Chairperson, hon members, we sat in this House on 24 June to table the Mineral and Petroleum Resources Royalty Bills to give effect to the policy framework arising from the Mineral and Petroleum Resources Development Act.
The first draft of the Mineral and Petroleum Resources Royalty Bill was published by the National Treasury for comment as far back as 20 March 2003. The Bills being debated today are the fourth drafts, and I can safely say that these Bills have been the subject of extensive consultation and debate with all relevant stakeholders. I am sure, Chairperson, that if you asked any of the members of the Portfolio Committee on Finance to recite any part of this Bill in their sleep, they will do it gladly.
Firstly, in respect of tax base, the Mineral and Petroleum Resources Development Act laid out some very important principles that are intended to ensure that all South Africans benefit from the vast mineral resources that this country is endowed with. Based on extensive research and practical considerations, it was decided that the tax base will be the value of the minerals mined, that is, gross sales less transport costs between the seller and the buyer of the final product. Resource rents or mineral royalties should be payable irrespective of whether mining companies make a profit or not. Then, in respect of tax rate, the earlier versions of the Bill provided for various specific royalty rates for different mineral resources. The need to provide some form of relief in the case of marginal mines, both during start-up operations and when a mine is close to the end of its life span, proved to be a challenge.
To ensure equitable royalty rates and in response to requests for relief for marginal mines, a formula-based royalty rate structure has been proposed. In terms of this formula, there is one for refined minerals and one for unrefined minerals. The applicable royalty rates will vary according to the profitability of the mining company, subject to a minimum rate of 0,5% and maximum rates of 5% and 7% for refined and unrefined minerals respectively. For the purpose of these Bills, oil and gas production will be subject to the refined formula. The lower rates for oil and gas are an acknowledgement that there have, as yet, not been major findings of these resources in South Africa - more's the pity.
The profitability parameter in the formulae is Earnings before Interest and Taxation, EBIT, and it also allows for 100% capital expensing. The 100% capital expensing is an acknowledgement of the high capital costs associated with deep underground mining, currently in the case of gold and in future some other minerals, and deep level sea oil and gas exploration and production.
The formulae-based royalty rate structure does not only provide automatic relief for marginal mines, but also allows for the state to share in the upside in times of high commodity prices, such as the times we are living in now. Royalty rates will tend to increase as commodity prices increase and vice versa.
In terms of community royalties, the Mineral and Petroleum Resources Development Act protects the rights of certain communities to continue to receive community royalties. These community royalties will not be allowed as an offset against royalty payments to the state. Contrary to the views of many mining companies and analysts, such payments to communities are not viewed as double royalties. Mining companies and communities are also encouraged, where deemed appropriate, to convert the interests of communities into equity.
The full earmarking or ring-fencing of mineral royalty revenues is not supported. However, government is amenable to consider an on-budget spending programme targeted at mining and labour-supplying communities directed at human or local economic development, where these are properly justified on a partnership basis.
In this regard, a clear framework to prioritise projects, develop effective partnerships and governance guidelines will be critical. It should be noted that mineral royalties' revenues will tend to be cyclical, especially given the commodity price cycle. Such revenues may decline over the long term as a result of the gradual depletion of our mineral resources.
The benefits of our vast mineral resources, some of which are about to be depleted, have historically accrued to only a few. The Mineral and Petroleum Resources Development Act lays the foundation to ensure that the mining industry transforms benefits to larger sections of our citizens. The Mineral and Petroleum Resources Royalty Bills of 2008 will make a contribution towards greater transparency, sustainability and the distribution of benefits to all South Africans.
I want to take this opportunity to thank everybody involved in this process, but certainly the Portfolio Committees on Finance and Minerals and Energy for their contribution as in the final version of these Bills. I trust that the Bills will be supported by this House. I thank you, Chair. [Applause.]
Ngiyabonga nami, Sihlalo namalungu ahloniphekile ePhalamende. [Thank you, Chairperson and the Members of Parliament.]
The Bills before the House today are once again a clear and conscious commitment to the implementation of the clause in the Freedom Charter which proclaims that:
The people shall share in the country's wealth. The mineral wealth beneath the soil, the banks and monopoly industry shall be transferred to the ownership of the people as a whole.
In pursuit of this noble injunction by the People's Charter, and subsequent resolutions from the conferences of the ANC over the past five decades, a number of pieces of legislation have been passed by this House, among them the Mineral and Petroleum Resources Development Act, MPRDA, and the Diamond Export Levy Act.
The ANC resolved, at our 52nd conference in December last year, that:
A developmental state must ensure that our national resource endowments, including land, water, minerals and marine resources, are exploited to effectively maximise the growth, development and employment potential embedded in such national assets, and not purely for profit maximisation.
We further resolved that:
The use of natural resources, of which the state is the custodian on behalf of the people, including our minerals, water and marine resources, in a manner that promotes the sustainability and development of local communities and also realises the economic and social needs of the whole nation. In this regard, we must continue to strengthen the implementation of the Mineral and Petroleum Resources Development Act, which seeks to realise some of these goals. Our programme must also deepen the linkages of the mineral sector to the national economy through beneficiation of these resources and creating supplier and service industries around the minerals sector.
These Bills, which we are debating today, seek to give effect to the levying of royalties in order to ensure that South Africa receives just compensation for its nonrenewable resources that are extracted from underneath its soil.
In terms of this legislation, all extractors of mineral resources are liable for this royalty, whether they hold a mineral resource right under the Mineral and Petroleum Resources Development Act or illegally extract mineral resources without a right.
Provision is also made that all extractors, companies or individuals must register with the South African Revenue Services for purposes of payment of the royalty. This royalty is to be paid twice per year, with the final top- up payment being payable within six months into the following year, calculated in terms of a formula that my colleague, hon Mnguni, will outline later in the debate and that the Minister has also spoken of.
In addition to the imposition of royalties, the objectives of the Bills are outlined in the Bill as follows: It defines the refined minerals and the unrefined minerals; it also levies a rate on minerals that are refined, providing rates of royalty using a formula which I said will be explained. It clarifies the relationship between royalty payments and communities that hold rights to royalties due to mining on land owned by a community. It provides relief for marginal mines and also establishes anti-avoidance rules that prevent extractors of minerals from manipulating activities to avoid royalty payments. It also establishes administration procedures with regards to the frequency of levy payments and penalties for non-payment or underpayment of royalty.
The processing of this legislation was the most comprehensive and rigorous one, with submissions well above 30, ranging from industry to labour and civil society, even at the level of communities themselves. Of particular note here were Bapo Ba Mogale community who came by bus from the Brits/Odi magisterial districts of the North West province.
They came here with one message and they said: "Do not take away our community royalties as defined in the Mineral and Petroleum Resources Development Act 28 of 2002." We assured them that we will not allow that to happen and we kept our promise. This legislation does not take away community royalties as these are provided for in the Mineral and Petroleum Resources Development Act.
The industry also made very passionate pleas for the formula to be revised and, as my colleague Mr Mnguni will explain later and as the Minister has already explained. The originally proposed formula was revised and an amicable settlement was arrived at.
In this regard, I must indicate that the National Treasury and South African Revenue Service officials, as well as the officials from the Department of Minerals and Energy, were very accommodative as usual and were able to open the consultation process even beyond the normal bureaucratic time constraints.
On behalf of the committee I extend our appreciation to them. When the National Treasury reported to the committee on 17 June this year, we were already on the fourth draft, as has been alluded to since the first was released in 2003. Even after this draft further engagement and deliberations continued, resulting in a number of refinements to the Bill all in the interest of participatory democracy. Of course, there will never be a process that ultimately works to the total satisfaction of all parties, but I must say sufficient consensus was reached.
Udaba-ke lwaleyo miphakathi ethole amanquphana kulezo zinkampani ezimba umcebo ngaphansi kwemihlaba yawo abizwa ngama-community royalties nalo lwabhekwa kabanzi ngesikhathi sidingida lo Mthethosivivinywa. Kwavunyelwana ngokuthi lolu daba, njengoba ngike ngasho ngaphambilini ngolukaJoji, lubhekelwe ngaphansi koMthetho obizwa nge- Mineral and Petroleum Resources Development Act ka-2002, futhi-ke lo Mthethosivivinywa awuluphazamisi neze lolu hlelo.
Kuphela nje into esingayigcizelela yikho ukugqugquzela abantu bakithi ukuthi benze izivumelwano zangempela nalezi zinkampani ezimba umcebo ezindaweni zabo. Kumele benze izivumelwano ezizokwenza ukuthi babe nobunikazi kuzo kunokuthi belokhu bekhohliswa ngokunceliswa umbele ofile.
