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MINERALS AND ENERGY PORTFOLIO COMMITTEE
31 March 2003
FINANCING OF BLACK ECOMOMIC EMPOWERMENT IN MINERALS & PETROLEUM SECTORS: BRIEFING BY STAKEHOLDERS
Chairperson: Mr M Goniwe (ANC)
Documents handed out:
African Mineral and Energy Forum (AMEF) presentation
South African Women in Mining (SAWIMA) presentation
The meeting focused on a briefing from the African Mineral and Energy Forum (AMEF) and its associates on obstacles to BEE ventures in the minerals and energy sector and strategies for overcoming these, particularly in respect of financing BEE exploration projects. A presentation from South African Women in Mining (SAWIMA) highlighted difficulties experienced by aspiring BEE entrants to mining at the lower end of the value chain, drawing attention to the need for institutional support.
The meeting opened with a brief resume from the Chair of the rationale behind the hearings, the purpose of which was to appraise members of challenges facing black economic empowerment (BEE) entrants to the minerals and energy sector and possible ways of overcoming them. It was hoped that opportunities for constructive engagement with organisations representing the interests of entrepreneurs from historically disadvantaged South African (HDSA) communities in the sector would deepen understanding among committee members of the issues concerned. Noting that BEE remained central to national discourse as a whole and that the Petroleum Fuels Charter, Mining Charter and industry score card had together pioneered the way for the BEE charters now envisaged for each sector of the economy, these hearings were being conducted in the spirit of jointly mapping a way forward.
African Mineral and Energy Forum (AMEF)
Mr S Mafanye, AMEF Secretary, Ms J van Wyk and Mr Y Robinson of Borongwa Holdings and Investments and Mr R Roberts of Seitlhamo Energy explained the barriers to BEE entry and, in particular, challenges facing the financing of BEE ventures. The presenters noted that BEE continued to be well represented in the sector's downstream industries and at the lower end of the value chain (upstream ventures such as exploration having been widely perceived to be too capital-intensive to be considered appropriate). They then proposed financing and mitigation strategies for minerals and energy exploration that could be adopted to overcome the significant obstacles concerned. These included creative ways of reducing the risk of financing BEE ventures and mechanisms for ensuring adequate skills transfer and management participation when structuring BEE deals (see document).
Mr E Lucas (IFP) asked if the twenty-five per cent BEE target set by the Petroleum Fuels Charter had been achieved. He cautioned against placing undue emphasis on the obstacles facing BEE ventures, suggesting that this could discourage aspiring HDSA entrepreneurs from taking advantage of the wealth of BEE opportunities being made available.
Ms N Mtsweni (ANC) commented that holding AMEF conferences in Johannesburg could make attendance at these functions difficult for smaller BEE groupings, suggesting that AMEF consider other venues for future events. She asked about alternatives to dividends as a key factor in developing appropriate and sustainable financing structures for BEE exploration ventures. She also requested clarity on the meaning of the name 'Borongwa'.
Mr B Bell (DA) expressed concern about what he perceived to be a BEE bias in the presentation when, in his view, the obstacles concerned affected all new business ventures and exploration in particular. He strongly objected to accusations levelled at the banking sector, suggesting that these were unfortunate in the absence of an opportunity for representatives of the sector to respond. He asked who would be expected to make good the shortfall implicit in the tax credits proposed as one facet of the strategy for overcoming obstacles to BEE financing. He suggested that this and other facets of the strategy were unrealistic.
Ms F Mathibela (ANC) commented on the need for guidance for women on how to invest.
In response, Mr Mafanye advised members that BBE ventures accounted for between twelve and fourteen per cent of the combined market share in respect of downstream industries in the sector. He hoped that the newly established BBE monitoring mechanism would soon arrive at figures for ownership on the ground.
He undertook to explore ways of making AMEF functions more accessible to small BEE groupings operating outside the major centres.
Regarding BEE perceptions of the banking sector, Mr Mafanye commented that these stemmed from a background and history unique to BEE participants from HDSA communities. He emphasised that AMEF members had themselves experienced these difficulties first-hand.
Ms Van Wyk advised members that the name 'Borongwa' meant 'messengers of hope'. On the question of dividends and alternatives to these as a key facet of the proposed exploration financing strategy, she drew attention to the importance of funding operational costs and debt servicing requirements from operating revenues as well as from dividends.
Mr Robinson noted that his experience of working for one of the major merchant banks had confirmed a widely held view in BEE circles that the stringent banking requirements determining the outcome of business loan applications were, in fact, even more severe for BEE projects.
On the issue of tax credits, he said that this aspect of the AMEF strategy sought to encourage BEE groups to identify companies with favourable tax status as non-BEE partners with a view to taking advantage of the benefits implicit. Mr Robinson referred to other ways in which the risk-related behaviour of non-HDSA partners in BEE ventures could be modified to improve cash flow, commenting that the purpose of the proposed strategy was to facilitate BEE in an understandably conservative banking environment.
The Chair commented that banks should be encouraged to explore ways of creatively supporting viable BEE projects in much the same way as they had been encouraged to assist in building Afrikaner business empires under the old regime. He asked if AMEF had engaged with the banking sector itself on this issue and what had been the outcome. He also asked how the strategies proposed could be applied at grass-roots level to micro-entrepreneurs seeking small loans for survivalist initiatives. He noted the importance of levelling the playing fields in order to ensure a higher success-rate among small-and-medium entrepreneurs (SMEs).
