Hon Chairperson, Members of Parliament, the Director-General of Mineral Resources, management of Mineral Resources, Chairpersons, CEOs of mining companies, the leadership of trade unions, chairpersons and CEOs of state-owned entities, representatives of other stakeholders, comrades and friends, ladies and gentlemen, it gives me great pleasure to introduce to this House the debate on the Budget Vote of the Department of Mineral Resources for the 2010-11 financial year.
As you will recall, President Jacob Zuma announced the reorganisation of Cabinet and national government departments on 10 May last year. Amongst other things, the Department of Minerals and Energy was split into two, namely the Departments of Mineral Resources and the Department of Energy respectively, to ensure a realigned organisational structure reflective of the new functions as informed by the new mandates.
I am happy to report that the transitional arrangements in terms of which the Department of Mineral Resources provided support services to the Department of Energy has now come to an end. The Department of Mineral Resources is now fully established and employees have been matched and placed into the two newly created departments. In view of the global recession and the state's limited financial resources, the Department of Mineral Resources will be implementing the approved organisational structure in phases.
The process of splitting the Department of Minerals and Energy's budget was successfully finalised in January 2010. This process culminated in the final allocation of R1,030 billion for the Department of Mineral Resources. In response to shrinking financial resources, the department introduced a number of cost-containment measures and stringent controls to achieve more with less. These included scaling down the number of delegates on overseas trips, the suspension of international conferences and seminars, the hosting of meetings in close proximity to the department or in free venues, using public service circulars or free advertising for positions below director and so on. We will continue on this path.
The revenue collected for 2009-10 was R149,118 million against the projection of R165,357 million. The implementation of the royalty Bills will result in a further reduction of our revenue collection as this function has since been moved to the SA Revenue Service, Sars, with effect from 1 March 2010. My department remains committed to sound financial management and discipline. We will continue the legacy of obtaining an unqualified audit opinion as was the case in the past five years with the Department of Minerals and Energy.
The Department of Mineral Resources will continue to implement our fraud prevention and anticorruption strategy and plan. In addition, the department will continue to educate our employees on the code of conduct. We have also finalised our disaster recovery plan, which will be implemented this year. We are also reviewing all our information systems with the aim of ensuring integration.
With regard to procurement, my department has managed to channel 45,4% of its procurement spending towards historically disadvantaged South Africans in 2009-10. Going forward, we are planning to develop a supplier development strategy in consultation with the Department of Trade and Industry. This strategy will assist in ensuring the participation of historically disadvantaged people in the procurement of specialised goods and services.
In line with our spending priorities for 2010-11, an amount of R67 million has been allocated for mineral policy and promotion activities. I recently convened a mining summit with all stakeholders under the auspices of the Mining Industry Growth and Development and Employment Task Team, Migdett, with the aim of developing a strategy for sustainable growth and meaningful transformation, seeking to position the country's mining industry along a growth path whilst simultaneously transforming it.
At this point, I must emphasise the mutually reinforcing nature of both growth and transformation, ie the one cannot be successful without the other. The development of a 2030 vision for growth and transformation is consistent with the second mandate of Migdett of recommending interventions to position South Africa's mining industry for optimal growth when the global economic climate improves. Our deliberations took place in a constructive spirit of tripartite collaboration, and we are positive that we have agreed on a significant number of issues which will enhance growth and the sector's global competitiveness, create decent sustainable jobs, and transform the industry in a manner that meets the expectations of the industry's stakeholders, investors and our country's citizens.
Equally, it's encouraging that all parties are committed to concluding work on the remaining consensus-seeking issues by the end of June 2010. As we all know, as of February this year, mining production grew at 6%, while mining revenue correspondingly increased by 8%, confirming that the recession is quickly becoming a thing of the past. We have completed the first phase of the mining transformation policy journey, which has provided us with the benefit of hindsight.
As we reviewed progress in terms of performance of the mining industry and the extent to which the transformation objectives have been attained, we found that we have seemingly made great strides towards the replacement of the original mistrust among key stakeholders with a growing spirit of collaboration. However, we also found that the cumulative performance of the mining industry in South Africa compares unfavourably relative to other mining jurisdictions, coincident with the longest synchronised commodity boom ever experienced, and suggestive of the structural challenges inhibitive of the attainment of the desired outcomes. This is corroborated by the regression analysis of cumulative annual volumes of production that have contracted during this time, with mining's contribution to the gross domestic product, GDP, in real terms correspondingly declining by 1%.