Uma ulalela isikhalo semiphakathi engaphansi kwalolu hlelo lwama-community royalties kuyacaca ukuthi imiphakathi ayizuzi njengoba kufanele. Iningi layo likhohliswa nje ngobala bebe ongxiwankulu bezitika ngenonileyo emhlabeni woyisemkhulu. Bathi uma sebesenge bakleza izaqheqhe bese besishiya nemfambele. (Translation of isiZulu paragraphs follows.)
[The issue of community royalties, which are royalties received by communities from companies mining in their land, was also looked at when we were debating this Bill. We agreed that this matter, as I said earlier on in English, should be provided for in the Mineral and Petroleum Resources Development Act of 2002, and that this Bill does not tamper with this programme.
The only thing that we need to emphasise is for our people to enter into credible agreements with these companies that are mining minerals on their land. They should strive to be shareholders instead of being given a fraction of what they should be getting.
When you listen to the plight of these communities under the community royalties programme, it is clear that these communities are not benefiting as they should. Most of them are given leftovers, whilst the capitalists take the real chunks from the people's grandfathers' land. These fat cats take huge chunks and leave us with absolutely nothing.]
In the spirit of black economic empowerment, we encourage our communities to negotiate for the conversion of these community royalties into meaningful and sustainable equity shareholding rather than their relying, on the meagre royalties that some mining companies give them. We also wish to encourage all stakeholders to be prepared to make the necessary concessions and that the issue of environmental impact is also taken into account.
The issue of the state lease payments also featured quite prominently in the public hearings, particularly from the mining industry's side. It was agreed that since most lease payments to the state were a form of mineral royalties in the absence of a more formal and comprehensive mineral and petroleum royalty regime, these would cease once this one kicks into effect. There will however be exceptional cases where particular arrangements that were unique to those cases will not be affected. Of particular note again here is the historical contractual arrangements between De Beers and the state in the Finsch mine, in which the state is entitled to a 70% undivided share ownership and the lease consideration is not necessarily royalties but payments in lieu of dividends, and therefore must be dealt with as such.
The other one would be the Ingonyama Trust in KwaZulu-Natal, and I would want to believe that these leases would have to be further engaged on, as there was no clear submission from the trust in this regard.
Chairperson, allow me to thank everybody who took part in the processing of this legislation, particularly staff from both the National Treasury and the Department of Minerals and Energy, in both the Portfolio Committees on Finance and Minerals and Energy, and all those who made submissions to the committees, and our committee staff for their administrative support while under tremendous pressure.
UKhongolose uyayeseka yomibili le Mithethosivivinywa. Ngiyabonga. [Ihlombe.] [The ANC supports these two Bills. Thank you. [Applause.]]
Chairperson, the Portfolio Committee on Finance again displayed a thorough and transparent process of deliberations and public hearings to ensure the legitimacy and credibility of the Bills submitted to this House. This is an example of good democracy and a shared responsibility to secure the best possible legislation.
These Bills have the objective to impose, arrange and administer the payment of royalties on the transfer of mineral resources in South Africa. The administration Bill aims to assure a fair and equitable distribution of payments to the people owning the land and the state as the custodian of all minerals to be extracted from the soil or beneath it.
These Bills received widespread responses from both industry and affected communities, with real concerns that varied from pure uncertainty to possible infringements on the rights on mining houses and the inherited land of communities. Some mining houses argued that, where they are already paying royalties to land-owning communities, a further royalty to the state would imply double taxation, which will obviously impact on their profitability and considerations by local and foreign mining and exploration investors. Local communities, on the other hand, wanted to assure that their vested rights to royalties are not negatively influenced by any amendment.
Vir die bepaling van die werklike gunsloon wat betaal moet word, moet daar kennis geneem word van twee tipes gunslone wat ter sprake is, afhangende of dit rou erts of onverwerkte erts of verwerkte erts is. Die formules vir die berekening van die gunslone was van die mees gedebatteerde onderwerpe tydens die openbare verhore - noodwendig omdat dit die finansile voordeel van die belangepartye die meeste geraak het.
'n Beginsel wat gevestig en ondersteun moet word is dat geaffekteerde gemeenskappe die reg verkry om die gunsloon in die vorm van aandele in die mynonderneming te verkry. Dit verseker voorspelbare sekerheid en eienaarskap in die mynmaatskappye. (Translation of Afrikaans paragraphs follows.)
