DMRE legislative programme & litigation

Meeting report

The Chairperson remarked with great concern about the newly published crime statistics where 21 000 people had been killed in South Africa as a result of violent crime in the previous year. He was not sure if the illegal mining deaths had been recorded in the statistics but a significant number of those deaths would have occurred in the Free State. He noted an apology from the Deputy Minister on account of her being in Limpopo. [It was later publicly announced that the Deputy Minister had unfortunately passed away later that evening]

Department of Mineral Resources and Energy court cases
Mr Thabo Mokoena, Director General for the Department of Mineral Resources, noted an apology from the Minister, due to ongoing meetings with stakeholders in Pretoria. Litigation against the Department of Mineral Resources and Energy is managed by the Office of the State Attorney which recovers the costs from the Department.

Nine pertinent judgments affecting the Department of Energy from 1 January 2018 to date were presented in chronological order. The Minister and/or Department are cited as respondent(s) in these matters, but did not necessarily file opposition in all cases.

• Fuelarama (Pty) Ltd v Rotabrite CC, Edpauls Motors CC, Minister of Energy, Controller of Petroleum Products, Shell Downstream South Africa (Pty) Ltd, Municipal Manager: Rustenburg Local Municipality, MEC: Department of Local Government and Human Settlements, North West Provincial Government and Total South Africa. The salient issues were whether internal appeal suspends the operation of site and retail licences issued by the controller, whether applicants were afforded the opportunity to object to site and retail licences and whether applicants were entitled to interdict. In July 2018 an application for leave to appeal was filed by Fuelarama (Pty) Ltd. There have since been developments on the appeal. The internal appeals were finalised. A new service station has commenced operation.

• Phumlani Zwelithini Raphael Zwane v The Minister of Energy and NECSA and CIPC. Mr Zwelithini challenged the decision of Minister to dismiss him from the board of NECSA. The application was dismissed with costs by the High Court. His application for leave to appeal was dismissed with costs by the SCA. The applicant approached the Constitutional Court as a last resort, but his application was dismissed by the  CC. The CIPC has since successfully brought an application to declare him a delinquent director in terms of the Companies Act.

• Mahogany Rose Investments 4 (Pty) Ltd and Sugarberry Trading 388 CC v The Controller of Petroleum Products and Minister of Minerals and Energy. It concerned whether the approval of site and retail licences have lapsed or been rendered invalid for non-compliance with certain suspensive conditions. The Controller refused to issue licences that were granted in 2013 as, in his view, the approval had lapsed. The Controller later received documentation from applicants and issued licences on or around 15th January 2019.

• Petrosite (Pty) Ltd vs Breezer Marketing International CC v The Controller of Petroleum Products and Minister of Energy. It concerned the issue of whether the First Respondent (site and retail licence holder) commenced with retailing activities within the time period prescribed in Regulation 24. The applicant sought to interdict the First Respondent from developing and retailing on the site. The Court held that the proof of purchase suffices as proof of commencement of retailing activities.

• Sabie Chamber of Commerce and Tourism and two others v Eskom and eight others. It concerned two separate applications by the applicants, who are end users and rate payers in good standing, that were heard together to review decisions by Eskom to terminate or interrupt bulk supply of electricity to Municipalities, namely, Thaba Chweu Local Municipality, and EMalahleni, for non-payment. The Minister was cited as an interested party, but no relief sought against the Minister. On 23rd May 2019 Eskom was granted leave to appeal against a portion of the judgement. The appeal was noted to the Supreme Court of Appeal on 18th June 2019.

• Elderberry Investments 93 (Pty) Ltd and QCK Lezmin 4619 v The Minister of Energy and Controller of Petroleum Products. It concerned whether the Controller, in refusing the retail licence, acted reasonably and rationally. The appeal is still under consideration by the Minister.

