Workshop on Black Economic Empowerment(BEE)in the Energy and Mining Sectors

Meeting report

****************************************************************
This Report is a Contact Natural Resource Information Service
Taking Parliament to People, and People to Parliament
****************************************************************
The aim of this report is to summarise the main events at the meeting and identify the key role players. This report is not a verbatim transcript of proceedings.

MINERALS AND ENERGY PORTFOLIO COMMITTEE
5 September 2001
WORKSHOP ON BLACK ECONOMIC EMPOWERMENT (BEE) IN THE ENERGY AND MINING SECTORS

Chairperson: Mr. D. Nkosi

Documents handed out:
Challenges Facing HDSA Companies in the Implementation of the South African Liquid Fuels Empowerment Charter (Africans Mineral Energy Forum)
Black Economic Empowerment and Transformation in the South African Mining Industry – A Preliminary Assessment (Chamber of Mines)
Black Economic Empowerment in the South African Petroleum Industry (Shell)
BEE Opportunities in the Electricity Industry (African Mineral and Energy Forum)
Workshop on Black Economic Empowerment (BEE) in the Energy and Mining Sectors
Workshop Programme (Appendix "1")
Black Economic Empowerment in the Mining Industry (Department of Minerals and Energy)
Black Economic Empowerment in the Energy and Mining Sectors (African Rainbow Minerals)
Access to Mining Rights, Markets and Financing for BEE in Mining (Kuyasa Mining)
[E-mail [email protected] for Documents]

SUMMARY
The Committee conducted a workshop on Black Economic Empowerment (BEE) in the energy and mining sectors to open discussion on issue. Presentations were made by individuals from the industry, the Department and groups engaged in BEE. The issues discussed included the involvement of BEE in the petroleum, electricity and mining industries and the challenges and possibilities for progress. The Committee Members were given opportunities to discuss the issues. For a complete list of the presentations, refer to the workshop programme attached below.

MINUTES
The Chairperson opened the workshop by stating that the goal of the workshop was to open dialogue on the issue within the Committee. The presentations and discussions were as follows.

Challenges Facing HDSA Companies in the Implementation of the South African Liquid Fuels Charter
Mr M. Radebe, African Minerals and Energy Forum (AMEF), presented on the challenges that historically disadvantaged South African (HDSA) companies faced in the implementation of the Liquid Fuels Empowerment Charter ("Charter"). The presentation represented AMEF’s views and assessments of the challenges faced by black oil companies and actions required to overcome these challenges. He stated that AMEF had a transformation goal and had been formed to represent and promote the interests of newly established mineral and energy companies from HDSA communities. He listed the latest empowerment deals and stated that more work needed to be done. He proceeded by stating the criteria for evaluating empowerment, which consisted of ownership, control, sustainability, operational involvement and skills transfer. In discussing the Petroleum Products Amendment Act, he stated that leveling the playing field was not adequate and added that legislation must tilt the playing field in favour of BEE companies. He continued by discussing the cross-cutting issues where government could help and stressed the importance of co-operation between government departments. In conclusion, he stated that in order to move forward, the government and private business must embrace the provisions of the Charter and workable solutions must be found to the challenges faced by BEE companies.

Ms N. Shope (ANC) asked how today’s forum related to the presentation made by the Vukani Institute at the Committee’s workshop on capacity in the energy sector. She asked if AMEF was associated with the Vukani Institute.

Mr Radebe responded by saying that AMEF members were not actively involved in the Vukani Institute and added that the Institute worked on building capacity while AMEF focused on energy supply.

Mr S. Mongwaketse (ANC) asked if the Minister had been engaged to take the cross-cutting issues to Cabinet.

Mr Radebe replied that AMEF was engaged with the Department and stated that the quality of the engagement was the key issue.

Ms N. Mtsweni (ANC), referring to Mr. Radebe’s statement that departmental alignment was lacking in the government, asked what the departments were doing wrong.

Mr Radebe responded that there was a lack of communication between various departments but added that the Department of Minerals and Energy (DME) was making sure to inform and engage other departments.

