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Presentation on the MPRDA Amendment Bill to the Portfolio Committee on Mineral Resources

Presentation on the MPRDA Amendment Bill to the Portfolio Committee on Mineral Resources. By the Chamber of Mines of South Africa, 13 September 2013, Parliament, Cape Town. Presentation Outline. Introductory comments Economic landscape Beneficiation/Exports Applications

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Presentation on the MPRDA Amendment Bill to the Portfolio Committee on Mineral Resources

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  1. Presentation on the MPRDA Amendment Bill to the Portfolio Committee on Mineral Resources By the Chamber of Mines of South Africa, 13 September 2013, Parliament, Cape Town

  2. Presentation Outline • Introductory comments • Economic landscape • Beneficiation/Exports • Applications • Transfers and Amendments • Environmental and Water issues • Dumps • Petroleum • Sanctions • Conclusion

  3. 1. Introductory comments • The Chamber of Mines is a private sector employers organisation that represents 90% of the RSA mining industry by sales value. • The Chamber has been substantively involved in discussions on minerals policy and legislation with the ANC since 1992. • In the past week the Chamber has been involved in a substantive discussion with the DMR on the MPRDA Amendment Bill. • Changes to the MPRDA are long overdue.

  4. 1 The Chamber seeks • Predictable, stable and competitive mining legislation and regulation that promotesinvestment, growth, development and transformation. • Amendments to the MPRDA that are constitutionally compliant, provide appropriate guidance to regulatory discretion and that achieve the abovementioned objectives. • The encouragement of greater beneficiation by adopting pragmatic and realistic laws that improve the competitiveness of the downstream manufacturers as per global best practice. • The alignment and streamlining of environmental regulation to realise “smart green tape”

  5. 1. Growing investment in the RSA mining sector NDP Mineral resource development Mineral resource investment Conducive Regulatory system Security of Tenure Conducive Fiscal System

  6. 1. Positives in the MPRDA Amendment Bill (BUT STILL ISSUES): (BUT WORDING ISSUES) (BUT WRONG METHODOLOGY) • - CLOSURE • FINANCIAL • - PROVISION • - WATER USE • - RESIDUES • - INTERNAL APPEALS

  7. Presentation Outline • Introductory comments • Economic landscape • Beneficiation/Exports • Applications • Transfers and Amendments • Environmental and Water issues • Dumps • Petroleum • Sanctions • Conclusion

  8. 2. Mining is the key “Flywheel” of the RSA Economy • Creates 1.35 million jobs (520 000 direct & 830 000 indirect). • Accounts for about 19% of GDP (9% direct, 10% indirect & induced). • Critical earner of foreign exchange >50%. • Accounts for 20% of private investment (12% of total investment). • Attracts significant foreign savings (24% of value of JSE end 2012). • 2012, R20 billion & R5.6 billion in royalties. • R488 billion in expenditures, >80% spent locally. • R94 billion spent in wages and salaries • 50% of volume of Transnet’s rail and ports • 94% of electricity generation via coal power plants • 15% of electricity demand • About 37% of country’s of liquid fuels via coal • R4 billion spent on skills development • R2 billion spent on community investment

  9. 2. But RSA mining has not met its potential • RSA mining missed out on the last commodity boom with a -1% p.a. Decline in real mining GDP between 2001 and 2008, versus 5% growth rate in top 20 mining economies mining sectors. • The prices for gold and platinum have plunged in early 2013. • Costs have continued to rise too quickly (electricity prices have trebled in the past 5 years). • 50% of gold & platinum mines are loss-making at current prices. • The industry was hit by a wave of unprotected strikes last year and by the unfortunate Marikana tragedy. • The industry has faced infrastructure constraints (shortages of electricity, rail and water). • The industry has faced bouts of policy uncertainty (the nationalisation discussion, the review of mining taxation, the possible introduction of a carbon tax, etc.)

  10. 2. RSA mining sector has shrunk in real GDP terms in the past 8 years Source: Statistics South Africa

  11. Presentation Outline • Introductory comments • Economic landscape • Beneficiation/Exports • Applications • Transfers and Amendments • Environmental and Water issues • Dumps • Petroleum • Sanctions • Conclusion

  12. 3. Beneficiation proposals in the Bill • Proposals in Bill • the Minister be empowered to: • determine levels of beneficiation, designated minerals, pricing methodology, and percentages and developmental pricing conditions for supply for local beneficiation; • make regulations regarding guidelines for determination of national development imperatives in relation to local beneficiation as contemplated in s26; • producers be obliged to offer Ministerially determined percentages at Ministerially determined developmental pricing conditions, for local beneficiation; • export of designated minerals to require Ministerial consent subject to conditions determined by the Minister.

