Mineral and Petroleum Resources Development Amendment (MPRDA) Bill: public hearing

NCOP Land and Mineral Resources

13 June 2017
Chairperson: Ms Z Ncitha (Eastern Cape, ANC) (Acting)
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Meeting Summary

The Select Committee on Land and Minerals in the National Council of Provinces (NCOP) heard representations from three entities when it held a public hearing on the proposed Mineral and Petroleum Resources Development Amendment (MPRDA) Bill. Presentations were made by the South African Oil and Gas Alliance (SAOGA), the Centre for Environmental Rights (CER) and the National House of Traditional Leaders (NHTL). 

The SAOGA presentation was given by the Shale Gas Association (SGA), a subcommittee of SAOGA. The main thrust of the SGA was that it supported the new MPRDA amendments, but it wanted some adjustments that enabled commercially attractive terms for private investment which could kick start the long overdue shale gas operations, and the huge potential for socio-economic development and job creation, if successful.

The SGA pointed out that shale gas had revolutionised the USA energy industry, lowering gas prices, creating a huge increase in jobs (around 2.2 million), and increasing the country’s energy security. In South Africa, shale gas was an unknown factor and only exploration would enable the industry to evaluate the much touted potential for economic development, jobs and indigenous energy resources that could replace coal. However input costs were astronomically high and to bring a viable gas resource to full production was long -- in excess of ten years -- and exploration costs alone could top US$1 billion.

An important SGA request was for the MPRDA to be amended to enable it to negotiate better deals on state carried interest – the percentage earmarked for the state -- during exploration and production. This would lower the investment hurdle and therefore decrease the risk in the crucial early stages of the project. It also wanted the state carried interest percentage to qualify as black economic empowerment (BEE) participation. One of the criteria for its proposed amendments were that it wanted to lower the input costs of shale gas exploration and development, as higher input costs equated to higher break-even prices and resultant higher end prices. If prices were too high for the market, the shale gas resource would remain undeveloped, so investors required a stable fiscal environment throughout the life cycle of the projects to enable them to recoup the high investment costs over a long period. 

Committee Members asked for clarity on why the SGA wanted to amend the state carried interest provision, the timeline for the exploration phase, and whether there was adequate protection for the environment in the amendments.

The Centre of Environmental Rights (CER) concentrated on five key issues. These were the procedural issues, some general comments, aspects on consultation, compliance and concerns around community participation. They were particularly concerned that procedurally the current MPRDA process was flawed, that it would be challenged in the Constitutional Court, and that it was best to scrap the current MPRDA Bill process and start afresh. Other CER concerns were that some MPRDA amendments relating to the environment were not aligned to the National Environment Management Act (NEMA), and some amendments were undermining women’s and community participation. It also accused the DMR of amending some a sections of the Bill without proper consultation.

The discussion by Committee members on the CER briefing focused on three main issues. These involved the procedural aspect of whether the Committee could make amendments outside of the referrals made by President Zuma to the NCOP, a concern about the effectiveness of community engagement, and the need for the Department of Mineral Resources (DMR) to comment on some of the issues raised.

The DMR responded that it felt it had consulted adequately with all stakeholders to improve the Bill. It also felt that procedurally it could amend the Bill over and above the issues raised by President Zuma when the Bill had been referred back to the NCOP. 

The NHTL briefing focussed on the categorisation of some bills as Section 75 or 76, and how they could miss being discussed in the NCOP, even if they impacted on provinces, like the MPRDA Bill which was now under discussion.

Most of the NHTL amendments were on aspects that improved the Bill insofar as its impact on communities living in, or near to, prospecting areas, and BEE ownership. It suggested a new institution -- a “Minerals and Mining Development Council” -- be created to replace the functions of the Minister, the Ministerial Advisory Council, regional managers, and the Regional Mining Development and Environmental Committee for all licence applications and related matters. The new institution would eliminate conflicts of interest and be independent. It would be under the jurisdiction of the NCOP, and should include a member of the NHTL. Other areas where the NHTL wanted amendments were that historically disadvantage South Africans (HDSA) ownership had to ensure a minimum unencumbered net value ownership of at least 26%, and that the Section 11 on BEE be scrapped, as it did not encourage or facilitate BEE.

The engagement of Committee Members with the NHTL was to clarify that the NCOP would be the first port of call for engagement by the NHTL on issues affecting it, as these were provincial jurisdictions. There was a specific agreement that it was this Committee that would provide direct oversight in terms of the proposed Mining and Minerals Development Council, on behalf of the NCOP. 

