Mineral and Petroleum Resources Development A/B: Response to Submissions; Electricity Regulation A/B: NCOP Amendments

Meeting report

MINERALS AND ENERGY PORTFOLIO COMMITTEE
13 June 2007
MINERAL AND PETROLEUM RESOURCES DEVELOPMENT A/B: RESPONSE TO SUBMISSIONS; ELECTRICITY REGULATION A/B: NCOP AMENDMENTS

Chairperson: Mr E Mthethwa (ANC)

Documents handed out:
NCOP Amendments for Electricity Regulation Amendment Bill
Electricity Regulation Amendment Bill [B20B-2006]
Electricity Regulation Amendment Bill [B20D-2006]
Mineral and Petroleum Resources Development Amendment Bill [B10-2007]
Consequential Amendments to the MPRDA: Department of Minerals and Energy (DME)
Proposal to Initiate Incentives for Junior Exploration

Audio Recording of the Meeting

SUMMARY
The Department of Minerals and Energy responded informally to the submissions on the Mineral and Petroleum Resources Development Amendment Bill. They had reached agreement with the Department of Environmental Affairs and Tourism, particularly over questions of how the Minister of Minerals and Energy could be defined as a competent authority to rule on environmental issues where mining activities were involved. Other amendments resulting from the recent public hearings were also put forward. However, many of the amendments were of a consequential, technical nature.

Members felt that there was still a lot of consultation to be done. The interests of historically disadvantaged South Africans and the environment had to be considered fully.

The National Treasury proposed an amendment which would provide incentives to encourage junior mining companies to undertake exploration. The definition of which companies could benefit would have to be well defined.

There was some confusion over amendments made to the Electricity Regulation Amendment Bill. Once this had been clarified, the Committee accepted the amendments and agreed that the Bill could pass to the National Assembly.

MINUTES
Mineral and Petroleum Resources Development Amendment Bill

The Chairperson said that the Committee would engage only in informal deliberations on the Bill. Public hearings had been held. Representatives from the DME and the National Treasury were present and would make comments. There had been communication with the Department of Environmental Affairs and Tourism (DEAT). There were some matters related to taxation which might result in a money Bill being raised.

Adv M Mononela (Chief Director: Mineral Development and Administration, DME) said that the DME had presented the Bill to the Committee. Public hearings had followed. The DME had now drafted new suggestions following these hearings. He apologised for the non-availability of the document with the proposed amendments due to technical difficulties. He introduced the members of his delegation. There had been consideration to both the mining and environmental branch contributions. [A document was provided after the meeting].

Ms Lindiwe Mekwe (DME Director: Mineral Policy Development) said that consequential amendments had been drawn up and she read through them. A proposal would be included in the long title regarding the transferability of agents. All authority vested in designated agencies would move to the control of the DME. On page 2 of the Bill, amendments were made from the comments of the Legal Resources Centre regarding the recognition of communities. The definition of a community would give effect to communities of previously disadvantaged individuals. There was also the question of what constituted a competent authority.

Ms Elize Swart (DME Director: Mining Environmental Policy) said that the definition of a proper authority would rest in the Minister of Minerals and Energy (MME).

Adv Mononela said that the definition of the MME as a competent authority was part of the consequential amendments. The National Environment Management Act (NEMA) would also have to be amended to recognise the competence of the MME to deal with the matters under their control.

Ms Mekwe said that the MME should be the competent authority when dealing with mining matters. The definition of an effective date should be the date on which a permit was issued or the date on which a permit holder began to execute the right granted. The Chamber of Mines (CoM) proposal that the definition of an exclusionary act be deleted was accepted. In terms of financial provisions, reference to insurers and commercial banks would be deleted. A substitute reference would be to financial guarantees.

Ms Swart said that there was a deleted reference to Section 41(A) of the primary Act. An agreement had been reached with National Treasury to include this provision in guidelines and work plans.

Ms Mekwe continued that a definition for historically disadvantaged South Africans (HSDA) should be included. On page 4 of the Bill, lines 28 and 29 would be deleted. Regarding reconnaissance operations, a reference to seismic data would be included.

Ms Swart said that 'residue' was a missing issue of old order rights. There was some confusion over residual stockpiles left over at the end of the execution of a right. A definition of waste was therefore included. A stockpile was the collection of resources still to be mined, but waste would be defined as unwanted substances.

Ms Mekwe said that the objectives of the Act listed in Section 2 would need to recognise the 'community' as suggested by the Legal Resources Centre. In Section 2C a reference was needed to the promotion of downstream industries. This would help to develop and promote beneficiation. Section 2D needed to include a reference to communities.

Ms Swart said that a reference would have to be included to an approved Environmental Management Plan (EMP). The EMP was a dedicated, dynamic document. It had to be approved because of the possible impact on the environment.

