ANC Youth League nationalisation call could plunge mining into a deep pit – Business Day, 11 October 2016

Oct 11, 2016
SA is once again flirting with mine nationalisation. The ANC Youth League has come back to this demand, while former Congress of South African Trade Unions president Zwelinzima Vavi thinks this intervention would meet activist demands for free university education.

By Anthea Jeffery

SA is once again flirting with mine nationalisation. The ANC Youth League has come back to this demand, while former Congress of South African Trade Unions president Zwelinzima Vavi thinks this intervention would meet activist demands for free university education.

The ANC Youth League pushed strongly for mine nationalisation when Julius Malema was its president. However, the ANC policy conference in June 2012 decided against it, partly because compensation payments could amount to an unaffordable R1-trillion under SA’s bilateral investment treaties with the UK and 12 European countries.

But the treaties have since all been terminated, and the league is again pressing for mine nationalisation. In September, it said there had long been "strategic need for the nationalisation of mines". It also demanded to know when a 2016 bill establishing a state mining company would be enacted, adding: "As soon as it is operational, [this company] must take up ownership and control of [the] greater mines in the country."

The league also wants the Mineral and Petroleum Resources Development Act (MPRDA) of 2002 amended so that all new mining rights are issued "with the condition that the state mining company will own 51% as custodian for the people of SA".

The league’s demands tend to be dismissed as political rhetoric. They are nevertheless consistent with various policy shifts since 2012. Among other things, the government has:

• Terminated its UK and European treaties, putting an end to treaty provisions that barred nationalisation and expropriation without "prompt, adequate and effective compensation";

• Adopted the Protection of Investment Act of 2015 (still to be made operative), which was supposed to "codify" the standard provisions in these treaties, but instead provides no meaningful protection for investors;

• Adopted the Expropriation Bill of 2015 (still to be signed into law), which limits the compensation payable on the expropriation of mining rights and other assets to amounts below market value;

• Included a definition of "expropriation" in this bill that could bar the payment of any compensation if the states takes "custodianship", rather than ownership, of mining rights and mining land; and

• Put forward a 2016 bill aimed at establishing the state mining company, the African Exploration Mining and Finance Corporation, as a separate legal entity with new powers.

Under this last bill, the objects of the state mining company will be to "give effect to state participation" and "drive the nation’s developmental imperatives through mining". The company will seek new mining rights from the Department of Mineral Resources, but will also "acquire shares or other interests" in companies already engaged in mining.

Hulme Scholes, an attorney specialising in mining law, has warned that the state mining company could usher in a form of nationalisation more subtle than outright seizure. In time, says Scholes, "there could be legislation requiring the forced sale of shares ... by every private mining company... to the state mining company".

These sales could be triggered by failures to comply with the mining charter’s black economic empowerment (BEE) obligations. These requirements are being ratcheted up and are so ambitious that the industry has in effect been "set up for failure", says Scholes.

The initial mining charter, adopted in 2002 and brought into force in 2004, required mining companies to transfer 26% of their equity or assets to BEE partners by 2014. Deals were to be done at "fair market value" and "the continuing consequences of all previous deals" had to be taken into account.

In 2010, however, the mining charter was revised substantially. BEE deals now had to include employee and community stakes, even though most transactions lacked this beneficiary mix. The "continuing consequences" principle was also limited to deals done before 2002.

Despite the industry’s objections, the department has already used these revised rules, applied retrospectively, to claim that only 20% of mining companies had met their BEE ownership requirements by December 2014. Those in breach of their charter obligations could have their mining rights cancelled, the department warned.

Now the government is stepping up the ownership target even further under the "reviewed" draft mining charter it unveiled in April 2016 and plans to finalise in October. Under this draft, mining companies must have 26% BEE ownership for every mining right. They must also keep BEE ownership at this level for up to 30 years, even if empowerment partners sell out.

Having to do ever more ownership deals in this way will be enormously costly. It will damage confidence, inhibit mine development, and dilute the shareholdings of existing investors. In addition, if the MPRDA amendment bill of 2013 is enacted in its current form, it will automatically bring into operation a 2009 code of good practice (not yet in force) that in effect requires all BEE deals in mining to be debt-free within two years.

This bill could also be enacted in the near future, as the portfolio committee on mineral resources recently rejected President Jacob Zuma’s concerns about its unconstitutionality. This could leave the president with little choice but to sign it into law.

Under the draft mining charter any failure to maintain 100% score on the ownership element will be punishable by the cancellation of the relevant mining rights. Alternatively, mining companies could be compelled to transfer such rights to the state mining company, as the 2016 bill seems to envisage.

As far back as 2012, the National Development Plan (NDP), still supposedly the government’s over-arching policy blueprint, called for major reforms to the MPRDA to take it into line with international best practice. Thus far, however, every shift in mining policy has taken SA in the opposite direction.

If the government were willing to reform its mining law as the NDP advises, it need look no further than its Botswana neighbour, which one mining investor has described as the "jurisdiction other African countries should strive to copy". Botswana has never threatened mine nationalisation. Its rules on the granting and cancellation of mining rights are reasonable, certain and stable. It does not insist on onerous BEE or socioeconomic obligations, instead recognising that mining investment in itself brings major economic benefits.

If SA is to make the most of its mineral wealth, it should reject mine nationalisation, follow the NDP’s advice and make its mining law — like the Mines and Minerals Act in Botswana — "predictable, competitive and stable".

Dr Jeffery is head of policy research at the Institute of Race Relations, She is author of "Back to the drawing board on mining law", a policy paper published by the IRR this week.

Read the article on Business Day here.

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