Mr E. Lukas (IFP) commented that the big players in industry were well advanced and had captured the market. He asked if the intention was to create a "Black Club" and exclude the other 40 million South Africans. He further stated that a relationship should be established between BEE companies and the major players in industry.

Mr Radebe responded saying that the creation of a "Black Club" was not the issue. He stated that there was a need to transform the industry and that after transformation, competition would take place. He stated that it was important to learn from experience and raised the concern that, after transformation, the small companies could die out and the big companies could dominate the market again.

The Chairperson stated that it was important to simplify issues. He commented that due to history, certain things had gone wrong. He stated that South Africa had potential in all races and genders, but this potential had previously not been used. He stated that the restructuring of the major big companies was a move in the right direction and added that service was already at a low level, lots of work remained in order to service all South Africans and that there was accordingly no need to fight over servicing.

Black Economic Empowerment in the South African Petroleum Industry
Mr S. Samodien, General Manager of Corporate and Public Affairs, Shell South Africa, presented on BEE in the South African petroleum industry. He began by briefly discussing the BEE process, definitions, the petroleum industry, BEE initiatives, what worked for Shell, the lessons learnt, what else could be done and the challenges faced. He stated the BEE process went through various stages ranging from legislative to full implementation. He then discussed BEE definitions from various sources and summarised the elements to be a focus on HDSA, quality participation and ownership, control of the industry, sustainability and viability of ventures and targets for HDSA ownership or control of the industry. He proceeded to discuss the composition of the value chain proceeding from the refining stage and ending with the consumption stage. In discussing ownership in the industry, he stated that representation was unbalanced. He gave the present position and noted some of the changes that had taken place since the Charter’s introduction. Using Shell as an example, he discussed how the Charter was being implemented. He stated that Shell had signed a Memorandum of Understanding with the BEE company, Thebe Investment Corporation (Pty) Ltd, through which Thebe would acquire up to 25 percent of Shell South Africa’s Oil Products marketing business. He also mentioned other agreements under negotiation. He then assessed the successes and failures Shell encountered and stated the lessons that were learnt. In conclusion, he discussed challenges to BEE.

The Chairperson commented that BEE must not become an external issue and added that transformation and restructuring created a situation in which individuals would be treated as links of a chain.

Mr Samodien commented that the issue of transformation and restructuring was not an issue just for Shell. He stated that it was a partnership to begin new ways of thinking and working. Referring to the South African Petroleum Industry Association (SAPIA), he stated that there were areas for co-operation and working together was possible, but as competitors, he stated that they could not always co-operate.

Mr M. Ramodike (UDM) asked for clarification on the criteria applied by shell to BEE companies in implementing Shell’s strategic thrusts. He also wanted to know the number of provinces in which Shell implemented BEE strategies.

Mr Samodien responded saying that the definition components in the Charter were used to identify black partners for BEE initiatives. In reference to the provinces where Shell was implementing BEE strategies, he stated that Shell had a host of programmes which contributed to the core focus and added that there was no geographical grouping because BEE was a national imperative. It was therefore important to look at the national scale.

Mr A. Nel (New NP), referring to a point cited as part of the elements of the BEE definition in the Charter, asked if control of 25 percent of the industry qualified as ownership of the industry.

Mr Samodien responded saying that the issue of ownership or control referred to a process that could conceivably develop into other things.

Mr Mongwaketse commented that the Competition Act prevented a manufacturer and distributor from forming "cartels" thereby opening doors for BEE companies. He asked how Shell was affected by the Act. He also wanted an elaboration on future deals between BEE companies and Shell.

Mr Samodien responded that the Competition Act was to prevent horizontal collusion and stated that the key was finding ways of working together to meet the policy statements in the Charter. Referring to the future deals, he stated that deals did not include refineries, but he added that the door was not closed and that there were broader areas for co-operation.

Mr G. Oliphant (ANC) asked for clarifications on the issues of accreditation, capacity building with the University of Cape Town (UCT) and the statistics on the market share of Shell. He also wanted to know the direct impacts of BEE on local communities.