• Seriso 616 (Pty) Ltd v The Minister of Energy, the Head of Department, Department of Energy and the Controller of Petroleum Products. In October 2017 the Grahamstown High Court dismissed, with costs, an application by Seriso to review the decision of the Minister to refuse to issue site and retail licences. An application for leave to appeal to the Supreme Court of Appeal (SCA) or Full Bench was refused by the High Court. Applicants then petitioned SCA, but SCA on 19th March 2019 dismissed the application with costs. The costs are to be taxed and recovered from applicants.

• Coal Transporters Forum (CTF) v Eskom, Nersa and the Minister of Energy. The CTF brought an application to interdict Eskom from signing PPAs (Bid Windows 4 onwards, including Small Projects) with successful IPPs until Nersa has taken certain decisions or declared those PPAs already signed null and void. Applicants conceded that if Nersa had in fact taken the decisions, its application must fail. An urgent application was launched by Transform RSA NPC and NUMSA for leave to join in the CTF application as co-applicants and for an order interdicting the intended signings and conclusions of the IPPs pending the outcome of the main application. The matter was opposed and struck off the roll for lack of urgency with costs including costs of two counsel in March 2018. Applicants are now approaching the SCA for leave to appeal. The matter will continued to be opposed.

• Dr Kelvin Richard Kemm and two others v the Minister of Energy, NECSA and sixteen others. Three former Board members of NECSA including CEO brought an urgent application against the Minister and others to review and set aside the decisions of the Minister to remove them as directors and to suspend the CEO. The urgent application was struck from the roll for lack of urgency in Jan 2019, and heard in June 2019. The Gauteng High Court found that the Minister had every right to be concerned upon the areas of noncompliance with their responsibilities by the directors, but found that the Minister failed to comply with the procedural requirements in Section 71 of the Companies Act. The Court found that the decision by the Minister to terminate the directorship of the applicants constitute administrative as opposed to executive action. The new board appointments were not affected by the judgment. The CEO remains dismissed. Each party was ordered to pay its own costs.

Important cases in the Mineral Resources department included:
• Mineral Council of South Africa (MCSA) and Scholes (Mining Charter Litigation). Both applicants sought orders to perpetuate the benefit of continuing consequences of previous empowerment deals throughout the life of a mine and to further seek a declaratory order as to the legal status of the 2004 review. Both the MSCA appeal and the Scholes declarator remains pending.

• Maledu and Others v Itereleng Bakgatla Mineral Resources (IBMR) and Another. IBMR is the holder of a mining right on certain land in the North West Province. It entered into a surface lease agreement with the Community following a Tribal Council Resolution. When mining was to commence, certain members of the Community felt aggrieved about the loss of their land and refused access to the company. The Court did not set the mining right aside but held that both rights enjoyed statutory protection.

• Duduzile Baleni and Others v DMR and Others. During 2016, the applicant instituted legal proceedings in the Gauteng High Court and sought a declaratory order to the effect that Minister of Mineral Resources is not permitted to grant mining rights in respect of tribal land without consent of tribal authority. The Court held that the Minister lacks the authority to grant a mining right unless the state had complied with IPILRA. The Court held that in terms of IPLIRA, the Minister is obliged to obtain the full and informed consent of the Applicants and the Umgungundlovu Community, as holder of rights in land, prior to granting any mining right to the TEM. The matter is currently on appeal.

• Mabola Protected Environment v Department. Various statutory authorisations were issued by the Ministers of DEA and DMR and the relevant MEC in Mpumalanga to allow Atha Africa Ventures to mine for coal in the Mabola Protected Environment. The Court remitted the matter to the Ministers to follow a process compliant with the Promotion of Administrative Justice Act (PAJA).

• Aquila Steel v ZIZA and Others. The matter relates to a dispute between Aquila, ZIZA and its successor PAMDC regarding overlapping prospecting rights in the Northern Cape. The High Court ruled in favour of Aquila. ZIZA applied for conversion of its unused older rights in 2005 which was granted in 2008. Meanwhile Aquila applied afterwards but was granted a prospecting right before 2008, albeit it was second in line. The High Court ruled in favour of Aquila and found the ZIZA application was defective and should have been refused.

