Presentation to Portfolio Committee on Trade and Industry 21 May 2013

1. Presentation to Portfolio Committee on Trade and Industry 21 May 2013

2. Introduction • Mohlomi Nkopane (Acting CEO) • Adv Keith Harvey (Legal Manager)

3. Background • Richards Bay Industrial Development Zone is a licensed Industrial Development Zone located in the City of Umhlathuze within the Uthungulu District Municipality • Since 2012 wholly owned by KZN Provincial Government • One major locator – Tata Steel

4. General • In general the RBIDZ welcomes the Bill despite it increasing competition for funding and locators • Incentive issue, which was key weakness of IDZ programme, being addressed • Previously no benefit to be in zone apart from VAT timing • Some problems remain • Electricity issue • Infrastructure issues (No container cranes in Richards Bay) • Competition from Africa • Tanzania (Biggest port in Africa at Bagamoyo) • Mozambique (Port and 11000 ha zone at Techobanine) • EIA’s and “irreplaceable agricultural land”

5. Areas of weakness in the Bill • The composition and powers of the SEZ Board • The confusion created by clauses 22 to 27 • Ownership v Operation • Funding and Expertise Catch-22 • Impediments to investment: Honourable Minister approves every locator in each and every zone • The absence of provisions facilitating the “one-stop-shop” concept • Ownership and Control

6. Areas of weakness in the Bill (cont) • Environmental Impact Assessments • Conundrum: Inexpensive Rentals v Profit Mark-up • Marketing • Conflict with the Public Finance Management Act • The issue of Public Private Partnerships • Suggested additional clauses • Subleases

7. SEZ Advisory Board • High Powered Members • Quorum issues • No SEZ Representation • Conflict of Interest (approve own locators/ disapprove competitors locators) • Part timers don’t know what to discuss • Mechanism needed to get issues from SEZ’s to Committee • Disqualifications of “ex officio” members

8. SEZ Advisory Board (cont) • Advisory only • Very high powered board to only be advisory • Envisaged to only meet quarterly (quorums)

9. Zone v Licensee (cont) • Applicant applies for SEZ designation • If granted licensee (ie applicant) must create SEZ as separate legal entity • Applicant cannot be zone • Shareholder of the zone rather than the zone itself is the licensee • Zone entity has no licence, only another entity which may or may not have shares in it • Duties which normally fall on legal entity fall on shareholder of entity (conflicts with PFMA) • Confuses • asset (geographic area) and the entity (“juristic person”) which owns it; and • Juristic person and shareholder of juristic person are separate

10. Zone v Licensee (cont) Licensee must appoint zone operator (30) Licensee must develop and implement a strategic plan (25(1))

11. Zone v Licensee • Licensee (ie “zone” creator) not “zone” to – • develop and implement a strategic plan (25(1)) • supply Honourable Minister with information (25(3)); or • develop a business plan (26) (although, as a business enterprise the PFMA/MFMA/ Companies Act would require “zone” to do so). • Problem: Hon Minister can appoint an administrator “to take over the administration of the licensee” where licensee is a Department etc, not the zone (Clause 28 v section 100 of the Constitution of the Republic of South Africa, 1996)

12. Ownership v Operation • Licensee “must” appoint management company by tender (clause 30) • Existing IDZ’s own and operate zones • Duplicate administration • Zone to comply with PFMA and administer zone board • Operator to supply information and manage zone • Presupposes an operator with a profit motive always costs less than an in-house manager with no profit motive • Nonsensical that have to appoint operator where the “zone” is a PPP and the PPP has expertise

13. Ownership v Operation • Loss of expertise that State has paid for • No investment by operator unless can get “security” and long-term contract so short term contracts envisioned in the Bill are non-starter • Locators who are to invest billions based on lease demand security of tenure and reduction of risk • RBIDZ model let locators construct but give registered lease of long duration to allow amortisation • Need to be as close to owner as possible • Securing additional land • land swops/expropriation

14. Ownership v Operation (cont) • Outsource management of zone or outsource aspects of management • develop and operate the IDZ and infrastructure • sell, lease or sublet property • assign the rights to the revenue of the IDZ to any person as security for a loan to fund the IDZ • contract with any other person to perform any of its functions in terms of this Regulation or the IDZ operator permit (R18)

15. Funding and Expertise Catch - 22 • Applicant to have access to financial resources and expertise for the development, operation, management and administration of SEZ (22(3)) • Zone relying on SEZ Fund to receive assurance of funding before applies for zone declaration • Zone relying on expertise of operator would require zone entity to be established before tender is issued for operator otherwise the zone can only prove access to expertise after it has been licensed and appointed operator • Clause 32(1)(c) requires that the zone operator “have sufficient capital and expertise to develop, operate and manage a Special Economic Zone”