Accordingly, South Africa's share of the global exploration budget has systematically declined, from 8% in 2001 to less than 4% last year in real terms, although there has been a steady growth of this expenditure in nominal terms. Nevertheless, more than 80% of this budget is typically expensed toward exploration activities in existing mines, while an insignificant remainder of below 20% is dedicated towards greenfields exploration. The mining industry, therefore, cannot be sustainable unless it begins to invest in replenishing the current finite reserves and prolongs its future growth.
I am also aware of the recently published Fraser Institute survey of mining companies, which indicates that South Africa has lost its global ranking from 27/47 in the 2002-03 survey to 61/72 in the 2009-10 survey on the institute's policy potential index. Whilst some may dismiss the survey as the product of conservative analysis, it does, however, have a profound influence on investment decisions. To the extent that this state of affairs can be attributed to the policy and regulatory environment which is within the authority and control of my department, I have specifically tasked Migdett, again, to integrate policy considerations in their input towards the development of the aforementioned strategy, which will not only restore but further enhance the country's ranking and render it a more attractive mining investment destination.
Despite considerable diversification of the country's economy in the recent past, the mining sector remains a key variable in our economic growth equation. For instance, in 2009, the industry contributed 9,5% to gross value added, 9% to total fixed capital formation, more than 30% to the country's total export revenue and it employed 2,9% of the country's economically active population, currently at just below half a million direct jobs and a further half a million indirect jobs.
In addition, the sector contributes 18% to the country's corporate tax receipts. The listed mining companies represent over 30% of the market capitalisation of the Johannesburg Stock Exchange. While mining activities consume 15% of national electricity, the mining industry directly contributes more than 95% towards the country's electricity generation.
South Africa is host to significant known reserves and resources of mineral commodities, with almost 60 minerals being actively mined and prospects for the exploitation of an additional two new minerals in the short to medium term. A large number of these known reserves were discovered using conventional exploration methodologies. For this reason, there is still considerable residual potential for the discovery of world-class deposits using modern exploration technology. This is further supported by existing mining infrastructure, which enables investors to leverage maximum value from their investment in South Africa, while at the same time contributing to sociopolitical improvement.
On the transformation of the mining industry, there's consensus among stakeholders on the limited progress attained to date. The rising tensions between mining companies and host communities, typically in rural areas, are symptomatic of serious challenges that face our intent to grow this industry in a sustainable manner. The impact assessment of the Mining Charter further illuminates lack of meaningful ownership vested in the hands of its intended beneficiaries, due to, inter alia, the complexity of funding models underpinning transformation transactions.
These models are typically designed to benefit principal partners, financiers, legal advisers and other management firms to the disadvantage of the intended beneficiaries, who remain not only indebted but also in the absolute minority. This practice is contrary to the objectives of the transformation agenda and undermines the aspirations of the populace. This has also created an environment for fronting, in which targeted beneficiaries are not actively involved in mining project development, but more focused on making quick money.
Fronting is a disgrace and is a scourge in the realisation of effective transformation of the mining sector in South Africa. The levels of investment in human resource development for historically disadvantaged South Africans falls significantly short of the target, which has also contributed immensely to the paucity of requisite skills reported at the height of the commodities boom. The living conditions of the workforce in the mining industry have improved marginally from the apartheid era, which is inconsistent with the transformation objectives. I have referred a detailed report of these findings to stakeholders as part of the broader consultative process and will be tabling it in Cabinet soon.
Skills development is the cornerstone of competitiveness of the industry. Earlier this week I spoke at a ceremony at which Gold Fields handed over R28 million worth of sponsorships to the University of Johannesburg and the University of the Witwatersrand in support of their engineering faculties, specifically aimed at supporting mining engineering. With these words, I would like to applaud Gold Fields for this important initiative and challenge other companies to follow and, indeed, do better, through this example. [Applause.]
I am introducing a more frequent monitoring and evaluation mechanism, which will constantly gauge the extent of compliance and transformation in terms of the regulatory regime. In this regard, my department is enhancing its scope with continuous regulatory impact assessment on legislation and policies developed and implemented in the mining industry. This will ensure constant evaluation of the impact of the policy and will enable the department to assess the socioeconomic impact of the legislation governed by the department. I will release quarterly reports to this effect.
Chairperson, Cabinet has directed my department to undertake a detailed audit of the state's exposure to mining and to propose modalities of consolidating such interests into a single entity. To this extent, I am finalising the creation of the state-owned mining company to be considered by Cabinet during May. [Applause.] I am particularly encouraged by the overwhelming support of stakeholders during the mining summit for the finalisation of the state mining company, and I assure you that the work is being assiduously finalised - and to those who heckle: Hard luck.