Mr Samodien responded that the issue of accreditation was a suggestion on what could be done in the future and added that nothing had been done to date. Referring to the programme at UCT, he stated that it was a pilot capacity building programme in Shell to develop existing skills. It had been partnered with UCT to establish a formal certificate or degree programme. He stated that Shell recognized that individuals may benefit from interaction within the petroleum industry and it would provide a potential avenue for skills transfer. Referring to community involvement in BEE, he stated that community involvement was important because it provides opportunities for empowerment. He added that although BEE was a national initiative, Shell would consider valuable proposals and take on viable ventures.

Mr C. McLelland from SAPIA was present and the Chairperson gave him an opportunity to comment. He elaborated on the role of SAPIA in the BEE process and stated that SAPIA accepted the national imperative for BEE and believed that no future existed for South Africa if things did not change. He stated that SAPIA was not merely a group of multinationals, but an actual process. He continued saying that SAPIA worked by creating peer pressure among companies and creating opportunities for reaching agreement and co-operation on certain actions that must be taken together.

BEE Opportunities in the Electricity Industry
Mr M. Tshabalala and Mr C. Mqaqa, from AMEF, presented on BEE opportunities in the electricity industry. Mr Tshabalala stated the objectives of the presentation were the sharing of areas of opportunity for BEE companies in electricity, appraising the Committee on some current developments in the Electricity Supply Industry (ESI) and introducing AMEF as an entity that would promote empowerment of black owned businesses in the ESI. He then gave a brief background on the government’s BEE intent and touched on BEE involvement and securing of significant BEE operational equity.

Mr Mqaqa discussed the scope of the presentation and outlined the areas for BEE involvement in electricity generation, transmission, distribution and related non-core businesses.

Mr Tshabalala proceeded to discuss electricity generation. He touched on the government’s intent, interests and areas of expertise of Black companies in electricity generation and the opportunities for BEE.

Mr Mqaqa, in his discussion on electricity transmission, stated that there were black skills in the electricity industry and added that black entities were qualified to operate electricity institutions. In discussing electricity distribution, he stated the government’s intent, areas of interest and expertise of black companies and opportunities for BEE. He also discussed the related non-core businesses and stated that black companies were actively involved in the electrification process. He added that, although Eskom claimed to support BEE, more needed to be done to implement this commitment. He then discussed the current status of BEE companies in the industry and outlined the trends in ESI.

Mr Tshabalala concluded the presentation by discussing AMEF’s background, its objectives and position.

The Chairperson asked if the current level of engagement was adequate to make a difference.

Mr Mqaqa stated that AMEF was involved in and participating with DME in regard to the new Electricity Act. He added that there was room for BEE involvement.

Mr Mongwaketse wanted clarification on the membership of AMEF and wanted to know if it was made up of companies or individuals. He also asked if there were any BEE companies interested in PBMRs and asked for AMEF’s reaction to restructuring issues and Cosatu.

Mr Radebe responded that since AMEF was a support body for energy companies, the membership consisted of companies.

Mr Tshabalala responded to the question on PBMRs and stated that there were BEE companies interested in PBMR but they encountered financial challenges because investors saw green projects as risky and were reluctant to invest. On the issue of Cosatu, he stated that Cosatu argued by virtue of being a state owned operation, there was no need for BEE. He disagreed with this argument and stated that through privatisation, local investors would get an opportunity to enter the market. He added that getting into power stations was good for BEE businesses because it was a long-term business and would make it easier to attract investment.

Mr Mqaqa stated that he had been close to the government position on restructuring of state entities. He added that it was not an issue of selling state entities but rather an issue of socio-economic empowerment. He emphasised the need to coordinate the efforts of black professionals in the industry.

Mr Oliphant asked for clarification on the viability of PBMR and asked for examples of successful BEE companies.

Mr Mqaqa stated that management structures had been a problem and added that BEE opportunities had been small scale. He further stated that licensing of Independent Power Providers (IPP) was a step in the right direction and added that private sector involvement in the electricity industry had increased.

