South Africa has missed out on investment during the commodities boom, not because the mining sector is too highly regulated but because of regulatory uncertainty.
This is according to mining law expert Peter Leon from Webber Wentzel Bowens. He said the current Mineral Resources and Petroleum Development Act is too vague and gives the department excessive discretionary powers when granting mining rights. Legislation requires that old-order mining rights be converted to new-order mining rights, based on criteria such as social welfare and BEE, but the rate of conversion has lagged, with several companies’ applications denied.
In November last year, the Chamber of Mines chief executive Lazarus Zim told the organisation’s annual general meeting that, despite the commodities boom, South Africa lagged behind other countries in mining investment. Australia, he said, had seen pre-tax mining profits increase by 95%, while South Africa saw an increase of 12%. Real fixed investment in South Africa declined by 16,5%, while Australian capital investment surged by more than 34%.
At the Mining Indaba last week, Minerals and Energy Minister Buyelwa Sonjica said the Act, which governs the industry, would be changed to make it more investor-friendly.
She also told journalists that these changes would not be fundamental. This raises questions as to whether it will stave off disinvestment.
The amendments are already under way and the department hopes to submit them to Parliament in time for them to be enacted this year. “But the more important question,” said Leon, “is what’s going to be in the amendments. This is the first time they’ve admitted there is a problem with the legislation, which is a plus. But it depends to what extent they’re prepared to make changes.”
Leon said the most important issue is the “very high level of discretion” granted to the department.
“The Act’s very deceptive. If you look at it on a superficial level, if you meet criteria one to five, you get a licence. But, taking a deeper look, you won’t, because the minister decides [the level of compliance on BEE and social welfare],” said Leon.
Another problem, according to Leon, is that there is no obligation on the regulator to make a decision within a specified timeframe. “It takes at least a year to grant a mining licence,” he said.
In contrast, several resource-rich African countries make sure companies meet a list of objective criteria, thus removing discretion, and provide for fixed timeframes for decision-making. If the decision is not handed down within this period, it is deemed to have been granted, said Leon.
South Africa’s emphasis on discretion also opens the sector up to corruption. “The department will deny this, but we have had clients where the government has shut down mining operations. They will say they don’t do that, but they do.”
Leon also said the department has tried to force one of his clients to choose a particular empowerment partner.
“We were told that the BEE partner we had chosen was not acceptable to the department. They wanted us to split the allocation 50-50 between this partner and the company they wanted.
“It’s outrageous and it’s unlawful. The big rumour is that department officials have relationships with favoured BEE entrepreneurs. The department will flatly deny it, but in this particular case the company had no track record in mining whatsoever. The mining company existed in name only.”
Representatives from the department of minerals and energy were not available for comment.