Draft Minerals Development Bill: workshop

Meeting report

MINERAL AND ENERGY PORTFOLIO COMMITTEE
14 March 2001
DRAFT MINERAL DEVELOPMENT BILL: WORKSHOP by MINERALS AND ENERGY EDUCATION AND TRAINING INSTITUTE (MEETI)

Chairperson: Mr D M Nkosi

Documents issued:
Summary of the Draft Mineral Development Bill by Hulme Scholes
Mineral Rights, Rents and The Development Bill by Fred Cawood, Wits University
Mineral Rights, Rents and The Development Bill Slide Presentation
Economic Impact of Mineral Legislation by Prof Dick Minnitt
Draft Mineral Development Bill
Mining & Environment:The Witbank Case
Mineral Rights And Traditional Communities

SUMMARY
The Draft Mineral Development Bill envisages providing opportunities for historically disadvantaged communities to enter the mining and minerals industry. Issues that were discussed were its controversial Section 5, linking mining development with land rights environmental degradation and its management, sustainable development and poverty alleviation.

Academics from the Mining Engineering School of the University of Witwatersrand were instrumental to the debate. Chief Mhinga II of the Congress of Traditional Leaders of South Africa discussed the Lebowa Mineral Trust in his personal capacity as Contralesa still had to meet to discuss the draft bill.

The workshop provided a legal perspective in comparing the Bill with the existing mining and mineral laws, as well as looking at the role of government. An environmental pressure group highlighted the case study of Witbank warned against the danger of focussing on economic gains rather then detrimental environmental effects.

MINUTES
Summary of the Bill
Mr Hulme Scholes drew a comparison between the mineral rights regime as contemplated in the Bill and the regime which exists under the Minerals Act (No 50 of 1991). He noted that the objective of the Bill was to provide opportunities for historically disadvantaged communities to enter the mining and minerals industry. However, he said there were a lot of legal aspects still to be to be dealt with and debated in the draft Bill. He pointed out that Section 5 was controversial.

Section 5
Mr Scholes said what is interesting in the draft Bill is that the state intends to reserve the right to prospect and mine for all minerals, without the payment of compensation to the mineral right holder. He added that this section is a radical departure from the common law notion of the ownership of mineral rights, namely the holder of a mineral right may elect, as one of the "bundle" of rights which accrues to him by virtue of his ownership of the mineral right, in the exercise of such an entitlement to the use and enjoyment of his mineral right.

He used the analogy of the owner of a house who has the right to decide how to use the house. He may live in the house, lease it to a third party or sell the house as he wishes. Should legislation similar to this Bill become applicable to home ownership as it is to mineral right ownership, the home owner would need to apply to the state for the right to live in his own house. The Minister would then decide, at her discretion, whether the applicant would be entitled to live in his own house. If the applicant does not comply with the objective of the Housing Act, the Minister, at her discretion, would grant or refuse to grant the applicant the right to live in the house which he owns.

He said according to this Bill the applicant would not be compensated and the right to live in that house could be granted to an applicant who complies with the objectives of the legislation governing home living. In conclusion Mr Scholes said in his personal view the Bill has managed to attract constructive debate for all parties involved in the mining industry. He said there is no doubt that the government, particularly the department and those involved in the drafting of the Bill are committed to finding a workable solution in providing mineral and mining rights to all South Africans.

The Chairperson told the Committee that the Bill would be coming before the committee at the beginning of 2002.

Mineral rights, taxation, compensation, mineral tenure: research (see documents)
Dr F T Cawood (School of Mining Engineering, Wits University) gave a background of South African property law starting from the period of Dutch rule in the Cape in the early 19^th century. He said Roman-Dutch Law had no influence over mining as a result it was overlaid by the English Law. However Roman-Dutch law was retained as common law. In 1942 to 1948 the state reserved the right of precious stones, precious metal as well as oil for itself. He reviewed all the laws pertaining to land, property and mineral rights from the 1940s to the 1980s. He said there was private, trust and state land. There was also land and mineral rights which were held by the former homelands.

