The enforcement of South Africa’s controversial new mining regimen, which makes the state the custodian of mineral rights, depends on the speed with which national Treasury can produce the money Bill on the proposed royalty system.
Parliament this week passed the historic Mineral and Petroleum Resources Development Bill amid fear and loathing in the mining houses and much talk in the ruling African National Congress of giving effect to the Freedom Charter clause that “the mineral wealth beneath the soil, the banks and monopoly industry shall be transferred to the ownership of the people as a whole”.
For the first time in South Africa’s 130-year-old mining history mineral rights are vested with the state, in line with international practice. In return for 30-year non-transferable mining rights, companies pay royalties to the government. Rights can be renewed on application for at least another 30 years.
However, state revenue-related issues are the sole legislative prerogative of the Ministry of Finance, meaning that a Treasury Bill is required to regulate the collection and payment of royalties. Sections dealing with royalties were excised from the original Bill of December 2000 on the recommendation of the state law advisers.
The Department of Mineral and Energy Affairs wants to implement all provisions at the same time, rather than piecemeal. It has beefed up its administration and introduced new computer systems to be ready from word go. But in the worst case, the Bill could be signed into law by President Thabo Mbeki with the royalties provisions suspended until the money Bill is finalised.
The money Bill is due to go before Parliament in the next session, starting at the end of July. MPs are confident it could be processed in two or three months.
Ordinarily all money due to the state is paid into the national revenue fund, but it is most likely that at least a proportion of the royalties will be paid into a fund earmarked for socio-economic development in communities around mining operations and sending labour to mines, and the rehabilitation of ghost towns surrounding defunct mines. The money would be accessed through local government.
Mbeki must decide whether to assent to the legislation without the related money Bill. He must also decide whether to send the Bill to the Constitutional Court ahead of signing it into law, after submitting it to Parliament for reconsideration.
Such a referral is seen as a shrewd move which would give a clean bill of health to a law dogged by controversy and acrimony. It may also help government to counter criticism of “asset grabbing” by G8 countries.
Minister of Mineral and Energy Affairs Phumzile Mlambo-Ngcuka has indicated she would again motivate for referral following calls by the Inkatha Freedom Party and New National Party. It is understood her request to the Cabinet earlier this month was rejected, as two independent legal opinions and the state law advisers maintained the Bill passed constitutional muster.
To remove any remaining questions over the Bill’s constitutionality, the National Council of Provinces adopted a last-minute amendment to tighten its compensation regime. Compensation for any potential expropriation may now be claimed beyond the five-year transition period.
The days leading up to the Bill’s passage through Parliament were marked by heated exchanges. On June 24 the Congress of South African Trade Unions, the Black Business Council and the South African Communist Party threw their weight behind the Bill.
This came after a weekend meeting between the mining houses and several Cabinet ministers failed.
The industry argued that 30-year mining rights undermine security of tenure and will discourage investors; that the government has reneged on last June’s “Mbulwa agreement” that old-order mining rights would automatically be converted under the new regime; and that the awarding of mining and prospecting rights remains too subject to ministerial discretion.
But it appears mining companies are biting the bullet. Despite some concerns over the ability of the department to implement the provisions of the new legislation, their focus has now shifted to implementation.
On June 25 Mlambo-Ngcuka appealed to the mining industry to release all its unused properties as a show of goodwill in support of transformation. In terms of the new law, the mining companies would have a year to decide what to do with these unused properties.
Once the Bill is signed into law, a transitional period kicks in during which old-order rights continue. Companies have five years to apply to the minister to convert their current mining rights, and two years for prospecting rights.
The Bill also sets out “broad-based economic empowerment” to be finalised in a charter dealing with transformation, a social plan and labour plan. Although a statutory charter, it is expected to be similar to the voluntary one signed in November 2000 for the liquid fuels industry.
The industry argues that the empowerment criteria for permits are far too wide-ranging, and have been made more so by Parliament’s minerals committee. The effect, it is argued, will be to restore Mlambo-Ngcuka’s wide discretion to decide whether permits should be issued.
The criteria include the transformation of mine ownership and operations, beneficiation, the socio-economic development of communities near mining areas and those supplying labour, and the provision of education and training opportunities for black communities and their participation in procurement.
On June 26 Mlambo-Ngcuka told the National Council of Provinces the charter would quantify empowerment requirements. She indicated that in existing mining companies the government would like to see a meaningful minority participation of at least a 26%. Companies applying for the new mineral rights would be expected to show significant, if not majority empowerment.
The mining industry and the government are set to meet shortly to finalise the charter following an earlier meeting this month to kick-start discussions.