It seems that truth and logic are the first casualties of the parliamentary committee hearings on the Minerals and Petroleum Resources Development Bill. It is to be hoped that the Bill will be amended so that investment, jobs and empowerment prospects will not be similarly eroded.
The comments of the South African Mining Development Association are a good example of the dubious arguments invoked to shore up support for the more controversial aspects of the Bill.
The association openly acknowledges the difficulty that small mining companies have in raising finance, even under the existing legislation. Yet it maintains that finance will somehow not pose a problem once the Bill becomes law, even though numerous international investors, bankers and lawyers have clearly explained how key aspects of the Bill will discourage both lending to and investment in the mining industry.
Indeed, the pivotal issue of whether or not the Bill will deter investment has been profoundly distorted. The Chamber of Mines is unaware of any company having threatened to withdraw from South Africa should the Bill be passed in its present form, as some have claimed. What many significant investors have said is that the Bill will discourage new investment, and that those most affected by a less internationally competitive investment regime will be precisely the emerging black empowerment companies that the legislation seeks to assist.
For example, the restrictions on the transfer and encumbrance of prospecting and mining rights will reduce both the value of these rights and their suitability as security. This will further erode the willingness of banks and others to finance new and small companies, which typically have few or no other assets to offer as security for loans.
The Bill also requires an applicant for prospecting or mining rights to have access to sufficient financial resources to operate “optimally”. This will clearly work to the disadvantage of smaller companies with very limited financial resources, as will the uncertain and potentially open-ended obligations of the proposed “social plans” with which all rights holders must comply.
Though a broad cross-section of stakeholders has expressed concerns about the Bill’s shortcomings, various emerging entrepreneurs seem to believe that public endorsement of the Bill in its present form will facilitate their access to valuable mineral reserves once it becomes law.
Such public posturing is in itself an ominous indication of expectations as to how the discretionary powers envisaged in the Bill will be exercised. Unfortunately, the Bill’s failure to require the minister and her officials to exercise their discretion in accordance with clear, objective and verifiable criteria only serves to increase investor anxiety.
For example, the Bill offers no guidance as to how the minister and her officials will decide whether the grant of a mining permit will further the Bill’s objectives, or whether a company is mining “optimally”. In both cases, the decision will critically affect a company’s right to mine.
If we genuinely wish to increase fixed investment in the mining sector, these and other legitimate investor anxieties cannot simply be dismissed. Nor can we afford to take the line that we will not be held hostage by “mere” investors. Such a dismissive approach has no place in a serious debate about draft legislation that, if suitably amended, could have far-reaching and enduring benefits for our national economy and the quality of so many peoples’ lives.
Rhetoric does not create either wealth or jobs, but sound administrative law can help to create the conditions for both. The mining industry wants good law and successful black economic empowerment policies: they go hand in hand. Bad law frightens investors and undermines good intentions.
Most investors, local and foreign, recognise that a mining law must address popular aspirations and provide economic development opportunities. Indeed, social inclusion is internationally recognised as a legitimate and desirable legislative goal. To the best of our knowledge, no one has objected to the social objectives of the Bill.
What we (and many others) have objected to are those provisions that will undermine the Bill’s objectives and deter new investment in the mining industry, particularly since there are numerous other, tried- and-tested forms of minerals licensing and procurement that allow transparent, objective criteria for disadvantaged groups without unnerving foreign investors.
Major investments with their huge job-creation potential can only come from large, internationally oriented mining companies. Such companies have many international opportunities open to them, and are discouraged by legal uncertainty and any hint that security of mining title depends upon government discretion that cannot be safely predicted.
Fairness, certainty and objectivity are also the essence of international investment treaties. Various eminent lawyers have clearly indicated that key provisions of the Bill would be in breach of our obligations under several such treaties. No matter how justified we may believe it would be to disregard these obligations, if we want the foreign investment that is so crucial to the realisation of our dreams and ambitions we must be prepared to find a way to honour our commitments.
There is little point in creating empowerment opportunities if, in the process, we drive away the very investors who are so badly needed to finance them. Even the South African Mining Development Association recognises this when it concedes that “access to mineral rights alone will not necessarily lead to empowerment”.
Gay Khaile is the deputy communications adviser of the Chamber of Mines of South Africa