Zwane’s move will have dire ef­fects ‘Break up waste­ful Eskom’

Plan to im­pose mora­to­rium will sab­o­tage small min­ers and BEE deals, and dam­age trust be­tween in­dus­try and state

CityPress - - Business - DE­WALD VAN RENS­BURG and LE­SETJA MALOPE de­wald.vrens­burg@city­press.co.za LE­SETJA MALOPE le­setja.malope@city­press.co.za

Small com­pa­nies at the fringes of the min­ing in­dus­try, along with em­pow­er­ment trans­ac­tions, will take the big­gest im­me­di­ate hit from Min­eral Re­sources Min­is­ter Mosebenzi Zwane’s planned mora­to­rium on all forms of min­eral licensing. Zwane in­vited pub­lic com­ment this week about his “in­ten­tion” to stop en­ter­tain­ing all new ap­pli­ca­tions for prospect­ing and min­ing rights or per­mits.

More im­por­tantly, in the short term, he also plans to stop en­ter­tain­ing so-called sec­tion 11 ap­pli­ca­tions – the ap­proval needed for any change in own­er­ship of a min­ing right.

This is the part of his plan that is most likely to be un­law­ful, ac­cord­ing to the Cham­ber of Mines.

The Min­eral and Petroleum Re­sources De­vel­op­ment Act (MPRDA) does per­mit re­stric­tions on most forms of licensing, but not ex­pressly sec­tion 11, which gov­erns the trans­fer of min­ing rights.

Ac­cord­ing to War­ren Beech, head of min­ing at law firm Ho­gan Lovells, his team does about eight to 10 sec­tion 11 ap­pli­ca­tions per month.

The vol­ume of deals re­quir­ing own­er­ship change can vary sharply, but at this one law firm alone it rep­re­sents trans­ac­tions worth any­thing from R100 mil­lion to R300 mil­lion a month. De­pend­ing on how long Zwane in­tends his mora­to­rium to last, this could quickly af­fect bil­lions of rands’ worth of deals.

Beech said the bulk of this deal flow came from medium-sized min­ing com­pa­nies, not the giants and their oc­ca­sional large di­vest­ment or merger.

“A lot of these – 70% to 80% – are em­pow­er­ment trans­ac­tions,” said Beech, adding that 90% of them re­quire sec­tion 11 ap­provals.

“Sec­tion 11s used to be pro­cessed in three to five months. It takes nine to 12 months now,” he added.

Get­ting your sec­tion 11 from the depart­ment of min­eral re­sources is a stan­dard pro­ce­dure in most min­ing deals – mean­ing the deal can­not oth­er­wise go through.

Neva Makgetla, se­nior econ­o­mist at Trade and In­dus­trial Pol­icy Strate­gies, said the ef­fect of the de­ci­sion would de­pend on how it was im­ple­mented and the length of the mora­to­rium, but the con­stant change in pol­icy cer­tainly did not bode well for trust be­tween in­dus­try and the state.

“Min­ing is a long-term com­mit­ment. The trust will def­i­nitely be af­fected. Even if the in­ten­tion is right, the way in which it is be­ing done is wrong. You can­not just spring such de­ci­sions on your part­ners,” she said.

Den­nis Dykes, Ned­bank’s chief econ­o­mist, said the de­ci­sion was “very bad” and would cre­ate re­luc­tance among in­vestors to pump money in the min­ing in­dus­try. “It makes it dif­fi­cult for mines to take long-term de­ci­sions.”

UN­IN­TENDED CON­SE­QUENCES

“Peo­ple will try to work around it,” Beech said. Com­pa­nies af­fected by the promised mora­to­rium would be ad­vised to struc­ture deals in such a way as not to trig­ger sec­tion 11, he ex­plained.

The prob­lem with this, apart from be­ing a po­ten­tially un­eth­i­cal form of reg­u­la­tory eva­sion, is that it would likely be costly to the com­pa­nies as well.

Sec­tion 11 does not get trig­gered if own­er­ship changes through suf­fi­cient lev­els of in­di­rect own­er­ship. Listed min­ing com­pa­nies, for in­stance, do not need to get ap­proval every time their shares are traded.

