Issues which we address in this presentation:

1. Submission to the Portfolio Committee on Minerals and Energy on the Mineral and Petroleum Resources Amendment Bill, 2007Regulatory Law Issues29 May 2007Peter Leon

2. Issues which we address in this presentation: • Statements made by the Minister of Minerals and Energy (“the Minister”) in her speech at the Mining Indaba on 6 February 2007 • Certain objects of the Mineral and Petroleum Resources Development Amendment Bill, 2007 (“the Bill”) • The extent to which the Bill brings South African’s mining code in line with international best practice • The fact that the Bill fails to afford sufficient security of tenure to holders of OP26 prospecting sub-leases in the oil and gas exploration and production industry • Certain technical deficiencies to the Bill

3. The Minister’s speech at the Mining Indaba • The Minister referred to “somewhat tentative investor sentiment to the mining sector” • The Minister stated that the Mineral and Petroleum Resources Development Act, 2002 (“the Act”) would be “amended to remove all identified obstacles to mining investment” • The Bill does not, however, remove these • The main reasons for these investment obstacles are: • Failure of the MPRDA to provide sufficient guidelines in the exercise of discretion to grant or refuse rights • Failure of the MPRDA to establish objective criteria for compliance with socio-economic objectives • These omissions have led to a lack of regulatory predictability and certainty for potential investors • Absent regulatory certainty in a high risk, high cost industry, obstacles to investment in the South African mining industry will continue to be a problem • (SA scored 55/65 of countries surveyed for mineral policy potential by the Fraser Institute Survey for 2006/2007)

4. Dissonance between the Bill’s explanatory memorandum and the Bill itself • The explanatory memorandum states that the Bill will “align [the MPRDA] with sound administrative practices and the objects of the Promotion of Administrative Justice Act, 2000 (“PAJA”)” • The Bill, however, does not do this because: • It does not address the lack of objective criteria to guide the Minister’s decision-making powers in relation to the grant or refusal of rights • Section 6(2) of the MPRDA provides for written reasons for administrative action taken under the MPRDA in accordance with PAJA • The Bill inexplicably removes all references to “written reasons” • Without explicit reference to written reasons, particularly in in relation to the grant or refusal of rights under the MPRDA, this might lead to a failure by administrators to furnish reasons with their decisions

5. International Best Practice: examples from other African Jurisdictions • In a global environment of fierce competition for scarce capital resources, companies are more likely to invest in a country which incorporates international best practice in its regulatory framework • International best practice for mining investment: • Certainty • Stability and predictability • Where appropriate, guarantees in favour of holders of rights

6. International best practice: other African jurisdictions (2) • The Union Economique et Monetaire Ouest Africaine (“the UEMOA”) comprises eight member countries. In 2003, it enacted a regional mining code (“the RMC”) • The RMC provides: • for the freedom to select suppliers, subcontractors and partners • guarantees relating to foreign exchange control • guarantees in terms of management and organization • guaranteed stabilization of the tax and customs regimes

7. Security of tenure in relation to the OP26 prospecting sub-leases for natural oil • Under the previous regulatory regime, holders of OP26 prospecting sub-leases were afforded substantial protection in that: • the terms and conditions of the prospecting sub-leases were guaranteed for their duration • legislative and fiscal stability were guaranteed • the form of the mining lease in the event of a discovery was included in the form of the prospecting sub-lease

8. Security of tenure (2) • Section 2(g) and item 2 of Schedule II to the MPRDA protects security of tenure • Despite this, the MPRDA does not properly protect the rights of a sub-lessee, despite the State’s guarantees contained in the OP26 prospecting sub-leases • The Bill should, but does not, remedy this defect • PASA’s draft exploration and production rights (“the draft rights”) do not distinguish between the rights of the holder of an OP26 prospecting sub-lease (which flow from the State’s guarantees) and those of the holder of a new exploration right. • The draft rights do not reflect the amendments to be effected by the Bill

