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Corruption, maladministration of royalties leave mine-affected communities high and dry

TEBELLO CHABANA Minerals Council South Africa hopes that governance improves in the future, and that those responsible for the misappropriation of mining royalties are brought to book

SHARE THE WEALTH The extraction of South Africa’s mineral wealth should not be a get-rich-quick scheme that benefits just a few

Photo by Creamer Media

PRINCIPALLY PLATINUM The arrangements negotiated by government with particular traditional authorities that have claimed an entitlement to the royalties paid in respect of particular mining operations are largely in the platinum sector

14th June 2019

By: Tracy Hancock

Creamer Media Contributing Editor

     

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Maladministration and misappropriation of funds continue to render South Africa’s mining royalties system mostly ineffective, with no one being brought to book.

Established to deliver transformation in impoverished, mining-affected communities through the distribution of royalties paid by the mining sector, which is a large fixture in South Africa’s socioeconomic landscape, mining royalties have been subject to widespread abuse, corruption and unethical practices.

This is despite South African law decreeing since 2004 that mineral and petroleum resources belong to the South African people, and that the State must act as the custodian of these resources. Even former President Kgalema Motlanthe’s call for transparency and accountability last year, when he spoke out on corruption in the North West, seems to have fallen on deaf ears.

The same culture of corruption that enabled other instances of such behaviour over the past ten years has led to the maladministration and misappropriation of mining royalties, says Minerals Council South Africa public affairs and transformation senior executive Tebello Chabana.

“We are very concerned about such misappropriation of funds and trust that it is now being addressed under the leadership of the Ramaphosa administration,” he notes.

Nongovernmental organisation (NGO) Corruption Watch says South Africa’s mineral wealth should be a properly managed resource that offers opportunity for more people to better their lives, while leaving a small footprint on the environment and stimulating sustain- able economic growth beyond the life of a mine, but this has fallen short of the mark.

This follows its own investigation into two systems of community royalties administration, the Lebowa Trust, in Limpopo, and the development, or D, accounts in the North West by the Bakwena ba Mogopa community, following whistleblower reports from community members.

“The key risks identified include a lack of adequate community engagement, the involvement of traditional leadership, mining companies entering into revenue-sharing agreements with select members of the community, and the role of provincial government,” says Corruption Watch, noting that its research revealed that, in both cases, the normal course of administration had been compromised from the outset.

Subsequently, Corruption Watch published its ‘Mining Royalties Research Report 2018’, funded by nonprofit grant-making organisation Open Society Foundation for South Africa, in which it stated that the “next level of investigation into mining royalty pay-outs should aim to expose and bring to book the individuals, companies, officials and traditional and political leaders who are taking part in and enabling corruption and maladministration”.

The culprits implicated by the report include government, traditional leaders, royal family members, certain community members and mining houses.

Minerals Council South Africa has long argued, and still believes, that a proportion of mining royalties should be directed into mining communities, says Chabana.

This is a practice in a range of other mining jurisdictions, such as Ghana, Mali and Guinea, as well as Argentina. However, successive Finance Ministers and National Treasury officials have not approved such distribution of State revenues.

“These funds would need to be administered by local or provincial authorities. If and when this principle is agreed on, the industry would be pleased to participate in discussions on the administration of these funds,” Chabana adds.

However, the legal framework governing the country’s mining sector is “disconnected from the realities of divided and tense communities”, says the Corruption Watch report.

This is despite more recent iterations providing for rightful compensation to stimulate sustainable economic development in affected communities, says the organisation.

The legal frameworks comprise the 2018 iteration of the Mining Charter, the Mineral and Petroleum Resources Development Act (MPRDA), the National Environmental Management Act, the Traditional Leadership and Governance Framework Act, the North West Traditional Leadership and Governance Act and the Interim Protection of Informal Land Rights Act.

The Mineral and Petroleum Resources Royalty Act of 2008 was introduced under the MPRDA and came into effect in 2010.

Royalty Split

The MPRDA refers to State royalties – the revenue share payable to government – and contractual royalties – a payment agreed on between mining companies and the owners of the land on which the mining and production operation is located.

Most of the mining royalties are currently not distributed to mining communities – they are directed to the fiscus. Therefore, to a great extent, the spending of royalty payments cannot be differentiated from other State revenue spending, says Chabana.

However, there are exceptions where government has negotiated arrangements with particular traditional authorities that have claimed an entitlement to the royalties paid in respect of particular mining operations.

