South Africa Diamond Board: briefing

Meeting report

These minutes provided by Contact Trust. Visit Contact Trust's website at www.contacttrust.org.za

MINERALS AND ENERGY PORTFOLIO COMMITTEE
17 September 2003
SOUTH AFRICA DIAMOND BOARD: BRIEFING

Co-Chairpersons: Mr Louw (ANC), Mr Nash (ANC)

Documents handed out:
Diamond Board presentation

SUMMARY
The South African Diamond Board briefed members on its current state of affairs. Important issues discussed were the diamond valuation processes, pricing policy, the role of the government valuator, black economic empowerment in the industry and the Kimberley Process Certificate Scheme. The Board admitted that changes needed to be made with regard to the Wolmaranstad diamond exchange and the state of black economic empowerment in the diamond industry.

MINUTES
The South Africa Diamond Board was represented by their Chairperson, Mr Abbey Chikane, Mr Louis Selekane (Chief Executive Officer) and Ms Sarah Engelbrecht (Manager Admin and Licensing). They were joined by Kevin Goodrem (Diamond Consultant) and Andre Pierre Marais (Key Account Executive) from the Diamond Trading Company, a De Beers Group Company, and Mr Menachem Pelleg (Government diamond valuator).

Briefing by Diamond Board
Mr Chikane noted that the Diamond Board is a very united entity despite representing different constituencies. For the first time in the history of the Board, they had come up with a coherent approach to how they see the Diamond Board operating now and in the future. They have recently concluded a strategising session on what they see as the future dispensation of the Board that is in line with the new dispensation and policies in South Africa.

He emphasised the stability of the Diamond Board in every respect. He also highlighted better communication between the Board and the industry (see presentation document).

Discussion
Prof Mohamed (ANC) asked about the previous diamond valuator and whether a severance package was paid to him. He mentioned that the previous valuator had used a statistically incorrect method to value the diamonds. He had used a random package of diamonds to value and therefore the real value was skewed. Is there a new procedure being followed? There used to be a different procedure in Kimberley than the one used in London. He referred to the police confiscation of diamonds and asked from whom they were confiscated.

Mr Chikane (chairperson, Diamond Board) replied that the current valuator, Mr Pelleg, would explain to them the exact process followed to value the diamonds.

Mr Selekane (CEO, Diamond Board) remarked that no severance package was paid out to the previous valuator. The amount that was due to him was paid out to the South African Revenue Service (SARS) because of outstanding VAT that DVIC Valuations (the previous valuator) owed SARS. The diamonds that are confiscated are from people who are not licenced to trade in diamonds.

Prof Mohamed wondered if some of the confiscated diamonds came from the previous valuator.

Mr Chikane stated that the confiscated diamonds did not come from the previous valuator. He reiterated that the diamonds confiscated are not linked to the money owed to SARS.

Prof Mohamed asked why the levies were initially not paid to SARS. He felt that the valuator got away with fraud.

Mr Chikane replied that this was a matter between Mr Doubell and SARS and the National Treasury. The Diamond Board had no stake in this investigation.

Mr Kevin Goodrem (Diamond Consultant, DTC) assured the Committee that there is no difference between the pricing policy in Kimberley and London. There is a worldwide standard.

Mr Menachem Pelleg (Diamond Valuator) explained the process used to value diamonds. They are using a statistically approved method that differs a lot from the method the previous valuator used.

Mr Ngcobo (ANC) asked who evaluates Mr Pelleg's methods. He wanted to know if his methods and results are peer reviewed. He referred to South African academics who are world experts in diamond analysis using nuclear techniques and who are published in the latest journals.

Mr Pelleg replied that his 37 years of experience in the diamond industry gave him the ability to create his price book. He explained that he does not study diamonds but that his job was to verify the quality of and price of diamonds. The government appointed him as valuator because of the knowledge he has on the subject. He is constantly in contact with diamond valuators around the world to make sure they are all on the same pricing levels. He stressed that he judges diamonds of which he reports back to the authorities and that he is not embroiled in any politics.

Mr Nash (ANC) asked if there is a peer review or any way in which Mr Pelleg is cross-checked when making an estimated price.

Mr Goodrem, on the request of the Diamond Board chair, explained the pricing process to the Committee. He used the example of De Beers which prices diamonds using its own price book. De Beers has 16 000 different categories to put diamonds into according to various sizes, qualities, shapes. There is a master sample which gets sorted into the 16.000 categories. The price book is based on perceived polished outcome. This gets reviewed constantly. Prices fluctuate according to demand. The true price is what the consumer is prepared to pay. The cross checking takes place through constant interaction on the international markets.

Mr Pelleg added that the price book contains not his prices but is a mirror reflection of what is happening in the market.