Ms Mekwe continued that there would be a new insertion in Clause 9. The whole of subsection 3 would be removed. Section 5 4 would cater for all illegal operations. Clause 7 would have a new subsection 5, which would support references to the intentions of the amendment. Rights could not be transferred with the knowledge or consent of the Minister. His powers were listed in Section 11(1). There was a consequential amendment to Section 47. If a person transferred an interest without permission then that right could be suspended.

The Chairperson said that in the past, the Department would go through the Bill on a clause-by-clause basis. Issues had been clarified in this way and other issues would emerge through this process of clarification. However, they now needed to zoom into the contentious issues, such as the question of the competent authority being debated with Department of Environmental Affairs and Tourism (DEAT). He had hoped that at this stage there would be more of an indication of the outstanding issues regarding the amendments. Issues emanating from the industry were being responded to. All views were needed, including those from other government departments. There must not be fundamental objections from other departments. An agreement was needed by 15 June, and he did not want the dust still to be settling by then. He asked the State Law Advisors (SLAs) present and Committee Members if they had any questions.

Adv Schmidt (DA) said that the DME was now presenting proposed amendments. Members could not give an input if they did not have the documentation in front of them. There could be some discussion, but it would be best if in-depth discussion took place later.

The Chairperson said that this would not happen. They had gone through the process already. In the absence of anything new, it would be best if the Committee dealt with the Bill internally. However, substantive issues were being raised from the meetings held the previous week. The clause by clause analysis had been done the previous week as well. They had heard what the industry was saying. The numbering of the Bill was not important at this stage. He wanted to see the Bill implemented as soon as possible, but at the same time he did not want to see the process being rushed.

Mr Louw (ANC) said that the Chairperson was correct. It was of no use to continue the process if other issues were still outstanding. Other institutions should be consulted first, and then all could move forward. He proposed that they follow the plan outlined by the Chairperson. DME should consult with their counterparts.

Adv Schmidt said that they were talking at cross purposes. He was aware of the external inputs. He proposed that the DME postpone their inputs. He thought of what the actual effect of the inputs would be, and would like to put these and all the other issues into a cooking pot.

The Chairperson said that the DME team must have a chance to prepare their inputs first. There were a plethora of issues to be engaged.

Adv Mononela said that the document was the result of a lengthy debate between the various departments and parastatal institutions. They were dealing with legal matters which encompassed all parties. They had still been in discussion with the DEAT the previous night. The SLAs had been present. A number of issues had been discussed, and a comprehensive background had been given. An agreement had resulted on what was implementable. Further negotiations might hamper investment.

Ms Swart said there was a return to environmental functions as laid out in the Act of 1991. There had always been these functions. The DME was the first to introduce environmental regulations, and this had always been a problem. Mining and related industries were the only ones not listed in terms of NEMA, as this would have caused duplication. The Directors General of DEAT and DME had agreed that mining and related activities could be listed. However, the MME would have to be the competent authority. Norms and standards would be adopted. The DEAT Minister was not upset over the existing process too much. There had been extensive work on the amendments, but seemingly there was no agreement yet. There was a need to identify the MME as a competent authority in terms of NEMA. There would be agreement on various other environmental aspects. For the MME to be a competent authority on environmental issues would be inconsistent with DME policies. Three authorities were listed, namely the Minister of Environmental Affairs and Tourism (MEAT), the MME, and other organs of state. This situation was problematic.

She explained that the MME would not always be the competent authority. If an application for rights crossed provincial boundaries or was in a protected area, then the MEAT would be competent. This was problematic. The MME could be the competent authority in some cases but not others. The mining industry would always be looking for loopholes in legislation. The rider was very wide. The DME was trying to clear up this situation, and felt that the MME should be competent for all instances regarding mining activities. This matter was a stumbling block. The SLA was trying to formulate a proposal. The DME had accepted a proposal the previous night, but it was still only a proposal. Political leaders would have to make a decision.

The Chairperson asked if mining and mining areas were defined. Ms Swart said they were.

The Chairperson said they would have to pass for the moment. He thought that DEAT could have some core proposals but he understood that some issues had to be clarified.

Adv Mononela said that he recalled that the CoM had wanted to address the Committee on environmental issues. The Director General had said that there was agreement with DEAT. He concurred with the initial proposals. The MME would be the competent authority for environmental issues related to mining activities only. They had worked their way around that. He had met the SLA. They were dealing with matters relating to specialised industries such as mining. Agreement had been reached at the meeting the previous night, and a definition drafted. This would be a consequential amendment to NEMA. He was concerned that the industry would take advantage of the situation. The intervention by the SLA had been helpful.