I am delighted to announce that the Council for Geoscience has also completed and published the 1:2 000 000 geological map for the entire Southern African Development Community, SADC, region. This map is a benchmark product, because it is the first integrated geological map for the region that will provide a common understanding of the geology between all the SADC countries. The map is already proving useful in the search for ground water and minerals in the region. As Africa unravels her geological complexity, additional potential for further mineral development is increased, which has the potential to address the socioeconomic plight of the host countries.
Beneficiation of our minerals is a priority for my department and, to this end, I have completed the necessary consultations and am ready to table the strategy before Cabinet within the next two months.
The importance of research and development aimed at supporting and expediting the country's expanded mineral beneficiation programme cannot be overemphasised. To this end, R165 million has been allocated to Mintek for 2010-11. Although the results seemingly take longer, they are generally worth the patience and the continued support of our science councils. But I must also indicate that research and technology for the mining industry cannot be a thing of the past. We need this with immediate effect. It is part of the future and growth of the industry.
The Geoscience Amendment Bill was endorsed by Cabinet in December last year and gazetted earlier this year. I intend to introduce this Bill to Parliament shortly. The main focus of the Bill is to effectively manage infrastructure development in dolomitic terrains, and empower the Council for Geoscience to be an advisory authority in respect of geohazards, as well as to enable the Council for Geoscience to become the custodian of all geotechnical data and technical information relating to exploration and mining. In terms of this, the department has allocated R136 million in support of the activities of the Council for Geoscience for 2010-11.
The diamond industry cannot be forgotten during this period. It was hardest hit by the global economic and financial crisis, resulting in prices contracting by more than 40% during the year of recession, as well as job losses in the same magnitude. Accordingly, the industry has not responded adequately to a number of initiatives being put in place, all of which suggest an abundance of vulnerability within the sector. For instance, the business model of the State Diamond Trader, including the financing model, the structure, operational models and the inhibitive legislative provisions are the basis of the low performance of the State Diamond Trader. Therefore, I have instituted the urgent development of a comprehensive strategy for the diamond industry, which will seek to identify structural weaknesses in the structure of the diamond industry and recommend remedial action.
South Africa boasts a mining heritage in excess of a century, the bulk of which preceded the application of optimal mineral recovery technologies, as well as the implementation of a regulatory framework that is emphatic about sustainable development of the mining industry. The sole focus on economic benefit for an extended period resulted in a legacy of derelict and ownerless mines, as well as unrehabilitated mines, the cumulative environmental impact of which is beginning to exhibit clear signs of impact on the surrounding environments, including acid mine drainage, which pollutes ground and river-water systems, amongst other things. These are part of the legacy of the past. These are part of the legacy of apartheid and of the apartheid-era government not caring. Now we have to bear the brunt.
I have established a rehabilitation oversight committee within my department to drive the implementation of a rehabilitation programme for all mines which were licensed prior to the Minerals Act of 1991 and the Mineral and Petroleum Resources Development Act of 2002. I have also signed off on the rehabilitation strategy for these mines. I am now finalising the implementation plan and costs for the rehabilitation programme. An amount of R52 million has been set aside for the implementation of this programme for 2010-11. I know members will say this is not enough, but this is the beginning of a positive approach to the rehabilitation of what belongs to our people in South Africa.
My department, through the Council for Geoscience, has been confirmed to host the 2016 International Geological Congress, which will attract a few thousand leading earth scientists from all over the world. This, once again, displays not just the importance of South Africa in the world, but also the importance of the scientific people in our environment. This is just as historic as the 2010 Fifa World Cup, because it is the first time in African history that this conference will be hosted on the continent. It is my intention to attract as many young people as possible to participate not only in the lead-up to 2016, but also in the actual conference itself so that they can begin to appreciate that science is indeed really cool - that it is "Ayoba" - and to get them excited about careers in this field where they are much needed. The Council for Geoscience, in partnership with a few geo-institutions, has earnestly begun the preparatory process for the conference and is seeking to attain a long-lasting legacy in the geosciences for the country and the continent.
We have embarked on an initiative to review administrative processes and the current timeframes as prescribed by the Act, with a view to reducing turnaround times and being more transparent. During this review process, proper engagement and consultation will take place with other government stakeholders, such as the Department of Water and Environmental Affairs.