[In setting the actual royalty that has to be paid, cognisance has to be taken of two types of royalties that are at issue, depending on whether it is raw, unprocessed or processed ore. The formulae for the calculation of royalties were some of the most debated subjects during the public hearings - ultimately because it impacted on the financial benefit of the interested parties the most.
A principle that must be established and supported is that affected communities are given the right to secure the royalty by way of shares in the mining enterprises. This ensures predictable certainty and ownership in the mining companies.]
In setting a royalty rate, it is vital that a balance is achieved to prevent possible investors from being deterred and existing players from looking elsewhere for more attractive business opportunities. The tax base of the royalty was agreed to be earnings before interest and tax, instead of the previous base of earnings before interest, tax, depreciation and amortisation, which did not take account of the capital investment particularly by deep-level gold mines.
To effectively deal with this complication, especially for integrated companies, of when the royalties should be applied, it was agreed that taxation should be applied as close as possible to the source in the mine. The formula takes into consideration the viability of the mine and its ability to pay the royalties. Refined formula rates would typically range from 1,7% to 2,5% depending on the profitability of the mine, with a maximum rate of 5% in cases of high profitability mines. Unrefined formula rates would range from 2,2% to 3,3% with a maximum of 7% in the case of high profitability mines.
Die DA is tevrede dat die benadering in die praktyk reeds in ander gevalle in die wreld suksesvol gebruik word en dat die gemeenskappe nie benadeel sal word nie. Met die huidige ho kommoditeitspryse sal mynhuise dit ook kan bekostig.
Dit sal nodig wees dat die uitkomste gemonitor moet word om te verseker dat onbedoelde negatiewe gevolge tydig mee gehandel kan word. Die DA steun die aanvaarding van hierdie wetsontwerp. Baie dankie. [Applous.] (Translation of Afrikaans paragraphs follows.)
[The DA is satisfied that the approach has already been successfully applied in other parts of the world and that the communities would not be negatively affected. Given the current high commodity prices, it would also be affordable to mining houses.
It is imperative that the outcomes are monitored to ensure that unintended negative results are timeously addressed. The DA supports the adoption of this Bill. Thank you very much. [Applause.]]
Chairperson, in the debate earlier on, the Minister of Science and Technology, said on the Intellectual Property Bill that overseas investors come into our country and dig up our resources. Now, hon Minister, if they dig, they pay for what they had dug up, and that money will remain with the people of South Africa.
This is essentially what this Bill does. As the hon Minister had indicated, there was a very extensive consultation process. This Bill has been on the table for the past five years, and I know hon Lucas has been telling me about this. We want to acknowledge the efforts of National Treasury in accommodating the concerns and uncertainties within the mining sector, without diluting the state's rights to recoup a user fee for nonrenewable mineral resources that belong to all South Africans.
Treasury had to walk a fine line between the state's interests as the custodian of our mineral wealth and the long-term survival and viability of the mining sector, which continues to play a vital role in our economy. It is the IFP's position that a sensible balance has been struck and we applaud all stakeholders for their positive contributions.
It goes without saying that the IFP was concerned that the Bill would do away with royalties that are currently accruing to traditional communities and which are used to uplift those communities, as is the case with the Ingonyama Trust in KwaZulu-Natal, whose income from these sources is almost R10 million.
We are assured, however, by item (ii) of Schedule 2, which protects these existing royalties and ensures that the traditional communities will continue to benefit from them now and in the future. We have accepted Treasury's assurances in this regard and the hon Minister also alluded to this when he opened the debate.
The hon chairperson of our committee spoke about the environmental impact. We also would like to bring in the issue of safety, particularly, not only with underground mining, but also with sand-mining companies, because we have read about a lot of incidents where young people have drowned because safety measures are not into place. We would also like to encourage the department to work with communities to ensure, where equity is sought in these mining companies, that the department must assist communities so that they can get equity. We want our people to be partners, shareholders and directors in these operations and not merely tax collectors or royalty collectors.
A wonderful example is what happened in the Royal Bafokeng community and I think this needs to be emulated all over. As the IFP, we wish to support both the Bills, the Mineral and Petroleum Resources Royalty Bill and the administration Bill. Thank you.
