Resources, informed the Committee of the significance of the mining industry to the economy of the country. He indicated that the industry had created one million jobs; accounts for about 18% of GDP; contributed approximately 50% to foreign exchange earnings and is responsible for 37% of the liquid fuels of the country through coal. By GDP value, the South African mining industry is the fifth largest in the world. In terms of productivity, it ranks sixth in the world after USA, Australia, Canada, Brazil and Chile.

To date, the action plan on transfer pricing indicated that the Department of Mineral Resources had undertaken a preliminary evaluation of the prospects of transfer pricing in the mining industry of South Africa and an extensive literature review was seemingly corroborative. The South African Diamond and Precious Metals Regulator (SADPMR) had jointly undertaken a preliminary assessment of diamonds and precious metals with the SA Reserve Bank. Exploratory meetings of technical teams of the Department of Mineral Resources (DMR or the Department) and South African Revenue Services (SARS) had been held.

Since the purported transfer pricing activity was a function of under-stating the value of minerals at the point of export and declaration of revenue to SARS, Mr Mabuza emphasised that South Africa had capable institutions that could be geared to harmonise national economic sovereignty. The Department had initiated a strategic cooperation with South African Bureau of Standards (SABS) to utilise technical prowess, in partnership with other key institutions of government.

The Committee further heard that the 2004 Mining Charter had weaknesses emanating from its scorecard, which did not provide clear targets in most elements. As a consequence, it was unable to address the objects of sustainable development and transformation effectively. This led to the review of the Mining Charter, to clarify requirements, and improve the reporting process with a more effective scorecard.

The revised Mining Charter has introduced several transformation elements in terms of:

  • ownership: to encourage by Historically Disadvantaged South Africans (HDSA)
  • procurement, since HDSAs were to be preferred suppliers for capital goods, services and consumables
  • housing and living conditions, establishing measures to improve the standard of housing, including the upgrading of hostels and conversion of hostels into family units
  • employment equity: to encourage the participation of HDSAs in management
  • human resources development: to address the skills gap in the industry by promoting mining related to educational advancement, providing skills training opportunities to miners and introduce career pathing
  • mine community and rural development: to improve the lives of communities where mining takes place
  • beneficiation: to promote beneficiation of RSA mineral commodities
  • procurement: to advance empowerment of HSDA
  • changes to the migrant labour system requirements, aimed at addressing the discrimination against foreign migrant workers
  • companies would in future be asked to report annually on their levels of compliance with the Mining Charter.

In 2011 the Cabinet adopted the minerals beneficiation strategy which, amongst other things, sought to facilitate economic diversification, increase a new ratio of beneficiation linked  to mineral production and increase export revenue. It would also create opportunities for new enterprise development.

However, the strategy pointed out certain constraints to local beneficiation. These included limited exposure to research and development, inadequate skills, access to markets and limited access to raw materials for local beneficiation. The strategy further identified the need for the current provisions of the Minerals and Petroleum Resources Development Act (MPRDA) on beneficiation to be strengthened, as it was largely silent on how the Minister would promote beneficiation. The Minister was currently empowered to designate certain minerals for beneficiation purposes.

It was concluded that beneficiation represented a “game changing” opportunity for the country and a win-win scenario for all stakeholders in domestic mineral value chains. The realisation of this “game changing” opportunity would be premised on close cooperation amongst all stakeholders. The development of commodity specific requirements, in the regulations under section 26, would be primarily guided by the developmental imperatives of the country, including energy security, industrialisation, food security, energy infrastructure and macro-economic stability and representivity of a source of certainty for all stakeholders.

Discussion

Mr G Hill-Lewis (DA) wanted to know what a "mine gate" price is, noting that there had been substantial arguments on this point.

Mr Mabuza explained that mine gate pricing was at the heart of the beneficiation process. Quite simply, it meant that the price removed all transport costs. It was a win-win value proposition that would let the industry grow.

Mr N Koornhof (ANC) remarked that if  beneficiation was not up and running, that would have an impact on exports, as indicated in the amendment of section 26 of Act 28 of 2002.

Mr Mabuza indicated that section 26.3 does not apply to producers. The Act sought to address the reduction of transportation costs in minerals. Restrictions only applied to people who were not producers by law.

Mr D Macpherson (DA) commented that the presentation was convoluted. He further commented that even the DMR did not appear to be entirely sure whether beneficiation was a win-win situation, and it should thus rather look at how businesses were going to access minerals in terms of pricing, so that beneficiaries could get minerals at a very good low price.

Mr Mabuza elaborated that the presentation was a response to the invitation sent to the Department by the Committee. It addressed what the Committee had said that it wanted the Department to cover.

The Chairperson commented it was good to see that section 26 was under review. It was hoped that the amendments would be passed and implemented.

Mr Tapiwa Samanga, Deputy Director-General (Beneficiation), Department of Trade and Industry,  commented that mine gate pricing was related to transfer pricing and these two were talking to each other. Transfer pricing referred to the removing of goods to the point where they were to be beneficiated or sold.

The Chairperson wanted an explanation about the negative issues around scrap metal.

Mr Samanga suggested that the issue of scrap metal could be likened to "a mine on top of the ground" and commented that scrap metal had a value and would even be exported out of the country. There were countries that wanted it and were prepared to pay a lot of money to get it, even in an illegal way.

Mr Hill-Lewis enquired if there had been research done on discount pricing.

Mr B Mkongi (ANC) commented that research must be done if needed, but urged that this should not  derail important decisions of the country. He also said there was a need to legislate the flow of scrap metal out of the country.

Mr Mabuza indicated that research had been done on discount pricing. It would be made available to the Committee. He concluded that beneficiation was something that could not be achieved overnight. Information on that would also be sent to the Committee.

Forestry Beneficiation: Department of Agriculture, Forestry and Fisheries briefing

Dr Nthabiseng Motete, Deputy Director-General, Department of Agriculture, Forestry and Fisheries, indicated that this Department (DAFF)  had identified the Forestry Sector Charter as one of the key policy levers to promote growth and transformation, and to  address challenges of unemployment and poverty in the sector. The Charter had undertaken to provide instruments to support ownership and skills development targets, afforestation, and provide support to enterprise development and industry specific initiatives.

In relation to giving support to skills development targets, she noted that a plan had been developed and was being continuously reviewed to ensure that skills gaps were addressed. Through the participation of the DAFF in Sector Education and Training Authority (SETA) activities, training had been possible, especially for Fire Protection Associations.

With regard to providing support to enterprise development, the Department of Rural Development and Land Reform provided grant funding for land reform beneficiaries. The Department of Agriculture, Forestry and Fisheries funded the development of business plans, tool-kits and training of charcoal producers. The National Certification Standard which the Department leads and which had been approved under the Forestry Sector Charter ensured that small growers are able to participate in international markets.

In order to give support to industry, the Sawlog Strategy had been developed and was currently being implemented. The Research and Development Strategy and Programme had also been developed and was currently being implemented.

With regard to the redistribution of government owned forestry estate, Dr Motete noted that 100ha of the Rossbach Plantation had been claimed and was settled to the Ramaru and Magobo communities. The Thulamela Local Municipality in Limpopo had seen the transference of land to the community and the Department was currently negotiating to rent the offices that  were located on the land. A business plan was developed by the DAFF for the community, which had identified additional commercial opportunities. In the Umhlabuyalingana Local Municipality in KwaZulu-Natal, the rehabilitation of the estate had commenced through the Community/DAFF/Jobs Fund partnership.

At the King Sabata Dalindyebo Local Municipality in Eastern Cape, the approach was to enter into a Community Forestry Agreement (in terms of section 29 of the National Forestry Act) for the community to manage 227 ha of the plantation land. Land rights had been confirmed. The same approach would apply for the Tabankulu Local Municipality, where the community would manage 99ha of plantation land.

The DAFF had commissioned studies to identify suitable land with potential for afforestation. It was realised that a major factor constraining afforestation licensing was the cost for the Environmental Impact Assessment (EIA) studies. Most land with potential was found in communal areas, with the owners not having resources to invest in development.  To streamline afforestation licensing, the EIA study for 13000ha was conducted in the Eastern Cape and this resulted in licenses issued for an area of about 9000ha. For the 2015/16 financial year EIA studies would be conducted in KwaZulu-Natal for an area of 5000ha.

DAFF, in an effort to support small growers, was collaborating with other partners to develop a framework for the development of a Forestry Enterprise Development Fund. If approved and implemented, it would ensure financial support, through loans and grant funding, to Small, Medium and Micro Enterprises (SMMEs) in the sector. In order to address power relations and good practice between the established forestry corporates and small growers, a framework document, the Forestry Development Protocols, would be finalised by the end of the financial year.

The National Afforestation Technical Task Team had been established and it had representation from the industry, Department of Trade and Industry (dti) and government departments. Other role players like the Development Finance Institutions would be invited when the need arose.

In a quest to create an enabling environment for the sector to thrive, a study was commissioned to assess transport infrastructure requirements, with the sole purpose of feeding the results into the National Transport Master Plan. This was being prioritised because transport costs remain a major factor for profitability, especially in the timber production sub-sector.

Dr Motete said, in conclusion, that a dedicated forestry grant would facilitate an improved and fast-tracked implementation of the Charter undertakings. She noted the need to improve the time currently  taken to approve licenses. The Department had developed all the policies and strategies to position itself for leadership in the sector.

Discussion

Mr Koornhof asked if the country was growing enough trees for its own usage, and what the figures showed in terms of forestry impact.

Dr Motete explained that, statistically, there was no indication of timber shortage. The Department beneficiated 98% of timber grown in the country. Less was exported. The Department did review the possibility of timber shortages, in order to make preparations for what might happen in future and lessen the risks.

Mr Mkongi enquired if pine trees of the country were exported or were perfected elsewhere.

Dr Motete said the pine trees were used to quite an extent, locally, in the sawmill industry.

Mr Macpherson asked how the Department could talk of transformation and land transfer, when it had only achieved 9% against its target.

Dr Motete pointed out the Department was not actually responsible for handing over land to communities. The 100 000 hectares of land targeted was for afforestation, and was not land for restitution. The 9000ha licensed in the Eastern Cape was a portion of the 100 000ha to be licensed in other provinces.

The Chairperson enquired if the Department had field officers to help small growers. She also requested the Department to furnish the Committee with more information on the tree planting value chain.

Dr Motete indicated the Department did have forestry extension officers, who helped small growers, although numbers were very low. She further noted that her Department was planning to expand the grant forestry.

She concluded by saying that the DAFF was managing large tracks of indigenous forests, although the Charter addressed commercial forestry. Indigenous forestry was harvested for second beneficiation. Indigenous forests grew slower than pine trees, and it was necessary to have a permit before they could be destroyed, given their importance in protecting the ecosystem, and the fact that communities used them for their subsistence.

Budgetary Review and Recommendation Report: Preliminary consideration
The Committee briefly considered the draft BRR Report, but it was not adopted. The Committee agreed to focus on five critical recommendations regarding issues raised in the BRR Report, and committed to compare them with those of the previous year.

The meeting was adjourned.

 

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