State Diamond Trader on beneficiation of diamonds and response to information requested by Committee

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Mineral Resources and Energy

13 May 2015
Chairperson: Mr S Luzipho (ANC)
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Meeting Summary

The Portfolio Committee on Mineral Resources was briefed by the State Diamond Trader (SDT) on various issues, dealing mainly with the legal opinion which stated that the SDT had no legal obligation to comply with information disclosure. If the information was given out, then the Committee would have to take the consequences of that disclosure. The Committee had sought advice from the parliamentary legal office to find a negotiable way forward, and had been advised to conduct a closed meeting for the purpose of information disclosure from the SDT, according to the rules of Parliament. It was pointed out that the reluctance of the entity to publicize the commercial information was for the protection of their clientele; as such disclosure would be of consequence to the companies trading with the entity. It was a matter of security.

Members were not persuaded by this argument, because the work of the Committee was to ensure oversight and openness as enshrined in the constitution. They raised concerns about the entity benefiting only a few companies and not being inclusive in its growth policies. They also mentioned the need for the entity to revisit its beneficiation model, as this seemed to benefit global markets at the expense local markets. The Committee also scrutinized the SDT’s involvement in a recent court case that was still being concluded. 

Meeting report

Opening Remarks

The Chairperson asked the committee to observe a moment of silence for the passing of the late struggle stalwart, Ms Ruth Mompati. He then stressed the importance of the economic development sector for job creation in the country.

The Chairperson referred to the legal opinion on the State Diamond Trader, which was about the rationality of the disclosure of certain information, and which stated that the SDT had no legal obligation to comply with information disclosure. If the information was given out, then the Committee would have to take the consequences of that disclosure. The Committee had sought advice from the parliamentary legal office to find a negotiable way forward, and had been advised to conduct a closed meeting for the purpose of information disclosure from the SDT, according to the rules of Parliament. The problem was the issue of the closed meeting. This would need to be justified.

The Chairperson gave the SDT a chance to provide a response on the issue of information disclosure, and said that the response would be subject to questions and discussion during the meeting.

Adv H Schmidt (DA) said that without content, it would be difficult to debate the information disclosure issue. The state entity was refusing to give information to the Committee, and there were various problems about this. What was the effect of an important state entity in measuring their purpose, but not giving the portfolio information for scrutiny? This had an impact on the mining sector, both public and private.

The Chairperson said that the Members must be given the legal opinion on whether it would be possible for the Committee to speak to the SDT on these issues, beyond the legal framework. The legal opinion of the Committee called for a closed meeting, but this trumped the constitutional value of transparency and openness. The Chairperson said he was uncomfortable with the legal opinion.

Nkosi Z Mandela (ANC) said that the presentation of the State Diamond Trader was on the agenda, so the Committee should proceed with it.

Mr I Pikinini (ANC) seconded Mr Mandela’s proposal to proceed with the presentation.

Briefing by State Diamond Trader 

Ms Futhi Zikalala-Mvelase, Chief Executive Officer, SDT, discussed the issue of the difficulty in releasing commercial information from clients, as it was a matter of security. Although the Committee wanted access to information, the commercial information of the clients was contentious. The legal opinion of the entity provided that information should be obtained from the owners of the information. The list of clients had been submitted without the disclosure of commercially sensitive information. There was certainty that in going through this list, the information required was being delivered. The SDT was not in a position to furnish information on the amount of rough diamonds beneficiated in the country -- it was not an easy thing to do. The SDT could only estimate what its clients beneficiated from the sales it made. The SDT was entitled to purchase up to 10% of local production from producers, so this had not been easy at all, and the last purchase was 7% from a small mining company.

The strategic plan of the SDT included promoting its clients on the international market through exhibitions and the hosting of a Diamond Indaba. For the industry to grow, exposure was of paramount importance in this industry.


