The mining industry has celebrated the recent confirmation of the “once empowered, always empowered” principle, saying it will restore the regulatory certainty needed to spur investment.
But against the backdrop of slow transformation, in mining and in other sectors, others say the ruling will set already listless empowerment efforts back to square one.
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The court ruled that the charter is policy, not law. It also confirmed the once empowered, always empowered principle, meaning that mining companies will not be forced to top up their empowerment credentials to maintain the minimum black ownership requirement imposed by the charter.
The judgment also set aside the provisions forcing mining companies to meet procurement targets requiring them to allocate 21% of their spend on goods produced by companies owned by historically disadvantaged South Africans.
Responding to the judgment, chief executive of the Black Business Council Kganki Matabane said the worry is that it will have an effect on how black shareholders will be treated. “Because what happens in a BEE [black economic empowerment] ownership environment, the power is always with the traditional owners,” he said.
Another concern, Matabane said, is that others will follow the mining sector’s lead: “If other sectors do the same, the country will never transform. In a hundred years we will be where we are today.”
Back to the start
Jonathan Veeran, a partner at Webber Wentzel and an expert on the regulatory aspects of transaction structuring in the mining industry, explained that the charter being found to be policy and not law means it is now akin to a guideline.
“It is something that the minister does take into account when deciding whether to award a mining right. But it is more of a guideline. It is not [a] hard code and it is not something that must be followed to the letter.”
But, Veeran said, the ruling does not mean that the transformation requirements of the Mineral and Petroleum Resources Development Act, which governs the acquisition of mineral rights, go out the window.
“In fact the court actually went into quite a bit of detail into restating the objectives of the [Act], noting that it is the primary vehicle which the government has used to transform the mining industry. That is enshrined in the legislation itself, as opposed to the charter.”
The ruling will also not have an effect on most other sectoral charters, Veeran said. This is because the mining charter was developed under the Mineral and Petroleum Resources Development Act and not the Broad-Based Black Economic Empowerment Act, under which other charters were promulgated.
“Those charters were signed well after the mining charter. So it is a different genesis,” Veeran said.
The original charter, signed in 2002, was formulated to redress slow progress in employment equity in the mining industry. It required that 26% of every mining right holder be owned by historically disadvantaged South Africans.
At the time, the charter was the only sector-specific blueprint to advance BEE. Work on the financial sector charter began later that year.
Duma Gqubule, an economist and the founding director at the Centre for Economic Development and Transformation, said the original charter was “a very badly drafted document”.
“There were so many opportunities for the government to fix the charter, which at the time I argued was not worth the paper it was written on,” he said. “The mining charter was the first in the country. But it was overtaken by the BEE codes, which became a more rigorous means of monitoring. It became so outdated by the time the BEE codes came.”
The court’s confirmation of the once empowered, always empowered principle means the charter is back to where it started, Gqubule said.
“This spells the end of empowerment. It is not a new ruling; it just confirms something that happened long ago … This is a setback for empowerment and I don’t think empowerment will ever recover.”
Once empowered, never empowered?
The most recent version of the mining charter was controversial from the get-go, having been partly formulated under the supervision of then minister Mosebenzi Zwane — who was the target of state capture allegations after he was picked by former president Jacob Zuma to replace Ngoako Ramatlhodi.
Both Zwane and Ramatlhodi failed to convince mining companies to agree to changes to the once empowered, always empowered principle.
The Minerals Council South Africa, then known as the Chamber of Mines, raised issues about the new ownership empowerment target — which required mines to increase their black ownership from 26% to 30% within 12 months. The amendments required perpetual 30% black ownership, even if the original empowerment company had disposed of its shares.
The council maintained that once mining companies had met the empowerment criteria they should be exempted from further obligations. It applied for a judicial review of the charter, which was heard in May this year.
In its application, the council argued that compelling companies to top up their BEE shareholdings to the 2018 charter levels would dilute shareholders and stifle investment.
Tebello Chabana, the council’s head of public affairs and transformation, stressed in his affidavit to the court that the sector remains committed to empowerment efforts. The council’s members, he said, “have made significant progress on all elements of the original charter, including meeting and exceeding the ownership target”.
But current Minister of Mineral Resources, Gwede Mantashe, argued that the transformation of the sector has been ineffective.
‘Instrumental’ to change
The department of mineral resources undertook two reviews of the industry: one in 2009 and another in 2015. Both recorded “disappointing results”, Mantashe noted. The council commissioned its own assessments. At the end of 2014, the council calculated that the industry had achieved BEE ownership of 37.7%.
The department’s experience since the adoption of the original charter, Mantashe said in his affidavit, “has unfortunately shown that there was relatively little voluntary engagement with transformation by industry and such engagement as there had been was generally limited to the more obvious (and easily measurable) aspects of transformation, such as ownership”.
Mantashe’s department did not respond to questions by the Mail & Guardian this week about the effects of the judgment on transformation efforts and on whether it will appeal the ruling.
Speaking to the M&G, Chabana said, when it comes to transformation, “there are areas where we [the industry] have done exceedingly well and there are areas where we still have to improve”, particularly when it comes to employment equity for black women.
“But is it correct to say that transformation has been ineffective in mining? I would say: ‘No, on the contrary’.”
Mining has been “instrumental” to the success of South Africa’s prominent black industrialists — such as now president Cyril Ramaphosa, Patrice Motsepe, Sipho Nkosi, Bridgette Radebe and Daphne Mashile-Nkosi — Chabana pointed out. “It just shows you what the mining industry has done,” he said, conceding that broad-based empowerment should now be the focus.
Chabana refuted the contention that the high court judgment is a blow to the transformation project.
“I can assure you that South Africa’s courts are not anti-transformation and neither is the mining industry. [The judgment] is clarifying what is written in the law. Mining companies have committed billions to transformation, based on those laws.”