DMR RESPONSE TO PUBLIC HEARINGS ON THE MPRDA BILL 2013

1. DMR RESPONSE TO PUBLIC HEARINGS ON THE MPRDA BILL 2013 23 October 2013 Parliament of South Africa, Cape Town

2. PRESENTATION OUTLINE Background in summary Objectives/Strategic focus of the Bill DMR response to submissions Concluding remarks

3. BACKGROUND • Public hearings on the MPRDA Bill, 2013 were held from the 11th to 18th September 2013. • Broad range of stakeholders presented comments on the Bill, all of which are appreciated. • The Bill seeks to create an appropriate balance of expectations in respect of, inter alia, government developmental priorities, investors, workers, communities and environmentalists. • The mining industry is an important “ingredient” of the South African socio-economic development and it remains the proverbial sunrise industry • The petroleum industry is nascent, presenting opportunities for growth • Government is committed to provide an enabling environment for sustainable growth and meaningful transformation of the mining, minerals and upstream petroleum industries

4. BACKGROUND “…Entrenched interests, those who benefit from an unjust status quo, resisted any government efforts to give working families a fair deal, marshalling an army of lobbyists and opinion makers to argue that……..violated sound economic principle. We’d be told that growing inequality was a price for a growing economy, a measure of this free market, that greed was good and compassion ineffective, and those without jobs or healthcare had only themselves to blame” At the 50th anniversary of the “I have a dream speech” of Dr. Martin Luther King

5. BACKGROUND “All industry stakeholders (government, business, labour) cautioned not to shoot themselves in the proverbial foot by arguing among themselves and starting a conversation from needlessly extreme vantages, so that there’s massive damage by the time the solution is found”

6. STRATEGIC OBJECTIVES OF THE BILL • Improve the ease of doing business in the industry, including the streamlining and integration of mining, environmental and water authorisation processes. • Strengthen its content, in order to further enhance and continue creating a conducive environment for investment, growth and job creation. • Balance business needs with national development imperatives. • Address loopholes identified in various court judgments i.e. detailed consultation processes. • Security of tenure is an integral part of South Africa’s mining regulatory framework and the current amendments further entrench this principle.

7. ISSUES RAISED AND RESPONSES (consultation process on the Bill) • There had been limited consultation on the Bill, and the parties had not had the opportunity to make informed argument in the appropriate forum. • Consultation process flawed and offered stakeholders and interested and affected parties insufficient time for comment and meaningful engagement. RESPONSE: • Consultations on the broader objectives of the Bill were conducted with communities in Limpopo, Mpumalanga, North West and the Northern Cape Provinces from as far back as 2011. • Extensive consultations were conducted with industry stakeholders under the auspices of MIGDETT (UASA, CHAMBER, NUM, SOLIDARITY & SAMDA) from 2010 to 2013. • DMR has consulted within Government structures, including the Competition Commission in 2012. • Consultations were also held with interested and affected parties (petroleum sector, NGOs, community representatives, financial institutions and the legal fraternity) in March 2013. • DMR remains committed to transparent and meaningful engagements with stakeholders on finalisation of the Bill through this parliamentary process as well as the development and review of regulations.

8. ISSUES RAISED AND RESPONSES Clause 5, s 9 (order of processing applications) • Uncircumscribed power & discretion conferred to determine the terms & conditions subject to which rights may be granted. • The Bill fails to make provision for pending applications. • The “First come, first served” principle must be retained RESPONSE: • Purpose of the proposed section is to ensure sustainable, orderly and optimal development of mineral and petroleum resources consistent with objectives of the Act. • The proposed section 9 must be read with sections 19 (1) (b), 25 (1), 82 (1) (c), 86 (1) (b) of the Act which provides for security of tenure. • General interpretation principles will apply: pending applications will be processed in terms of legislation and regulations prevailing at the time of application. • Detailed mechanisms on the terms and conditions under which lodgement window will be considered is subject to Regulations and includes mechanisms for a third party, other than the DMR to trigger the process. • DMR has already started the process of reviewing the MPRDA regulations, which will outline process to be followed by Minister in implementing the proposed section 9, as well as the process to set clear terms and conditions to effect transparency and inspire confidence

