Mineral & Petroleum Resources Development Amendment Bill: Ministerial briefing; Draft National Radioactive Waste Management Agency Bill, Draft National Energy Bill & Draft Regional electricity Distributor Establishment Bill: Departmental briefings

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Mineral Resources and Energy

25 March 2008
Chairperson: Mr Nqaba Ngcobo (ANC)
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Meeting Summary

The Minister of Minerals and Energy and officials from the Department of Minerals and Energy briefed the Committee on the proposed amendments to the Mineral and Petroleum Resources Development Act. The amendments allowed for the Minister of Minerals and Energy to take over the responsibility for environmental management of mining operations from the Minister of Environmental Affairs and Tourism. Corresponding amendments were necessary to align the National Environmental Management Act to the Mineral and Petroleum Resources Development Act.

Members’ questions related to the Minister of Environmental Affairs and Tourism remaining as the appeal authority, the processing of applications for mining licenses, the benefits communities enjoyed from mining operations in their area, employment opportunities for local workers and the condition of the housing provided for mine workers.

The Chairperson requested clarification on the issue of double taxation that arose out of the hearings held on 11 March 2008 on the Draft Minerals and Petroleum Resources Royalty Bill. De Beers claimed that the Royalty Bill resulted in the company paying double taxation in the case of the Finch mine. The Department of Minerals and Energy disagreed with De Beers and explained that the consideration paid by De Beers was for leasing the State’s interest in the Finch Mine in terms of a contract entered into in 1964.

The Minister and officials from the Department of Minerals and Energy briefed the Committee on the broad objectives of the Draft National Radioactive Waste Management Agency Bill, the Draft National Energy Bill and the Regional Electricity Distributors Establishment Draft Bill. The Bills were still at an early stage and full details could not be provided at this point.

Members suggested that provision was made for consultation with local communities and the management of social perceptions on the issue of radioactive waste. Questions were asked about the funding for disposal of nuclear waste and the responsible body when nuclear power stations were de-commissioned. Questions on the National Energy Bill centered on the development of energy models and planning, the functioning of the proposed agencies, alternative energy resources and the measures taken to address the energy crisis. Members were concerned by the acceptance of the Regional Energy Distributors by municipalities and whether the reconstruction of the energy providers would have any benefits for the country.

Meeting report

Ministerial Briefing on Mineral & Petroleum Resources Development Amendment Bill
The Hon Buyelwa Sonjica, Minister of Minerals and Energy, briefed the Committee on the consensus reached with the Minister of Environmental Affairs and Tourism in respect of the proposed amendments to the Mineral and Petroleum Resources Development Act (MPRDA) and the National Environmental Management Act (NEMA) (see attached document). She was unable to provide details of the amendments to other related legislation at this point.

In summary, the Ministers of Environmental Affairs and Tourism and Minerals and Energy agreed that a single environmental management system was to be followed, and that this should be stipulated under NEMA. However, the Minister of Minerals and Energy was responsible for the environment with regard to all mining, exploration and production activities. The Minister of Environmental Affairs and Tourism was the appeal authority on all environmental authorisations issued in terms of the NEMA.

It was agreed that the Minister of Environmental Affairs and Tourism remained responsible for environmental policy, regulations and legislation in terms of NEMA. The Minister of Minerals and Energy was responsible for implementing those aspects of NEMA and specific environmental legislation only as they related to mining. Environmental requirements contained in the MPRDA were to be deleted and incorporated into the NEMA. Timeframes for the processing and approval of the Environmental Impact Assessments (EIA) and the Environmental Management Plans (EMP) were retained in the NEMA. All applications for mining, exploration or production licenses must include EIAs and detailed EMPs.

Ms Futhi Zikalala, Deputy Director-General, Department of Minerals and Energy, added that the Department faced some challenges with the implementation of the new responsibilities. Both the NEMA and the MPRDA required amendment, and departmental policy changes were necessary. An eighteen month transitional period of implementation was agreed with the DEAT.

Environmental amendments to Mineral & Petroleum Resources Development Amd Bill
Ms Elize Swart, Director, DME, briefed the Committee on the proposed amendments to the MPRD Amendment Bill in relation to environmental impact assessments (see attached document).