The Chairperson stated that there was an upcoming workshop on rural electrification. He noted the presence of Ms Magomola from Eskom and asked her to comment.

Ms N. Magomola, Head of Public Affairs at Eskom, stated that Eskom had scheduled a workshop for 19 September 2001 on ESI and the PBMR project. She stated that she was in agreement with the previous presenters. She stated that Eskom’s intention was to electrify Africa and the goal by next year was to have 50 percent of Eskom revenues generated from outside South Africa. She commented that competition was good at all levels and added that the industry should not wait for new power stations to be built to increase black participation. On the issue of PBMR, she stated that it was indeed expensive and added that between Eskom and the government, opportunities would be there for black persons to take part in the initiative.

Black Economic Empowerment in the Mining Industry
Mr A. Mngomezulu, Director of Mineral Economics at DME, presented on BEE in the mining sector. He focused initially on the role of South Africa in the world mineral reserve base and stated that due to the abundance of mineral reserves in South Africa, there was room for BEE companies to operate. He noted the historical legislative framework which actively excluded communities from the mining industry and proceeded to discuss the current legislative framework. He also discussed private sector initiatives but focused on DME strategies. He touched on a study of stakeholders in the mining sector, conducted in March 2000, and noted the issues highlighted in the results. He discussed other strategies to redress issues concerning the issuing of permits, lack of financing and technical expertise. He also stated that there was a directory of BEE companies which was established to compile the contact details and expertise of BEE companies. He proceeded to discuss the immediate plans of DME. He stated that DME was in a position to develop a Charter for the mining sector and would involve stakeholders at all stages. He listed the key elements of the Charter as being human resource development, employment equity, access to finance and technology, ownership, access to viable deposits, socio-economic issues, beneficiation strategy and mineral specific constraints.

The Chairpersons stated that the Department featured frequently in the Committee’s workshops because the Committee wanted to be kept informed on what could be done and also because the Committee wanted to see programmes of implementation.

Mr Mongwaketse, referring to the Mining Charter, commented that there was a need to be specific on the numbers. He added that monitoring of small-scale miners found they were frequently failing because of the lack of finances. He asked why the database of BEE companies did not include foreign investors to give access to funding sources to the BEE companies.

Mr Mngomezulu agreed with Mr Mongwaketse on the difficulty of financing mining ventures. He stated that mining was difficult to finance, especially at the exploration stage.

Mr B. Bell (DP) commented that using legislative framework to force industry might not work. Referring to the Mining Charter, he stated that mentoring never works and added that experience was the best teacher/training for management positions.

Mr Mngomezulu responded by stating that the legislative framework was not intended to instigate fighting with industry but rather to encourage change.

Mr Oliphant wanted clarification on the time frame of the Mining Charter and wanted to know where the process had reached.

Mr Mngomezulu responded by stating that the Mining Charter was not yet in place and added that the Department was merely contemplating it. He stated that the Department wanted to suggest it to stakeholders and see how the process could be taken further.

Black Economic Empowerment in the Energy and Mining Sectors
Mr D. Simelane, CEO of African Rainbow Minerals, presented to the Committee on the experiences and observations of African Rainbow Minerals (ARM), a BEE company operating in the mining sector. He opened his presentation by stating that it was important to look at the current state of BEE in the mining industry from a historical context. He argued that the mining sector was historically dominated by white conglomerates. He said that there were constraints for black entrants into the sector that included lack of access to sustainable ore-bodies, lack of access to finance, lack of enabling legislation and a lack of operational, mining and managerial skills and expertise. He stated that discussions in the late 1980’s and early 1990’s between black business organisations and white conglomerates resulted in black business becoming players in small scale operations and contract mining. He however questioned whether these concessions by white conglomerates could be viewed as real black economic empowerment in the sector. He stated that black business was considered as the bottom feeders who could only be sold mines whose life span was at the end in the industry.
He suggested that for real empowerment to occur, a number of guiding parameters had to be in place. He suggested that government should set a percentage and time frame on black ownership in the mining sector as it had done in the fuel and petroleum industry. He revealed that currently only two percent of the mining industry was in black ownership. Mr Simelane stated that the Mineral Development Bill was instrumental in establishing an enabling environment for BEE in the sector. He proposed that the Bill should be strong on issues of access to long life high-grade ore-bodies, finance price cycles and the need for aggressive employment equity programmes. He criticised the BEE Report for not being specific enough in its research and recommendations on the mining sector. He however conceded that the report was an important document that set the right climate for BEE.

