The revised Mining Charter, released by the department of mineral resources (DMR) on the eve of the ANC’s late September national general council meeting in Durban, claims that the mining industry has failed to meet the ownership, procurement, employment equity and related transformation targets of the 2002 Mining Charter.
But a close reading of the revised charter indicates that the relationship between its content and the urgent proposal by the ANC Youth League for the industry’s nationalisation is not unrelated. Unlike its eight-year-old predecessor, the revised charter is not a tripartite compact between the government, labour and business, imposing obligations on all three, but a somewhat topdown policy prescript which places obligations on the mining industry alone.
Borrowing selectively from the department of trade and industry’s broad-based black economic empowerment (BBBEE) codes of good practice, without their flexibility, the revised charter partly introduces a BEE percentage rating scorecard, while maintaining an absolute yes/no approach to the question of industry ownership and housing-and-living conditions standards. Under the scorecard, a mining company must achieve at least 50% to achieve compliance, while ring-fencing the ownership and housing-and-living conditions standards (for which full compliance is mandatory).
Non-compliance with the charter, which requires annual reporting, will, for the first time, potentially subject a mining company to the suspension or cancellation of its operating licence, thus raising security of tenure issues. Much of the philosophy of the revised charter appears based on the department’s October 2009 Mining Charter impact assessment report , which is highly critical of the transformation of the South African mining industry. Although the report, which was only recently made public, provides no sources for its findings, which if correct, are alarming.
In the five years since the original charter took effect, functional literacy among workers in the industry is reported at an average of 17.1% , just over a third of mining companies had filed employment equity plans, while only a quarter of companies had achieved 40% black management. On housing-and-living conditions standards, 29% of mining companies had improved existing housing standards, 34% had facilitated access to home ownership, 37% procured goods and services from black suppliers, and 37% had provided audited reports to the department on charter compliance.
Black ownership of the mining industry amounted to 9% (against a 2009 target of 15% ), but this was “tied into loan agreements” with a “negative” net value, an absence of effective board representation and no real empowerment at holding-company level. In addition, as a result of the global financial crisis, most empowerment transactions were under water. The report accordingly recommended that the charter be reviewed and strengthened to overcome its “identified shortcomings”.
The revised charter thus hardens substantially the targets of its predecessor in relation to employment equity, procurement, housing standards and human resource development. As the original charter’s targets were essentially aspirant, one would have thought that more consideration might have been given to its successor’s legal status. Although the revised charter proclaims its genesis as Section 100(2) (a) of the Mineral and Petroleum Resources Development Act 2002, this section makes no provision for either the amendment or the revision of the original charter, leaving its successor vulnerable to charges of ultra vires.
The revised charter also introduces a new and seemingly unconstitutional requirement of demographic representation for historically disadvantaged South Africans (HDSAs), creating compulsory racial preferences among HDSAs, thus preferring Africans to coloured and Indian persons for all empowerment purposes. There is no warrant for such a preference either in Section 9(2) of the Constitution or Section 1 of the Broad-based Black Economic Empowerment Act 2003, which defines “black people” as “a generic term which means Africans, coloureds and Indians”.
Likewise, the generic codes of good practice (“the generic codes”) make no attempt to differentiate among HDSAs on the grounds of race. The real intent of this provision may well have been to limit significantly the enjoyment by white women of their eff ective HDSA treatment under the original charter. While this may be understandable, the racial preferences introduced by the revised charter seem to suggest that there were identifiable degrees of racial discrimination among different disadvantaged groups in the pre-democracy era.
The Constitution admits no such categorisation — Section 9 requires simply that remedial measures are taken to “protect or advance persons — disadvantaged by unfair discrimination”. While the charter maintains the 2009 (15%) and 2014 (26%) ownership requirements of the original charter, it introduces new and seemingly contradictory requirements in relation to “effective ownership” and “meaningful economic participation”. While the former requires meaningful HDSA participation in the ownership of mining entities, it seemingly excludes community trusts and employee share ownership programmes (ESOPs) from its remit by contradictorily requiring HDSA management control (when both structures are predicated on passive ownership).
At the same time, the requirement of “meaningful economic participation”, based on the “net value” principle in the generic codes, requires that there are identifiable BEE beneficiaries in the form of ESOPs and communities which, on the face of it, is incompatible with the revised charter concept of effective ownership requiring management control. While the charter aims to promote BBBEE in the mining sector, by requiring HDSA management control for the purposes of “effective ownership”, it seems to exclude nonoperational BEE partners, while paradoxically requiring them for the purposes of ‘meaningful economic participation”.
At the same time, the charter requires that BEE benefi ciaries are now, barring unfavourable market conditions, to enjoy some form of cash flow (or trickle dividend) throughout the term of the BEE transaction. As a means of encouraging downstream industry and employment creation, the revised charter allows mining companies to offset their HDSA ownership requirements against the value of their beneficiation activities. While this off set may not exceed 11% of a mining company’s 26% HDSA ownership requirement, it effectively means that 46% of this requirement may be offset in this way.
Although the charter preceded the department of economic development’s new growth path (NGP) by some two months, the latter is significantly at variance with the former. The NGP excoriates narrow-based BEE, as much as the current ownership-based BEE model imposed “significant costs on the economy without supporting employment creation or growth”. It likewise criticises the current BEE framework’s “disproportionate emphasis” on ownership and senior management, which failed to incentivise employment creation, small enterprise development and investment in new productive capacity.
Unlike the original charter, the revised charter requires mining companies to achieve key non-equity transformation targets by March 2014. The revised charter also sets annual targets in respect of most of its elements. On procurement, the charter requires that 40% of a mining company’s capital goods must be purchased from BEE entities (defined as 25.1% directly owned by HDSAs on the undefi ned “flow through” principle), while 70% of all such company’s services and 50% of its consumable goods must be procured from such entities by 2014.
In relation to employment equity, the charter now requires that mining companies must have 40% HDSA ‘demographic representation” at board, senior, middle and junior management by March 2014. The same requirement also applies to a company’s “core skills”. Leaving aside the constitutionality of this requirement, quite how it is to be achieved, given South Africa’s endemic skills shortages, in the next three years is not a question which the charter attempts to answer.
While the revised charter can be viewed as a conscious reaction by the DMR to the report’s findings, the document itself is characterised by a somewhat topdown approach to the mining industry’s transformation. Other than beneficiation, no incentives are off ered to the industry, while, unlike the original charter, no obligations are placed on either the government or labour to transform the industry in the broadest sense. Hopefully the department’s 2011 review of the Mineral and Petroleum Resources Development Act 2002 will provide an opportunity to correct that balance.
Peter Leon is a partner at Webber Wentzel and chairperson of the Mining Law Committee International Bar Association