“These arrangements are largely in the platinum sector,” Chabana explains, high- lighting that mining companies are unable to challenge these agreements, where royalties are paid into D accounts administered by authorities recognised by the State for this purpose.

“We hope that disclosures of maladmini- stration, which came to light in the Public Protector’s inquiry into the Bakgatla-Ba-Kgafela royalty payment funds that went missing from the D account, administered by the North West government, will lead to improved governance in the future and criminal charges for such past acts,” he notes.

However, there are examples of good governance in this regard, with Chabana highlighting African community investment company Royal Bafokeng’s administration of mining royalties, as there appears to be substantial integrity in the management and administration of the relevant funds.

The Corruption Watch report highlights that it will take a multipronged approach to start overhauling the sector, and the changes need to be both tangible and internalised to achieve sustainability.

“Provincial government is equipped with the necessary mechanisms to ensure diligent monitoring and reporting . . . with severe consequences to be meted out to those not acting within legal frameworks or . . . timeously,” states Corruption Watch.

The organisation also calls on civil society and NGOs to further empower communities through education, training and support that will develop trustees and representatives who will be well equipped to ensure better governance and oversight within trusts.

Recommendations

To help address the mismanagement of revenue derived through mining royalties, Corruption Watch recommends the development of a mining royalties best-practice guide.

“The extraction of the country’s mineral wealth should not be a get-rich-quick scheme that benefits just a few. It deserves mindful, forward-thinking management and we believe that developing a best-practice model that aims to address the key areas of mining royalties’ administration is the first step towards achieving this.”

This model must be set against the current state of affairs in mining-affected communities, aim to adequately address challenges and be formulated on the basis of meaningful engagement with all the relevant stakeholders, with all role-players to have a seat at the table, according to the organisation.

“We believe that a best-practice model backed by the key stakeholders and . . . accessible data and information will allow for greater stakeholder participation . . . to support the development of impoverished communities living on top of great mineral wealth,” Corruption Watch emphasises.

New guidelines should also consider provisions to balance the powers of traditional leaders and councils, and those of community members. A fairer split of 50:50 representation is recommended between community-elected representatives and those appointed by the traditional authorities.

“Traditional leaders need to transform by appointing more experienced and informed advisers who will guide the traditional leaders [so that they] become more relevant and accountable in modern society, and act in the broader interests of the community. The powers of traditional leaders cannot be allowed to hinder sound decision-making around mining rights deals and benefit sharing,” says Corruption Watch.

Chabana says the Minerals Council would be happy to engage with Corruption Watch in the development of such a guide.

Further, Corruption Watch suggests that a monitoring and reporting system with penalties for transgressors be implemented.

Chabana says there are currently penalties for all forms of fraudulent activities. “But, we are still waiting to see what consequences will follow the publication of the Public Protector’s report on Bakgatla-Ba-Kgafela and other investigations into instances of maladministration of D accounts established to administer mining royalty payments.”

Corruption Watch further recommends the training and support of communities so that they can engage from a stronger position, as well as better collaboration and networking with civil society and NGOs to build capacity, raise awareness and educate communities. “The objective with these initiatives is to ensure that community leaders and members will always operate from a position of strength when negotiating with mining houses and government, so that communities will always benefit from mining operations taking place on their land.”

In addition, Corruption Watch suggests that long-term relationships be built between all stakeholders to rebuild trust and the development of new communication and consultation strategies to ensure that people’s voices are heard, processes are transparent, and dispute resolution mechanisms are in place.

Mechanisms also need to be developed to compel traditional councils, community trusts and mining houses to regularly present complete audited documents, adapt for locally appropriate solutions by learning from mistakes and success stories, and change the governance and composition of traditional councils.

It also advises the development of mecha- nisms to ensure easier access to financial documents and other relevant information by the public and researchers, as well as mechanisms to curb political interference.

Corruption Watch supports amendments that simplify measures of accountability and create legislative mechanisms for effective monitoring and transparency, and notes that it is also essential that new platforms for meaningful participation and consultation are created to make the sector more inclusive and supportive of transformation.

“The Minerals Council hopes that governance improves in the future, and that those responsible for the misappropriation of mining royalties are brought to face the full might of the law,” concludes Chabana.

Responding to Mining Weekly questions, the Department of Mineral Resources and Energy says: “Of all the contracts in the [department] on royalties, there is none which obliges mining companies to pay royalties directly to communities. The contracts bind right holders to pay royalties to the South African Revenue Service.”

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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