Mr Louw noted that the document given to the Committee was dated 13 June. The Chairperson’s approach was correct. The document contradicted what Adv Mononela and his team was saying. He agreed that mining was a specialised business, but it was also a risky one. Proper consultation was needed. What the SLA had said was fine. This was one of the most critical Bills to come before the Committee. They could not play with this. The DME faced serious legal challenges. There would have to be proper consultation first, and the Bill could not be steamrolled through the legislative process. If it was, there could be a heap of court cases to follow. He would take the document and study it, and the DME should be allowed to consult the various stakeholders. Then he would be satisfied. The Committee was not taking anybody’s powers away. Firstly, HDSAs would suffer. Secondly the process of getting a licence would be prolonged.

Adv Schmidt said that he could not agree with Mr Louw more - a rare event! The Minister should have authority. He was still unhappy with the phrasing about DEAT. They had always been the guardians on environmental issues, and he wanted to find out why there was disagreement.

The Chairperson said that he would take into account what the Members were saying. His only caution was that consultation could not go on forever. He understood how far the process had gone even though there was more disagreement. However, he could not allow the Committee to be locked into a never-ending process.

Input from National Treasury
Prof Keith Engel (Chief Director National Treasury: Tax Policy) said that a full consultation had taken place, and things were moving well. The DME was on board. He agreed on the importance of environmental issues. Trust funds were an issue but could be left to regulations. It was a different matter to rehabilitate mines.

He distributed a one-page handout which was the text of a last-minute amendment. It was aimed at promoting junior mining companies. The Minister of Finance wanted an incentive for these companies. It was not just an issue of transformation but of encouraging foreign investment. The old regime had wanted to leave some areas untouched. Existing companies did not want to do risky exploration.

Prof Engel said that Canada had been in the same situation, with a similar tax and regulation regime. The Canadian government had then introduced special incentives to new mining operations, which had eventually resulted in that country being a leader. Canadian companies invested all over the world, and Treasury wanted to see if this situation could be replicated in South Africa.

He said that Treasury was careful in applying tax incentives. The preferred approach was to keep rates low and by so doing. to broaden the base. There was careful consideration in this case. The regulation regime and tax policy must complement one another. Compromise was part of real life, and the challenge was how to put the two concepts together.

Prof Engel said that this led to the proposal to provide incentives for junior companies. This would require the adjustment of the rules of the principal Act. There was concern that incentives might be misused. It was important to define what was meant by a junior mining company. If Treasury was not comfortable, then the amendment would be ineffective. The regulations must go together or not at all. Tax could be used as a space holder. Investors in junior mining companies could claim deductions from up front. This would offset the risks involved with exploration.

The incorporation of the amendment would promote the longevity of the Act. The feasibility of the proposal was being studied. The Minister had ruled that the situation must be resolved, and the rules of the DME were flexible enough to allow this.

Discussion
The Chairperson asked if junior mining companies would be indigenous or foreign.

Prof Engel replied that these companies had to be South African legal entities. Investors could be foreign or domestic. These people should be part of the tax base. It is probable that the companies would be indigenous or have HDSA involvement. It was a question of how it could be made to work. The area was not fully defined in the Tax Act. He envisaged this to be purely for exploration, where the company involved would discover a mineral deposit and then sell the rights to a mining company. If the rights were sold, then all the normal rules would apply. There was a need to consult with the industry to determine which rules were barriers.

Ms Debbie Ntombela (DME Chief Director: Mineral Regulation and Administration) said that a number of prospecting rights had been granted to Black Economic Empowerment companies. The problem was that they lacked finance and could not conduct prospecting operations, and rather sold the rights.

Mr Louw referred to the Treasury meeting, and felt there might have been some favouritism. He asked if this would apply to mining for all commodities in the industry or specific minerals. If this was the case, where would the exit point be?

Adv Schmidt said that Treasury had a duty to make sure the economy would grow. The Committee had to make sure that this happened in the right direction. This proposed Clause had come out of the blue. The Minister could seemingly do everything, but when he looked again he saw that a very narrow band would be defined with severe limitations.

Mr E Lucas (IFP) said that this was an exciting input. Care must be taken to avoid exploitation, and the definition was important.

Prof Engel said that the DME had made a perfect point. Junior companies had no papers and no money. The idea was to bring in investors to back them. There were other issues. They were still debating the definitions. There were still some lobbies to enlarge the target group. It was aimed at small businesses, and they were really looking to boost the small scale explorers. This needed to be defined. Exit and entry points had to be set. As companies grew so they would shed benefits. An example had been the debate over the diamond levy, where the cut-off mark had been set at R3 billion. They were generous to the large players too. They also needed to be kept in the net. There were more different regulations for larger companies, with more possibilities of beneficiation. In fact, they were tightening up on big businesses. There still had to be a decision on to which commodities this concession would apply, if not all. The taxation authorities were looking at all commodities, but the DME might decide otherwise. There might be a lesser case for platinum than other minerals, but advice would be sought from the DME on this matter.

