Industry engages government over proposed financial provisioning regulations
‘The government listens’
REUBEN Masenya, the director of mine closure at the Department of Mineral Resources, yesterday said that the government was in the process of addressing industry concerns around the National Environmental Management Act (Nema) new financial provisioning regulations.
“For the past 15 months, we have been working hard to address the challenges with Nema. It has been like fixing a car while it is in motion. You can imagine how challenging it is,” Masenya said.
“Like any other new thing that is implemented, there will be challenges”.
Masenya was speaking at the 2017 Joburg Indaba breakfast focused on the implications of Nema held in Johannesburg.
The proposed financial provisioning regulations are expected to change the way mining companies plan for closure of mines and were also expected add to their closure liability costs.
Pan African Resources chief executive, Cobus Loots, however, said he felt the legislation was mired in confusion and threatened the sustainability of the industry.
‘To sit and explain to an investor that the mining charter has not been finalised … is a tall order.’
“The reality in South Africa’s mining sector is that the regulation in its current form will put a strain on financial resources. We will see massive retrenchments and companies will close,” said Loots.
Loots called for the government to ensure that legislation was clear in order to attract foreign direct investment.
“We need regulations that work. It is difficult to sit in front of an international investor and to convince them to put money in South Africa. We need to recognise we need international investors. To sit and explain to an investor that the mining charter has not been finalised and now there are issues on the environmental side is a tall order,” said Loots.
“We have been part of forums where concerns have been raised around Nema. A positive is that the government is willing to engage,” Loots said.
Nema came into effect in November 2015 with the publication of financial provisions for remedy of environmental damage by mining companies.
South Africa’s failed system of mine closure has seen the government grapple with 6 000 abandoned mines across the country.
However, the new regulations have been criticised for being more stringent, particularly in the financial requirements for rehabilitation, and the financial vehicles allowed to provide for the rehabilitation liabilities.
Lia Bolz, a senior associate at Malan Scholes, said yesterday that the restricted use of a trust for post-mine closures was one of the concerns in the new legislation.
“A lot of mines do have trusts which have been established for mine closure. However, trustees in the regulations in its current form do not comply with Section 37A. This means that if you establish a trust you cannot get the tax benefits in terms of Section 37A,” she said.
Section 37A of the Income Tax Act, aligns tax policy with environmental regulation.
Amendments to the regulations included the restructuring of the underlying investments in the Section 37A Trust, ensuring all investments had an explicit capital guarantee.
Previously rehabilitation had to be funded from operational cash flow and only once the cost had been incurred, could the mining institute a claim against the trust.