Like­wise, you can avoid trig­ger­ing sec­tion 11 if you sell or buy an in­ter­est in a min­ing right through three lay­ers of in­di­rect own­er­ship. This would be a com­pany that buys shares in a com­pany which, in turn, has shares in the com­pany that owns the right.

DE­LAYED RE­AC­TIONS

While stop­ping sec­tion 11s will have an im­me­di­ate ef­fect, the planned freeze on new prospect­ing and min­ing rights will have more de­layed con­se­quences.

“The burn­ing is­sue is prospect­ing rights. The im­pact on min­ing rights will be felt two years or so later,” said Beech.

Prospect­ing rights are pop­u­larly associated with new and spec­u­la­tive ven­tures, but in re­al­ity, ex­ist­ing mines that ex­pand need to make prospect­ing rights ap­pli­ca­tions all the time. These are a pre­req­ui­site for get­ting a min­ing right for ex­pan­sions that the in­dus­try calls brown­fields.

Ac­cord­ing to the cham­ber, an­other im­me­di­ate im­pact will be on the spe­cial min­ing per­mits for small-scale mines, which are dif­fer­ent from fully fledged min­ing rights.

These per­mits last for only two years and can only cover 5 hectares of land. Thus, they get ap­plied for on a shorter-term ba­sis, and more fre­quently. That means the mora­to­rium will stop ac­tiv­ity in this part of the in­dus­try, in­hab­ited by smaller com­pa­nies, more quickly.

The cham­ber said the mora­to­rium would prob­a­bly also lead to mar­ginal mines get­ting closed or put on care and main­te­nance in­stead of be­ing sold, if that was an op­tion. “This is be­cause po­ten­tial buy­ers would not eas­ily take the risk of not get­ting ap­provals for ap­pli­ca­tion.”

COURT BAT­TLE NUM­BER THREE

Zwane’s no­tice is to be chal­lenged in court by the Cham­ber of Mines, mak­ing it the third con­cur­rent court case about the new Min­ing Char­ter. The crux of the chal­lenge is that Zwane is us­ing sec­tion 49(1) of the MPRDA, which gives him power to re­strict new rights – but that his plan af­fects many ex­ist­ing rights, es­pe­cially through sec­tion 11.

“The min­is­ter’s no­tice is wrong in law, as ex­ist­ing rights can­not be dealt with in terms of sec­tion 49(1). He can there­fore not refuse to deal with ap­pli­ca­tions for re­newals by re­ly­ing on sec­tion 49(1),” said the cham­ber via email.

The no­tice, which ap­peared in the Gov­ern­ment Gazette this week, dra­mat­i­cally escalates the stand­off be­tween the min­is­ter and the cham­ber. Zwane’s in­ten­tion is ev­i­dently to freeze the is­su­ing of min­eral rights un­til it is clear which Min­ing Char­ter con­di­tions will ap­ply to it.

The pub­lic was given two weeks to com­ment on the move, which comes straight af­ter the Cham­ber of Mines last week cel­e­brated a small vic­tory against the min­is­ter.

The cham­ber had got­ten Zwane’s depart­ment to vol­un­tar­ily sus­pend the new char­ter un­til the court case against it is heard in Septem­ber.

NOT STUPID

Beech ad­mits that Zwane’s strat­egy makes sense from the min­is­ter’s per­spec­tive.

“It is log­i­cal if you take the emo­tion out of it,” he said. Specif­i­cally, the min­is­ter would pre­sume he has a chance of suc­cess­fully de­fend­ing his char­ter in court. This means he wants to close the win­dow that ex­ists for com­pa­nies to lodge all their fore­see­able ap­pli­ca­tions im­me­di­ately – be­fore the court po­ten­tially af­firms the new char­ter.

Po­ten­tially, this could let them es­cape the new char­ter’s in­fin­itely more oner­ous con­di­tions and ap­ply those of the pre­ced­ing char­ters of 2004 and 2010, de­spite the new char­ter com­ing into ef­fect. This helps ex­plain why the min­eral re­sources depart­ment in­cluded a freeze on min­ing right re­newals. This would be prac­ti­cally in­con­se­quen­tial for a long time as South African min­ing rights last for 30 years and rights un­der the cur­rent min­eral regime only started get­ting is­sued in 2004.