  13. 3. Chamber of Mines Position on Beneficiation • The Chamber fully supports the ANC policy resolution of promoting greater beneficiation in South Africa. • There is already significant upstream and downstream beneficiation taking place. • The Chamber’s members are already supplying R95 billion in sales of primary minerals to domestic beneficiators (steel, stainless steel, automotive, catalytic converters, chemicals, plastics, fertilisers, cement, construction, electricity, roads, pharmaceuticals, etc.) • The Chamber also reiterates the critical need to create a conducive environment for attracting investment into the key mining sector as captured in the MIGDETT Growth Strategy, the Deputy President’s Mining Dialogue process and as per the objectives of the NDP.

  14. 3. Chamber of Mines Position on Beneficiation • The Chamber does not believe that the proposed section 26 MPRDA amendment’s will address the fundamental issues affecting the competitiveness (and hence growth) of the downstream beneficiation/manufacturing sector. • While the Chamber understands the concept of encouraging security of supply of minerals in the domestic market for domestic economic activities, the Chamber does not support the concept of mining companies being compelled to subsidise the downstream manufacturing sector. • The mining sector cannot carry both “market risk” and potential “government pricing interference risk” in terms of the developmental pricing proposal. The Chamber believes this will significantly undermine funding for mining projects and transformation, and is likely to curtail investment in the mining sector to the detriment of the country. • The diamond example where the Diamonds Amendment Act required local mining companies to sell locally did not address the fundamental competitiveness issues facing the diamond cutting industry.

  15. 3. Chamber of Mines Position on Beneficiation • There are concerns that the discretion conferred on the Minister is unfettered (not yet guided by regulation – what will this regulation look like?) • There are Constitutional concerns with s26 amendment: • the requirement that a producer sell at less than it could obtain on the open market would constitute an expropriation in terms of s25 of the Constitution • a regulation promulgated in terms of the proposed s26 which requires a producer to sell its raw production to a local beneficiator at less than the price which the producer could obtain on the open market would for purposes of s25 of the Constitution constitute not only a deprivation of property but also an expropriation of that property by way of a compulsory diversion of income earned by a producer to a local beneficiators • the reference to consents to export being subject to conditions determined by the Minister gives no guidelines as to what such conditions should be and hence contravenes the rule of law requirement in s1(c) of the Constitution

  16. 3. Chamber of Mines Position on Beneficiation • There are trade agreement concerns with s26 amendment • implementation and enforcement of the proposals would constitute a breach of South Africa’s international trade obligations in terms of the General Agreement on Tariffs and Trade, 1994 of the World Trade Organisation (“WTO”) of which South Africa is a member; of the WTO Agreement on Subsidies and Countervailing Measures; of the WTO Agreement on Trade-related Measures; of the Agreement on Trade, Development and co-operation entered into in 1999 between South Africa and the European Community; and of the Southern African Development Community Trade Protocol, 1996 to which South Africa is a party; thus also rendering the delegated legislation and the powers exercised in terms of s26 unreasonable and therefore invalid, meaning that any power exercised by the Minister pursuant to the proposals would be subject to challenge in the South African Courts for inconsistency with South Africa’s international trade law obligations; all of which should deter Parliament from passing the proposed amendments to s26; • There are bilateral investment treaty related concerns with s26

  17. 3. Chamber of Mines Position on Beneficiation • Proposed solutions: • The section 26 amendment should be changed to promote security of supply but not include developmental pricing. • The mining industry, manufacturing industry and government need to work together to create the appropriate enabling environment for growing both upstream and downstream beneficiation. This includes the adoption of industrial policy measures such as Special Economic Zones (duty and VAT free, special tax rates and incentives, access to key markets, big expansion of R&D, huge effort on skills development, establishment of a DFI sponsored “material funding scheme” to provide funding to the inventory pipeline at very competitive financing rates, etc.) • The country needs 120 million tonnes of new coal supply in the next decade requiring R100 billion in capital investment. A substantive collaborative approach between government and the mining industry that unblocks infrastructure constraints and provides an enabling framework for investment is the key to ensuring energy security in the medium and long term. • A substantial discussion on beneficiation is taking place between the Chamber of Mines and the DMR.