Mr Lucas asked the presenters how committed ARM was to the empowerment of women.

Mr Simelane responded that ARM had made it a rule to have a minimum of 40 percent representation of women in the service companies it had formed.

Access to Mining Rights, Markets and Financing for BEE in Mining
Mr A. Bam, from Kuyasa Mining, opened his presentation by arguing that the environment within which BEE was taking place was unequal. He suggested that there were self-interested big white players in the mining industry who were doing the empowering and the small black players were the parties being empowered. He challenged the notion that white mining companies were empowering black people in business out of their commitment to the political and social transformation of the country. He illustrated this by pointing to the almost absent internal investment in the economy by white business. He suggested that white business had taken the profit driven global position of investing elsewhere rather than in South Africa. He argued that this attitude would drive foreign investors away as they would not commit to an economy that was shunned by its own. Mr Bam appealed to the Committee not to make changes to the Mineral Development Bill that would water down its original objectives. He suggested that the Bill should take the difficulties black mining companies had in accessing finance into consideration. He suggested that the Bill should clarify the issue of security for first entrants in the sector. He also advised that the Bill would be stillborn if the demand side of the industry did not get attention from legislators. He proceeded by suggesting that the internal market was structured unfairly. He argued that the export market was also unfair as the small companies were uncompetitive because of their high costs. He stated that black business should be allowed to control a significant share of the mining sector. In conclusion, he reasoned that unless this was permitted, black business would continue to be frustrated and that black empowerment in the industry would fail.

Mr Oliphant asked what could be done to change the fact that the industry was controlled by white businesses. He asked whether Mr Bam was suggesting that black businesses could not sell coal to state owned companies such as Eskom and Sasol. He asked if the two companies were refusing to buy. He also asked what the future of coal in South Africa was, especially considering geological reports that suggested that there were huge coal reserves in the country. Lastly he asked who owned the Richards Bay terminal.

Mr Bam responded to the questions by stating that coal was once considered the dirty energy source but that the perception was now changing. He highlighted the conversion to coal as a major energy source in the US and Europe. He said that because coal was cheap and abundant, it would continue to have a bright future. He stated that access to Eskom for new suppliers was difficult because the contracts Eskom had with its current suppliers precluded competitors’ access. He added that a competitor would need to get a concession from a current supplier in order to sell to Eskom. Referring to the question regarding the Richards Bay Terminal, he stated that it was owned by Billiton, Anglo Coal, Total and Glenco.

Mr Mongwaketsi asked why the companies that presented today made no mention of other minerals such as manganese. He suggested that there were other mineral resources in the country that were ripe for mining. In the face of arguments by white mining firms that owning the mineral rights was crucial as it facilitated financing, he asked Mr Bam to clarify his stance of suggesting that it was not important to own the rights if a company could possess the mining rights.

Mr Bam responded that a company could mine minerals owned by somebody else. He stated that his company had been doing this and they felt secure in the arrangement. It was therefore not crucial to own the rights.