The purpose of the amendments was contained in the Long Title to the Bill. Definitions of “community”, “effective date”, “environmental authorisation”, “environmental reports”, “Minister” and “NEMA” were inserted in Clause 1. Definitions of “environment”, “environmental management plan”, “environmental management programme” and “financial provision” were removed.

The general exclusion of NEMA contained in Clause 4 of the previous Bill was deleted. The prohibition on illegal mining activity was added to Clause 5. Sections 5, 16, 17, 19, 23, 22, 25, 27, 37, 47, 48, 74, 75, 79, 80, 82, 83, 84, 86, and 106 were amended. Sections 38, 39, 40, 41, 42, 43, 45, 46 and 107 were deleted.

Adv H Schmidt (DA) remarked that the provision related to “unacceptable pollution, ecological degradation or damage to the environment” as contained in Sections 17, 23, 75, 80 and 84 of the MPRDA was replaced with “an environmental authorisation is issued”. The criteria for the issuing of an environmental authorisation were however not specified. He appreciated that the intention was to streamline the procedure but felt that checks and balances were necessary.

Ms Swart explained that the matter of the appeal authority was debated at length with the Department of Environmental Affairs and Tourism (DEAT) and a number of practical problems were identified. She expected that appeals would take a long time to process.

Adv Schmidt asked if the Department of Minerals and Energy (DME) saw any problem with DEAT being the appeal authority.

Ms Swart replied that the appropriate wording would be included in the authorisation so that the applicant would have to comply with the applicable criteria.

Minister Sonjica explained that both Ministers were responsible for the adherence to national standards. The NEMA requirements for EMPs and EIAs were incorporated in the MPRDA. The processing of licenses was linked to the EMP and the application would be rejected if the requirements were not met. She said that more than 13 000 applications were received by the DME since implementation of the MPRDA and each application involved a substantial number of supporting documents. She said that if the DME had to hand over responsibility for the processing of a portion of the application to a department that did not have the capacity to deal with it that would result in delays in the issuing of licenses.

Ms F Mathibela (ANC) referred to the provision that a written reply would be issued within fourteen days if an application was rejected on the grounds that the requirements were not met. She asked what recourse the applicant had if no written response was received within fourteen days.

Ms Zikalala replied that if no written reply was received within the fourteen days that would be grounds for a complaint to the Minister. She explained that the DME’s computer system was programmed to generate a reply within the time frame.

General amendments to Mineral & Petroleum Resources Development Amendment Bill
Ms Zikalala briefed the Committee on the further general amendments to the MPRDA (see attached document).

Section 2 contained the objectives of the Act in respect of transformation, environmental protection, the empowerment of women, optimising the wealth of the country and economic development through exploitation of petroleum and mineral resources. This section was important as it guided the granting or refusal of mining, exploration and production license applications.

Ms Zikalala explained that provision was made for three transition periods. When the MPRDA was implemented in 2004, it was not known how many applications would be received. She reported that the backlog in processing applications was eliminated by the end of 2006. Details of applications approved were posted to the Department’s website on a monthly basis.

Provisions in the MPRDA had been found not adequate enough to implement the beneficiation policies and requirements. Sections 17 and 23 dealt with the granting of licenses and prospecting rights, issues around competition and ensuring that opportunities were provided for historically disadvantaged persons (HDPs), communities, women and the youth to benefit from prospecting and mining activities. Section 100 made provision for the broad-based mining charter. Black Economic Empowerment (BEE) policies were a condition for the granting of licenses.

Ms Zikalala explained that the seven pillars of the MPRDA formed the basis of a social and labour plan as it included employment equity, women, the youth and HDPs. The processing of applications integrated the issues of the environment, economic and social development of the community and individuals, black ownership and the health and safety of employees. She said that the issue was not just a matter of protecting the environment but also one of economic development.

Ms Zikalala reported that 350 applications were received for the conversion of old order prospecting rights by the deadline of April 2006. The Department was currently processing applications for the conversion of old order mining rights, which had a deadline of April 2009.

Minister Sonjica added that during the debate on the beneficiation strategy by the Cabinet, the overlap between the Department of Trade and Industry (DTI) and the DME was acknowledged. Beneficiation formed part of the implementation of the industrialisation policy. The DME was currently clarifying its role in the beneficiation process and would report on that matter to the Committee at a later stage.