9. ISSUES RAISED AND RESPONSES (Removal of timeframes ) • Need to provide an explanation on removal of timeframes ito s9 in favour prescribed period RESPONSE • Express reference to time frames has been substituted for time frames as prescribed throughout the Bill. • The objective is to give effect to the integrated licensing regime and align timeframes between the DMR, DEA and DWA processes. • The aligned timeframes will ensure timely and co-ordinated approvals consistent with the resolve to create certainty and an enabling environment for investment in the minerals and petroleum industry. • These time frames will be prescribed in the regulations, taking into account the administrative processes resident outside the MPRDA, but necessary to achieve the integrated, “One-Stop-Shop” licensing principle

10. ISSUES RAISED AND RESPONSES Clause 6, 11, 17 & 22 Sections 10, 16, 22, & 27 (consultation) – (1) • The Bill does not make provision for proper consultation with the landowner and as a result fails to give effect to the principles of administrative justice in line with the Bengwenyama Constitutional court case. • There are no details in the Bill about the extent of consultation required. • The 30 days within which the results of consultation must be submitted to the RM is woefully inadequate. RESPONSE: Consultation is a two pronged process in terms of section 10 and sections 16, 22, and 27 of the Act. Section 10 obliges the RM & the applicant to make known that an application has been accepted on subject land & call upon interested and affected parties to submit comments and objections. In the event of an objection, further obligation is placed on the applicant to consult with the objecting persons with a view to reach consensus and submit the outcomes of such consultation to the RM. Interested and affected parties including communities are at liberty to object to an accepted application at this early stage of the process and such objections are referred to RMDEC for resolution and recommendations. The method to be used by the RM & the applicant for making known that an application has been accepted will be provided for in the Regulations.

11. ISSUES RAISED AND RESPONSES Clause 6, 11, 17 & 22 Sections 10, 16, 22, & 27 (consultation) – (2) RESPONSE cont: • This will include placing the relevant notices at accessible areas, in dialects of affected parties. • Applicants must engage with the landowners, lawful occupiers and affected parties in good faith. • The landowner or lawful occupier should, during the consultation process, be provided with the necessary information on all intended activities so as to enable him or her to make an informed decision. • The period within which to submit consultation results will be reviewed & moved to the regulations. • To ensure alignment with the Bengwenyama Concourt judgement, sections 16, 22 and 27 have been amended to make provision for the applicant to consult with “the landowner, lawful occupier and an affected party”. • This section was amended to delete “interested party” to ensure that the applicant gives due attention to the parties who are directly affected. • The consultation process in terms of section 16, 22 and 27 requires the applicants to consult with the land owner, lawful occupier and an affected party. • This provision together with the consultation process to be outlined in detail in the regulations will ensure that all relevant parties are sufficiently consulted.

12. ISSUES RAISED AND RESPONSES Clause 8, s11 (transfer of shares) • The requirement for Ministerial consent for transfer in unlisted companies is unduly restrictive and burdensome and will cause undue delays. • Changes in controlling interests in listed companies occur automatically & involuntarily by everyday trading on stock exchanges, the requirement for Ministerial consent seeks to compel the impossible. • Experience has proven that the consent granted in terms of section 11 compromise the rights and interests of affected groups. RESPONSE: • These provisions were introduced to balance development imperatives with security of tenure. Once the latter is effected, the experience of “FRONTING”, dilution of BEE equity holding and reckless use of South African assets to undermine national development priorities necessitated mechanisms to be introduced to mitigate this practice. • The intention was particularly to ensure that South Africa provides equitable access to the Country’s mineral & petroleum resources. • The JSE was consulted on Ministerial consent in listed companies & reaffirmed that such consent must be limited to “controlling interest” in listed companies to be in synch with JSE rules. • In granting a section 11 consent the Minister must reaffirm the rights and interests of affected groups including workers and communities.

13. ISSUES RAISED AND RESPONSES Clause 8, s11 (transfer of shares) RESPONSE Cont..: Consent for change of control is an established practice embedded in other sectors i.e. Gambling, Banking and Communications. • Section 13 of the Electronic Communications Act, 2005, prohibits the transfer of individual license and change in control of ownership without the prior written consent of the licensing authority. • Section 37 of the Banks Act, 1999 as amended prohibits the transfer of company controlling shares of which the nominal value exceeds 15% without written permission. • Section 59 of the National Gambling Act, 2004 requires approval from provincial licensing authority for transfer of gambling license or acquisition of a controlling interest in a licensee.

14. ISSUES RAISED AND RESPONSES Clause I & I8: s I, s17 & s23 (concentration of rights) • The concept of concentration of rights, as defined in the Bill does not provide any detail as to how the principle would be implemented which creates uncertainty in the mining industry. • The concept introduces unfettered Ministerial discretionary powers. • The concept is adequately covered by the Competition Act. RESPONSE: • The concept of concentration of rights will be adequately covered with the introduction of the invitation system in terms of section 9. • Therefore its definition and related provisions will be deleted from the Bill.

15. ISSUES RAISED AND RESPONSES Clause 2 I, s26 (beneficiation) • The proposed provision gives Minister unfettered discretionary powers and thereby creates uncertainty in the mining industry. • How will beneficiation be applied to the petroleum resources? • Clarity sought on determination of percentages per commodity & the pricing conditions. • What is meant by developmental pricing conditions? • Provision presents a government pricing interference risk • Mining industry cannot be forced to subsidise manufacturing, which will negatively affect viability of mining and upstream petroleum industries • There are other conventional measures that have not been explored to achieve greater beneficiation(international benchmark) • Fully supports beneficiation, but not the proposed “how” • Provision will breach international protocols to which SA is signatory • Price of coal should be based on efficient production costs – not EPP RESPONSE: • The beneficiation value proposition seeks to present a Win-Win (no worse-off) game changing opportunity for SA, mining companies, petroleum companies and indeed manufactures. • Right holders are not required to beneficiate, unless they deem the value proposition prudent. • Extractive industries shall not be “forced” to subsidise downstream beneficiation – this is contrary to beneficiation policy objectives.

16. ISSUES RAISED AND RESPONSES Clause 2 I, s26 (beneficiation) RESPONSE Cont…: • Agrees to expanding conventional measures to accelerate beneficiation, but emphasises the need for this to be augmented with the so-called unconventional measures • Practical mechanisms with regard to percentage per commodity, differentiated pricing & baseline levels are dealt with in the beneficiation implementation plan and will be further outlined in the regulations in terms of section 107 of the Bill, “in consultation” with directly affected stakeholders”. • DMR remains engaged with the industry on development of regulations to give effect to beneficiation. DMR has reached an agreement with the Chrome Industry on differentiated pricing and other innovative mechanisms to optimise local beneficiation. • Limitations on exports in favour of localisation is already a requirement in terms of the Diamonds Second Amendment Act, s48A.and the Precious Metals Act (s12) • Concedes that the current construct of the provision does no appropriately reflect the intention and created an impression of beneficiation by “decree” – the current construct of beneficiation can be further improved to sufficiently reflect the intended objectives of Win-Win and leverage well entrenched culture of affected collaboration in bringing about the necessary changes.

17. ISSUES RAISED AND RESPONSES Section 38B (Act 49 of 2008) (continuation of EMP’s). • Clarity sought in respect of applicability of existing EMP in terms of the proposed integrated system that requires EAs . RESPONSE: • In terms of section 38B, all environmental management plans and programmes approved in terms of the MPRDA shall be deemed to be approved EA’s in terms of NEMA. • Minister may direct holder’s thereof to upgrade EMP’s to address deficiencies thereon to be aligned with NEMA. • This approach guarantees security of tenure and ensures that the rights and legitimate interests of right holders are protected.

18. ISSUES RAISED AND RESPONSES Clause 29, s42A (historic residue stockpiles) • Historic residues are private property and the proposed provisions will amount to expropriation (s25 of the Constitution) • The proposed provisions are unconstitutional RESPONSE: • The MPRDA No 28 of 2002 vested all mineral and petroleum resources in State custodianship • There’s a regulatory vacuum in respect of dumps created pre-MPRDA and Bill introduces transitional mechanisms to restore law and orderly development under the auspices of the MPRDA • Dumps have residual value, efficient extraction of which is a function of technological evolution and may not be considered as Waste • The presented construct could be strengthened to clarify transitional mechanisms as well as improve the period assigned for processing of dumps under terms and conditions specific to the dump under application • The dumps within the mining area will vest with the right holders. Right holders will be required to amend mining works programme to bring same within the ambit of the Act. • Dumps outside of the mining must be applied for within a period of two years from commencement of this Act by the historical right holder • Security of tenure is guaranteed in terms of the Bill in respect of dumps outside the mining area by providing for a two year transitional period for conversion of same into reclamation permits. • The proposal does not exonerate polluters from the statutory rehabilitation responsibility and liability.