• Mining Forum of South Africa (MFSA) v Lonmin and the Minister of Mineral Resources. MFSA sought an order declaring that the Minister has acted in breach of his statutory obligations under the Constitution by failing to act against Lonmin for its failure to implement its Social and Labour Plans. The application was dismissed with costs.

• Rhino Oil and Gas exploration SA (Ply) Ltd v Normandien Farms and another. The applicant challenged the validity of the acceptance of an exploration right in terms of the MPRDA. The Supreme Court of Appeal held that since there was no prejudice to Normandien, it could not ask for the acceptance decision to be set aside as the matter was not ripe for adjudication at that stage.

• Treasure the Karoo Action Group and Stern were concerned about hydraulic fracturing (fracking) in South Africa. Both applicants sought to review the Petroleum Exploration and Production Regulations promulgated in 2015, on the basis that its promulgation was procedurally unfair and that the Minister of Mineral Resources does not have authority to promulgate the regulations under the MPRDA. Stern succeeded in the Eastern Cape High Court but TKAG's application was dismissed by the Gauteng High Court which found that the Minister of Mineral Resources was authorised to promulgate the regulations and that its promulgation was rational. The SCA held in favour of Stern and TKAG and declared the regulations invalid due to lack of authority by the Minister of Mineral Resources to make the regulations under the MPRDA.

• Somkhele Case, District of Hlabisa KZN. It involved the Mfolozi Community Environmental Justice Organisation against a mining right for coal granted in favour of Tendele Coal Mining. The Minister confirmed the grant of the mining right on the basis of recommendations made.

• Samancor Chrome is involved in a number of criminal and civil cases involving chrome disputes. In the civil matter, the Minister’s decision to grant Samancor mining rights is currently the subject of an appeal and the matter is therefore still pending. In the criminal matter, the department has been subpoenaed as witness. The matter relates to alleged illegal mining by community members and the validity of an alleged issued mining permit. It is currently sub judice.

• Flaming Silver / VGSA Litigation. On 1st November 2017 Flaming Silver Trading and VGSA, which owned a controlling interest of the shares in Vantage Goldfields and 42% of Makonjwaan Imperial Mining Company, issued a share agreement, in terms of which the shareholding would be purchased by Flaming Silver from VGSA, providing certain conditions are present. The issues that have previously been raised by committee members give us cause to give this case more concern.

The DG concluded that the Department wants to reflect on some cases, especially the Baleni, Maledu and Stern cases, which reveal the difficulties in finding the balance between mining, community and environmental interests. Consultation with and identification of rightful community representatives remain problematic.

Discussion
Mr K Mileham (DA) voiced the first concern about the Department’s presentation. DMR has highlighted cases that they are awaiting judgement on, but he knew of two ongoing cases that were absent from the presentation. These cases concern ongoing litigation affecting both the Central Energy Fund (CEF) and the Strategic Fuel Fund (SFF) respectively. Could members get an update on those cases and others that may not have been referenced? What has been learnt by the Department from these various court cases? What procedures will be implemented to ensure that there are no repeats of these issues? There are examples throughout this presentation where the Department has not acted according to legislation. In the Baleni case, the Department has to look at two pieces of legislation. They ought to work in conduction with each other. The Department needs to look at how legislation dealing with the community impacts on it. in the Mbula case and other similar cases concerning environmentally protected areas, do you take particular care given the nature of the area? Concerning Stern and Treasure the Karoo, if the Minister lacked the authority to make the regulations, what are the implications for those regulations?

Ms V Malinga (ANC) wanted to hear how much the Department had spent on these litigation processes. She noted that mining is growing in South Africa, which is good news.