Investment Partnership
Dr Cawood said when investors invest in mining they enter into partnership with the host country. In return for capital, investors are offered lucrative rewards. He said the host country supplies mineral property whilst the mining company supplies capital and know-how, both parties act together to produce mineral reign.

Dr Cawood argued that during the colonial era, the bargaining process was skewed in favour of the investor. It was mostly colonial companies that were allowed to exploit resources in developing countries. However, conflict of national sovereignty over national resources gained momentum. The host country wanted the best out of the bargain.

What is mineral rent?
Mineral production transforming assets into capital returns (or rents) is produced in the process. Government share rent in three ways:
One extreme - Privatization (Taxes)
Other extreme - Nationalization
Public ownership of minerals (Leases & Taxes)

Any government has three ways in which to claim its share of mineral rent. The first is when the state owns the land and mineral rights and secures the rent either through leasing or selling the rights. The second is when the state imposes taxation to extract the rent. Finally, he said economic nationalism has led some governments to believe that they are entitled to all of the rents generated by their mineral industries.

Mineral Royalty: A major rent capturing instrument
A mineral royalty is the payment to the holder of the mineral rights when minerals are extracted from the land and sold on the markets. If a country's legal system does not allow for private ownership of mineral rights, the mineral royalty will, by default, be payable to the state. It is the identity of the resource and not the owner that is important when determining the amount available.

The difference in royalty payment is that a private owner has only its own interests in mind when negotiating lease agreements while government royalties must support the national objective and still compete with the policies of other countries seeking investment.

Draft Bill: Comments
Mining is an exhaustible resource, that is, if it is used to the fullest it perishes. So the state must ensure that everyone benefits from it whilst it is still available. Compensation must be just and profitable.

Beneficiation incentives:
Benefits must be shared by both the host government and the mining company. The government can benefit whether in the form of rents being distributed or through employment creation.

Environmental management and sustainable development
Mr D Limpitlaw (School of Mining Engineering, Wits University) stated that sustainable development refers to economic activity meeting the basic needs of society in such a way that future generations will benefit.

He said it was very important to link mining development and sustainable development to combat poverty. Environment and society are integral components of sustainable development. Local communities should be able to generate income whilst the environment is improved.

Pressures on the natural environment were increasing and this could lead to the collapse of natural systems. Many environmental movements were created in response to this threatening position and to promote effective environmental management.

It is very difficult to manage the bio-physical effects of economics and social impact at the same time. But if one takes management by physical impact and combine it with accurate management of social and economic impacts, that will result in sustainable development. Lastly Mr Limpitlaw said these issues bring about key challenges in the mining industry and should be looked at very carefully.

Mineral rights and traditional communities
Chief Shilungwa Mhinga II (General Secretary: Congress of Traditional Leaders of South Africa [Contralesa]; Deputy President of the Mineral Rights Association of the Indigenous People of South Africa) told the committee that he was attending the workshop in his personal capacity to talk about Mineral Rights and Traditional Communities. The reason for this was that traditional leaders had not yet met to discuss the contents of the Bill. Chief Mhinga reminded the committee that the involvement of traditional leaders in the struggle was mainly to intensify traditional communities' attachment to land. He said there is no way that one can separate rural communities with land and its rights.

Chief Mhinga said that with the dawn of democracy in this country, the rural communities were hopeful that eventually they would reap the benefits that democracy has brought to South Africa. Such benefits included the right to own land together with its mineral rights. The most important advantage of the traditional community owning mineral rights is that the community would negotiate from a position of strength in negotiations with mining companies.

Communities could enter into joint ventures with the mining companies of their choice - and the whole community would benefit from royalties and profit sharing. Such a community could then address the social needs of its people by building schools, clinics, roads and providing water and sanitation..

Lastly, Chief Mhinga told the committee that he was disappointed with the way the issue of the Lebowa Minerals Trust had been handled. He said the Trust was flawed from its inception in that it did not benefit the people. However the Trust should not have been abolished by the new government but should have been restructured just like any other parastatal. Abolishing the Trust was premature as the whole question of mineral development was still being discussed. He concluded that the communities in the Northern Province are more disadvantaged by the ending of the Lebowa Minerals Trust.

