Where to next for the mining industry?

Amcu's abstention notwithstanding, the framework agreement makes some important commitments by government, labour and business. (Delwyn Verasamy, M&G)

Amcu's abstention notwithstanding, the framework agreement makes some important commitments by government, labour and business. (Delwyn Verasamy, M&G)

The signing, on July 3, by business, labour and government of the framework agreement for a sustainable South African mining industry could put the industry and the country on an invigorated policy and growth trajectory.

The absence of the signature of the Association of Mineworkers and Construction Union (Amcu) on the agreement, coupled with this week's start of difficult biennial wage negotiations for the gold mining sector, indicates how fraught a process this could be.

It is little wonder that the treasury is the driving force behind the agreement: R10-billion in lost mine production in the wake of last year's Marikana tragedy (which shaved half a percentage point off last year's 2.5% gross domestic product), followed by three credit rating downgrades by Moody's, Standard Poor's and Fitch, and a record 6% current account deficit (the largest of any G20 member) do not augur well for an industry that is directly or indirectly responsible for 60% of South Africa's exports.

It is also a significant private sector employer and is responsible for more than 500 000 jobs (15 000 of which were lost in the wake of Marikana). Whereas they were somewhat muted last year, the industry's travails are beginning to have a direct effect on the exchange rate, which is down 17% against the US dollar this year and 16% against the euro.

Amcu's abstention notwithstanding, the framework agreement makes some important commitments by government, labour and business. It recognises the centrality of mining to the South African economy and employment, as well as the fact that working and living conditions for mineworkers are not optimal.

While much of the agreement understandably focuses on repairing the country's fractious labour relations, it makes a number of important commitments by government to creating a better investment climate.
More effective mechanisms are promised by the government for legal and regulatory compliance.

The government undertakes to ensure consistency and certainty in the application and development of laws, regulations and policies while (presumably as an enticement to Amcu) promising fairness, impartiality and the avoidance of conflicts of interest in all areas of government relating to the mining sector.

Supportive environment
In the wake of Marikana, law enforcement agencies are obliged to act in a manner that is fair, impartial and objective, while respecting life and property. The government also agrees to provide legislative and regulatory predictability and certainty for the industry while enhancing an environment supportive of investment.

Although the stability agreement is the ultimate responsibility of the deputy president, who will convene quarterly meetings on it during the next 12 months, its implementation will be managed by the mining industry growth and development task team, and a notable weakness is the absence of effective enforcement mechanisms.

Other than recourse to the task team, there appears to be no sanctions for noncompliance. This is worrying, given the introduction to Parliament on June 21 of the 2013 Mineral and Petroleum Resources Development Amendment Bill.

The Bill, some three years in gestation, claims to improve the regulatory system by removing ambiguities in the Mineral and Petroleum Resources Development Act of 2002 and streamlining the licensing process (which this year saw South Africa relegated to 64th position out of 96 global mining jurisdictions in the Fraser Institute's annual mining survey).

Rather than addressing the issue of excessive administrative discretion, which has bedevilled the implementation of the Act (and led to the department of mineral resources missing its own internal licensing deadlines in 82% of cases in 2011-2012), the Bill perpetuates and, in some respects, exacerbates this.

First, it inexplicably deletes all the Act's statutorily prescribed timelines and leaves this to ministerial regulation. Second, it introduces an export licensing system for designated minerals, which are vaguely defined as: Such minerals as the minister may designate for beneficiation purposes as and when the need arises in the [Government] Gazette. All designated minerals will require the written consent of the minerals minister prior to their export.

In a similar vein, the minister will have the sole discretion to prescribe the baselines for mineral beneficiation, the percentage for each mineral commodity (and mineral production) to be offered to domestic manufacturers, as well as the developmental pricing conditions for beneficiation.

Regulatory uncertainty
Under the Bill, not only will the minister become the pricing tsar for designated minerals, but the department will effectively control all exports of such minerals. These proposals obviously have international trade law implications, because Articles XI and XX of the 1994 General Agreement on Tariffs and Trade prohibit quantitative restrictions on exports, as do Articles 19 and 27 of the 1999 European Union-South Africa trade, development and co-operation agreement.

Although the first in first assessed principle for licensing applications has been part of South African mining law for over a century, the Bill bizarrely jettisons it in favour of one under which (as the Bill's explanatory memorandum puts it) the minister reserves a right to periodically invite applications by notice in the [Government] Gazette.

Once again, no criteria are provided for this change, which is not only bound to create greater regulatory uncertainty, but create a statutory windfall for rent seekers.

The Bill makes changes to environmental regulation, which will be regulated under the 2008 National Environmental Management Act. It does not explain (or reconcile) how the overlap of responsibilities between the departments of mineral resources and water and environmental affairs will be managed.

Just as the Southern African region becomes the new frontier for oil and gas (as can be seen from the transformational Rovuma natural gas discoveries in Mozambique), the Bill inexplicably abolishes the Petroleum Agency of South Africa and transfers all its functions to the nine department of mineral resources's regional managers (who regulate mining).

It grants the state free carried interest in all new exploration and production rights, with an option to acquire a further interest as the minister may determine. In addition, the state is given the right to appoint two directors to the management board of the production operation.

While the Bill must undergo the full gamut of hearings in the upcoming Parliamentary session, it is concerning that the Bill could be introduced to Parliament two weeks before the framework agreement was signed by government, labour and business. All the more so when the National Development Plan, adopted by Cabinet last September and by the ANC at Mangaung in December, described the performance of the mining sector over the last decade as an opportunity lost, which could be addressed by overcoming uncertainty in the regulatory framework and property rights. Hopefully the framework agreement will help hold the government accountable to its new tripartite commitments.

Peter Leon is a partner and head of the mining sector group at Webber Wentzel law firm in Johannesburg

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