https://www.miningweekly.com

Still no word on mooted State-owned miner almost a year after govt revealed plans to table enabling legislation in Parliament

20th March 2015

By: Zandile Mavuso

Creamer Media Senior Deputy Editor: Features

  

Font size: - +

It has been almost a year since Mineral Resources Minister Ngoako Ramatlhodi indicated in his 2014 Budget Vote speech that the Department of Mineral Resources (DMR) would submit the State-owned Mining Company (Somco) Bill to Parliament for processing, but the mining industry and various other stakeholders are still waiting in anticipation to find out what the Bill entails and what its effects on the South African mining sector will be.

Amid State-owned power utility Eskom’s having to deal with a national electricity crisis, government’s competence in being directly involved in economy-driving sectors has been questioned in some quarters. The Somco Bill – the content of which is unknown to industry – if passed by Parliament, could, therefore, impact on the mining sector economically, legally and politically.

Ramatlhodi said during his 2014 Budget Vote speech, in July, that one of the critical instruments of a democratic developmental State was greater participation by the State in the mainstream economy. He also stated that establishing a standalone State-owned mining company would represent a step in the right direction.

“This year, we will submit the Somco Bill to Parliament for processing, with the aim of establishing a standalone company,” said Ramatlhodi during his speech. Nothing further has been said since.

The mining industry has responded to this statement by questioning the future of the current State mining company, the African Exploration, Mining & Finance Corporation (AEMFC), and whether mining would be conducted by the AEMFC or another State-owned mining company.

The AEMFC – a subsidiary of State-owned Central Energy Fund (CEF) group – was established in 1944 (but revived in 2007) to secure South Africa’s energy supply, primarily through the mining and supply of coal for electricity generation. The AEMFC also envisions securing other key minerals for beneficiation in the energy and steel value chain.

In 2012, Mining Weekly reported that Cabinet had approved the separation of the AEMFC from the CEF as a standalone growth entity.

However, based on Ramatlhodi’s 2014 Budget Vote speech, the AEMFC – which has already exceeded production volumes at its Vlakfontein mine, in Mpumalanga – with two other coal mines expected to be in production by 2017, is currently still a wholly owned subsidiary of the CEF.

Speaking to Mining Review in July last year, Chamber of Mines of South Africa COO Roger Baxter indicated that, although he had not seen the proposed Bill yet, Somco would be squarely positioned to provide coal for Eskom. He also said the Bill was likely to be focused on the coal industry.

Political Influence
“We still do not know what the Somco Bill will contain and how the State-owned mining company will participate in the mining sector,” states law firm Webber Wentzel partner Jonathan Veeran.

However, he adds that, like certain aspects of the Mineral and Petroleum Resources Development Amendment (MPRDA) Bill, the Somco Bill may be informed by the African National Congress (ANC) policy highlighted through the ‘State Intervention in the Minerals Sector’, (Sims) report released in March 2012 and the resolutions of its subsequent elective conference.

The Sims report was initiated by the ANC following its National General Council in 2010, which took a resolution on the role of the State in the economy. The resolution was more encompassing than nationalising the mines only. It also directed ANC delegates to instruct the party’s National Executive Committee (NEC) to carry out an in-depth study on how best to leverage South Africa’s mineral wealth to achieve the key strategic goal of placing the economy on a new job-creating and more equitable growth path.

To create the desired growth path, the NEC premised its study on the ANC’s Polokwane Economic Transformation resolution, which states that the developmental State should maintain its strategic role in shaping the key sectors of the economy, including the mineral and energy complex, and the national transport and logistics system.

It also states that the developmental State should ensure that national resource endowments, including land, water, minerals and marine resources, are exploited to effectively maximize the growth, development and employment potential embedded in such national assets, and not to purely benefit from profit maximisation.

Owing to this, former Mineral Resources Minister Susan Shabangu mentioned after her 2012 Budget Vote speech that establishing Somco as a standalone company by the end of 2013 entailed close collaboration among government departments.

“The establishment of Somco and the endorsement of the AEMFC to operate as a nucleus for Somco is approved by Cabinet. The DMR is working closely with the Department of Energy, the AEMFC, the CEF and the National Treasury to give effect to this decision so that the AEMFC can operate as a standalone public entity,” she said in her 2012 Budget Vote speech. This, however, did not happen.

Moreover, Webber Wentzel partner Sipho Methula mentions that it is not yet clear which government department will have executive authority over Somco. While there is talk that the Department of Public Enterprises (and not the DMR) will have such executive authority, this (although likely) remains largely speculative.

“This will be interesting to watch, as it raises expectations of what the Department of Public Enterprises will do differently from the DMR in heading this company. However, as both departments are under government, there should not be much of a difference, though the management style might differ,” he states.

Regulatory Concerns
Irrespective of which government department heads Somco, Webber Wentzel partner Bruce Dickinson points out that one of the key challenges government will have to deal with is the issue of granting mining rights once Somco is established.

“In essence, no one has a problem with Somco – what worries industry is the possibility that government will be a ‘referee and player’, and how government intends dealing with perceived or actual bias in the awarding of mining or prospecting rights,” he stresses.

Dickinson adds that policy statements that are either not followed through or put to bed add to ongoing regulatory uncertainty, which, in turn, negatively impacts on investment into the country. In addition, issues such as labour unrest have also affected investment into the industry and negatively impacted on its growth, especially when strikes turned violent.

As a result, he indicates that Somco would, therefore, be a test in the way or ways in which it affects the mining industry’s regulatory system.

“For this reason, I believe we do need Somco so that government can gain first-hand experience and be aware of the problems mining companies face on a daily basis,” says corporate solutions company Cadiz mining consultant Peter Major.

He notes that this would prompt government to draw up policies, Bills and regulations with a better understanding of the industry, and to table ways in which policy would impact positively on the economy.

Time Sensitivity
Major is concerned about government’s timing to pursue Somco as an economic growth path initiative, adding that the riskiness of the industry currently does not make it viable for government to invest in it.

“Mining is an industry that does not produce a return on investment immediately and the cost of exploration is even more risky and expensive. Government cannot afford to invest in mining at the moment, given the billions of rands that we have already lost as a country in the past few years in mining.”

He notes that, instead of investing in mining by establishing Somco, government should rather spend more time on ensuring that the legislative environment is producer and investor friendly to attract more interest from the private sector, especially from foreign investors.

“Government’s responsibility is to educate and protect the country and its people and industries so that it lures investment and creates jobs.”

Major explains that government should not risk investing too much money in mining, but that the sector – through proper legislation, administration and regulatory certainty – must allow for more private enterprise in exploration and mining. This way, the whole country will benefit hugely with the lowest risk and the best return for money spent.

Veeran stresses that the need to establish a long-term policy and regulatory certainty is paramount. This requires government to act immediately. However, to avoid discrepancies, ambiguity in policies and general angst, he mentions that some form of public consultation should take place when policies are being developed by government departments and Cabinet to ensure that the interests of affected parties are catered for early in the legislative process.

“If government can work on cementing a clinical policy framework, this would accelerate implementation, which, in turn, would produce positive outcomes. Therefore, South Africans have to be patient with the process so that it produces good governance for the industry, which will benefit the economy,” he highlights.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

Comments

The content you are trying to access is only available to subscribers.

If you are already a subscriber, you can Login Here.

If you are not a subscriber, you can subscribe now, by selecting one of the below options.

For more information or assistance, please contact us at subscriptions@creamermedia.co.za.

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION