The government’s draft Mineral Development Bill extols widely admired principles, but critics argue it is built on very shaky, probably unconstitutional law
David Le Page and Mungo Soggot
South Africa’s new mineral rights legislation is being subjected to a fresh wave of intense criticism from foreign and local mining houses bridling at the draft Bill’s handling of fundamental legal principles.
The Canadian mining industry and the South African Chamber of Mines are extremely concerned that the Mineral Development Bill will undermine the fundamental certainty sought by investors that they will be able to securely hold on to their mining rights.
Minister of Mineral and Energy Affairs Phumzile Mlambo-Ngcuka, heading for a major Canadian mining conference in Toronto, is expected to encounter discreet but emphatic opinions on the controversial legislation over the next week.
The draft Bill, which was put out for public comment last December, proposes putting all mineral rights in the hands of the state, a common practice worldwide. However, the Bill goes further than other countries in effectively stripping mining companies of the right to hold on to their existing operations. It also affords the minister wide discretionary powers when it comes to awarding and taking away prospecting and mining licences.
The Bill, in its present form, is considered by many mining houses to be potentially disastrous for the industry, which currently accounts for about 30% of the value of the Johannesburg Stock Exchange. In its current form, they argue, it will certainly discourage investment by foreign mining companies, and could even spur the exodus of South African mining houses.
The Chamber of Mines has strongly suggested that the government has not lived up to pledges to the industry to take account of its criticisms and fears in drawing up the current draft Mineral Development Bill.
The chamber’s submission to the government on the Bill, posted last week on the Internet, stops just short of accusing Cabinet ministers and the president of not honouring assurances made to mining industry leaders during top-level discussions at the end of 2000.
It says: “In recent discussions with the president of South Africa and a committee of some members of the Cabinet, the chamber and its members were assured that the state’s intention is not to destabilise the mining industry. However, Chapter 7 of the draft Bill does not reflect that sentiment.”
The Department of Mineral and Energy Affairs and Mlambo-Ngcuka have said repeatedly that they are “committed to engaging all the stakeholders and to listen and pay attention to the concerns that the different constituencies have”. But many argue that the government has already failed to live up to this pledge (see “The pros and cons”, below).
All parties agree on the stated ends of the Bill transferring custodianship of mineral rights to the state and eliminating the huge historic inequities of the industry. But many are unsettled by the means the state proposes for achieving these goals.
Under the draft Bill just about everything is open to ministerial discretion from getting a prospecting or mining right, to holding on to those rights. The minister can stop a company from beginning mining if he or she does not like its plans. The minister must favour the previously disadvantaged and can be intimately involved in the mining plans. The minister can also ask the company for royalties along the way.
Under the new Bill, all mining operations would have to reapply for their right to mine and essentially justify their existence within five years.
The minister could then decide to give these operations the right to mine only if they work with a black-empowerment partner of the minister’s choice. Administrative logjams would probably leave most operations free to carry on as before. But the potential for uncertainty and for companies to be exposed to unpredictable bureaucratic whim remains.
The mining houses have made much of the fact that the Bill does not propose ways of appealing against ministerial decisions. Naturally, such decisions could be challenged in the courts. But the draft Bill provides scant objective criteria to help a company challenge a ministerial decision and show the minister has not applied his or her mind in terms of the law.
Lawyers say the draft Bill is the most interventionist piece of legislation proposed by the government since 1994.
“This is a case of regulation gone too far,” says one lawyer. It has been described by some observers as a blueprint for black middle-class patronage it opens the door for the handing out of lucrative opportunities to any black business consortium the government favours.
The industry has three more weeks to table all its objections to the Bill ahead of a March 31 deadline. After that, the timetable becomes less clear. Talk is that the Department of Mineral and Energy Affairs wants the legislation wrapped up by the end of this year, but there are some in the industry who fear the new law will be pushed through even more swiftly.
The Chamber of Mines says the Bill in its current form is unconstitutional in that it effectively advocates expropriation the taking away of property from its owner without compensation.
Even the Bill’s more sympathetic critics in legal circles say that the draft is so vague about what constitutes a mineral right that it does indeed expose itself to the charge of advocating expropriation without compensation.