Meeting report

Chairperson’s opening remarks

The Chairperson welcomed presenters and said that the Mineral and Petroleum Resources Development Amendment (MPRDA) Bill was a crucial piece of legislation that had to be finalised urgently. However, it was important to hear from all stakeholders so that the final product took all views into account.

South African Oil and Gas Alliance (SAOGA) Presentation

Mr Niall Kramer, CEO: South African Oil and Gas Alliance (SAOGA) said that the Chairperson of the Shale Gas Association (SGA), a sub-committee of SAOGA, would brief the Committee on the MPRDA. The SGA members were Shell South Africa, Bundu Gas and Challenger (an Australian company). 

Mr Herman Neethling, Chairperson: SGA, and head of Shell South Africa’s gas operations, said the Association’s main issue was that it wanted the MPRDA to be enacted as soon as possible, with commercially attractive terms that would enable private investors to invest and kick start the long overdue shale gas operations and the huge potential for socio-economic development and job creation.

Shale gas was composed of methane, and occurs in rocks with low porosity. In SA, shale gas was an unknown resource and the SGA would use North America as an example to highlight some of the key shale gas aspects, where it had been a catalyst for change, creating a brand new industry, lowering the cost of energy, bringing gas into the energy mix and diversification away from coal and its environmental problems. Here it would be a totally new industry, as no gas infrastructure existed. Input costs would be very high and timelines long, but there would be huge upside on jobs in the case of success.

Some of the potential benefits for SA, if aligned to what occurred in North America, could be:

  • Development of an indigenous energy resource in extractive, supply chain and value chain benefits.
  • Significant employment opportunities (in North America, 2.2 m jobs were created).
  • Energy diversification away from coal, and a reduction in carbon dioxide (CO²) emissions.
  • Boosting of the local economy and development of small to medium enterprises.
  • Lowering of local gas prices.
  • Training and development opportunities in terms of people skills development, supplier development, and the creation and development of business enterprises.
  • Infrastructure development, such as roads and the electricity grid.

He said that the success or failure of shale gas in SA depended on many factors, and four aspects were crucial. These were the subsurface, fiscals, costs and prices.

Subsurface related to the geology and the potential that drilling would be successful in finding gas that could be extracted economically. This in turn influenced fiscal stability, as the extracted gas would be subjected to government’s take (its share of the resource), and the commercial terms agreed as per the MPRDA that enabled investors to recoup exploration costs and fair profits. Costs flowed from the fiscals, as all upfront costs -- the development of the resource, the costs to meet environmental, quality standards, etc -- had to be met. If the gas find was in remote location, infrastructure costs increased. Finally, all the input costs of the above impacted on selling prices - higher input costs equalled higher prices. The length of the distance to the market would also impact on the price.

The typical time line in the shale gas industry was about three to five years for exploration, two to three years for appraisal of the exploration results, two to three years to develop a pilot plant in the case of enough gas being available, and lastly anything from 20 to 30 years to develop the resource if the pilot plant was a success. Costs in the shale gas industry were high and timelines long, hence the need for a long term to aid recoupment of investment costs over time. Some costs estimates using North America were:

  • Cost of one exploration well could be around US$10-20m.
  • Drilling 10 to 30 wells in the exploration phase could reach US$1bn.
  • Based on Wood MacKenzie estimates, full development costs would be around US$5-7bn, or just about R100bn to bring shale gas to market, depending on the amount of shale gas extracted. 

Regarding the MPRDA, the SGA wanted clear and attractive legislation that resulted in a fiscal framework that provided stability and assurances during the entire life of the project. Incentives should encourage frontier exploration that provided clarity on the level of state participation and the terms thereof to encourage investment upfront , i.e “carried interest” upfront, plus the additional state participation later at production. Clarity was also needed on Historically Disadvantaged South Africans’ (HDSAs’) participation. As the industry developed over time and the gas resource was developed, the legislative and fiscal framework could then be adjusted in line with new conditions. 

The risk posed to shale gas development was a too high investment hurdle resulting in gas break-even prices being too high, leaving the resource undeveloped in the ground. 

The SGA supported the Department of Mineral Resources (DMR) amendments to the MPRDA, but wanted changes on four key issues: a more concise definition of shale gas, changes on state carried interest, adjustment on the timeline related to exploration, and lastly, on black economic empowerment (BEE) participation.

