The Damaging Mining Bill Could Come Out Even Worse

The Mineral and Petroleum Resources Development Amendment Bill of 2013 (the Bill) has been sent back to Parliament for more consultation and possibly extensive change. The current Bill is so damaging to an already struggling mining sector that the industry was widely expected to welcome a rethink. Instead, the Chamber of Mines has expressed dismay at the delay in the Bill's adoption. Though this response seems surprising, the chamber has reason to fear that a new bill may be even worse.

The current Bill was rushed through Parliament in the final weeks before the May 2014 election, raising concerns that a lack of consultation over several last-minute changes might be unconstitutional. After the election, the newly appointed mining minister, Ngoako Ramatlhodi, asked President Jacob Zuma not to sign the Bill into law. It thus remained in limbo until mid-January 2015, when Mr Zuma decided to send it back to Parliament.

The Bill contains a raft of damaging provisions. To begin with, it gives the mining minister a broad discretionary power to ‘designate' any mineral product as needed for local beneficiation. The minister may also prescribe the percentages required for this purpose - and these percentages may be set at any level (from 10%, say, to 70% or more).

Under the Bill, the stipulated percentages must be supplied at ‘mine gate or agreed' prices. Mine gate prices, though not defined in the Bill, would apparently be based on production costs, but not transport ones. These prices are likely to be lower than the export prices many mining companies need to help cover high input costs. Yet it is only after the specified percentages have been locally supplied that mining companies will be allowed to export the remainder of their mineral products.  

It makes little sense for the Bill to seek more local beneficiation when Eskom cannot meet existing electricity demand, especially from big industrial users. In addition, as the National Planning Commission and the Industrial Development Corporation have warned, South Africa lacks the skills, transport logistics, and low input costs needed to compete with manufacturing behemoths in China and elsewhere. Moreover, even if reduced mineral prices were to succeed in boosting manufacturing jobs - which seems unlikely - they are sure to cost mining jobs along the way. 

The Bill also empowers the mining minister to identify various minerals as ‘strategic'. The Bill does not say how many minerals might fall within this category, but the ruling African National Congress (ANC) has previously put out long lists of the ‘strategic' minerals it wants subjected to price and export controls to encourage industrialisation.

No one knows what minerals may be identified as ‘designated' or ‘strategic' at some point in the future. How can mining companies calculate their likely returns on the high costs of starting, expanding, or running mines when the minerals they produce may at any time be made subject to the minister's arbitrary controls?

The Bill also puts great pressure on mining companies to give away 26% of their equity or assets to BEE investors. It does so by redefining the Mineral and Petroleum Resources Development Act (MPRDA) of 2002 to include a controversial code of good practice that was gazetted in 2009 but then put on hold because of the consternation it caused. This code effectively requires that mining shares or assets sold to BEE investors be debt free within two years. Since most BEE investors lack capital and need extensive loans to fund their acquisitions, mining companies might have to forgive most of this debt to satisfy the new requirement. This risk will revive if the current Bill becomes law and automatically brings the code into effect.

Relevant too are the revised penalties for which the Bill provides. Under its terms, mining companies face huge fines (up to 10% of annual turnover) and/or prison terms for directors (up to four years) for breaching new price and export controls. They also face such punishments for failing to promote ‘optimal economic growth' and ‘downstream beneficiation'. The same penalties will also apply for any failure to meet costly ‘social and labour plans', which plummeting mineral prices now make difficult to implement.

The Bill removes the ‘first-in, first-assessed' principle, under which applications for mining rights are generally dealt with in their order of receipt. Under this system, mining rights are generally granted to the first company to apply, provided it meets the relevant conditions. Instead, the Bill empowers the minister to invite applications at such times and on such conditions as he thinks fit. This adds to uncertainty and could encourage more abuses in the awarding of mining rights.

Ever since the MPRDA came into effect in 2004, the mining industry has been seeking the regulatory stability and predictability that international best practice requires. Instead, the current Bill makes for even greater discretionary power and policy uncertainty. Despite this, the Chamber of Mines wants the Bill signed into law, not sent back to the legislature.

Given the content of the Bill, this seems an astonishing response. However, it is not in fact surprising when the mining minister wants changes that could make any new measure more damaging still. Mr Ramatlhodi has said, for instance, that he may want to increase the BEE ownership required to ‘something higher' than 26%, though he has no ‘magic figure' in mind. He has also questioned whether mining companies should be allowed ‘mine gate' prices for their designated minerals, saying the State might ‘want a bit more of a discount' here.

The South African Communist Party (SACP), which has steadily increased its hold over the ANC since Mr Zuma came to power, is also unhappy. It thinks the ANC gave away too much in its negotiations on the Bill and so wants several ‘key' amendments introduced. It says the ANC must ‘push ahead' with these revisions if the ruling party is ‘to be serious about the second radical transformation' the SACP sees as vital to moving South Africa towards a socialist and then communist future.

Some of the daunting challenges the mining industry now faces - reduced Chinese growth and the risk of deflation in Europe - are not of the Government's making. But many are ‘severe' and ‘self-inflicted problems', as the International Monetary Fund has recently put it. The policy environment is entirely within the ANC's control and, unlike the Eskom crisis - which could take a decade to overcome - can easily be fixed.

The mining law needed for investment, employment, and increased prosperity is already well known around the world. So South Africa need not reinvent the wheel. All it need do to put the country on the right policy path is to face down the unelected SACP, abandon its own commitment to the left-leaning and outdated Freedom Charter, and put in place a regulatory framework in keeping with international best practice.

Anthea Jeffery is Head of Policy Research at the IRR. Her most recent book, BEE: Helping or Hurting?, deals with empowerment in mining and elsewhere.

This article first appeared in Business Day.

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