The turnaround time for processing applications for mining rights will be reduced from 12 to six months, whilst the turnaround time of applications for prospecting rights will be reduced from six to three months, but this comes with a warning. This cannot be reduced if applications are incomplete and not compliant. This only applies to those applications that are fully compliant. So, if you come with half-baked bread, you will not succeed. You must bear that in mind: If you remove the bread from the oven before it is well baked, you will never get positive results. [Applause.]
With regard to the conversion of old-order mining rights into new-order mining rights, a number of such applications have been submitted, and we are currently processing these. The deadline for such applications expired on 30 April 2009, and those who missed the deadline have forfeited their rights; those rights have lapsed. As we process these applications, it is becoming clear that most applicants are not meeting the requirements. The most prominent noncompliance issue is the reluctance and even refusal by companies to embrace transformation. Most applications have not addressed the issue of black economic empowerment requirements, and this is of great concern to me.
The other area of concern is the quality of the social and labour plans which are not in line with the needs of the communities. The failure of companies to address these critical issues inevitably results in delays in the finalisation of their conversion applications.
In the last Budget Vote, we committed ourselves to ensuring that companies deliver on their social and labour plan commitments. Some companies have come on board and contributed significantly to uplifting both their host communities and labour-sending areas through their local economic development projects and have provided scholarships and bursaries. I commend these companies and say to them: Keep up your good work. And, to the bad companies, I say: We are coming; we are there for you. [Applause.]
The department will focus on conducting more rigorous compliance inspections. In cases in which companies fail to comply or default, we will enforce the law. Currently, R174 million has been allocated for the implementation and enforcement of the Act.
However, hon members, our health and safety track record in the mining industry continues to be a matter of concern. In the past year, the industry has managed to record a year-on-year slight reduction in fatalities owing to accidents in the industry. A total of 165 mine employees died in 2009 as compared to 171 in 2008. I am still very concerned about the high number of fatalities in the mining sector. As we know, one death is one too many. Consequently, many families lose their sole breadwinners. Fall-of-ground accidents still remain the largest accident category and the predominant cause of fatalities, followed by the transportation and machinery category.
Occupational health impacts are not immediate and hence difficult to quantify. Silicosis remains a major cause of premature retirement and death at South African mines owing to excessive dust exposure. On the other hand, tuberculosis continues to be a serious challenge for the mining industry and this is exacerbated by HIV/Aids. Lastly, noise-induced hearing loss is also a significant health hazard owing to exposure to high levels of noise in the workplace.
To deal with these pressing occupational health and safety challenges facing the industry, the department has recently embarked on a number of interventions, which include the implementation of the amendments to the Mine Health and Safety Act to improve enforcement and prosecution; work being done to improve seismic network coverage and seismic systems integration to assess actions taken by mines in dealing with high-risk areas which are prone to seismic events; and the health capacity of the inspectorate being improved by the establishment of a new Chief Directorate for Occupational Health and the appointment of additional health inspectors in our region. An amount of R145 million has been allocated toward these health and safety programmes.
We are currently experiencing problems between mines and surrounding communities owing to blasting operations that cause damage to houses, nuisance dust and noise. In addressing these challenges, we are developing a comprehensive strategy with an emphasis on blasting, vibration, noise and dust control, and we will regulate these where necessary.
The current legislation on compensation matters in the mining industry needs to be urgently overhauled so as to address issues relating to access to services and information and turnaround time on payments and compensation. There are collaborative efforts between my department and the Departments of Labour and Health to review the compensation legislation and develop an integrated compensation system.
Although illegal mining is a problem in South Africa, I must indicate that the Department of Mineral Resources is not responsible for illegal mining, and we are not a department or Ministry for illegal mining. Illegal mining is a criminal activity and has to be treated that way. [Applause.] Therefore, because this is not an area where we have competency, we have referred this matter to the interministerial security cluster, as this is a criminal issue. The department and other relevant departments must ensure that there is a need to fight the matter of illegal activities within the mining industry, including the stealing of copper wire by various people, causing a lot of blackouts within our communities.
USIHLALO WENDLU (Nk M N Oliphant): Ngqongqoshe isikhathi sakho sesiphelile. Kodwa ukuze amalungu aqondisise ukuthi yini lena ofuna ukubatshela yona ukuze nabo bakwazi ukuphendula. Uzothatha imizuzu emithathu esikhathini sakho sezimpendulo. (Translation of isiZulu paragraph follows.)
[The HOUSE CHAIRPERSON (Ms M N Oliphant): Hon Minister, your time has expired. However, in order for the members to thoroughly understand what it is that you want to inform them about, so that they can respond, you can take three minutes of your time allocated for your response.]