Chairperson, if anything, South Africa has always been a country rich in minerals. From many hundreds of years ago, people flocked to South Africa to gain from our mineral wealth and many colonialists have built their wealth from our soil.
It is, however, evident that in democratic South Africa mining of minerals remain a common trade of interest, and more remains to be the substance of survival for many working in these mines. It is also true that the salaries they earn do not match the wealth the mine owners inherit from digging, and it's a fatal imbalance in our economy.
Either way, all of these minerals are the wealth of the South African people and we, as the MF, have no objection to there being a royalty charge on this. The MF supports the Mineral and Petroleum Resource Royalty (Administration) Bill and the Minerals and Petroleum Resources Royalty Bill. I thank you.
Chairperson, hon Ministers and colleagues, one of the clauses of the Freedom Charter states that, "the wealth of the country and its mineral resources shall be shared amongst those who live in it.'' The Bill before us complements the Mineral and Petroleum Resources Development Act, Act No 28 of 2002, which in turn vests the mineral rights in the state as custodian of mineral resources on behalf of South African citizens. Its main objective is to compensate the state for the country's permanent loss of nonrenewable resources without compromising communities who have contractual royalties with mining companies operating on their land.
This was a concern among mining houses as they claimed that it was double taxation. On the other hand, communities such as Bapo Ba Mogale are dependent on these contractual royalties for the upliftment and development of their communities. During public hearings and our deliberations the committee emphasised that it was not going to go against the objectives of the MPRDA by bowing to industry demands to do away with contractual royalties.
It is, however, up to communities themselves to negotiate with mining companies if they need an equity stake in the company. A busload of Bapo Ba Mogale's people came to the hearings to voice their interests in and support for the retention of community royalties. The community is fully aware of the implications and responsibilities they will be faced with should they decide to have an equity stake in the mining company.
Indirectly, the Bill also tries to address the issue of unemployment and poverty by enforcing beneficiation of minerals. This is done through the taxation of minerals at an exit point when they are exported. This Bill complements and gives teeth to the MPRDA's objectives of beneficiation; the State Diamond Trader and the levy imposed when some diamonds are exported are typical examples.
The determination of the royalty to be paid by the industry was another bone of contention for the mining houses. Clause 2 of the Bill states that:
A person that wins or recovers a mineral resource from within the Republic must ...
... in respect of each year of assessment -
... pay a royalty for the benefit of the National Revenue Fund in respect of the transfer ... ... of that mineral resource by that person.
The argument from the industry was that there are refined and unrefined minerals of which the difference in purity or impurity is brought about by the by-products associated with the mineral. They argued that it is not the intention of the Bill to levy royalties on refined minerals. As a result, a formula was proposed by National Treasury, which took into account some of the concerns raised.
The formula expresses the royalty levy as a percentage of the amount of the mineral extracted. Because of the difference between the refined and unrefined minerals, two royalty formulae expressed as a percentage of the value of the minerals are used when calculating the royalty levy. The maximum factor for the refined minerals is 5% and 7% for unrefined minerals. Previously, a flat rate of 3% was used irrespective of the quality of the minerals. The formulae ensure that it is automatically adjusted for cyclicality and volatility of the market. When there is a boom in the market, it provides the fiscus with higher revenue and in bad times, it provides relief for marginal mines. Initially the formula included amortization and depreciation in the total value of the mineral, that is, EBITDA, which is earnings before interest, taxes, depreciation and amortization. This valuation was a bit harsh for the industry, as marginal mines and small-venture mining operations would suffer. Therefore, the committee agreed that depreciation and amortisation be excluded, which was a great relief for the mining houses.
There is a further relief for small business in this clause of the Bill. A mining company is exempted from paying royalty levies if the gross sales are less than R10 million during the year of assessment or if the royalty to be paid is less than R100 000. However, the small mining company must be a resident as defined by the Income Tax Act and must have registered for that year.
Generally the anti-avoidance rule will kick into place should the industry try any shenanigans in order to avoid paying a royalty levy. Thank you. [Applause.]
Chairperson, what can one add to a debate that has been as full and complete as this, that has been as participatory for members of the committee as this process has been, but to say thank you for the support. [Applause.]
Debate concluded.
Mineral and Petroleum Resources Royalty Bill read first time.
Mineral and Petroleum Resources Royalty (Administration) Bill read a second time.