The Chairperson said that the definition would be a major point. The issue had to be boxed in carefully. A clear definition would help to make the concept understandable. There would always be a debate no matter what was done, and this should not affect Section 11 of the Act adversely. He stressed that the Act was one of the most fundamental pieces of legislation. There should not be a negative impact on the small scale operators.

Input from State Law Advisor
Mr J Daniels (State Law Advisor) elaborated on the issue of competent authority which should cut across various areas, including protected areas. He said that he had attended the meeting between the DME and the DEAT. He had played an unusual role, rather like the referee in a boxing match. The question of competent authority fell within the role of the DME. After various meetings an agreement had been reached. The MME should be competent over mining issues and any environmental issues should fall under the MEAT. This affected the wording of both the Mineral and Petroleum Resources Development Act and NEMA. There had been initial agreement, then the DME had said they had a different interpretation. They were probably correct.

He said that there was disagreement regarding regulations, although the proposals had the same general wording. All parties had seemed to agree that the NEMA regulations would apply. A supplement was needed which would allow the DME to add or remove provisions. This could encompass things not necessarily related to mining. These would have to be formulated. A proper document would be produced which would satisfy all parties.

The Chairperson asked if the document had been seen by all players.

Mr Daniels replied that it had. The formulation seemed a bit loose, but DEAT had seemed happy.

The Chairperson commented that he could see light at the end of the tunnel. The Committee’s schedule would inevitably be affected. The political leadership would not be a problem. They were not presently in a position to finalise matters. Consultation had to happen but could not be unending. They would return on 20 June for formal and informal deliberation. This was D-Day for the Bill.

Electricity Regulation Amendment Bill

Mr Ompi Aphane (DME Chief Director: Electricity) presented the Bill as amended by the National Council of Provinces (NCOP). This was the penultimate step to it being accepted into law. He said that the changes made by the NCOP were not substantial, and mainly concerned technical numbering.

Mr Aphane said that the most difficult of the changes was that the Portfolio Committee change to Clause 3 had been rejected by the Select Committee:

Other changes were: Clause 27 was a repeat of Clause 28, so Clause 28 was removed. There had been a consequential change in the paragraph numbering. This related to a principle that all tariff-related matters should involve consultation with the Minister of Finance. There was an amendment to Section 49 in that it had referred to Section 46, which would now be renumbered Section 34. All changes had been captured in the B20D version of the Bill.

Adv H Schmidt (DA) requested clarity. As he understood it, words in brackets were to be removed, and underlined words were to be added to the amended Act. The Portfolio Committee had added the word ‘reticulation’ to Clause 2, but now it was being omitted. Clause 3 was being rejected by the NCOP, who must have wanted to add this clause in the first place.

Mr Aphane explained that the NCOP had proposed certain amendments. The Bill was presented in its entirety to the Select Committee. They had then drawn up a list of amendments, but with reference to the unamended Bill.

Ms Booyse (Law Advisor) said that Adv Schmidt was referring to the B version of the Bill. Clause 2 had amended Section 8 of the primary Act by adding the words “or reticulation”. The Select Committee had taken this out, and therefore had rejected Clause 3 as it no longer reflected the change proposed by the Portfolio Committee. Version D of the Bill thus had to be read in relation to the principal Act.

She added that Section 28 (as found in Clause 11) was omitted from the principal Act. This created a mismatch of documents, and it became hard to follow.

The Chairperson said that the Committee would not discuss the numbering now. The amendments which this Committee had proposed had, by and large, been accepted by the Select Committee.

Adv Schmidt was trying to follow the process. He had versions A, B and D of the Bill. The amendments agreed to by the Portfolio Committee were referred to in the B version. They had gone through this procedure before. The eventual result of the Committee process in both houses should be the D version. The A version was what the Portfolio Committee had agreed to. The B version was the Bill as amended by the Portfolio Committee. He did not have the C version. The D version was the Bill as amended by the Select Committee.

Ms Booyse clarified the use of the different versions. Version A was a list of amendments as put forward by a Portfolio Committee. Version B was the revised Bill, incorporating those amendments accepted and voted on by the Portfolio Committee. The C version was a list of amendments resulting from the deliberations of the Select Committee. The D version was the Bill incorporating the amendments proposed by the Select Committee.

Mr S Louw (ANC) moved to accept the Bill as amended by the NCOP. Ms N Mathibela (ANC) seconded the motion.

The Chairperson asked if there were any objections. There were none and the Bill as amended by the NCOP was accepted.

The meeting was adjourned.