Mr S Mongwaketsa (ANC) expressed dismay at Mr Bell's comments. It was the Committee's responsibility to provide a platform for all South Africans to articulate their legitimate views no matter how unpalatable these may sometimes be. He emphasised the importance of creating a forum for ongoing interaction with the banks with a view to addressing the difficulties concerned. He also appealed to AMEF not to overlook the needs of the small- and micro-entrepreneur.
Prof I Mohamed (ANC) expressed serious reservations about the banking sector as a whole. He asked if the emphasis in the presentation on obstacles to BEE implied a high BEE failure rate. Did the AMEF offer advice to its members on BEE finance, had this advice proved to be helpful and what, if anything, was charged for it?
In response, Ms Van Wyk referred to a recent statement by the Minister of Trade and Industry alluding to a BEE Bill to ensure adequate support for HDSA projects. She hoped that this would address difficulties experienced with the banking sector. She emphasised the importance of facilitating early BEE entry to mining ventures in order to optimise skills transfer, noting that the new Mineral and Petroleum Resources Development Act (28 of 2002) sought to encourage this.
Mr Mafanye added that although AMEF had not as yet interacted formally with banks on the issues concerned, a finance sub-committee had emerged from a recent AMEF conference on gas and electricity. He felt confident that a strategy for engaging the banking sector would be developed by this committee. Individual members of AMEF and the South African Petroleum Industry Association (SAPIA) had already begun to address grassroots SMME development in the sector. However, more needed to be done. AMEF represented large operating companies in the sector whose status as going concerns continued to speak volumes for BEE successes in the mining, petroleum and gas industries. No charge was currently levied to AMEF members for advice. However , this policy might eventually need to be revisited with a view to expanding the organisation's range of services to the sector as a whole.
Mr Roberts cited the launch of a new BEE venture in the liquid petroleum and gas (LPG) industry immediately following the AMEF gas summit as one example of the important role played by AMEF in facilitating BEE.
Ms Van Wyk suggested that difficulties experienced by HDSA micro-entrepreneurs in securing personal loans could be because of poor credit ratings. She confirmed that Borongwa offered advisory services on financing to BEE projects at favourable market-related rates.
Mr Robinson reiterated that impediments to financing and concomitant pressures on cash flow were together responsible for the failure of BEE ventures where this occurred.
The Chair requested more detail on BEE failure rates. He was surprised at the apparent absence of alternative sources of funding as a factor in proposed financing strategies. He thanked AMEF for an informative presentation and assured the organisation of the committee's commitment to ongoing dialogue on BEE issues. He hoped that progress would be made on overcoming the obstacles concerned during the year ahead.
South African Women in Mining Association (SAWIMA) submission
Mrs B Kwatsha presented a brief summary of SAWIMA's vision, activities and challenges, appealing to the committee for assistance in securing funding for the implementation of plans for facilitating entry to the minerals and energy sector by women from HDSA communities.
In response to questions from Ms F Mathibela (ANC) and Ms N Cindi (ANC) regarding SAWIMA's origin and structures, Mrs Kwatsha said that the association had emerged from calls for the involvement of women in mining articulated by the Minister herself. She expressed a need for existing provincial structures to be further decentralised into district offices.
Noting a suggestion from Mr S Mongwaketsa (ANC) that SAWIMA might benefit from interactions with the Chamber of Mines and individual mining companies as well as with the Department at a provincial level, Mrs Kwatsha replied that the Department had facilitated a meeting with representatives of the Diamond Board and that the association's Eastern Cape office had already engaged with members of the Eastern Cape Chamber of Commerce.
In reply to Mr E Lucas (IFP) asking about the rationale behind plans to employ a geologist, Mrs Kwatsha explained that opportunities for SAWIMA to become involved in mining and quarrying initiatives had, to date, depended on input from consulting geologists at fees far beyond the association's resources.
The Chair thanked Mrs Kwatsha for drawing the committee's attention to the sad plight of members of HDSA communities at grassroots level in their efforts to embark upon small mining ventures. He expressed sadness at the extent to which the difficulties experienced by SAWIMA illustrated shortcomings in BEE policy and the acute need for improved institutional support. He asked representatives of Petro SA and Sasol at the meeting to note this in their reports, undertaking to engage personally with SAWIMA's national structure on the issues raised. In the best interests of empowering women at the cutting edge of BEE, the Chair encouraged Mrs Kwatsha to attend Wednesday's meeting when representatives of the banking sector would present their perspectives on BEE financing.
Referring to an earlier visit by committee members to open-cast artisanal mines in KwaZulu-Natal, Prof Mohamed expressed shock at working conditions in these mines and their high accident and fatality rates. He asked about the status of kaolin mines receiving support from the Department with a view to developing downstream opportunities in the craft industry.
Mrs Kwatsha advised members of kaolin deposits in the Eastern Cape that need to be mined and developed.
Ms E Ngaleka (ANC) reiterated the need for institutional support for SAWIMA in the provinces, endorsing the Chair's undertaking to meet with representatives of SAWIMA's national office with this in mind. She suggested that Department officials responsible for small scale mining and related issues should also be engaged.
The meeting was adjourned.
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