16. Hon Minister Approves Every Locator • John Kasarda – Aerotropolises – 23 April 2013 • land ready for investors to start digging • more investor-friendly labour laws • approvals for locators within 60 days • Approval Process • Operator • Zone Board (quarterly?) • SEZ Advisory Board (quarterly ?) • Minister

17. Hon Minister Approves Every Locator • 9 – 12 month delay before even look at EIA • Hon Minister extremely busy position to have time to apply mind to every application received • Suggestion • Hon Minister determines qualifications • SEZ Advisory Board has veto (time limits)

18. Facilitation of One-Stop-Shop • Little provision for one-stop-shop • Rely on MOU’s • Often not worth paper written on • Focus at national level • Most issues at local level • Constitutional issues to compel SEZ units in all three spheres • Suggestion: Organs of state affecting a particular SEZ to enter into an implementation protocol (S35 of the Intergovernmental Relations Framework Act, 2005 (Act No. 13 of 2005) re one-stop-shop

19. Ownership and Control • SEZ must have ownership and control of land (22(c)) • ELIDZ has sold off land • Tata Steel/Pulp United bought land directly from local authority on understanding will be in IDZ • Expensive to acquire land with building • RBIDZ planned a “hotel model” • Ownership or Management agreement • Registration in title deed • Recommend: ownership or control • Can include clause that cannot sell land

20. Ownership and Control (cont) • Reduce cost of acquisition • Land swops • Lease • Servitudes • Control • PPP’s

21. Environmental Impact Assessments • Approximately 18 month + process • International investors want 60 day turnaround • Beneficial to have some time reduction mechanism in the Bill • Irreplaceable Agricultural Land • Cheaper development alternatives • Mine dumps • Dredger fill

22. Inexpensive Rentals v Profits • One of the possible incentives allowed for SEZ’s are reduced rentals • If must appoint operator they will need to build risk and profit into pricing model • It must also be considered that the primary purpose of SEZ’s is the growth created by the locators, not the profits or growth of operators (Hsinchu – 15 years to generate profit)

23. Marketing • Zone operator to market zone in consultation with the SEZ Advisory Board (35(1)(h)) • SEZ Policy: A national marketing strategy is required to promote all the zones internationally and domestically in order to attract the desired investments • May deter operator’s if success can be constrained by SEZ Advisory Board

24. Marketing • Avoid anomalies • Eg zones marketed for oil refinery located miles from pipes and main market where cost of pipes will need to be built into cost of fuel when locating refinery near pipes results in less cost and cheaper fuel • Attract locators to areas with no supplier base • Cant be too prescriptive (Mozambique) • Marketing strategy of individual zone • Mere attendance at overseas expo’s • Hope flies fly into swatter • Targeted marketing

25. Conflict: PFMA • Bill not harmonised to PFMA • In many cases “zones” subject to PFMA • clause 27(1)(c) gives 3 months v 2 month ito PFMA to submit document for auditing • Easiest to write that the provisions of sections X, y and z of the PFMA shall apply with the necessary changes to SEZ’s

26. Public Private Partnerships • Chapter 16 of the Treasury Regulations includes tender procedures for the selection of private sector partners • The Bill provides PPP’s can apply for SEZ designation • PPP tender process will have to be embarked on by government before application is even made for the designation of an SEZ, in the hope that an SEZ will be declared • Why must PPP appoint zone operator?

27. Suggested Additional Clauses • A clause similar to clause 10 of the Kenyan Bill that requires payment to be made through local banks • A clause similar to clause 37 of the Kenyan Bill setting out the rights of locators • A clause similar to Regulation 3C of the IDZ Regulations providing for the amendment of designation of SEZ’s

28. Suggested Additional Clauses • A clause to short-circuit environmental processes for locators in SEZ’s • A clause on whether land in SEZ’s can be sold or only leased • A clause on what happens to a locator who no longer qualifies for location in an SEZ and whether they must move out or only lose benefits (such as a discounted rental-this will also have to be built into leases) • A clause exempting SEZ’s from Competition Act

29. Suggested Additional Clauses • A clause like clause 28(a)(1) of the IDZ Regulations which provides that no enterprise may locate or operate as a trading concern in the IDZ unless there is a R 18(a)(13) written agreement between the enterprise and the SEZ zone/operator to locate and operate in the SEZ • Clause like clause 22 of the RBIDZ Regulations permitting SEZ zone/operator to enforce sanctions for non-compliance with Rules (contra contractual rules in non-statutory developments)

30. QUESTIONS

31. THANK YOU