The drafters show no sign of having wrestled with the concept of what kind of property rights it is dealing with a crucial omission, which leaves the Bill wide open to constitutional attack where property rights are concerned.
All of which means that the Bill’s widely desired goals, which are in line with the Constitution the freeing up of unused mineral rights and the addressing of the historical inequities that characterise South African mining could be dashed because the Bill is so vulnerable to legal attack. The argument is that the Bill is so flawed it could defeat the ends of its designers.
Questions have been raised about the competence and experience of the Bill’s drafting team, which has been headed by Jacinto Rocha, the department’s director of mining rights. A department representative says Rocha is a geologist with legal qualifications.
The mining houses have been relatively diplomatic so far in the way they have expressed their criticism. But a bulky memorandum submitted last week by the Chamber of Mines to the government, and posted on the Internet, signals they are now stepping up the pressure.
The government’s strategy in defending the Bill has provoked surprise. Last week the Ministry of Mineral and Energy Affairs released advertisements in newspapers to coincide with the chamber’s memorandum. The advertisements sought to allay fears that the government was embarking on a campaign of expropriation and threatening mining houses’ security of tenure. The advertisements were purchased well before the government saw the chamber’s criticisms.
The chamber’s memorandum contains a general attack on the Bill, its effect on investment and its unconstitutionality, as well as a painstakingly thorough analysis of every clause.
The chamber focuses on the following areas:
l Expropriation
Many consider the Bill’s current proposals to be for expropriation without payment of compensation. It automatically ends all “old order rights”, automatically deregisters all title deeds to old order mineral rights and requires the erstwhile holders of those rights to motivate why they should be regranted to them.
The government argues that rather than transferring mineral rights to the state, the Bill extinguishes all mineral rights, including those currently held by the state. But the Bill does not just transfer mineral rights to the state. It also gives the government the right to decide how mines should operate and what royalties it should receive.
Rather than providing continuity for existing rights holder, especially those running mining operations, the Bill requires that all make new applications for the rights they have previously held, justifying why those rights should not be given to another party.
Critics argue that the Bill should rather automatically convert current prospecting and mining rights to rights under the new regime.
l Discretions
An area that receives particular criticism from the chamber and other parties is the quality and transparency of administration for which it provides.
In many areas of the Bill, decisions on the granting or suspension of mining and prospecting rights depend on ministerial discretion, while few specific or objective criteria are provided for the exercise of such discretions. The draft Bill often refers to undefined criteria, such as “suitable person”, “the national interest”, “in his or her opinion”. The vagueness of such terms, it is argued, makes it difficult to predict with any certainty how the minister is likely to make decisions. This in turn makes it extremely difficult to make investment decisions.
A further concern in legal circles is that clause 62 of the Bill even allows the minister to exempt applicants from any of the usual conditions needed for a successful application for a prospecting or mining right.
l Duration of mining rights
The Bill does not specify how the duration of mining rights should be decided. The only certainty is that rights will not be granted for longer than 25 years. As difficult to predict are the duration of prospecting rights, for which no minimum period is specified.
The chamber also argues that much of the Bill runs foul of accepted international principles for transparent public administration. The government responds that other laws, such as the Promotion of Administrative Justice Act, guarantee transparency. But even with transparency, the draft Bill in many areas provides scant benchmarks for assessing discretionary decisions. The Bill does not explicitly provide for a right of judicial appeal.
In addition to the general provisions for mineral rights, two resource sectors receive special treatment in the Bill diamonds and oil. The Bill proposes a substantial shake-up of the regulation of the diamond sector. More importantly it proposes retaining an export duty on diamonds, which has long been criticised by De Beers.
The Bill goes even further than current legislation by allowing the government to impose an export duty even when the diamond company concerned has offered the stones to a local diamond cutting company. Diamonds are already the only mineral export to incur an export duty.
In the oil and gas sector, the Bill proposes setting up a petroleum agency under the Central Energy Fund that would have wide powers to vet, stop or intervene in the exploration and development of oil and gas reserves.