It seems that every year in South Africa, newspaper headlines are filled with a pending shift in policy direction for the mining sector, but rarely with any results. In 2012 fears were of a populist-driven move towards resource nationalisation, which was subsequently quashed by President Jacob Zuma’s administration, while 2013 saw concerns over a new resources tax.

In March 2014 an amendment bill to the Mineral and Petroleum Resources Development Act (MPRDA) made its way through parliament with proposed revisions that introduce ministerial discretion over what can be classified as “strategic resources” mandated towards beneficiation, changes in how mining rights are assessed, and greater state interest in new oil and gas exploration and production. However, following concerns expressed by the industry, the government has opted either to send the bill back to parliament, or draft a separate petroleum bill. The scope of the planned revisions nonetheless had the effect of introducing an element of investor uncertainty.

“Uncertainty trumps everything when it comes to legislation. The amended bill contains a lot of grey areas and is not specific enough on a number of the regulations being promulgated,” Kieran Daly, head of mining research at Macquarie Group, told OBG.

Strategic Resource

One of the main clauses of the bill that prompted debate is the following: “any company wishing to export a mineral or mineral product must first comply with the beneficiation provisions for strategic minerals and receive written approval from the mineral resources minister.”

The criteria for the provisions in terms of what is deemed strategic and under which circumstances remain uncertain, although it is far from unusual. “Local analysts sometimes make it seem like South Africa is the only jurisdiction looking to impose tariffs and controls on exports. But this happens on a regular basis throughout the world,” Daly said.

Nor is it necessarily something onerous, depending on the commodity. In the case of coal, for example, which is treated as a strategic commodity, it is worthwhile to note that exports and domestic market obligations are not necessarily mutually exclusive. The coal used as feedstock for electricity is generally of a lower grade and composition than what is being sold to international markets. Therefore, there is little to no competition between export and local use.

Daly agrees that the scenario need not be viewed as a zero-sum game, making the case that promoting exports and domestic off-take can be mutually beneficial. “Any investor setting up a new coal mine, instead of relying on one customer, would prefer to supply both Eskom [the state utility] and export markets,” Daly noted to OBG. “Rather than directing efforts on capping exports, if government instead incentivised exports further, this would encourage more coal mining and, in turn, more supply would be available for Eskom.”

Waiting On License

Another set of revisions sparking debate concerns how mining licence applications will be processed and evaluated. The MPRDA, as currently structured, assesses mining applications on a “first-in, first-assessed” principle, while the amended bill proposes that the mining ministry invite mining licence applications from time to time.

“Investors loved the first-come, first-served approach. But if you make this analogous to a job vacancy, you can see that this method encourages mediocrity. We need to place more emphasis on the quality of applications,” Mosa Mabuza, the deputy director-general for mineral policy and promotion at the Department of Mineral Resources (DMR), told OBG. “There is nothing wrong with discretion, so long as it is guided and designed to be evaluated against set criteria.”

The DMR has also stated that the application process will be streamlined to take less than 300 days, as certain procedures that required approvals from other departments, such as environmental impact assessments going through the Ministries of Environment and Water Affairs, will now be centralised under the DMR. “With the new integrated approach, so long as you meet the criteria, within 300 days you will have a licence. Elsewhere, ‘green tape’ [environmental approvals] can take up to seven years,” said Mabuza.

Peter Leon, a partner and the head of Webber Wentzel’s Africa Mining & Energy Projects, told OBG that while centralising the process should in theory fast-track the licensing process, in practice it could delay things even further. “It creates more administrative uncertainty and introduces greater discretion, as there is no clearly stated time period by which the minister can decide when to respond to an application.”

For Dick Kruger, the deputy head of techno-economics at the Chamber of Mines of South Africa, transferring environmental impact assessments to fall under the DMR fails to address a critical stage where environmental approval bottlenecks occur, as the appeals process will remain in the hands of the Department of Environmental Affairs. “External parties bring forward unsubstantiated objections that bring to a halt the entire project,” Kruger stated, adding that, “Every year we hear that there will be a single window introduced, but we have yet to see the results.”

Resource Overlap

Oil and gas sector participants are also weighing in on proposed changes to the act, as the amended bill affords the state an automatic 20% free-carry interest in all new exploration and production rights, and the “rights to a further participation interest in the form of acquisition at an agreed price or in the form of production-sharing agreements”.

In contrast to an established and mature mining sector, upstream oil and gas is by comparison a new industry for South Africa, and one that is expected to take off in the next few years, as recent shale gas discoveries in the Karoo show solid upside potential. According to Bloomberg, international oil and gas companies, including ExxonMobil, Anadarko and Total, have voiced opposition to the proposal, arguing that it discourages risky exploration, as any early discoveries, which are far from guaranteed, would be starting off at a loss if a 20% stake is automatically awarded to the government. Prospective exploration and production participants also contend that there is an additional element of risk associated with the wording of the provision being vague and subject to interpretation. “I don’t mind if a government wants a 10%, 20% or 30% free carry, royalties and taxes. As long as you know upfront what the rules are, it is acceptable,” Ivan Glasenberg, CEO of Glencore Xstrata, told trade press in November 2013.

On a broader level there is also debate as to whether the DMR should have jurisdiction over oil and gas exploration, or, seeing as upstream gas and oil is a nascent sector with its own set of influencing factors, it should be governed by separate legislation under the domain of the Department of Energy. The DMR has justified its dual oversight on the basis that mineral and hydrocarbons reserves are correlated and can overlap, providing the example of uranium reserves being discovered in the Karoo alongside shale gas reserves. However, the newly appointed mining minister, Ngoako Ramatlhodi, told reporters in June 2014, “It might make a lot of sense to split the provisions for oil and gas from those regulating mining, because the industries are at different stages of development.”

Policy Perception

In Canada-based Fraser Institute’s 2013 Policy Perception Index, South Africa was awarded a ranking of 64th out of 112 regions surveyed, placing it roughly in the middle of the pack globally when it comes to mining companies’ evaluation of sector policy. For Africa-specific rankings, South Africa trails first-place Botswana, which was rated 25th globally.

Mosa Mabuza acknowledges that the rankings have a significant impact on investment decisions. “Where there are legitimate concerns, we will look to address them,” he told OBG. But he cautions that the Fraser Institute and other international surveys fail to properly account for the phase of development of a jurisdiction and can be biased towards Western expectations.

“As we transitioned to a democratic dispensation in 1994, we had to readjust our legislation to be in sync with a democratic society. Yes, we are tasked with enabling growth, but we also need to correct for past transgressions. This means more emphasis is placed on improving community development, labour rights and the environment. While changes from time to time might be perceived as less favourable to investors, we see it as a normalisation process from the previous non-democratic regime,” Mabuza explained.

Indeed, policy changes are par for the course in any jurisdiction, and it is up to the regulators and industry to collaborate with and consult one another to align returns on capital with national best interests, something that South Africa has largely managed to achieve.

Every year it appears as though the government and the mining sector are at odds over tabled legislative revisions, and every year it seems that animosity is resolved and a compromise reached following dialogue and consultations. “We spend considerable time on policy development, and when key amendments are proposed we always invite feedback before anything is enacted,” Mabuza said. “I am yet to be convinced that there is a more consultative jurisdiction than ours.”