Mr Neethling listed other factors of concern to the SGA:

  • The incorporation of a shale gas definition was required to address some shale gas specific challenges and provisions in the Bill.
  • The SGA would like to see a downward adjustment of State Carried Interest during the exploration phase (Section 86A (9) and (10)). It was felt that this would provide for better support to shale gas exploration investments, and more competitive gas production costs that would benefit market prices.
  • The SGA would like to see an amendment to the timelines for exploration in Section 81 (4), to allow for the extensive public participation, environmental impact assessments (EIAs) and permits that would need to be undertaken. The SGA proposals were for the initial five years, followed by two three-year periods (six years). The overall period remained at 11 years, which was the same as the MPRDA draft, the change being in the two three-year periods suggested as above, replacing the three two-year periods proposed in the Bill. The change would provide a better fit for shale gas exploration operational activities.
  • The SGA wanted the participation of BEE stakeholders in the shale gas industry to reflect the required state carried interest participation. This was not applicable to conventional mining, but as shale gas carried a different commercial risk and the scale of continuous and long term investment requirements, this was a necessity.

Discussion

Ms E Prins (ANC, Western Cape) wanted more clarity on why the SGA wanted changes to Section 86 (A).

Mr Neethling answered that the current proposals indicated substantial state carry provisions - 20% in exploration phase, and not lower than 10% in the production phase of the development. Shale gas was a very cost-intensive industry -- up to US$1bn in the exploration phase. During the early stage of exploration, there was substantial risk and uncertainty that the investor had to bear, so more surety was needed upfront to lower the investment hurdle and make the investment viable and not unprofitable at an early stage, hence the suggestion to change and the ability to negotiate a better deal within the confines the MPRDA.

Ms C Labuschagne (DA, Western Cape) said she did not quite understand the SGA requirement to amend the time lines in the Bill in respect of exploration licences being awarded.

Mr Neethling responded that since submitting exploration applications in 2011, no licences had as yet been issued. The suggested timing changes were proposed to align the MRDA with the exploration operational activities of shale gas exploration, so that once licences were issued, holders had to negotiate agreements with the DMR. Terms and conditions had to be negotiated and aligned to work programmes, the details of the state carry interest and other aspects, right up to production.

Ms Labuschagne wanted to know how this would impact on environmental issues.

Mr Neethling replied that the 5:3:2 exploration phase could be seen as stage gate, and that at each stage certain operational activities required permits and conclusion of operations in strict adherence to regulations. Each activity would be measured against the MPRDA and the accompanying environmental legislation. Permits for operational activities would be issued only upon compliance of these.

Centre for Environmental Rights (CER) Presentation

Mr Marthan Theart, Attorney: Centre for Environmental Rights (CER) gave a brief overview to the Committee on their comments submitted on the MPRDA. He highlighted five key aspects raised in their submission -- procedural issues, some general comments, aspects on consultation, compliance and concerns around community participation. 

Regarding procedural issues. he said that it was best that the Bill be rejected and that a new process be started afresh as there were perhaps too many issues of concern. The CER had reservations on the constitutionality of the Bill, and if it was passed in its current state it may result in challenges in the Constitutional Court. The Bill had initially been referred back to Parliament by President Zuma, as there had been both procedural and substantive issues that had not been complied with, such as the lack of proper public participation. In the light of this, it was their view that new amendments could not be considered on the MPRDA, but that merely the aspects raised by the President should be addressed. New amendments had been added after consultation only with the oil industry. There had been no consultation with other stakeholders, like affected communities and the mining industry, so there were serious concerns from the CER’s perspective about the validity of the new amendments. 

On general comments, the CER was concerned about some sections in the Bill. It did not agree with the deletion of “including woman and communities” in the Bill. It felt the deletion was not justified, as there needed to be strong protection for woman and communities against exploitation. The amendment of Section 38B was problematic in its current format, as it was not in agreement with the National Environmental Management Act (NEMA), and had to be addressed. The CER also felt there were instances in the Bill where Environmental Management Programmes (EMPs) and EIAs were the language used, implying it was the same or similar. This seemed to be more lenient on mining companies and was in conflict with NEMA, and had to be addressed so that there were clear rules regulating mining operations.