19. ISSUES RAISED AND RESPONSES Clause 30, s43 (mine environmental management) • Lack of clarity on the enforcement of a sustainable plan to address post-closure water-related pollution at mines in the application phase. • The 20 year period for post closure liability is insufficient and arbitrary • Post closure costs only assessed at closure when an operation has lost profitability, which is a risk to both owners and society. • There should be no retention of any sort after closure certificate is issued • Environmental authorities (DEA) are more appropriately placed to consider the issues and ensure compliance of mining activities in relation to their environmental impact. RESPONSE: • The integrated licensing regime seeks to enhance co-operative governance and management of South Africa’s natural resources, including extensive post-closure considerations at the point of application. The DMR has already begun the process of improving capacity to deal with the mine environmental management function. • There is no transfer of environmental function from DEA to DMR, but to DMR to implement NEMA. The two departments are not in competition, but mutually reinforcing. • Regulations on mine closure will be augmented to reinforce the principle of concurrent rehabilitation and require right holders to annually conduct independent audit of their financial provision for adequacy and report on same in terms of sections 21 and 28. • It is agreed that determination of post closure liability period must be reviewed to imbue a differentiated commodity and environment specific considerations, based on research. • Post closure liability provides for latent environmental effect, which cannot be sufficiently factored for in the closure certificate. The eminent environmental legacy corroborates the effects of latent environmental effects

20. ISSUES RAISED AND RESPONSES Clause 46, s70 (disbanding of PASA) • PASA has been regulating the petroleum sector for a significant period of time and has built rare skills and expertise. RESPONSE: Welcome the private sector accolade on the efficacy of the regulatory arm of Government, as created by Ministerial directive to house and augment the skills The provision seeks to streamline regulatory processes and resources to obviate against the prospects of duplication, consistent with the government’s review of State owned entities Commit to ensuring that the skills, professionalism and service delivery focus is not lost in the process of necessary integration

21. ISSUES RAISED AND RESPONSES Clause I, 54 & 59: s I, 80 & 84 (free carry) • The proposed provisions are vague and provide minister with wide ranging discretionary powers. • The unspecified State’s participation creates uncertainty for the investment. • The relationship between BEE & State participation must be clarified. RESPONSE: This is a complex and unprecedented, yet necessary provision – we urge stakeholders to remain engaged and transparent with the DMR as the detailed mechanisms for roll-out are finalised. The first edition published by the Petroleum Economist on “World Fiscal System for oil” in September 2012 provides a better insight on the global best practice in respect of “Government Take by jurisdiction”, indicative of the conditions under which the petroleum industry commit to the global best practice, elsewhere, which our stakeholders have not readily shared in our engagements It is important for the Bill to create an environment for a “better deal” for South Africa and investors, in its pursuit to create a stable and predictable operating environment, in which the people of the country can and must benefit Concedes that this global best practice must be strengthened in legislation and has developed a proposal to this effect.

22. ISSUES RAISED AND RESPONSES Clause 54, s80 (Application of the Amended Charter to petroleum) • Offshore upstream petroleum industry is regulated by the Charter for the South African Petroleum and Liquid Fuels Industry on Empowering Historically Disadvantaged South Africans in the Petroleum and Liquid Fuels Industry(“the Liquid Fuels Charter”) which provides for up to a nine (9%) percent HDP participation (which in practice has been increased to ten (10%) percent.). Clarity sought with regards to the application of the Amended Broad Based Socio Economic Charter for the Mining Industry. RESPONSE: • It is acknowledged that the petroleum industry was not involved in the development of the Amended Charter. • The Amended Charter will apply to the petroleum industry taking into account various considerations specific to the industry. • The Amended Charter, will be reviewed in consultation with petroleum industry stakeholders to consider petroleum industry specific considerations. • Transformation is a business imperative that must also be seen as mutually symbiotic with the competitiveness and sustainability of business in the South African context • The BBBEEA discourages proliferation of sector specific charters with non-aligned targets, which in part, create a further complication for the various sectors of the economy to do business with each other

