State must aid min­ing in­vest­ment

Poli­cies are hurt­ing SA’S im­age and rank­ing as a safe des­ti­na­tion for cap­i­tal

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - JACKWELL FERIS

THE South African min­ing in­dus­try has, over the past few months, re­ceived sig­nif­i­cantly bad pub­lic­ity over is­sues like the na­tion­al­i­sa­tion of min­eral re­sources, so­cioe­co­nomic con­cerns and the danger­ous labour un­rest.

It all seems to have added to the fact that SA’s rank­ing as an at­trac­tive min­ing in­vest­ment des­ti­na­tion has dropped fur­ther, ac­cord­ing to the lat­est re­port re­leased by the Cana­dian-based Fraser In­sti­tute.

The sur­vey by the Fraser In­sti­tute re­veals that un­cer­tainty about the South African govern­ment’s min­ing poli­cies is hurt­ing the coun­try’s im­age and rank­ing as an in­vest­ment des­ti­na­tion, de­spite the govern­ment’s as­sur­ance that na­tion­al­i­sa­tion is not on the cards. This year SA’s rank­ing as a min­ing des­ti­na­tion dropped from 53rd place last year to 64th this year from 93 min­ing ju­ris­dic­tions.

As a coun­try with a sig­nif­i­cant per­cent­age of the world’s ex­ploitable min­eral re­sources, and at one stage con­sid­ered as a very at­trac­tive min­ing des­ti­na­tion, some­thing will need to change dras­ti­cally in or­der to en­sure that SA does not end up as one of the least favourite min­ing des­ti­na­tions.

The re­lease of the Draft Min­eral and Pe­tro­leum Re­sources De­vel­op­ment Bill 2012, which in­tends to amend the Min­eral and Pe­tro­leum Re­sources De­vel­op­ment Act No 28 of 2002 (the act) seems to have added more fuel to the sit­u­a­tion, as the bill will, in a num­ber of re­spects, in­crease ad­min­is­tra­tive hur­dles for min­ing com­pa­nies in­stead of “im­prov­ing the reg­u­la­tory sys­tem and stream­lin­ing ad­min­is­tra­tive process”, as the bill pur­ports to do. A num­ber of in­ter­ested and af­fected in­dus­try groups have sub­mit­ted com­ments on the bill and we trust that the Depart­ment of Min­eral Re­sources will take all the com­ments to heart in or­der to en­sure that the bill achieves what is stated in its pre­am­ble.

The main con­cern for any for­eign in­vestor is se­cu­rity of ten­ure for his or her in­vest­ment. In­vestors gen­er­ally feel threat­ened when gov­ern­ments start pro­mot­ing pol­icy changes that po­ten­tially could have an ad­verse ef­fect on the rights they en­joy.

SA, like most other coun­tries, has con­cluded a num­ber of bi­lat­eral in­vest­ment treaties with the coun­tries with which it has trade and in­vest­ment rela- tion­ships. In most in­stances th­ese treaties con­tain a pro­vi­sion that pro­hibits the ex­pro­pri­a­tion of in­vest­ments made by for­eign na­tion­als in SA, save if such ex­pro­pri­a­tion is “for a pub­lic pur­pose or in the national in­ter­est” ac­com­pa­nied by “im­me­di­ate, full and ef­fec­tive com­pen­sa­tion”. Any ex­pro­pri­a­tion of an in­vest­ment of a for­eign national by SA would be open to a po­ten­tial breach of its bi­lat­eral in­vest­ment treaties should such ex­pro­pri­a­tion fail to com­ply with terms and con­di­tions for ex­pro­pri­a­tion as con­tained in the rel­e­vant treaty.