Mr Mongwaketse (ANC) remarked that the Diamond Board has improved tremendously. He enquired after the Kimberley Process Certificates as it has never been presented to the Committee. He also asked about the interaction between the Diamond Board and small scale operators. He specifically referred to areas such as Wolmaranstad, Barkley West and Schweizer Reineke where there are no satellite offices of the Diamond Board. He suggested training centres in those areas to help them get into the business. He asked whether the diamond exchanges in those towns were licenced. On the police arrest, he wanted to know about the trapping situation.

Mr Selekane replied that some of the questions were answered in the presentation. He explained that the Kimberley Certificate Process Scheme was started on 1 January 2003. It is a worldwide standard.

Ms Engelbrecht clarified the diamond exchange certificates. These certificates are not licenced to trade. It means you have a facility where buyers and sellers can meet. Unfortunately there is currently nothing in the law prohibiting people from using their business premises to tender diamonds. There is currently three formal diamond exchanges registered with the council. The one in Wolmaranstad is not one of them. A submission has been made to the Minister to establish a set of criteria to give the Board more say and to put procedures in place to which all the different exchanges would then have to adhere.

Ms Cindi (ANC) lamented the situation in Wolmaranstad. She stated that only white people have access to that centre and the pricing and running of the centre is an anomaly.

Ms Engelbrecht replied that it is a major concern of the Board. More than a year ago they had designed a set of criteria. However, the current legislation does not allow them to do anything. As long as one has the Diamond Dealers Licence there is nothing to be done about the situation in Wolmaranstad. The Diamond Board would like to see it changed.

Mr Ngcobo stated his dissatisfaction with Ms Engelbrecht's answer. This is a real community concern and acts can be amended. Efforts have to be made to address these concerns. You can not just say there is nothing the Board can do.

Mr Nash noted this point and remarked that it would be taken up.

Mr Chikane clarified that the Diamond Board has put together a working group to look at the problems with the Diamond Act of 1986. Secondly they have established a committee to look at the criteria for issuing a licence for a diamond bourse. They have finished this report and more work is being done. A submission about this was made to the Minister.

Mr Nash reiterated that immediate action was needed.

Mr Pelleg commented on the diamond squad. He assured the Committee that the police are only trapping people who deal in diamonds.

Mr Chikane explained that the satellite offices are run by the Board and are based in the provinces. There is one in the North West and the Northern Cape. Through these offices training and workshops will be run. There were workshops in Wolmaranstad and the Kalahari recently to brief diggers and producers about the Kimberley Process Certification Scheme. The Diamond Board is looking at increasing the workshops.

Ms Cindi lamented the poor service at the North West satellite office. The processing of licences is very slow and people are suffering. She requested the Board to monitor the office.

Mr Selekane clarified that the mining licences that are being issued by the Department of Minerals and Energy are creating the problems. The Diamond Board issues trading licences.

Mr Louw asked how many blacks have trading licences. Are there any criteria for people to have black empowerment on board in order to receive a trading licence?

Mr Chikane replied that there are lots of new black licencees. Emerging entrepreneurs are coming through. The problem comes in with the lack of knowledge of buying the diamond at the right price. That is how people lose their savings and pension money. The Diamond Board advises them about training that they can get first.

Mr Louw remarked that the Diamond Board is not making an effort to bring on board black entrepreneurs according to the Black Economic Empowerment Act.

Mr Selekane responded that there are thousands of black licencees. The Board has established a BEE subcommittee to focus on this issue.

Mr Mongwaketse encouraged the Diamond Board to look at joint ventures.

Mr Chikane replied that Black Economic Empowerment situation is a painful one in the diamond industry. He proposed more interactions between their BEE committee and the Committee. He added that it would be a good idea if the Committee visits the Board.

Ms Cindi supported a visit to the Diamond Board.

Mr Chikane explained to members that the Kimberley Process Certificate Scheme is the international standard accompanying trade in rough diamonds. Without the certificate you are not allowed to trade in rough diamonds. Initially 72 countries were aboard the Scheme. Not everyone was ready to implement the process on 1 January 2003. Those countries were given a 1-month tolerance period. The United States for instance did not pass legislation at that stage. Again the deadline was moved to 31 July 2003. Then 54 of the 72 countries were admitted. The others did not meet the requirements. Brazil and Ghana, the two biggest producers, are not included. South Africa is hosting the Kimberley Process Plenary in South Africa from 29-31 October. At this plenary South Africa has to hand over the chairmanship to either Canada or Botswana. He credited the Minister, Ms Pumzile Mlambo-Ngcuka, who was the architect behind this idea.
[More information is available at www.kimberleyprocess.com]

The meeting was adjourned.