23. ISSUES RAISED AND RESPONSES Clause 70, s99 (sanctions) • Reference in sec 99 to percentages of turnover is extremely excessive and disproportionate to the offences and also unconstitutional as offending against s9 (equality) of the Constitution. • These extremely excessive and disproportionate fines may also constitute arbitrary deprivation of property and hence be unconstitutional and contravening s25 of the Constitution. • The alternative monetary penalties are ambiguous and may lead to multiplicity of interpretations, i.e. penalties on circumstances where revenue cannot be established RESPONSE: Considerable care has been taken to ensure the alignment of section 98 (Offences) to section 99 (Penalties), which sets out the appropriate sanctions for non compliance with the provisions of the MPRDA. “Penalty must fit the crime” principle DMR submits that the alternative monetary penalties be considered for removal from the Bill, as they create room for ambiguity and may encourage inappropriate corporate behaviour Confident that the industries we regulate have no intentions of being non-compliant

24. ISSUES RAISED AND RESPONSES Clause 74, s107 (review of regulations) • Absence of criteria in development of regulations to exercise discretion • Regulations must be developed to provide clarity to implement framework legislation • Caution against the notion of introducing the “rule by regulation” rather than “rule by law” principle RESPONSE: • Whereas regulations are developed once the Bill is passed, DMR acknowledges the significance of instilling the correct fundamentals in primary legislation to precede development of regulations. To this effect, suggests that: • Section 107 of the Act be further augmented to expressly provide for mandatory consultation with relevant industry stakeholders in the development, review and amendment of the relevant regulations to give effect to the notion of “guided discretion”, in particular those relating to beneficiation and free carried interest. • Furthermore interested and affected parties will be invited to make comments and representations on any draft regulations within thirty days of publication thereof before the contemplated regulations are promulgated. • This will ensure that the determination of processes, criteria, terms and conditions is transparent and takes into account the divergent interest of and receives the necessary support from all affected stakeholders.

25. ISSUES RAISED AND RESPONSES OTHERS • There has been no new coal mines developed in the past five years, as investors are scared of investing in South Africa. • The country must maximise its revenue from sale of minerals Commodity-related revenues in selected commodity-exporting countries, 2007. Note: Commodity-related revenues include, where applicable, corporate income tax from the natural resource sector, royalties, licenses, export taxes, and income from state-owned mining companies. Source: SAMI 2008/9 and OECD RESPONSE: • The number of coal mines has grown by 25% from 2009 to date (from 100 to 125 operating mines), with corresponding increase in employment in the sector by 24% to 87 733

26. CONCLUDING REMARKS • Reassures parliament that stakeholder concerns are not taken for granted, as highlighted in the presentation • Reiterates the intention of the Bill, viz.: • Seeks to strengthen the architecture of the mining and minerals regulatory framework and direct a shift towards a practical, clear, investor friendly, compliance focused and to leverage optimal development of the national mineral and petroleum resources. • To enhance the ease of doing business. • Streamline licensing processes • Further entrenches the principle of security of tenure and national development imperatives as a precedent • Balances risk/return and societal expectations to create a stable, balanced, predictable and transparent mining, minerals and petroleum regulatory framework • Sufficiently considers investor, employee, community, environmental and development • Reaffirms appreciation to parliament for the opportunity to respond INVITE ALL STAKEHOLDERS TO WORK WITH GOVERNMENT DURING THESE DIFFICULT TIMES TO JOINTLY SECURE A BETTER (WIN-WIN) FUTURE FOR ALL THROUGH OPTIMAL DEVELOPMENT OF MINERAL AND PETROLEUM RESOURCES – THE HERITAGE OF THE PEOPLE OF SOUTH AFRICA , AS INSCRIBED IN THE OBJECTIVES OF THE ACT

27. ENDS…. “A drop of water breaks a rock through continuous falling.” Unknown