9. Specific comments on the BillClause 1: Amendment of the definition of “exclusionary act” • The Bill’s amendment to this definition broadens an already unconstitutionally overbroad definition by extending the definition to an impediment to “active participation” in the mineral and petroleum industries • On a literal interpretation, the grant of any prospecting right to any person in respect of any property would result in an “exclusionary act” • The meaning and scope of “exclusionary act” is unclear, vague and imprecise • The amendment falls foul of the rule of law • In President of South Africa v Hugo, Mokgoro J observed that; • “the need for accessibility, precision and general application flow from the concept of the rule of law. A person should be able to conform his or her conduct to the law”

10. Clause 1: Amendment of the definition of “exclusionary act” (2) • MPRDA provides no guidelines as to how the Minister’s discretion should be exercised • In Dawood and Another v Minister of Home Affairs and Others, the court held that; • “If broad discretionary powers contain no express constraints, those who are affected by the exercise of the broad discretionary powers will not know what is relevant to the exercise of those powers or in what circumstances they are entitled to seek relief from an adverse decision” • “exclusionary act”, “prevent fair competition” and “results in the concentration of the mineral resource in question under the control of the applicant” are terms of art of competition law • The competition authorities in South Africa are the appropriate organisations which have the requisite knowledge to decide whether any particular practice is in breach of competition law

11. Clause 1: Amendment of the definition of “day” • This is a welcome amendment • Following regulatory best practice, the Bill should impose an obligation upon the DME to decide applications within a specified time, failing which they will be deemed to be granted

12. Clause 5: Amendment to section 9 (order of processing of applications) • Section 9 provides that “subsequent applications” must be processed at least 40 days after an application has been rejected or refused” • It is unclear whether “subsequent applications” refers to those lodged by the entity whose application has been refused or to applications lodged by other entities • The word “processed” should be replaced with “decided”, as “processed” implies that it is only after 40 days that subsequent applications should be considered, as opposed to decided.

13. Clause 7: Amendment to section 11(1) • This amendment makes section 11(1) worse and does not remove the main cause of complaint • On a literal interpretation, an interest in any close corporation or company, regardless of whether it holds an interest in a prospecting or mining right, may not be disposed of without the consent of the Minister • The phrase “company or close corporation” must be qualified by specifying that it must hold a controlling interest in a prospecting or mining right • The deletion of the words “a controlling” before “interest” results in the Minister’s consent being required for the disposal by a company which holds a one percent interest in a mining or prospecting right • This will cause unnecessary delays

14. Clause 11: Amendment to section 16 • Section 16(2) provides that the Regional Manager must accept an application for a prospecting right if “no other person holds a prospecting right, mining right, mining permit or retention permit for any mineral and on the same land” • Section 16(3) provides that if the application does not comply with the requirements of section 16(1), the Regional Manager must reject the application • The Bill effects similar amendments to the sections dealing with acceptance of mining, exploration and production rights • This amendment prevents the possibility of conducting different activities on the same land for different minerals • This will result in the sterilisation of South Africa’s mineral resources and is in consistent with the government’s express intention to promote mining investment

15. Clause 12: Amendment to section 17 • The amendment to section 17(5) provides that the grant of a right becomes effective once (a) the environmental authorisation has been issued and (b) the right is executed • The amendment presupposes that an environmental authorisation will always be issued on the same date as the right is executed • Our experience is that an Environmental Management Programme is not always approved on the same date as the right is executed • A right should become effective on the earlier of the two dates

16. Registration of renewals of rights • Provision should be made for the registration of renewals of rights

17. Conclusion • The Bill presents an opportunity to: • give effect to the Minister’s stated intention to promote investment in the South African mining industry; and • align the MPRDA with sound administrative practice and with PAJA • Unfortunately, the Bill reflects neither of these intentions and appears to be a regulatory lost opportunity