Minerals and energy minister Phumzile Mlambo-Ngcuka’s department has revised and renamed the Minerals Development Bill drafted in 2000, which would vest the country’s vast mineral resources in the state. At the end of January the new Minerals and Petroleum Resources Bill was awaiting certification by the state law adviser. It may go before Parliament this month, and it could be law by the end of the year. In early March the minister told the BBC: “It’s just a matter of months now and they (foreign investors) will get the same treatment they get elsewhere in the world when they are looking for minerals. Judging by the number of applications that are already on the table, we’re quite pleased that the bill has struck a right chord among investors.”
Departmental spokesperson Kanyo Gqulu insists that the bill is not about nationalising mineral rights but about levelling the playing field to allow access to new entrants into the industry, which he says previously excluded the black majority. “We can’t have a situation where the majority of the people are dispossessed. In the end, the face of the industry will have to change and it will change.”
In earlier drafts, it seemed that wishful-thinking departmental drafters were simply declaring mineral rights as no longer property, so that vesting them in the state could proceed without having to address the small matter of compensation for expropriation. They had some grounds for optimism, in that (then) water affairs and forestry minister Kader Asmal’s department had just succeeded in doing exactly that by nationalising water with the 1998 National Water Act. The regulations and machinery for expropriation of water rights are still being put in place, so the compensation issue has not yet arisen in practice for water. But miners have bigger fish to fry, and more clout, than farmers.
Full market-related compensation for nationalised mineral rights could cost half a trillion rand, clearly beyond the state’s budget to afford. Observers may have found occasional reports of the ongoing low-key debate between mining industry players and the government somewhat surreal in avoiding this crucial aspect, so reminiscent of Zimbabwean land-grabs. One foreign investor has murmured that if South Africa’s new constitution doesn’t stop grand larceny on that scale, obviously the whole democratic rainbow project is off again and it’s curtains for Africa. But such notions are no reason for complacency about the Bill’s inevitable demise, considering the water fait accompli.
Apparently the new Bill has accommodated two major objections. First, in a sunset clause, the state has agreed to waive for a decade its imminent new rights to royalties currently paid by miners to landowners and others who hold mineral rights. Like a notice period before job retrenchment, this would enable beneficiaries such as Rustenburg’s Royal Bafokeng tribe to spend quality time in search of revenues to replace their platinum billions.
And, secondly, provision has also been made for compensation in the event of expropriation, a “burning issue” which was apparently also raised by industry. Presumably that provision is not in the form of budgets of hundreds of billions of tax rands. We can speculate that it will be in the form of an official understanding that, wherever unaffordable compensation becomes unavoidable, the mineral-rights holder will then be left, at least temporarily, in possession of a new user-licence. This approach is already expected from the new water boards whenever a farmer’s objection to losing his water is upheld in court. Sort of, if we don’t get away with it, we’ll back off.
Another way of expropriating on the cheap, relying on the Constitution’s property clause 25(3)(d), was aired unsuccessfully during the Boomplats farm-expropriation case the state’s initial offer price including subtraction of earlier low-interest Land Bank loan benefits. Minister Mlambo-Ngcuka hinted at this approach last year, referring to decades of mining-house benefits granted by government, but equally valid counter-comment reminds us of how much the state has always benefited from mining via profit tax, VAT and so on. Such spuriously-calculated and affordably-paid compensation at far below market rates would be like booting a farmer off his land but offering him the busfare to town. Hardly the way to reassure investors about the sanctity and security of property in South Africa.
Meanwhile, affected players are considering how best to value mineral rights in the light of current international accounting standards, since clear guidelines and valuation criteria are going to be needed when the expropriations take effect and the claims for compensation follow. Something will have to be done about asset valuations of mining houses’ mineral rights – on the face of it, “here today and gone tomorrow”. Can they write back into the books some similar “asset value” representing expected future streams of income if and while the state lets the firm keep mining (and paying royalties for) what is now the state’s mineral deposit. Will the Edinburgh investor buy that? As a Scot, I really doubt it, accountants’ creativity notwithstanding. And what of exploration houses left with no assets at all?
Which brings us to security of tenure over state minerals or how to minimise the damage to South Africa’s economy.
Government is making a huge mistake, says Undermining mineral rights: An international comparison , a new Occasional Paper from the Free Market Foundation. Author Johan Biermann says the Bill will undermine our vibrant and technologically advanced mining sector. Minerals in countries like SA and the US are owned privately and separately from the land. This approach, says Bierman, beats that of many countries with various versions of government-owned minerals. Mining is the major South African success story and has long made up a huge part of South Africas GNP. Over 40% of our exports are minerals and another 20% are beneficiated (value-added) minerals like ferrochrome.
Since 1980 many developing countries have started treating their state-owned minerals more like private property, improving security of tenure and making it easier to trade minerals and mining licences. Latin American countries have gone furthest, and now treat mining concessions as real property rights which can be transferred, sold and mortgaged. So they have attracted mining investment away from traditional mining countries and now they enjoy over 29% of worldwide investment in minerals exploration.
UN and World Bank surveys pinpoint security of tenure (ownership) of rights to explore and mine minerals as the main driver of mining investment. Private ownership of mineral rights is optimal for the market to operate properly. It avoids government bureaucracy, interference, inefficiency and corruption and fosters minerals and mining development.
Nationalisation is highly undesirable. It is yesterday’s failed solution to any problem. Instead, SA should strengthen its constitutionally-guaranteed system of private ownership, which includes minerals. As the country’s major landowner, the government should open up all its land for prospecting and mining and sell off state-held mineral rights to boost national prosperity and growth.
It is not too late to abort the Bill in the interests of all South Africans, including those it purports to serve. The majority of South Africans will be the poorer if the one industry in which our country leads the world is reduced to a shadow of its former self.
Source: Dr Jim Harris is a freelance researcher and journalist. He maintains the Privatisation Update and Regulation Update that appear under Publications on this website. This article may be republished without prior consent but with acknowledgement. The patrons, council and members of the Free Market Foundation do not necessarily agree with the views expressed by the author.
The occasional paper Undermining mineral rights: An international comparison is obtainable from the Free Market Foundation at R40, including VAT. Telephone Judith at (011) 884-0270.
FMF Article of the Week\9 April 2002