Mr M Mahlaule (ANC) noted that the SFF issue that Mr Mileham alleged had been left out of the presentation, was in actuality covered. That decision to appeal was correct. Its resolution means that we have clarity going forward on similar cases.

Mr Frans Nkosi, Senior Legal Administration Officer: Department of Energy, noted that there are indeed a lot of ongoing cases. As such, the brief that we brought today concerns cases that are on their way to being concluded. If we bought every ongoing and pending matter to the Committee we would have to bring at least seventy matters. If the CEF and SFF matter need to be reported, we can get some information, but it not a matter the Department itself is dealing with. There is no judgement yet on this particular matter, it is still pending.

Mr Thabane Zulu, Director General: Department of Energy, added that if the matter needs to be reported on then they will need to get some information from those entities. The matter is presently at court.

Mr Mokoena, Director General: Department of Mineral Resources, replied about the mineral resources cases, that as a department, they are responsible for the administration – we understand that we are obliged by the law to consult our communities, but we try to find a balance with specific matters. We comply with the law. If you look at the Mbula case, it was more about consultation with the affected parties. We have abided by the court decision. We are taking some lessons from these issues. On the cost, we are quantifying everything whilst working with the State Attorney. We are still in the process of collecting this costing information but we take the point the member raises.  On the performance of mining and its contribution to GDP, we are committed to improving.

The Chairperson thought that the question asked by Ms Malinga, in a roundabout way, was that the department ought to look for value for money. One of the concerns amidst the presentations was that there was R14 billion down the drain in litigation costs. Even if things have been historically conducted in a way that brought about these costs, we need to become more efficient in future. We ought to assist the Department in determining which ongoing cases are worth pursuing, not merely to attend presentations and adjudicate on issues that have already concluded. On the record, some cases are being taken to court deliberately, in order to lose, as a roundabout way of making money. The Committee should be able to assess cases and determine whether cases ought to be taken on or not. Every time we pass a budget, we neglect to allocate for possible legal spending. When you apply the law, you must apply the law concurrently. Laws do not get suspended by virtue of other laws. Going with pending or current cases, two cases are absent. In the case of Lily Mine, the difference there is that there were deaths - people were buried underground. Don’t you have a problem with business transactions? Don’t you think you ought to consider expropriation when there is failure to comply with the right legislation? Have you looked at making the law more favourable for business to operate?

Mr Mileham was concerned that the full picture had not been presented on certain important issues. Concerning the SFF, we have heard that because it does not involve the Department they did not present it. But then they present the NECSA issue. Why one and not the other? The SFF specifically mentions a former Minister and the Minister's alleged role in the sale of oil reserves. Why have we left this out? On the Treasure the Karoo and Stern NO matter, the judgement states that “the petroleum regulations must be set aside in their entirety…”. This matter opens the Department up to a concerning new precedent, namely that the Minister may not have authority to promulgate regulations under the MPRDA.

Mr Zulu replied and cautioned about making reference to names of people who have had allegations brought against them.

Mr Mileham made a point of order. He objected that even if he could not discuss the merits of the case, he could discuss the facts of the case. It was a fact that allegations had been brought against a former Minister. He insisted that individuals could be referred to.

Mr Mahlaule noted that when SFF came to present to the Committee in March 2019, although they mentioned "a former Minister" they did not mention a name. He maintained that to mention names in such circumstances would be incorrect. Not doing so keeps committee members safe legally.

Mr Mileham tried to make a further point of order.

The Chairperson overruled Mr Mileham. The Chairperson maintained that Mr Zulu was merely cautioning the Committee not to mention names. The caution is that a person might be implicated wrongly and the Committee would not want to prematurely associate itself with these kinds of accusations.

Mr Zulu thanked the Chairperson and insisted that he would not want to dictate to any member of the Committee. Concerning the NECSA and SFF matters, the SFF has been dealt with via court procedures. The NECSA matter is on the Department’s own roster, it has been dealing with it directly.