The en­act­ment of the act on May 1 2004 is a prime ex­am­ple of how cer­tain for­eign in­vestors (Ital­ian na­tion­als) in the min­ing in­dus­try in SA per­ceived the act as a form of ex­pro­pri­a­tion of their com­mon law en­ti­tle­ment to ex­ploit and mine min­er­als. A num­ber of for­eign na­tion­als (claimants) ini­ti­ated ar­bi­tra­tion pro­ceed­ings against SA in the In­ter­na­tional Cen­tre for the Set­tle­ment of In­vest­ment Dis­putes dur­ing 2006, al­leg­ing that SA was in breach of ar­ti­cle 5 of its treaties with Italy and Lux­em­bourg which pro­hib­ited ex­pro­pri­a­tion on two grounds:

The en­act­ment of the act on May 1 2004 ex­tin­guished cer­tain old-or­der min­ing rights al­legedly held by the claimants; and

The en­act­ment of the act read with the Min­ing Char­ter, which re­quired the com­pul­sory eq­uity di­vesti­ture re­quire­ment with re­spect to the claimants’ shares in the op­er­at­ing com­pa­nies in SA.

The cen­tre did not de­cide the afore­said points on merit as the mat­ter ended due to a ju­ris­dic­tional point raised by SA — that SA is not a mem­ber to the Con­ven­tion on the Set­tle­ment of In­vest­ment Dis­putes be­tween States and Na­tion­als of Other States. How­ever, it seems that the ques­tion raised dur­ing the Cen­tre for the Set­tle­ment of In­vest­ment Dis­putes ar­bi­tra­tion as to

The act in ef­fect did put an end to the pre­vi­ously un­fet­tered en­ti­tle­ment to sell, lease or cede the min­eral right at any time

whether the en­act­ment of the act con­sti­tuted the ex­pro­pri­a­tion of oldorder min­ing rights or unused oldorder rights has been fi­nally set­tled by the Con­sti­tu­tional Court in the mat­ter of Af­gri v Min­is­ter for Min­eral Re­sources and oth­ers (CC) 2013 (the Af­gri SA case).

The ma­jor­ity judg­ment in the Af­gri case found that what the Min­eral and Pe­tro­leum Re­sources De­vel­op­ment in ef­fect did was to put an end to the:

Abil­ity to ster­ilise or not ex­ploit min­er­als;

Pre­vi­ously un­fet­tered en­ti­tle­ment to sell, lease or cede the min­eral right at any time; and

Min­eral right or unused old-or­der right for which prospect­ing or min­ing right could not be ac­quired in terms of tran­si­tional pro­vi­sions of the act.

This was done within the con­fines of a law of gen­eral ap­pli­ca­tion, the act, which in terms of sched­ule 2 thereof cre­ated a process in terms of which hold­ers of old-or­der rights or unused old-or­der rights, as the case may be, could ap­ply for the con­ver­sion of such right into rights as con­tem­plated by the act, on com­pli­ance with cer­tain leg­isla­tive re­quire­ments, in or­der to pre­serve the rights and en­sure se­cu­rity of ten­ure.

The Con­sti­tu­tional Court held that the act ef­fec­tively did not re­sult in the ex­pro­pri­a­tion of the rights held by the ap­pli­cant in the Af­gri case, as the act merely re­sulted in a de­pri­va­tion of com­po­nents of the min­eral rights en­joyed by the ap­pli­cant, es­sen­tially on the fol­low­ing ba­sis:

The act is a law of gen­eral ap­pli­ca­tion as con­tem­plated by sec­tion 25(1) of the con­sti­tu­tion of SA, which had the ef­fect of en­sur­ing eq­ui­table ac­cess to all of the nat­u­ral re­sources of SA;

The act made pro­vi­sion for the hold­ers of old-or­der rights (to ap­ply within five years from the ef­fec­tive date of the act for con­ver­sion of rights) and hold­ers of unused old-or­der rights like the ap­pli­cant to ap­ply within one year from

The depart­ment is cur­rently draft­ing a new bill, the For­eign In­vest­ment Bill, which will re­place all the ex­ist­ing bi­lat­eral in­vest­ment treaties

the ef­fec­tive date of the act for the con­ver­sion of rights;

The de­pri­va­tion of the rights of the ap­pli­cant did not re­sult in the com­pul­sory ac­qui­si­tion of rights in prop­erty by the state, as the state did not ac­quire any prop­erty but the state is now merely the cus­to­dian of the min­eral re­sources of SA and not a co-con­tender for min­eral rights with peo­ple and busi­ness en­ti­ties;

No com­pen­sa­tion is payable by the state should there not be an el­e­ment of ac­tual ac­qui­si­tion of prop­erty rights by the state.

