The real impact of Expropriation without Compensation might well be felt below the ground - Polity

18 April 2018 - The current debate around expropriation without compensation (EWC) has been phrased in an idiom of land politics – the supposed imperative of the state taking more aggressive action to advance land and agrarian reform in an effort to secure justice for those who work the soil. For this reason, relatively little attention has been paid to what this could mean for other sectors of the economy. This is a mistake, because the epicentre of the EWC impact might well be found below the ground.

By Terence Corrigan 

The current debate around expropriation without compensation (EWC) has been phrased in an idiom of land politics – the supposed imperative of the state taking more aggressive action to advance land and agrarian reform in an effort to secure justice for those who work the soil. For this reason, relatively little attention has been paid to what this could mean for other sectors of the economy. This is a mistake, because the epicentre of the EWC impact might well be found below the ground.

According to PWC’s analysis, SA Mine, South Africa’s mining industry earned revenues of some R371-billion and held assets to the value of R692-billion in 2017. The country’s mineral endowments are valued at around $2.5-trillion – a vast reservoir of value to be extracted. It is also an industry which (like agriculture) is held to carry substantial historical baggage, and often finds itself subject to moral outrage. Altogether, it is an enticing target for political attention. It should not be forgotten that the forerunner of EWC as a way of addressing the ‘land question’ was the call by the ANC Youth League for the nationalisation of mines.

Mining has, in fact, been front and centre of government efforts to intrude into the property rights of individuals and businesses. This goes back at least as far as 1998, when the White Paper on a Minerals and Mining Policy for South Africa was published. This was emphatic that the government rejected the then-existing system of dual private and state ownership of mineral resources, and indicated that ‘the government’s long-term objective was for all mineral rights to vest in the state.’

This was effectively achieved in 2002 when the Mineral and Petroleum Resources Development Act declared that mineral resources were the ‘common heritage of all South Africans’, and granting the state custodianship over them. This was contested in the courts, but ultimately confirmed in 2013 by a Constitutional Court judgement. This held that the appropriation of mineral rights – and the deprivation of their use by their erstwhile owners – did not count as an act of expropriation, and thus did not merit compensation.

The redefinition of mineral ownership has been matched by a drive to change the existing and future structure of the industry, primarily through the Mining Charter. The key issue here is the demand that chunks of equity be ceded through empowerment deals – escalating from 26% in the Charter’s first iteration to 30% in the highly contested, and still unadopted, third one.

In addition, considerable controversy has been generated in recent years by proposed amendments to the Mineral Resources and Petroleum Development Act, which would grant the state extensive ‘free carried interests’ in all new oil and gas production, as well as the right to take a further cut – at an ‘agreed’ price or through a production-sharing agreement – once production is underway. (After a great deal of debate and criticism, it appears that moves are afoot to step back from this somewhat.)

This has been a policy trajectory of expanding state control, actual and attempted. Taken together with extensive ministerial discretion, the sometimes imprecise formulations of the Charter and the legislation, combined with serious capacity constraints on the part of the state (not to mention outright pathologies, such as corruption), this makes for a hostile ecosystem for the industry. As prominent mining law expert Peter Leon has put it, this has produced ‘a very unpredictable regulatory environment’.

And hence the disappointing performance of South Africa’s mining sector. Even during the prime opportunities presented during the years of the commodity boom.

EWC would aggravate this. Section 25 of the constitution – the provisions being looked at in terms of Parliament’s February resolution – deal with all property, not just with land. Should it be amended, all property would become vulnerable, at least to the extent that the grounds for constitutional challenges grounded in the right to property would effectively be eliminated. It could create (certainly in theory) a situation in which the seizure of assets need not be held up by concerns about the financial implications of doing so. This would empower the state to move much more aggressively on the mining industry.

This might take the form of ever larger stakes to be dispensed to (favoured?) empowerment partners, perhaps to the state itself. Or a reassertion of the pursuit of ‘free carried interests’, from which government now appears to be turning. Indeed, initiatives like fracking – at once game-changing and controversial – might fruitfully be married to EWC: initially to clear off landowners to make the process possible, and then to take a sizeable share of the operation.

EWC is by no means a concern for farming alone. How the current debate – the expropriation of land – plays out will be precedent-setting for the economy as a whole. The hostile undercurrents of mining policy being what they have been, the mining industry has little reason to be complacent about EWC.

*Terence Corrigan, a Project Manager at the Institute of Relations, a think tank that promotes political and economic freedom. 

Read the article on Polity.com here.

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