Still a pressing need for regulatory certainty in mining - Polity

24 July 2019 - If it is to thrive once more, the industry requires objective and neutral rules. Without these, the regulatory regime will continue to be an absolute deterrent to mining investment.

Terence Corrigan

Mining is perhaps the most inherently uncertain of all industries. Sometimes alarming global price fluctuations, not to mention geological uncertainties, make it an industry which has to continually hedge against a future which it can only dimly perceive. This places an onus on the regulatory authorities to provide as much certainty as possible within the limits they control.

Unfortunately, as the Institute of Race Relations’ (IRR) latest report, Steering Mining into the Future: Can the Mining Industry Prepare itself for a Reinvigorated Tomorrow? reminds us, South African mining has been subjected to 15 years of regulatory flux, policy shifts and other avoidable headwinds related to regulatory compliance.

The result is an industry which is smaller today than it was as recently as 2006. Some of this is accounted for by the long-term decline of the gold sub-sector –  which dropped from 40 percent of world supply in 1990 to 4 percent in 2015 – and which, according to informed industry insiders quoted in the IRR publication, can be all but written off. After the increase in electricity tariffs in early 2019, the Minerals Council of South Africa estimates that 95 percent of remaining gold operations are marginal or loss-making.

While the decline in gold production has been more precipitous than it need have been, it is other areas that most strongly demonstrate the impact of a negative investment climate for mining. Most notable was South Africa’s almost entirely missing out on the global commodities boom during the first decade of the twenty-first century. That this happened when the Minerals and Petroleum Resources Development Act (MPRDA) and the Mining Charter were introduced in 2004 is not a coincidence.

As the IRR publication points out, this new regime saw the principles of private law, based on the rights of ownership which had previously prevailed in mining, replaced with the principles of administrative law, based on conditional state licences. This, it notes, quoting mining lawyer Peter Leon, has been ‘the nub of the problem the industry has faced since 2004’.

The 2004 regime granted the state enormous (and intrusive) discretion over the industry. It was the beginning of a cascade of regulatory and policy twists and turns which left the industry reeling. Steering Mining into the Future: Can the Mining Industry Prepare itself for a Reinvigorated Tomorrow? details these over a decade and a half, thereby demonstrating the instability of South Africa’s enabling environment.

Problems started with the need to re-apply for mining licences, a tortuous process which seemed to the applicants to drag on forever. It also became apparent that officials were using their access to information in the new administrative system to gain personal advantage in the issuing of rights – corruption in other words.

After 2004, the problems came thick and fast. The Charter has been through three iterations, each more onerous than the last. The debate on nationalisation was reopened under the Zuma presidency and when finally put to bed – by the SIMS Report in 2012 – resolution came with a range of other damaging suggestions (such as the proclamation of state-restricted ‘strategic minerals’, and a state mining company). Thereafter came the confusion over an amended MPRDA, which allowed even more administrative discretion to the state. It was passed in haste before the 2014 elections but soon withdrawn by the President because it transgressed the national constitution. It then lurked for over four years in redrafting, casting a baleful shadow over potential mining investment before being abandoned last year. 

While all of this was going on, the industry was subjected to over-robust application of health and safety regulations (Section 54 stoppages which cost some R4.8-billion in 2015), uncertainties about the roles of ‘mining communities’, the extent to which mining companies would be required to make up for the failings of local government, as well as swingeing electricity price increases.

Very little in the enabling environment has been settled by 2019. The Mining Charter is likely to be taken to court by the industry over its increased empowerment provision (30%) for new licence applications and its extraordinary (60%) local procurement requirements. At the same time, the Reviewed Housing and Living Conditions Standard – which imposes nanny state-like responsibilities on mining companies – was greeted with horror by the industry.

Steering Mining into the Future: Can the Mining Industry Prepare itself for a Reinvigorated Tomorrow? shows that the state’s excessive administrative discretion has been at the heart of the industry’s faltering progress over the past 15 years. The industry likes the present minister and believes he has done much to clean up his department. But this is not a matter of personalities. If it is to thrive once more, the industry requires objective and neutral rules. Without these, the regulatory regime will continue to be an absolute deterrent to mining investment.

Terence Corrigan is a project manager at the Institute of Race Relations. Readers are invited to take a stand with the IRR by sending an SMS to 32823 (SMSes cost R1, Ts and Cs apply).

https://www.polity.org.za/article/still-a-pressing-need-for-regulatory-certainty-in-mining-2019-07-24

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