Mr Mokoena noted that the Court has made a ruling that certain regulations are null and void. If we are to take a decision that the regulations are to be as such because of the court, then we will have to review that decision as a Department. We derive comfort from the fact that no specific reference has been made by the Court to the Department having to review any specific applications that might follow from that case. They acknowledged Members' concerns. Mining operations at certain mines afflicted by shutdowns will hopefully be restored soon.

The Chairperson maintained that the issue, especially in the case of Mineral Resources, was that had the Department had certain powers or a certain framework, they could still only issue a person a mining right - but when a person decides to do anything, you are nowhere to be found. If we are to have legislation that gives mining rights, whatever the circumstances, we should endorse a system that gives us more oversight. The issue of traditional authority seems to be an unclear area. At some point, the traditional authority might claim that it does not have an authority over its subjects. There is a rule that says that if you cast aspersions, you must bring a substantive motion against that person.

Short break

Department of Mineral Resources and Energy legislative programme
The Chairperson noted that although it was a Friday, attendees had an obligation to attend. Looking at the work this Committee has to do, there was still a lot to get through. It was a little scary. Today might still not be enough time, but we must at least try to arrive at a sense of the legislation before us. Dealing with even one piece of legislation is an incredibly cumbersome process.

Mr Thabane Zulu, Director General: Department of Energy, agreed that more time might be needed. The development of petroleum resources is currently regulated under the Mineral and Petroleum Resources Development Act (MPRDA). During the Fifth Parliament the Department of Energy intended to finalise drafting five pieces of legislation: National Energy Regulator Amendment Bill; Gas Amendment Bill; Petroleum Products Bill; National Nuclear Regulator Amendment Act; National Radioactive Waste Fund Bill. In the Sixth Parliament, the Department intends to introduce these five Bills.

The National Energy Regulator Amendment Bill aims to promote efficient regulation of the energy sector. The Gas Amendment Bill and Petroleum Products Bill together aim to promote an efficient, competitive and responsive economic infrastructure, inclusive economic growth, and leveraging available gas resources (appropriate dispensation inclusive of compressed natural gas).  The National Nuclear Regulator Bill provides for the strengthening of the National Nuclear Safety Regulator as the authority on nuclear safety matters. The National Radioactive Waste Fund Bill’s main purpose is to provide for the establishment of a national radioactive waste management fund; to provide for the funding of the functions and activities of the National Radioactive Waste Disposal Institute; and to provide for the manner in which the Fund is to be governed, managed, administered and controlled. The Department will do its best to ensure that it performs better in this administration.

Ms Ntokozo Ngcwabe, Deputy Director General: Mineral Policy and Promotions at the Department of Mineral Resources, maintained upfront that a summary of the Bill would later be provided, given the detail needed for a full and judicious assessment of its merits. Development of petroleum resources is currently regulated under the Mineral and Petroleum Resources Development Act (MPRDA). In 2016, the Department of Mineral Resources introduced enhanced petroleum provisions to Parliament. The MPRDA since lapsed and created an opportunity to separate petroleum from minerals provisions in the Act. This new Bill presents a value proposition for SA.

The new Bill seeks to separate the petroleum and minerals provisions in law; repeal the mining provisions; regulate the development of the country’s upstream petroleum resources; create a conducive environment for investment and growth; balance business needs with national development imperative; entrench the principle of security of tenure and protection of the sanctity of investments; and provide for State participation and economic transformation of the upstream petroleum industry.

The Bill’s objects are to:
• Give effect to the principle of the State custodianship of the nation’s petroleum resources;
• Promote equitable access to the nation’s petroleum resources to all;
• Promote economic growth and petroleum resources development in the Republic;
• Encourage and promote national development of petroleum resources through acceleration of exploration and production;
• Provide for security of tenure in respect of exploration and production operations;
• Promote and facilitate acquisition of petroleum geotechnical data.