In­clud­ing these in a po­ten­tial mora­to­rium could, how­ever, be a way to en­sure that no one lodges mas­sively pre­ma­ture ap­pli­ca­tions now to avoid the new char­ter’s pre­scrip­tions. But, adds Beech, the min­is­ter’s de­ci­sion sim­ply goes too far. “Why go as far as the sec­tion 11s? It does not make sense. When the char­ter was sus­pended last week, there was a pos­i­tive re­sponse.” Em­bat­tled power util­ity Eskom should be bro­ken up and un­bun­dled as it is wast­ing money.

These were the words of Im­raan Valo­dia, pro­fes­sor at the Uni­ver­sity of the Wit­wa­ter­srand, as he ad­dressed a packed venue at the Wits School of Gov­er­nance this week dur­ing the OR Tambo De­bate Se­ries event.

“What Eskom is do­ing is tak­ing our money and throw­ing it down the tube,” he said.

“I think Eskom has to be bro­ken up. You can’t have a large power util­ity, es­pe­cially the size of the one that we have, that deals with both the gen­er­a­tion of power and also the trans­mis­sion of power,” Valo­dia said.

He also said gov­ern­ment needed to think thor­oughly about the role of state-owned en­ti­ties, in­clud­ing the cur­rent struc­ture of the SAA.

Last week, Eskom can­celled­canc its re­sults pre­sen­ta­tions at the elevent eleventh hour, al­legedly af­ter au­di­tors raised i ir­reg­u­lar­i­ties at the power comp com­pany.

S Some of Eskom’s con­tro­ver­sies re re­cently in­clude the R30 mil­lion pay­ment it wanted to give its for­mer CEO Brian Molefe as a payout af­ter it emerged that he h had not ac­tu­ally resigned from th the com­pany.

Last month, the Johannesburg Hig High Court set aside a R4 bil­lion tende ten­der Eskom had awarded to Chi­nese firm Dong­fangDon to re­place a boiler at the Du­vha power sta­tion in Mpumalanga.

A re­cent re­port on the Gupta-linked Tril­lian Con­sult­ing found that Eskom paid it R266 mil­lion with­out in­voices or proof that work was done.

An­other Gupta com­pany, Tegeta, was paid R600 mil­lion pre­pay­ment for coal – money that the com­pany used to buy Op­ti­mum Coal mine with the as­sis­tance of Min­eral Re­sources Min­is­ter Mosebenzi Zwane.

Valo­dia, who ad­dressed the crowd that in­cluded for­mer fi­nance min­is­ter Trevor Manuel, for­mer speaker of the Na­tional Assem­bly Max Sisulu, Eco­nomic Free­dom Fighters MP Floyd Shivambu, and sev­eral aca­demics, said he was not ad­vo­cat­ing for the pri­vati­sa­tion of Eskom, but sim­ply its un­bundling.

In his in­put, Shivambu said the pop­u­lar term “rad­i­cal eco­nomic trans­for­ma­tion” did not ex­ist and was merely a term used by politi­cians at will. “Rad­i­cal eco­nomic trans­for­ma­tion means noth­ing. It means ab­so­lutely noth­ing. Malusi [Gi­gaba, the fi­nance min­is­ter] came to the stand­ing com­mit­tee on fi­nance and in his main pre­sen­ta­tion he said, ‘we are in pur­suit of rad­i­cal eco­nomic trans­for­ma­tion’, and when we asked him what do you mean by that, he said the ANC was still go­ing to re­solve on it at the pol­icy con­fer­ence. The pol­icy con­fer­ence has come and gone and there is no res­o­lu­tion on what rad­i­cal eco­nomic trans­for­ma­tion is. It means noth­ing. It de­pends who woke up where, what day and how they feel that day. Dif­fer­ent politi­cians in the ANC just call it what­ever they want to call it. There is no such thing as rad­i­cal eco­nomic trans­for­ma­tion,” he said.

He likened the use of the term by the gov­ern­ing party for fac­tional politics.

Gi­gaba was ini­tially meant to at­tend, but pulled out at the eleventh hour, cit­ing ill­ness.

Im­raan Valo­dia

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