Department of Mineral Resources budget and performance plans 2016: Financial & Fiscal Commission, Department Planning Monitoring & Evaluation assessment

Meeting report

Chairperson’s Opening remarks
The Chairperson mentioned that the Committee is meeting today still under the dark cloud of the tragic incident in Mpumalanga at the Lily Mine and the Committee needed to find out how it could help. He noted his prayers for the families and colleagues of the miners trapped underground and hoped resolution would be reached soon.

When the apologies were presented, Mr Z Mandela (ANC) commented that Mr J Malema (EFF) had not been attending meetings since March 2015, and said this needed to be addressed.

Minutes
Department of Mineral Resources budget and Annual Performance Plan: Financial and Fiscal Commission analysis
Mr Bongani Khumalo, Acting Chairperson, Financial and Fiscal Commission, began his briefing by highlighting the effects of the global economic crisis on the South African economy, and the mining sector in particular. Matters had reached quite a severe stage, with the economy not going back to its prior booming economic growth path and it was realised that the recovery of the economy would take longer than anticipated. One area that had, however, assisted the economy during the global economic crisis had been the commodities market in which the mining sector was a critical player. However, the fall in these commodity prices led to trade balance challenges. For this reason, there was action needed to assist the mining sector.

The Financial and Fiscal Commission (FFC) had made a number of recommendations to address the challenges in the mining sector. One of these had been to call upon the State to put in more money into research, development and innovation. This was because mining is the backbone of the economy not only in terms of value add, but also in terms of earnings and employment.

The global economic crisis and the fall in demand for South African commodities, by Japan in particular, had led to decreased employment in the mining sector. Mr Khumalo said that the mining sector is not the only contributor to employment but this drop was of concern. He also noted the need to address issue of labour unrest in the mining sector, which had negative impacts on investments.

Another representative of the FFC proceeded to present the budget analysis of the Department of Mineral Resources (DMR of the Department). The FFC was pleased to note that the Department's strategic plan was showing better alignment with the National Development Plan (NDP), especially in in relation to increasing investments, transformation, the need for value adding and job creation. Despite the fiscal constraint and consolidation, the Departmental budget had increased. However, in real terms, the average growth rate has decreased. He highlighted that the biggest portion of the departmental budget went to mineral regulation. The increasing investment in mineral regulation sought to create linkages to ensure that the communities would become holders of mineral resources and thereby would be able to take part in economic activities. However, the FFC remained concerned that the promotion of mine health and safety was allocated the smallest percentage of the budget resources. Given the tragic accidents that are continuously taking place in mines, this is an issue that needs to be addressed by the Committee.

The FFC was also pleased to note that the DMR has met its budget targets especially under this period of fiscal constraints where there is a need for more efficient and effective use of resources.

He next turned his attention to the Department's entities and said that the FFC had noted that all entities had a negative average growth rate in the medium term. Following up on the point made earlier, he said that the FFC was concerned that too little was being allocated to research and development and consequently these had not been growing as fast as they should.

The last point was that the DMR needed to try to reduce the number of audit findings in the entities, to ensure that departmental resources are used efficiently and effectively. In conclusion, he noted that the Department had a critical role to play in the South African economy. There needed to be more prudent management of existing capacity, especially in relation to inspectors and the economic field, to avoid recurrence of mine disasters.

Discussion
Adv H Schmidt (DA) understood that the structural adjustment in China had negatively affected the demand for South African exports, and also that investment is the back-bone of the mining sector growth. He then asked what else South Africa should do on a macroeconomic scale to stimulate the mining economy, in addition to research and development.

Mr I Pikinini (ANC) also commented on the research and development being under-utilised and also under-performing, in the sense that not enough people were being encouraged in this way who could add value to the DMR. He shared concerns about the Department not having enough inspectors to do visits and inspections, which had led to the current issue of security hazards in mines. He also commented that the Mine Health and Safety Council (the regulator for the sector) was under-funded although it was expected to deliver good performance for the Department.