A concession contract has been retained as the primary contract type. The Bill makes provision for production sharing contracts and service contracts. The Department has examined how other countries, like Norway, Ghana, Nigeria and Qatar, have agreed contracts to inform its own agreements. The concession contract will be informed by a number of factors including location of the block on offer, whether the resource is conventional or unconventional, the maturity of the block and the national interest. She insisted that South Africa must not miss the opportunity to ensure own security of supply.

There are provisions for 10% Broad-Based Black Economic Empowerment (BBBEE) at exploration and production stage. The Minister is empowered to reserve a block or blocks for 100% black-owned companies with relaxed requirements.

The Bill proposes 20% carried state participation to be applicable to exploration and production rights. Provisions are made for cost recovery from the exploitation of the resource. State interest is to be held by a state-owned company and provision is also made for the state to have representation on the boards in which it participates. Different models are being considered and the state interest will be held by a state-owned company.

On taxes, state participation would be pitched at 10% free carried at exploration and 10% carried at production by Ministerial directive and terms and the contract. Under the current fiscal regime, it could take up to ten years before the government receives tax revenues. There is a provision for explorations uplifts at 200%. So, as an example, those who invest 10R would receive 20R back.

The Chairperson said that the draft Bill should come before the Committee before it is formally tabled in Parliament. He was concerned about the process around the original MPRD Amendment Bill that was in the NCOP at the end of the Fifth Parliament. Can the Executive withdraw a Bill after the second reading by the National Assembly while it is in the NCOP? For reference purposes, he advised that the Department check what the NCOP Rules say. How can one bring in a new Bill when one has not finished resolving the original Bill? The original Bill needs to lapse or be declared withdrawn. That previous Bill was never formally withdrawn. His view was that the Department must ensure that the new Bill does not get stuck in a parliamentary purgatory, and that it is produced and tabled in such a way that it can be passed.

Mr V Zungula (ATM) made the point that they ought to take lessons on how and why previous Bills failed. On benchmarks, the Department spoke about Angola, but the best performing nations for oil management are the Arab states where the national resources work for their people. Should we not be examining these countries instead?

Mr Mileham maintained that there was work to be done prior to tabling the Bill in Parliament. We need to have a draft Bill in front of us to provide proper criticism. As taxation and finance belong to the portfolio of Treasury, are you going to implement all the options you proposed in this Bill?

Mr M Wolmarans (ANC) regarded the Bill as progressive. On the National Energy Regulator Amendment Bill, he noted that the consultation process did not yield a positive response from the interested parties. What were the concerns? What assistance can the Committee provide?

Mr Mileham asked, given the vacuum left by the lack of petroleum regulations, what is being done to ensure their development?

Ms Ngcwabe noted that these regulations as tabled pertain to shale gas specifically. We have not previously exploited shale gas so part of this development is creating a regulatory framework for the first time in law to fill this vacuum. When Cabinet decided on the regulations in 2012 we had not granted any rights for fracking. On the fiscal terms, we have looked at the current government take on petroleum resources. We ask, can we look at the fiscal terms for this sector in its entirety? We take the comments that Members will be better able to comment with the draft Bill in front of them.

She replied that they have also looked at Norway and Qatar for benchmarking. We are studying these practices. On a final note, she just wanted to say that they have been on an interesting journey in conceding the legal technicality argument.

The Chairperson implored the Department to take his advice. Parliament, the NA and the NCOP need to be confident that the Bill meets the requirements and the Committee needs to be properly able to engage with its proposals. He advised them to consult with Legal Services to ensure that their work in drafting the Bill does not go to waste. If there are problems, the Department will have to apply to withdraw it and so forth. To do so would involve a longwinded process.

Mr Wolmarans added that his question had not been answered.

A Department of Energy official replied that National Energy Regulator Amendment Bill seeks to resolve organisational challenges and create a two-tiered governance structure to address governance issues within the NER. The structure would be two tiered in order to develop effective oversight.

The Chairperson thanked the attendees and the meeting was adjourned.