Business

A social plan for mining

Peter Leon

Mineral Resources Minister Susan Shabangu wants mining companies to promote community participation in their operations.

Calls to mining companies by Mineral Resources Minister Susan Shabangu to provide communities with an effective stake in operations come against a background of community unrest in Limpopo province and elsewhere about the level of compensation offered under mining resettlement programmes.

They raise real questions about whether the Mining Charter and the Mineral and Petroleum Resources Development Act, 2002, constitute a real social contract for mining.

The Mining Charter requires mining companies to transform themselves by providing ‘integrated socioeconomic development for host communities” by cooperating in the formulation of integrated development plans for mining communities ‘with special emphasis on [the] development of infrastructure”.

One of the problems with the charter (now undergoing its five-yearly review) is that in addition to its linguistic vagueness, it imposes no obligation on mining companies to allow communities to benefit directly from mining operations.

A reason for this is that the Mining Charter’s requirement of a 26% equity ownership by 2014 for historically disadvantaged South Africans does not compel mining companies to transfer equity to communities or to workers.

The result is that the Royal Bafokeng nation’s substantial equity interest in Impala Platinum, coupled with its workforce’s direct equity stake in the company, is the exception rather than the norm.

It is also one of the reasons that it has been easier for mining companies to empower the few—as much as the politically well connected—to comply with the charter. Ironically, this has led to recent calls by the National Union of Metalworkers to nationalise the assets of the wealthiest black South Africans on the grounds that democracy was ‘never meant to — co-opt connected politicians to join the exploiters”.

This view is echoed by Moeletsi Mbeki in his book Architects of Poverty. He describes South Africa’s BEE policy as creating ‘a small class of unproductive, but wealthy black crony capitalists made up of ANC politicians — who have become strong allies of the economic oligarchy”.

Where does this leave mining communities?

While the mineral and resources Act requires holders of new and converted mining rights to submit a social and labour plan for approval by the department of mineral resources, the plan’s content and form, as described in regulation 46 to the mineral and resources Act, are vague.

Following the Mining Charter, the regulation requires mining companies to submit a local economic development and a human resource development programme (as well as a downscaling and retrenchment plan).

Although the regulation provides the basic content of such a plan, it does little to describe what each plan should contain. In view of this in 2006 the department of mineral resources attempted to meet this deficiency by publishing a guideline for social and labour plans on its website.

A recent corporate governance study on the South African mining sector by the Unit for Corporate Governance in Africa has found that the guideline itself is ‘frustratingly vague” and that key sections of it provide ‘no guidance whatsoever on — desired outcomes for development”.

In addition, different regional offices of the department of mineral resources approached each social and labour plan differently, while the approval process itself could take up to a year, involving as many as six re-submissions.

An absence of ‘any fixed standard or criteria for evaluation” meant that the approval of a social and labour plan would normally be determined by what had been approved previously.

Most concerning of all, the study found that the social and labour plan process itself was formulaic as much as formalistic: ‘— the SLP [social and labour plan] is treated as a paper exercise to get approval for the mining licence —

From a developmental perspective, the SLP is also seen as rigid and not allowing for changing local circumstances — No cases were recorded where the conditions of an SLP relating to retrenchments were invoked in the aftermath of the 2008 world financial crisis.”

Possibly in response to the underlying weaknesses in the Mineral and Petroleum Resources Act and the Mining Charter, the Mineral and Petroleum Resources Amendment Act was passed last year, though it is not in force, despite receiving presidential assent seven months ago.

This permits the mineral resources minister to impose ‘such conditions as are necessary to promote the rights and interests of the community, including conditions requiring the participation of a community” where an application for a mining right is made over land occupied (not necessarily owned) by a community.

Besides the fact that these provisions allow the minister to impose, by edict, unspecified ‘conditions” on a mining company, which may go well beyond those of an approved social and labour plan, there is no concordance between these ‘conditions” and the equity divestiture requirements of the Mining Charter.

The result is that in future a mining company may well be compelled to provide unspecified equity participation to communities in its mining operations beyond those of the Mining Charter.

While it could be argued that imposing these ‘conditions” is a necessary corollary of empirical experience, there are obvious rule of law, as much as regulatory uncertainty, objections to such
vague discretionary requirements.

In seeking to create an effective social contract, as much as a compact, for mining on land owned or occupied by communities, South Africa could well look at recent legislative developments in West Africa. (In 2007 I advised the Nigerian ministry of solid minerals development on the Minerals and Mining Act, 2007).

In response to Nigeria’s unhappy experience with oil extraction in the Niger Delta, the Minerals and Mining Act requires an applicant for a mining lease to conclude a community development agreement with a host community.

The applicant must provide socioeconomic benefits to the community before it starts mining. If the land is owned by a community, its consent is necessary before mining operations can begin.

Sierra Leone, a state recently racked by civil war, in which the exploitation of its natural resources was a significant factor, recently passed the Mines and Minerals Act, 2009.

Under this law mining companies must similarly enter into community development agreements with affected communities as a requirement of their social licence.

Mining companies must, in addition to their fiscal and royalty obligations, spend a minimum of 0.1% of their annual gross annual revenue on community development initiatives, including education and training, infrastructure development and community services.

The agreement defines the obligations of the host community, as well as the mining company, and is subject to a five-yearly review. It also provides for dispute resolution.

If recent indications about the content of the department of mineral resources’ recently completed but still unpublished Mining Charter review are anything to go by, the South African mining industry may well be in for an unpleasant Christmas surprise.

As a key driver for Mining Charter reform is community dissatisfaction with an absence of charter benefits, the industry’s principal protagonists could do well to look beyond South Africa’s borders at what reformminded African mining jurisdictions are doing to promote community participation.

Peter Leon is partner at Webber Wentzel and chairperson of the International Bar Association Mining Law Committee

Topics In This Section

Comments

blog comments powered by Disqus