The Chairperson asked whether communities could demand more benefits from companies that were involved in beneficiation.

Ms Zikalala explained that communities were not prevented from becoming shareholders in a mining operation. It was a matter of whether the community could afford to purchase shares or not. The DME promoted the social and labour plan to ensure that local economic development took place. Municipalities were required to consult with the community on its Integrated Development Plan (IDP). The Mining Charter made provision for employee share ownership plans (ESOP), which allowed employees of a mining operation to benefit through a percentage ownership of a mine.

Minister Sonjica said that the DME must still conduct an investigation into the response of companies to the social and labour plan. She observed a lack of response and was concerned that the Department had failed to deliver in this respect.

The Chairperson noted that there were instances where the municipality had concluded deals after consulting with only the local chiefs instead of with the community as a whole. He suggested that a strategy must be developed to ensure that the entire community benefited instead of just a few individuals.

Ms Mathibela remarked that mining companies imported workers instead of employing local workers.

Ms Zikalala replied that a distinction had to be drawn between skilled and unskilled workers. A company may not be able to find an employee within the local community with the required skills. The social and labour plan however required the company to conduct training, mentoring, coaching and career path development in order to raise the level of skills in the local community.

Minister Sonjica added that the local leaders received training from the DME on engaging with companies on issues of employment of local workers. She remarked that training usually took place once a worker was employed. She suggested that pre-training took place to take advantage of future employment opportunities.

Ms E Ngaleka (ANC) noted that the MPRDA required the Minister to develop minimum requirements for the housing of mine workers. She wanted to know what progress had been made. She asked if the DME was the only Department affected by beneficiation.

Ms Zikala replied that the DME was currently assessing the housing standards in the mining industry and expected to report on the matter by April 2009.

Minister Sonjica reported that the conditions observed at certain residences for mineworkers were terrible. Although some improvements were made, a lot remained to be done. She had discussed the improvement of the living conditions of mineworkers with the industry and the National Union of Mineworkers (NUM).

Adv Schmidt saw a report in the media that only one application for a mining license was approved in a period of three months. He asked whether the processing of applications was up to date. He asked for information on a case where a marble mining company had challenged the Government.

Ms Zikalala replied that the report in the media was untrue. The matter was investigated but no grounds for the statement could be found. She reported that the matter relating to the mining company was still sub judice but that the arbitration process was on track and the first sitting was held in December 2007.

Minister Sonjica explained the process of the submission of applications, the compliance with requirements, the approval of an application and the issuing of a license. Applications that did not comply with requirements were rejected. In such cases, the applicant could re-apply. She explained that each application included many supporting documents and it took time to process each application. The applicant was however kept informed of progress through written communication.

The Chairperson requested clarification on the issue of double taxation that arose out of the hearings held on 11 March 2008 on the Draft Minerals and Petroleum Resources Royalty Bill (‘the Royalty Bill’).

Ms Zikalala explained that the issue arose out of the presentation made by De Beers, in which it was claimed that the Royalty Bill would amount to double taxation in the case of the Finch mine. She said that the DME disagreed with De Beers and a document substantiating the DME’s stance was circulated to the members of the Committee.

The matter dated back to the early 1900’s, when a proclamation on the State’s interests in kimberlitic mines was issued. The Finch mine was such a kimberlitic mine, in which the State held an interest of 70%. In 1964, the State entered into a contractual agreement with De Beers, whereby the State’s interest in the Finch mine was leased to De Beers. The contract was undertaken in terms of Section 38 of the Precious Stones Act of 1927, since repealed. The contract however remained in force until the mine was either abandoned or until the agreement was terminated by both parties. In terms of Clause 4 of the lease agreement, De Beers had to pay a share of the annual profit to the State. Clause 5 of the lease required De Beers to pay any other amount that may be required by any other law. The Royalty Bill was such a law. Any payment that was being made by De Beers to the State already was in consideration for taking up the State’s share in the mine, and was not considered by the DME to be a royalty.

The Chairperson asked whether the repealed law dealt with the contractual agreement or if it dealt with other matters.