The CER raised two concerns on consultation. It felt that the time (30 days) afforded to stakeholders to submit comments was not sufficient, as some stakeholders were not literate enough to be able to respond and comment adequately within the timeframe. The time period stated in Section 10.1(b) must be longer than 30 days. Another concern was in Section 14 of the Bill, where the CER felt that there was not enough emphasis to ensure that interested parties were consulted adequately when prospecting rights were applied for. This had to be strengthened to ensure proper consultation with affected communities.

On compliance with legislation, its view was that further provisions had to be added to ensure that permit amendments involving renewal or transfer also included public participation. This would make the process fair and ensure all stakeholders could provide input, not just the permit holders. The CER also suggested that there must be provision for right of access to key information for communities impacted by permit holder operations, especially social plans to uplift communities. It was not in favour of the DMR being responsible for environmental compliance in terms of the MPRDA, as it felt the DMR had limited resources and a bad record in this field, and that the Department of Environmental Affairs would be better placed to manage this.

The CER called the removal of community participation from some sections of the draft legislation a “backdoor amendment” (executed behind closed doors), meaning it had been introduced without consultation. It felt the removal would impact negatively on the overall benefit to communities.

 

Discussion

Ms Prins requested the DMR to comment on the views raised by the CER.

Mr E Mlambo (ANC, Gauteng) suggested that the Committee should hear all the presentations first and then get comments from the DMR. He also wanted to know what evidence the presenter had about the “behind closed doors” accusation on community participation. 

Ms Labuschagne raised a concern about the effectiveness of the consultation process with communities, in that often during the consultation process there were different views within communities, and that even when agreement was reached with mining companies, some members might take legal action that resulted in long and protracted legal battles. She wanted to know if the clause(s) in the Bill addressed this issue.

Mr A Nyambi (ANC, Mpumalanga) agreed that that the DMR had to respond on the issues raised, and wanted clarity on two issues:

  • What was the difference (in terms of how the Committee dealt with it procedurally) between the Bill being referred to the National Council of Provinces (NCOP) by the National Assembly (NA) as against it being returned by President Zuma?
  • Did the CER want the Bill to be totally rejected, or did it want its changes to be incorporated in the Bill?   

CER’s response

Mr Theart responded that if there were better consultation with communities, there would be better outcomes addressing the concerns raised about community consultation. Communities were within their rights to say “no” to mining companies, but currently this was not the case.

On the Bill being referred back by President Zuma and what the Committee’s actions should be, he said that based on the CER’s view, Parliament was bound only by the substantive and procedural issues raised by President Zuma – that any new issues could not be incorporated in the Bill

Ms Labuschagne requested further clarity on the process to be followed on the referral back to the NCOP by President Zuma on the substantive and procedural aspects talked about already.

Mt Theart said that in his view, any new issues raised on the MPRDA had to be heard afresh in both the NA and the NCOP. A lot had happened and changed since earlier engagements on the MPRDA, so that was the best approach. 

The Chairperson asked DMR to comment on the discussion.

Advocate Thabo Mokoena, Director General (DG): DMR, said that the Department had worked together and consulted with all stakeholders. This included a dedicated team that had interacted with all the provinces. The public participation process had been extensive and thorough, and had included traditional leaders. He was concerned about the misrepresentation of facts by the CER. He said the allegation had to be substantiated, as the impression had been created that the DMR had acted in an underhand way.

Mr Sibusiso Kobese, Acting Deputy Director General (DDG): Policy, DMR, commented on the issues raised in greater detail. He said that the amendment in Section 38B was a “deeming provision,” and was necessary to provide for the transition from the old to the new MPRDA regime. Environmental protection was included in the provisions.

At this stage, some Committee Members asked for clarity on issues raised earlier, such as:

  • Mr Nyambi wanted to know if the amendments were acceptable, or if the Bill had to be rejected in its entirety, especially as the Committee had accompanied the DMR on its visits to the provinces.
  • The Chairperson reminded the DMR to clarify their view on the “distortion of facts” by the CER. 
  • Mr J Julius (Gauteng, DA) wanted to know if the NCOP could comment beyond the procedural irregularities referred back to the NCOP by President Zuma - could additional amendments be proposed?

Mr Kobese continued his feedback by responding to the issues raised by the CER, saying that in his view the issue of “procedural irregularities” had been addressed by the additional public participation engagements in the provinces and with communities. On the “removal of woman,” he said that as the MPRDA was a framework legislation that used demographics to demarcate various groups, women were certainly catered for in the Mining Charter, for example, hence its deletion in the MPRDA. The deletion of “interested parties” had been done as the new amendments contained a much better and differentiated approach to consultation on a phased basis, where various stakeholders -- like land owners and lawful land occupiers -- would have to be consulted. The detail of the consultation process would be in the regulations that would follow the once the Bill was enacted. 