  18. Presentation Outline • Introductory comments • Economic landscape • Beneficiation/Exports • Applications • Transfers and Amendments • Environmental and Water issues • Dumps • Petroleum • Sanctions • Conclusion

  19. 4. Applications 4.1 Invitations for applications: s9 • Proposals in Bill •  Ministerial invitation system # voluntary application system • decisions on comparative merit # first come, first served • Terms and conditions determined by Minister • Issues • existing system provides for access (in applications) and optimality (in grants): problems are administrative rather than legislative • new system gives scope for subjectivity and irregularity • unfettered discretion regarding terms and conditions: legislation by regulation • will freeze the system due to appeals and reviews by unsuccessful applicants • Chamber’s suggestions • proposals not proceed, or • have both systems, i.e. • voluntary applications based on first come, first served • Ministerial invitations based on comparative merit

  20. 4. Applications (cont) 4.2 Refusals based on concentration of rights: s23(3)(b) • Proposals in Bill • refusals of prospecting rights, retention permits and mining rights based on number of rights held • Issues • number of rights is not relevant • does not promote national development plan (which requires experienced companies) • offends against continuity of tenure when applied to mining rights : expropriation • Chamber’s proposals • delete all references to concentration of rights, or • provide exemptions for continuity of tenure for existing rights

  21. Presentation Outline • Introductory comments • Economic landscape • Beneficiation/Exports • Applications • Transfers and Amendments • Environmental and Water issues • Dumps • Petroleum • Sanctions • Conclusion

  22. 5. Transfers and Amendments 5.1 Transfers of Parts: s11(2A) • Proposals in Bill • transfers of parts of rights occur by way of new applications • Issues • an application and a transfer are different • cumbersome and impractical • new applicant does not take over existing obligations (step into shoes) • Chamber’s suggestions • procedure should involve splitting of right (s102) and then transfer of the split part (Mining Titles Registration Act, 1967)

  23. 5. Transfers and Amendments(cont) 5.2 Extended Areas: s102(2) • Proposals in Bill • Prohibit extended areas greater than existing area • Issues • Unlimited extended areas are necessary for • Consolidations • Geological and mining engineering purposes • Partial transfers • Chamber’s suggestions • Delete proposed s102(2)

  24. 5. Transfers and Amendments(cont) 5.3 Transfers of interests/controlling interests in holders of rights: s11(1) • Proposals in Bill • Ministerial consent required for transfer of: • any interest in unlisted company • controlling interest in listed company • Ministerial consent can be granted subject to terms and conditions • Issues • consent for transfer of any interest in unlisted company is unduly restrictive and will cause undue delays • consent for transfer of controlling interest in listed company is contrary to every day trading on stock exchanges • Discretionary terms and conditions detract from certainty • Chamber’s suggestions • proposals not proceed, or • consent to transfer of controlling interest in listed companies be required only if the transaction is an “affected transaction” in terms of the Companies Act (s117)

  25. Presentation Outline • Introductory comments • Economic landscape • Beneficiation/Exports • Applications • Transfers and Amendments • Environmental and Water issues • Dumps • Petroleum • Sanctions • Conclusion

  26. 6. Inputs on Environmental Matters in the MPRDA Bill Alignment of the Environmental Function • Integrated licensing system • Environmental matters for mining and related activities are regulated in terms of NEMA. • Minister of Mineral Resources being the competent authority to regulate environmental matters in the mining industry, in terms of NEMA . • Synchronization of timeframes for processing an issuance of permits in terms of NEMA, MPRDA and other SEMA’s i.e NWA-water use licenses. • Amendments of NEMA, MPRDA AND NWA to effect the above

  27. 6. Inputs on Environmental Matters in the MPRDA Bill • Alignment and Transitional Arrangements -No alignment between the proposed coming into operation of the MPRDA Amendment Bill, 2013 and the NEMLA Bill, 2013 one enacted. (clause 15 of the NEMLA Bill, 2013 comes into operation by presidential proclamation and does not tie in with clause 80 of the MPRDA Amendment Bill, 2013 which provides that it will come into operation on separate presidential proclamation.) Recommendation The commencement dates of the MPRDA Amendment Bill, 2013 and the NEMLA Bill, 2013 be aligned by clause 15 of the NEMLA Bill, 2013 being amended to provide that the NEMLA Bill, 2013 (once enacted) will come into operation on the date of coming into operation of the MPRDA Amendment Bill, 2013 (once enacted) in terms of s80 thereof. • Continued liability notwithstanding issue of a closure certificate (Clause 30(a) and s43(1)) -The removal of the exonerating effect of a closure certificate for pre-closure obligations defeats the objective and certainty provided for by closure certificates. Recommendation clause 30(a) be deleted in favour of retention of the existing wording of s43(1) whereby a closure certificate exonerates the holder from pre-closure responsibility although not from post-closure responsibility.

  28. 6. Inputs on Environmental Matters in the MPRDA Bill (cont.) • Retention of financial provision for 20 years after issuing of closure certificate (Clause 30(e) and s43(6)) -The existing wording of s43(6) already empowers the Minister to retain any portion of the financial provision for latent and/or residual environmental impact, hence this amendments are not necessary. Recommendation retention of the provision in s43(6) in terms whereof the Minister is entitled to have regard to the facts in determining the period and quantum of retention. 4. Obligation to apply for a water use licence, and Requirement that the applicant has the ability to comply with the relevant provisions of the National Water Act, 1998. -to insert a granting criterion for applications for prospecting rights, mining rights, and similar rights, that the applicant has the ability to comply with the relevant provisions of the NWA, would suggest that the DMR has mandate on the implementation of NWA. Recommendation There is already provision in s5(3)(d) of the MPRDA for water uses relating to prospecting, mining, exploration or production to be subject to the NWA, so the proposed amendments are not necessary.