Ms Zikalala explained that the contractual agreement continued after the repeal of the Precious Stones Act. De Beers had applied for a mining license for the Finch mine. In terms of Item 9(7) of the MPRDA, the interest of the State was noted but the license to De Beers could not be refused if the requirements were met.

Ms Ngaleka asked when the agreement with De Beers would expire. She remarked that the participation of black people was limited in terms of this contract.

Minister Sonjica replied that there was an agreement with De Beers that 10% of diamond production was handed over to the State. It was the intention to increase the percentage until finally all production became the property of the State.

Ms Zikalala replied that the contract did not have an expiry date. Payment by De Beers for leasing the State’s 70% interest in the Finch mine was therefore a contractual obligation.

Mr T Mahlaba (ANC) noted that the Department’s explanation differed from the presentation made by De Beers during the hearing on the Royalty Bill. He said that it was obvious that De Beers knew what they were doing and misled the Committee by claiming double taxation. He remarked that the Royalty Bill was the responsibility of the Portfolio Committee on Finance and asked to what extent the DME was involved in the public hearings held on the Bill.

Ms Zikalala replied that the DME was consulted during the drafting of the Royalty Bill. The Department was responsible for the collection of royalties on state minerals and had the expertise in this field. However, responsibility for the collection of royalties was being transferred to National Treasury. The DME continued to respond to queries directed to it and remained available to assist National Treasury when necessary. She declined to comment on Mr Mahlaba’s comment that the Committee was misled during the hearings on the Royalty Bill.

The Chairperson said the point made about misrepresentation was a matter for the Committee’s consideration. He said that De Beers was under an obligation to disclose the background to an agreement that was made under the previous Government.

National Radioactive Waste Management Agency Draft Bill: briefing by Minister
Minister Sonjica briefed the Committee on the intention and objectives of the Draft National Radioactive Waste Management Agency Bill (see attached document). The purpose of the bill was to establish a National Radioactive Waste Management Agency, which would be a State-owned entity. The establishment of an agency to manage radioactive waste disposal was considered to be international best practice.

The functions of the Agency, the manner in which it would be controlled and managed, the source of its funding and the assets and liabilities of the agency were outlined. The presentation was concluded with a summary of the process to be followed to develop the Bill.

The Chairperson commented that it was important that the Agency developed strategies to consult with the local communities on waste disposal and to positively manage social perceptions on nuclear waste disposal. He said that the establishment of the Agency was an important development for the Nuclear Energy Corporation of South Africa (NECSA). He pointed out that the Bill was not yet at the Committee stage and that questions asked by Members were for clarification purposes only.

Mr Mahlaba noted that the Agency would be funded by Government as well as generating income for services rendered. He asked who was responsible for determining tariff regulations.

Mr L Greyling (ID) remarked that funding for nuclear waste disposal was a major issue. He asked if the Government would be paying the cost of disposing of the radioactive waste generated by nuclear power stations or expected the power station to carry the cost. He wanted to know if the Agency or the original builders of a nuclear power station would be responsible for the de-commissioning of the power station.

Minister Sonjica said that the Department had noted the issues that were raised by Members but requested that further discussion be postponed to a later stage in the process.

Ms B Tinto (ANC) requested that Members be provided with documentation before the draft Bill was considered by the Committee.

National Energy Draft Bill: briefing by Department of Minerals and Energy (DME)
Mr Nhlanhla Gumede,
Deputy Director General: Hydrocarbons & Energy Planning, DME, briefed the Committee on the purpose and background to the National Energy Bill (see attached document).

The main focus of the Bill was energy security, which extended far beyond the issue of security of supply. An outline of the framework, the meaning of energy security and the establishment of institutions to support the Bill was given. The Bill endeavoured to strengthen existing institutions rather than replacing them. A summary of the guiding principles and the structure of the Bill was presented.

The Bill provided for the mandatory provision of data and information for the purpose of energy modelling and planning, the introduction of programmes to minimise negative safety, health and environmental impacts and the access to affordable energy by households.