Black Economic Empowerment and Transformation in the South African Mining Industry – A Preliminary assessment
Mr R. Baxter, from the Chamber of Mines, opened his presentation by stating that for the Chamber of Mines, BEE was more than just ownership. He argued that BEE had to also include board presentation, management, employment, procurement and rural development.
He stated that the mining industry, led by the Chamber of Mines, was strongly committed to the transformation of the mining sector. He stated that the Chamber believed that the abundant mineral resources of South Africa could serve as an engine of normalisation and prosperity for the country. He defined BEE as the creation of economic opportunities for previously disadvantaged individuals, thereby facilitating their accumulation of skills and wealth and enabling them to participate in the mainstream of the economy. He argued that BEE was made up of a number of processes such as affirmative action, preferential procurement policies, redistribution of productive assets, urban renewal, education and rural development. He commented on the current national income disparities in South Africa and suggested that the country should learn from other countries such as Malaysia in dealing with issues of social and economic inequality. He argued that there was a need to build support for BEE from all racial groups based on a common understanding of objectives and the reasons for BEE. Mr Baxter proceeded to discuss the experience of BEE in the mining industry up to the present which had seen some failures as well as successes. In mapping the road forward for BEE in the industry, he mentioned that the government and the Chamber had reached agreement on progressing the BEE agenda. He also mentioned that proposals emanating from research conducted by the Chamber were to be considered at a senior executive workshop in September. He revealed that examples of the proposals included procurement polices, mentoring programmes, accelerated skills development, union fund participation in mining companies and a broad framework to address BEE in a holistic and sustainable manner.

The Chairperson commented that the input by Mr Baxter reflected that the BEE agenda was becoming one. He said that what remained was a need for better communication and engagement between all players. He said that this would make decision-making on the issues productive and that the Committee would then have a holistic understanding of legislative proposals placed in front of it.

Mr Mongwaketsi commented that there seemed to be progress on BEE in the mining sector. He continued to ask whether there was any assistance the chamber could give to BEE efforts. He also highlighted the fact that there were also white small-scale miners in the industry and wanted to know if these were organized in some structure.

Mr Baxter responded by stating that the area of BEE in general and the demand side for black mining in particular was being looked at. He announced that the Richards Bay Coal Terminal had undergone an upgrade where two of the current stakeholders had agreed to open up export capacity of five million tons to empowerment groups. He also mentioned that with regard to demand for coal, it was important to note that there were other energy sources that reduced the need for coal. He made an example of the Cabora Bassa project which also supplied large volumes of energy to Eskom. Responding to the question on white small-scale miners, he stated that the Chamber was dealing with the issue of all small-scale farmers equally. He said that white farmers had no direct representation with the Chamber.

Mr Oliphant asked if Mr Baxter could enlighten the Committee about the discussions around the Charter on which DME had refused to say anything earlier. He also asked what the position of the Chamber of Mines was regarding the issue of mining rights ownership.

Mr Baxter responded by saying that discussions on the Charter were currently at a sensitive stage. He said that proposals had been made and that it would be un-strategic to release statements too early. On the issue of mining rights ownership, he responded by saying that the Chamber had made its submissions to the ministry of DME and was satisfied with the Bill.

__________________________________________________________________________

The copyright in this material subsists with the Contact Trust. Further distribution or copying of this material is prohibited without the prior agreement of the Contact Trust.
__________________________________________________________________________

Appendix 1

WORKSHOP ON BLACK ECONOMIC EMPOWERMENT (BEE) IN THE
ENERGY AND MINING SECTORS
PROGRAMME

Committee Room M46, Marks Building, Parliament
05 September 2001
__________________________________________________________________________

08:45 Opening & Welcome – Duma Nkosi

09:00 Challenges facing HDSA companies in the implementation of the SA Liquid Fuels Charter – Maurice Radebe, African Minerals & Energy Forum

10:00 BEE in petroleum industry – Sedick Samodien, Shell

11:00 Tea

11:15 BEE in electricity industry – Mandla Tshabalala

12:15 DME on BEE in mining – Abe Mngomozulu / Ntsiki van Averbeken, DME

13:00 Lunch

13:45 BEE in mining – Patrice Motsepe (African Rainbow Minerals)

14:45 Access to mining rights, markets and financing for BEE in mining – Ayanda Bam (Kuyasa)

15:45 Mining industry initiatives for BEE – Roger Baxter, Chamber of Mines

16:45 Closure