Chief Mhinga was later informed that the Lebowa Minerals Trust had not been abolished, but it had just changed its way of operation and organisational structure like other parastatals in the country.

Mining Environment in Witbank
Mr M Hlabane (Group for Environmental Monitoring) presented a case study of Witbank. He stated that Witbank has been turned into hell on earth because of multiplication of problems caused by mining. He said that mining development should be accompanied by sustainable development that will examine the health and environmental problems inherent in mining.

Mr Hlabane said Witbank is dominated by a number of abandoned coal mines that started burning in the 1930s and continue to burn even today. He added that the ground is subsiding generating acid mine drainage in Witbank, affecting the Brugspruit, Klipspruit, Oliphants rivers and other areas around Witbank. He said the mining industry has always been characterised by poor consultation. There is no communication with affected parties. This has given mines a chance to manipulate government officials because communities are not there to protect themselves. Mr Hlabane said the face of mining should look better. Poor planning, location and design work can produce pollution time bombs, such as the acid mine drainage in Witbank which developed years after the mines ceased to operate.

Discussion
Mr Ramodike asked for clarity from Dr Cawood on the universally established principles of accountability and transparency in South African administration to ensure security of tenure. He questioned whether international standards had been applied to the Minister's discretionary powers. Lastly he inquired if these universal principles applied to the Draft Bill.

Dr Cawood said the administrative processes that are taking place will determine the security of tenure. He said in relation to mineral right ownership it is not so much the system of ownership that is important. The system, whether the state allows for private or state ownership of mineral rights, does not guarantee security of tenure; it is the way in which those mineral rights are administered that gives security of tenure for investors. The Minister's discretion should be limited by guidelines which are open to the public. He added that it is important that the guidelines should be known to everybody.

(Q) What is the current situation on the property right pertaining to diamonds which were not affected by the Mining Act of 1967. (The Act recognised the historically different categories of land as they had developed over the years and dealt mainly with administration of land which the state had some control, that is, proclaimed land).

Dr Cawood replied that the 1967 Act was made to standardise the property right to mineral land. He added that diamonds are still administered by separate laws because some diamond mines are on privately owned land.

Mr Lucas (IFP) commented that the input of disadvantaged people was needed on this Bill. He said there was no communication whatsoever with these communities. These communities have no land rights so how are they going to be involved in the mining industry?

Mr Ramodike (UDM) asked Dr Cawood if the Bill as it stands does address the question of accountability and transparency.

Dr Cawood replied that the Bill is still in a transitional process and some things will be dealt with in due course. He added that the provisions of the draft Bill were in line with international standards.

A committee member asked what was really meant by sustainable development, and if it was a multi-disciplinary concept.

Mr Limpitlaw replied that one major point in his input was that there was a huge role that should be played by the government in sustainable development. He said that too much time was spent contextualising. He would make available to the committee a four-page discussion paper on sustainable development. However he was not in a position to give a clear definition of the concept at that moment.

A committee member commented that it is essential that academic institutions should help politicians in dealing with the concepts. The Chairperson agreed that there is a need for continued discussions on the concepts, especially sustainable development. He said the issue of sustainable development is as important as the issue of mineral rights.

Mr Banks pointed out that Mr Hlabane's presentation suggests that mining should be stopped in this country, something that he thinks is impossible.

Mr Hlabane said he did not mean that the mining industry should close, but that resources in government and mining companies are misdirected. It is the responsibility of both the government and mining companies to ensure that health and environment are not compromised in the process. Resources also should be directed at dealing with health hazards and environmental degradation.

Economic impact of the mineral egislation
Prof D Minitt (School of Mining Engineering, Wits University) spoke on the link between minerals endowment and economic development and growth (see document).

There was no discussion thereafter. Before adjourning the meeting, the Chairperson noted that there will be a visit by an international expert on mining development on 28 March 2001.