Ms Labuschagne said she was not satisfied with the DMR’s response on the procedural aspects regarding the referral back to the NCOP. If the NCOP proposed new amendments that went beyond President Zuma’s referral, it would create a precedent that was not aligned with Parliamentary procedures. It was  delicate and very difficult position the Committee was in.

The Chairperson concurred, and said that the meeting would be adjourned before the next presentation to consult with the NCOP legal advisor on the issue. This would be a private meeting, and not open to the public.

Mr Julius wanted to know if the DMR agreed that there was confinement – meaning no new amendments could be added to the MPRDA Bill referred back to the NCOP by President Zuma.

Mr Kobese responded that in his view, there was no confinement, meaning that the DMR felt that amendments could be added.

At this stage to Committee members left to attend the meeting with the NCOP’s legal advisor and returned a after about 30 minutes to continue the public hearings on the MPRDA.

National House of Traditional Leaders (NHTL) Presentation

Inkosi Sipho Mahlangu, Deputy Chairperson: NHTL, led the presentation with some his colleagues from the finance office, the NHTL legal advisor, and a member from the Black Lawyers Association.

At the outset,the NHTL raised a concern that the MPRDA had initially been categorised as a Section 75 Bill, which meant no consultation with the NCOP was required. It was only after it had been re-categorised as a Section 76 Bill that provincial consultation had been implemented. The issue was that there could be other legislation incorrectly designated as section 75, and not as section 76, which meant that consultation was incomplete, as the NCOP had been excluded.

The NHTL wanted some definitions to be amended to provide greater clarity. It wanted “beneficiation” to include reference to transformation as it progressed from primary (extraction), secondary (intermediate products), tertiary (refined mineral products) and the final stage (finally processed products). “Labour sending areas” had to be replaced with “Preferential employment opportunities,” as the former was based on outdated language and concepts. Mining communities had to be given first preference for employment.

It proposed substantive amendments or changes on ownership and empowerment provisions, and the creation of an independent body or authority (as opposed to the DMR) to oversee licences. Some provisions had to be strengthened by replacing the word “may” with “must”.

On ownership, the NHTL proposed that Section 2 (sub paragraph j) had to be amended to ensure that the minimum 26% ownership for HDSAs had to unencumbered. It hinted that perhaps the 26% had to be increased to 51%, as was the case in other jurisdictions like the USA, where natives owned 51% of the casinos operating on their land.

The NHTL wanted an independent body to oversee all licensing operations and related matters. It would be called the “Minerals and Mining Development Council” and would replace the functions of the Minister, the Ministerial Advisory Council, regional managers, and the Regional Mining Development and Environmental Committee for all licence applications. Consequently, “Minerals and Mining Development Council” would replace all references in the MPRDA where the individuals and institutions listed above are named. This new Council overseeing licences had to fulfil the function of Parliament through the relevant Portfolio Committee. The appointment of members to the Council should include traditional leaders.

Section 11(3) had to be deleted in its entirety, as it did not encourage or benefit BEE, as it allowed deals that encumbered new BEE owners with too much debt, which would result in their failure. Another suggested change was to Section 22(4) B, where the NHTL wanted amendments so that mining right applicants had to consult with communities affected by operations in the same manner they did with landowners, lawful land occupiers, etc. 

Discussion

The Chairperson said in her view, the NHTL presentation had been very well structured and clear on the issues that had to be addressed.

Mr Nyambi wanted to know if the NHTL was going to present its plans to the NCOP so that the latter could provide better support to the NHTL. Secondly, he wanted the NHTL to specifically state or agree that the NCOP - and not Parliament in general - had oversight and jurisdiction over the creation of the new Council that would oversee licences.  

Mr Mlambo had a similar comment, saying that Select Committees were NCOP committees that ensured provincial issues were debated and addressed. In this manner, the provincial mandates included the NHTL, so engagement had to be at the Select Committee level.

The NHTL chairperson agreed that the correct reference had to be at the NCOP level, and not at the Parliamentary or NA level. He agreed that further consultation at the NCOP level had to take place on NHTL matters.

The meeting was adjourned.

 

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