Adv Schmidt commented that the cost of cutting and polishing diamonds was high in South Africa, compared to other countries like India. As a result, the diamonds got sent there and this had a negative impact in our economy. The client base of the SDT was not supportive of local production. There had to be a readjustment of the sector, particularly of local beneficiation.

Nkosi Mandela asked for clarity on the issue of beneficiation, saying it was not reasonable that the diamonds would leave the country to be beneficiated elsewhere. There must be a way to support local production. The SDT should speak more about that process.

Ms Zikalala-Mvelase responded about the list given, stating that clients were categorised according to their line of equity and transformation. The focus of the SDT was on the growth and transformation of its clients. Its strategy was to see consistent progress of all companies’ supply and demand. The provincial governments were crucial in ensuring that the diamond sector brought about job creation in the country. The model of the SDT had a few issues. Diamonds could be bought but cutting and polishing could not be sustained here. There were fewer factories doing this kind of work because there was less cutting of diamonds, but they were exceptionally expensive. The SDT’s impact had not yet been seen, but there had been skills development in the sector.

Mr J Lorimer (DA) said that smaller mines were not selling diamonds to the state, according to a certain court case, and asked if there could be more clarity on that issue.

Ms Zikalala-Mvelase responded about the court case starting in 2007. The trial would be settled soon, The issue was the cost of the legal battle. The SDT would like to see the matter seen through in the court and not settle it beyond that. The change in the legislation obliged all production to be fair, otherwise the SDT should declare it unfair. An independent evaluator would be instrumental in determining the extent to which the technicalities of the legislation had not been complied with. Diamonds could be bought all over the world. There should be incentives to create a competitive market, internationally and locally. The SDT remained a very serious state entity. Local consumers should purchase what was available in the country instead of buying abroad, as this had a negative impact on our economy.

The Chairperson said that no one went to court without confidence in their case. In light of this, this court case must show elements of certainty, and it was hoped that it did not affect the functioning of the entity. If it did, the entity had to consult with the Department. There seemed to be less focus in the presentation on beneficiation – was this as a result of establishing a mandate, or an error of the part of the Committee? In terms of intervention on this matter going forward, how was the Committee guaranteed beneficiation by local producers?

Adv Schmidt said the value of the goods should come back to the country of production from the central place of cutting and polishing -- there was no need to shrink the market in South Africa, De Beers, for example, had a system that they had terminated. There had been financial pricing of the diamond, and if it was too high, this meant it was inaccessible financially but not physically. The environment was hostile to this kind of system, but the SDT seemed somehow to be following this method, and it had to be thought through – for better solution-driven strategies.

Ms N Nyweba, Chief Financial Offier: SDT, said the Ministers of Mineral Resources and Finance had been briefed on the case, but there had been no opportunity to facilitate conciliation -- it was a matter for court adjudication.

Ms Zikalala-Mvelase indicated that De Beers was not having a easy time with this matter as well. It was affected by any regulations and legislation that had influence on how they traded diamonds in the global market. There was a need for the private sector to cooperate with the public sector. Capacity building was imperative, and this was being done through funding for skills development and tackling some of the more technical difficulties.

Mr Lorimer speculated that the SDT was benefiting a few group of companies. In terms of the court case, the small mines would close if they had to follow the regulations. This sector was struggling. Employment had dropped from 24 000 to 4 000 in ten years.

The Chairperson emphasised the importance of interdepartmental engagement with sectors that had an interest in mineral resources and those that could assist in the acceleration of economic development.

Minutes of 29 April 2015

Mr M Matlala (ANC) said that his name did not appear in the apologies section, and asked for clarity on that or note be taken for correction.

The secretary responded that she had not received an apology, but would check her records and make the correction.

Nkosi Mandela moved for the adoption for the minutes.

Ms H Nyambi (ANC) seconded.

The Chairperson announced that applications had been sent for the study tour, a collective mission with other portfolios in energy, environment, water and sanitation. Those who would not be able to make the journey should indicate as soon as possible. Next week, the Committee would have a joint meeting with the Finance Committee.

The Chairperson adjourned the meeting. 

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