  29. Presentation Outline • Introductory comments • Economic landscape • Beneficiation/Exports • Applications • Transfers and Amendments • Environmental and Water issues • Dumps • Petroleum • Sanctions • Conclusion

  30. 7. Dumps Definitions of residue stockpile and residue deposit in s1, and s42a • Proposals in Bill • to include historic residues • to provide continuance of existing rights to historic residues for two years and conversion to reclamation permits of short duration and non-transferable • Issues • expropriation of private property : compensation payable by the State (s25 Constitution, 1996) • historic residues on mining areas are part of operating mines • reclamation permits not suitable : duration too short, non-transferrable • historic residues already subject to statutory obligations (environmental, health & safety) • Chamber’s submissions • recognition of private property : proposals not proceed, or • possible solution: • historic residues on mining areas to be regarded as part of the residue stockpiles produced in terms of the mining right • rights to historic residues not on mining areas continue for two years during which owner has right to convert to a mining right • rights to historic residues not on a mining area and in regard to which no conversion is lodged cease to exist and such historic residues then to be regarded as residue deposits free for application and for grant

  31. Presentation Outline • Introductory comments • Economic landscape • Beneficiation/Exports • Applications • Transfers and Amendments • Environmental and Water issues • Dumps • Petroleum • Sanctions • Conclusion

  32. 8. Petroleum Definition of free carried interest in s1, and ss80(7) and 84(6) and (7) • Proposals in Bill • State free carried interest in exploration and production rights • State option to acquire additional interest in exploration and production rights • Issues • disincentive to investment • too vague: no stipulated percentages • Offends against continuity of tenure from existing rights : expropriation • carried interest should not be free but rather should be contributory • Chamber’s submissions • proposals should not proceed, or • no free carried interest, i.e. contributory carried interest • no further option • percentage interests to be stipulated in Bill • exemptions for existing rights

  33. Presentation Outline • Introductory comments • Economic landscape • Beneficiation/Exports • Applications • Transfers and Amendments • Environmental and Water issues • Dumps • Petroleum • Sanctions • Conclusion

  34. 9. Sanctions 9.1 Notice of intended cancellation: s47(2)(c) • Proposals in Bill • no representations on alleged contravention • Issues • unconstitutional administrative procedure • Chamber’s suggestions • proposal not proceed

  35. 9. Sanctions (cont) 9.2 Compulsory suspension orders: s93 • Proposal in Bill • Rectification order must be coupled with suspension order • Issues • contravention may not warrant suspension • suspension should be of relevant part of operation • Chamber’s suggestions • Suspension orders should be permissive not compulsory (“may” not “must”) • Suspension orders should relate only to affected part of operation

  36. 9. Sanctions (cont) 9.3 Penalties on turnover: ss 99(1) and (1A) • Proposal in Bill • penalties on turnover and exports • stipulated penalties where turnover not ascertainable • Issues • harsh and unconstitutional • unequal as between percentages and fixed penalties • no indication of factors • Chamber’s suggestions • Proposals not to proceed, or • Fixed penalties apply only to reconnaissance, technical co-operation, prospecting and exploration • Factors to be stipulated (see s59(3) of Competition Act)

  37. 9. Sanctions (cont) 9.4 Administrative Fines: s99(1B) • Proposals in Bill • new system of administrative fines • Issues • unsuitable for MPRDA #Mine Health and Safety Act, 1996 • no provision for notice, representations • double jeopardy of both fine and prosecution • Chamber’s suggestions • proposals not proceed, or • embody administrative law requirements (as in ss55A and 55B, MHSA) • either fine or prosecution, not both

  38. Presentation Outline • Introductory comments • Economic landscape • Beneficiation/Exports • Applications • Transfers and Amendments • Environmental and Water issues • Dumps • Petroleum • Sanctions • Conclusion

  39. Conclusion • We have to get mining back onto a growth track to help the country achieve higher economic growth. • The mining sector requires a stable, predictable and competitive regulatory framework to enable the sector to achieve its growth and transformation objectives as embodied in the NDP. • Amendments to the MPRDA are a necessary step to achieve this goal. • The Chamber is supportive of some of the proposed amendments, but requests that the Committee takes into account areas where the Chamber has concerns.

  40. Conclusion • The Chamber of Mines: “Putting South Africa First” Mining matters for the growth, development and transformation of South Africa

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