Legal experts and industry stakeholders warned against the proposed changes to South Africa's mining laws. (Reuters)
Legal experts and industry stakeholders grilled the proposed changes to South Africa's mining laws being contemplated in Parliament this week – warning that the state could fall foul of international trade agreements, the Constitution, and scare off investors.
In a marathon series of public hearings, expected to continue into next week, the parliamentary portfolio committee on mineral resources heard public comments on the new Mineral and Petroleum Resources Development Amendment Bill.
But while a number of private sector players see provisions such as those granting the minister of mineral resources extensive new powers, as a threat; state-owned companies such as Eskom and PetroSA want the government to have even greater control over the country's mineral wealth.
The changes to the legislation have followed with heated policy debated within the ruling ANC regarding the rights of the state over South Africa's mineral and hydrocarbons endowment, as well as government's role in directing economic growth and development.
Among a host of potential changes, the Bill includes a provision allowing the minister to designate certain minerals as "strategic". Proposed changes also grant broad discretion to the minister to decide the levels of minerals that must be set aside for beneficiation and the preferential pricing regime under which beneficiation can take place. The Bill also grants the minister the power to limit the export of "designated" minerals.
Peter Leon and Jonathan Veeran, partners at legal firm Webber Wentzel, told the committee on Friday that certain of these provisions are potentially unconstitutional, and could go against a number of international trade agreements that South Africa is party to.
'Designated' minerals
No criteria are provided to guide the broad discretionary powers the proposed changes would give the minister, Leon and Veeran noted in their presentation.
According to Webber Wentzel, an export licensing system is effectively introduced through section 21(d) of the Bill. It states that no one may export "designated" minerals or petroleum without permission from the minister, and subject to conditions. This potentially contravenes two international trade agreements: the General Agreement on Tariffs and Trade of 1994, under the World Trade Organisation; and the European Union and South Africa Trade, Development and Cooperation Agreement of 1999. Both these treaties prohibit the imposition of measures, which limits the amount of goods that may be exported between countries Leon and Veeran said.
The provisions also potentially contravened South Africa's bilateral investment treaties, particularly the treaty between South Africa and the United Kingdom. This treaty requires, among other things, that South Africa and the UK afford investors and their investments "fair and equitable treatment".
This obliged South African public authorities to act transparently, reasonably and without ambiguity.
"South Africa will be in breach of a BIT [bilateral investment treaty] where it has failed to protect investors' legitimate expectations to rely on the host state's earlier commitments, in that it has not provided a predictable regulatory framework for investments," they said in their presentation.
These provisions could also be deemed unconstitutional, under section 25, which protects against the arbitrary deprivation of property.
"The proposed amendments permit interference with mining companies' right to [the] use, enjoyment and exploitation of the minerals they have extracted, and thus constitute a deprivation," they argued. "As there is no legal constraint on the minister's discretion or clear rules of procedure in this regard, the deprivation is arbitrary and potentially unconstitutional."
Investment decisions
The extent of the discretionary powers granted to the minister was also a concern for major companies such as Shell South Africa.
Jan Willem Eggink, general manager for upstream operations at Shell, told Parliament the discretionary power provided to the minister by the Bill, would have a long-term impact on oil and gas operations and economics.
"To provide greater clarity and stability these discretionary clauses should be clearly defined in the legislation," he said.
The oil company is currently exploring for shale gas in the Karoo, with a view to exploiting it through hydraulic fracturing known as "fracking". The technology is controversial and has been met with widespread criticism from environmental groups around the world. Eggink said on Thursday that exploration in the Karoo and other areas would require investment of around R5-billion. Investment decisions would however take into account potential future returns in relation to investment risk he noted in his presentation.
The inputs from business came alongside a range of concerns raised by environmental groups and civil society organisations who believe that the Bill does not do enough to protect the rights of local communities or ensure sufficient environmental safeguards.
A recent report revealed warnings from environmental groups that the Bill made the mineral resources department custodians of protecting the environment in the mining sector, creating a conflict of interest for the department, and something it does not have the capacity to do.
State players
State-owned entities, namely state petroleum company PetroSA and power utility Eskom, proposed further amendments that would grant the government greater control over and management of natural resources.
In its written submission, PetroSA suggested the Bill should designate it the custodian over all of South Africa's allocation of petroleum rights.
It also argued that where the rights to an oil block are relinquished, abandoned, lapsed or cancelled, PetroSA should be granted first right of refusal over the acreage or be allowed to determine its commercial value, before it released for bidding in the market.
Eskom meanwhile argued that coal be declared a strategic mineral and that coal exploration and mining rights should be awarded giving due consideration to "domestic coal supply power generation".
The company, which generates power chiefly through coal, is battling to secure future coal supplies at rates that it can afford from mining houses.
Eskom needs to secure 1.9-billion tonnes of coal over the next 40 years, Eskom executive Kannan Lakmeeharan told Parliament.
Eskom wanted the Bill to ensure that it and other state utilities be given first right of refusal "on large coal resources, which were previously earmarked for domestic use the rights holders".