A key feature of the Bill was the provision for integrated modelling and planning to facilitate energy security. The energy crisis resulting from inadequate supplies of liquid fuel and electricity, contradictory initiatives to address the crisis, the lack of an integrated view of the energy sector and the need to boost the ability to develop effective energy plans were listed as the main drivers for change.  The purpose and main objectives for integrated energy modelling and planning were discussed.

The Bill included provisions for the development of renewable energy solutions, increasing energy efficiency, conducting research into energy technology, ensuring the adequate supply of energy and the development of energy infrastructure.

The presentation concluded with an outline of a project plan for the passing of the Bill.

Mr Greyling welcomed the introduction of energy modeling in determining the best option for providing for future energy requirements. He said that the country was at a critical juncture and decisions that were made now had long term effects. He was concerned that Eskom was making unilateral decisions regarding the supply of energy. He wanted to know if the National Energy Bill had any authority over the decisions that were made by Eskom.

Mr Greyling remarked that the building of power stations was the largest public procurement project ever. He asked how many jobs were likely to be created in the process.

Mr Gumede replied that the people and micro issues were taken into consideration when planning at the macro level and when developing models on which future planning and decisions could be based. He said that the job-creation benefits generated by the significant spending on building power stations should be included in the model developed.

Mr Gumede explained that modeling was one aspect of decision-making and admitted that little effort had been made in developing modeling capability as yet. Although some good decisions were made in the past, the question remained how many were informed decisions and whether all the implications were understood when a decision was made. He remarked that most decisions were based on assumptions rather than on the numbers provided by good modeling.

Mr Gumede admitted that once Eskom’s plans were adopted by National Energy Regulator of South Africa (NERSA) little more could be done. He pointed out that plans could be changed before they were implemented. He said that the ability to make decisions based on numbers had to be developed.

Mr Greyling acknowledged that modeling would determine the best option for an energy carrier. He remarked that Eskom currently had a monopoly on the supply of energy. He asked if the Bill made provision for alternative future options and opened the market to other energy suppliers, thereby allowing the market to decide on the types of technology and the applicable tariffs. He said that a different scenario would apply if there were to be a diversified energy supply in the country.

The Chairperson asked for clarity on what was meant by a “policy-neutral” model. He said it was a brilliant initiative to develop models that could be used by Government when decisions were made. He was concerned by the establishment of several agencies as an element of competition was introduced that led to a dilution of their effectiveness. He suggested that a single agency encompassing different divisions was considered instead.

Mr Gumede explained that “policy-neutral” meant that models were developed based on existing technology and policies. The base line of the model was rooted in reality rather than assumptions. It was then possible to develop a model for alternative technologies and test the results and assumptions by comparing them to the known reality. New policies had to be adopted before they could be incorporated into the base line. It was essential to create a solid foundation and to carry out reality checks in the development of a model.

Mr Gumede took the Chairperson’s point on the number of institutions and said it would be considered when the appropriate structure was determined. He said that it was important that the institution was properly constituted to ensure that it achieved its objectives.

The Chairperson understood that the South African National Energy Research Institute (SANERI) was responsible for developing and conducting research into renewable energy resources. He asked how SANERI was positioned amongst the proposed agencies. He asked what progress was made by SANERI.

Mr Gumede replied that the Ministerial Technical Committee (MINTEC) focused on minerals while SANERI conducted research on all types of energy. He explained that supplies of crude oil would be exhausted within 44 years. Biofuels could not supply half of the current demand for crude oil even if every possible inch of ground was planted for this purpose (leaving no room for the cultivation of food). The National Energy Bill therefore did not focus on renewable sources of energy alone.

The Chairperson referred to a workshop that was held in May 2001 at which a number of resolutions were passed on energy matters. He said that none of the decisions taken at the workshop were ever implemented. He asked whether any agency would be able to develop energy policy and implement policy decisions.

Mr Gumede replied that the Bill aimed to produce at least one energy plan for the country per annum. An energy plan needed to take the plans of other Departments into consideration. For example, long term plans for the future development of roads, railways, taxi services and so forth would be affected if there was no crude to fuel vehicles. It was essential that all the Departments worked together.