It should be noted that item 12 of sched­ule 2 to the act does make pro­vi­sion for the pay­ment of com­pen­sa­tion by the state for ex­pro­pri­a­tion on com­pli­ance with the re­quire­ments con­tained therein. The Con­sti­tu­tion Court also clearly stated in the Af­gri case it would be in­ap­pro­pri­ate to de­cide def­i­nitely that ex­pro­pri­a­tion in terms of the act was in­ca­pable of ever be­ing es­tab­lished. Like the Supreme Court of Ap­peal, I ac­cept that a case could be pleaded and ar­gued prop­erly to demon­strate that ex­pro­pri­a­tion did take place.

That is the av­enue that must be left open, par­tic­u­larly when re­gard is had to the ex­press pro­vi­sions made for ex­pro­pri­a­tion in item 12 of sched­ule 2 to the act.

The rea­son­ing of the Con­sti­tu­tional Court, as afore­said, as to why the act did not re­sult in the ex­pro­pri­a­tion of rights seems sound and is in line with SA’s bi­lat­eral in­vest­ment treaties obli­ga­tions. Our courts have recog­nised that any per­son, in­clud­ing a for­eign national, un­der a dif­fer­ent set of facts could po­ten­tially still be able to demon­strate that ex­pro­pri­a­tion took place in terms of the act .

A ma­jor­ity of the bi­lat­eral in­vest­ment treaties SA has con­cluded are com­ing to an end and the Depart­ment of Trade and In­dus­try has re­ported that it would re­frain from en­ter­ing into any fu­ture bi­lat­eral in­vest­ment treaties as the depart­ment is cur­rently draft­ing a new bill, the For­eign In­vest­ment Bill, which will re­place all the ex­ist­ing bi­lat­eral in­vest­ment treaties. One of the pur­poses of in­tro­duc­ing a for­eign in­vest­ment act would be to, among other as­pects, reg­u­late how the South African govern­ment would com­pen­sate for­eign in­vestors in the event of ex­pro­pri­a­tion in or­der to at­tract in­vest­ment op­por­tu­ni­ties and in­tro­duce uni­form con­di­tions with all trad­ing part­ners. It will also need to be seen whether the cur­rent ex­pro­pri­a­tion bill be­fore par­lia­ment, which also con­tains a very wide def­i­ni­tion of prop­erty ca­pa­ble of ex­pro­pri­a­tion by the state, will not po­ten­tially con­sti­tute a breach of cer­tain bi­lat­eral in­vest­ment treaty obli­ga­tions of SA.

It would seem that SA has suf­fi­cient pro­tec­tion for for­eign in­vestors, as re­course is avail­able to for­eign na­tion­als in the event of ex­pro­pri­a­tion with­out com­pen­sa­tion, should a proper case for ex­pro­pri­a­tion be pleaded and ar­gued to demon­strate that ex­pro­pri­a­tion took place.

It is now up to the South African govern­ment to en­sure that the poli­cies and pro­posed leg­isla­tive changes for the min­ing in­dus­try do not re­sult in a fur­ther de­ter­rence of in­vest­ment due to overly bur­den­some and il­log­i­cal ad­min­is­tra­tive red tape, and that SA’s at­trac­tive­ness as a min­ing in­vest­ment des­ti­na­tion be re­gained.

Pic­ture: THINKSTOCK

NEED TO STAY AT­TRAC­TIVE This year SA’s rank­ing as a min­ing des­ti­na­tion dropped from 53rd place last year to 64th this year from 93 min­ing ju­ris­dic­tions

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