Mr Khumalo responded to Adv Schmidt that in order to respond appropriately to the structural adjustments in the economy, there would need to be good education outcomes that will produce skills that will in turn help grow the economy. Furthermore, investment involved a whole lot of other things, including both attracting and retaining investors. There would also need to be good coordination of activities, for investment alone would not be enough to stimulate the mining economy and the economy at large.

He noted that the lack of inspectors had a direct impact on communities and that victims tended to be from the marginalised communities. However, due to budget constraints the DMR tended to allocate resources where the outcomes would have the most impact on communities, and it was a fact that budgetary constraints did not allow the DMR to do physical inspections in all mines.

Department of Performance, Monitoring and Evaluation (DPME) analysis
The Deputy Director General from the Department of Planning, Monitoring and Evaluation apologised on behalf of the Director General who was unable to attend this meeting.

He noted that the DMR, as one of its initiatives, had embarked on a Mining Phakisa to develop a sense of inclusiveness for communities. He stated that amongst the issues discussed at this Phakisa had been the  job losses in the mining sector as a result of the depression of commodity prices, and the current state of the mining sector economy.

The Department of Planning, Monitoring and Evaluation (DPME) made the point that investment in this sector would start off with investment in exploration, and South Africa had failed to increase its mining exploration budget. South Africa used to be one of the significant contributors to the global mining exploration budget, raising this over time from 5% to15%. However, it currently only owned about 1% of the global budget .Therefore there needed to be more budget allocated to mining exploration, in order to boost the mining economy through attracting and retaining more investments.

Another important issue was the improvement in having mines reported for non-compliance in terms of water licences. However, where licences were applied for, there had been significant delays by the Department of Water and Sanitation (DWS) in issuing those licences and there needed to be more coordination between the DMR and the DWS in this regard.

He concluded that although it was clear that a number of issues were discussed during the Mining Phakisa, there was still an urgent need to discuss and address the burning issues currently faced by the mining sector.

Discussion
Mr J Lorimer (DA) asked what was the progress on the Mining Phakisa. He also wanted to know the  number of water licences still outstanding, as there seemed to be no clarity on this.

The Deputy Director General, DPME, responded that it was not known how many water licences were still outstanding at the moment, but a special intervention team had been set up to get rid of the backlog and there had been progress on that.

Mr Lorimer proposed that the Committee should schedule another meeting where the Mining Phakisa will be discussed in further detail, and the Chairperson agreed that this would be done.

Committee Researcher's analysis
The Committee's Researcher presented an analysis of the strategic and annual plans and budget. He noted that in 2015, in the Budgetary Review and Recommendation Report (BRRR), this Committee had raised the point of the shortfall in budget experienced by the DMR. The Committee had noted that there was substantial national investment needed in geological mapping. The Council for Geoscience needed a once-off amount of R1 billion for geological mapping, to attract exploration mining companies and assist state owned businesses with mining exploration. This issue had also been raised in the previous Budgetary Review and Recommendation Report, in 2014, and a meeting was requested also with the Council for Geoscience. There had been no response to the requests from National Treasury. The Council for Geoscience stated that it had motivated for more budget, but had no explanation for why the issue had not been addressed. 

He noted that a once off figure of R1 billion was not a lot of money and he cited the size of the budget for the Department of Trade and Industry (dti) as a comparator. This was the only financial issue that the DMR had raised last year.

He then moved on to note that there had been some progress on the issue of ex mine workers, as the Department of Labour and Department of Health had been involved in regard to try to address the remuneration and health issues respectively.

It was also important for the DMR to take responsibility for the environmental impacts that mining had, yet this was something that was lacking from the DMR's performance plans and targets. Another shortcoming was that the DMR would need to address the fact that there is no performance measure currently in place in relation to who held mineral rights and what they were doing with those mineral rights. Finally, he noted that transformation still remained an issue. Recently in a court case there had been a discussion on whether “once empowered means always empowered”. However, it was very difficult to judge whether transformation had taken place in reality; the names of the mines that were said to have resulted in more empowerment were not stated.

There were no questions.

Minute adoption
The Committee adopted the minutes of 09 March 2016, without amendments, having checked them page by page.

The meeting was adjourned.