Mr Greyling was gratified that the constraints in the provision of energy were being faced. He expected to see major changes in energy infrastructure around the world. He referred to a study on alternative energy resources, which was suspended due to a lack of resources. He said that care needed to be taken that all the resources were not tied up in exploring a single alternative, leaving a lack of resources for investing in any other opportunity that might arise. Although it was necessary to consider the long term view, the fact was that coal was unlikely to resolve the energy crisis expected over the next seven years. He asked whether alternatives were considered to address the immediate shortfall in energy.

Mr Gumede replied that three or four studies on alternative sources of energy were considered. The issue of climate change was important as well. Various options were being examined. He expected a disruption in the supply of electricity and liquid fuels over the next three to seven years. He said that energy efficiency was one of the key issues. Eskom had started to approach other producers of energy to tender for the supply of electricity. Other short-term solutions, for example the use of generators, resulted in a shortage of diesel fuel and were costly to the economy. He compared the R2.24 per kW cost of electricity provided by a generator to the 40c per kW supplied by Eskom. Energy efficiency was the key factor.

Regional Electricty Distributors Establishment Draft Bill (RED Bill): briefing by DME
Ms Ria Govender, Corporate Counsel, on secondment from EDI Holdings to the DME, briefed the Committee on the Draft Regional Electricity Distributors Establishment Bill (‘the RED Bill”) (see attached document).

The Bill followed the Cabinet decision on 25 October 2006 to approve the implementation of six Regional Electricity Distributors (REDs) in South Africa. The REDs would be established as public entities and would be regulated in accordance with the Public Finance Management Act (PFMA) and the Electricity Regulation Act. Approval for Eskom to be a shareholder in the REDs was granted. The DME, through EDI Holdings, was responsible for the establishment of the REDs.

The six REDs were to be established in the
Cape Town UniCity, Ekhuruleni Metro, Nelson Mandela Metro, Johannesburg Metro, eThekwini Metro and the Tshwane Metro. The area covered by the six REDs encompassed the entire country.

The approach followed in the drafting of the Bill gave recognition of the current constitutional and legal framework. The Bill was framed as a Bill of principles. The details were to be contained in the Regulations attached to the Bill. The intention was to follow a consultative rather than a mandatory approach.

Details of the content of the draft Bill were provided. Provisions included the general principles governing the implementation of the restructuring of energy suppliers, the declaration of the six RED regions, the incorporation of a new public entity company to own and operate the electricity distribution companies, the ownership control of the REDs, Government’s shareholding in each RED, the objects and powers of the REDs and the governance of the REDs.

The Bill provided for the transfer of Eskom’s electricity undertakings and the voluntary transfer of any municipality’s electricity undertakings to the applicable RED. Provisions included the voluntary appointment of a RED as a service provider of electricity services to a municipality. The REDs would be regulated by the National Energy Regulator of South Africa. The role of EDI Holdings as the implementation agent was included.

The issues to be covered by the Regulations to the Bill were summarized (see attached presentation). An outline of the consultation process to be followed in the drafting of the Bill was included in the presentation.

Mr D Kekana (ANC) asked what benefits were expected to be derived from the establishment of the REDs.

Ms Govender replied that the objectives of restructuring included ensuring efficiency in electricity distribution by improving service levels and the quality of the supply to consumers. She said that the current problems were related to the generation and distribution of electricity. An objective of restructuring was to ensure that there was adequate investment in infrastructure and the maintenance of the distribution network. If this objective was achieved, this would result in improvements in the supply and service provided to consumers. She said that benefits could be expected in the medium to long term and it was necessary to manage the process effectively to reap the benefits.

Ms Mathibela asked for clarity on the areas covered by the REDs.

Ms Govender replied that the six REDs covered all the municipal areas in the country.

The Chairperson remarked that certain municipalities were up in arms over the REDs and were threatening to take the DME to court. He asked how EDI Holdings planned to address the issue of resistance to the establishment of the REDs by municipalities.

Ms Govender replied that the DME compiled an analysis of the applicable legislation and sought advice on the matter. If the reconstruction was done in a mandatory mode, this would be considered unconstitutional and would be challengeable in court. The voluntary mode proceeded with at present would not be challenged as municipalities were not be compelled to join the REDs. However she conceded that voluntary reconstruction had certain drawbacks in that it was unpredictable, could result in lengthy delays in implementation and an increase in costs.

The meeting was adjourned.

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