Im­por­tance of BIT agree­ment ob­ser­va­tion

The Star Early Edition - - OPINION & ANALYSIS - Allen Reid and Jack­well Feris Cliffe Dekker Hofmeyr Min­ing Sec­tor’s Al­lan Reid: Part­ner: Cor­po­rate and Com­mer­cial and Jack­well Feris: Part­ner: Dis­pute Res­o­lu­tion.

THE SOUTH African gov­ern­ment’s faces a real risk of be­ing chal­lenged in court and in the ex­treme case in in­ter­na­tional in­vest­ment tri­bunals for po­ten­tial breaches of the guar­an­tees un­der ap­pli­ca­ble bi­lat­eral in­vest­ment treaties (BITs) and/or mul­ti­lat­eral in­vest­ment treaties based on cer­tain of the pro­vi­sions of the Re­viewed Broad Based So­cio Eco­nomic Em­pow­er­ment Char­ter for the South African Min­ing and Min­er­als In­dus­try, 2017 (Re­vised Min­ing Char­ter 2017).

The Re­vised Min­ing Char­ter 2017 could, in re­spect of cer­tain pro­vi­sions thereto, re­sult in BIT guar­an­tees for qual­i­fy­ing for­eign in­vestors be­ing in­fringed.

The retroac­tive ap­pli­ca­tion of the Re­vised Min­ing Char­ter 2017 to ex­ist­ing min­ing right hold­ers, in par­tic­u­lar the in­crease of the black eco­nomic em­pow­er­ment (BEE) thresh­old from 26 per­cent to 30 per­cent for ex­ist­ing rights hold­ers could prima fa­cie be a BIT vi­o­la­tion. In ad­di­tion, the pro­posed obli­ga­tion that the 26 per­cent BEE own­er­ship re­quire­ment must con­tin­u­ally be main­tained by ex­ist­ing right hold­ers – re­gard­less of the dis­posal of shares by BEE share­hold­ers dur­ing the ten­ure of the ex­ist­ing min­ing right (so-called “once em­pow­ered al­ways em­pow­ered” con­cept) – may also con­sti­tute a BIT vi­o­la­tion.

The Re­vised Min­ing Char­ter 2017 con­tains an ex­pressed pro­vi­sion that ex­ist­ing rights hold­ers must en­sure com­pli­ance there­with, as op­posed to only mak­ing such re­quire­ment ap­pli­ca­ble to fu­ture rights hold­ers.

In or­der to give le­gal effect to the obli­ga­tions be­ing im­posed by the Re­vised Min­ing Char­ter 2017 the Min­is­ter of Min­eral Re­sources will need to en­sure that the Min­eral and Petroleum Re­sources De­vel­op­ment Amend­ment Bill is passed as law to el­e­vate the Re­vised Min­ing Char­ter 2017 to a le­gal obli­ga­tion for ex­ist­ing right hold­ers.

In do­ing so, any non-com­pli­ance with the Re­vised Min­ing Char­ter 2017 by ex­ist­ing rights hold­ers would be deemed as breach of the Min­eral and Petroleum Re­sources De­vel­op­ment Act No 28 of 2002, as amended (MPRDA), sanc­tion­able by a sus­pen­sion or ter­mi­na­tion of such right in ac­cor­dance with sec­tion 47 of the MPRDA.

The Cham­ber of Mines’ re­jec­tion of a meet­ing re­quest by the Depart­ment of Min­eral Re­sources to at­tend the Min­ing In­dus­try Growth, De­vel­op­ment and Em­ploy­ment Task Team on June 15 shortly be­fore the re­lease of the Re­vised Min­ing Char­ter 2017 is a clear in­di­ca­tion that the Cham­ber of Mines and cer­tain of its mem­bers are plan­ning to chal­lenge the Re­vised Min­ing Char­ter 2017 on a num­ber of fronts. The move ap­pears to be strate­gic, as any meet­ing with the Depart­ment of Min­eral Re­sources dur­ing the re­lease of a con­tro­ver­sial Re­vised Min­ing Char­ter could be view as a “tacit en­dorse­ment” by the in­dus­try in re­spect of cer­tain of the pro­vi­sions thereto.

There is a crit­i­cal im­per­a­tive in South Africa to en­sure real, sus­tain­able and in­clu­sive broad based black eco­nomic em­pow­er­ment and trans­for­ma­tion. To achieve that it is sim­i­larly im­per­a­tive to adopt poli­cies and leg­is­la­tion which are not in­con­sis­tent with the rule of law, par­tic­u­larly the pre­sump­tion against ret­ro­spec­tive ap­pli­ca­tion of laws.

In that re­gard the South African gov­ern­ment must guard against poli­cies and leg­is­la­tion which ex­poses it to le­gal chal­lenge and will re­sult in fur­ther di­vest­ment from a sec­tor of the econ­omy that is im­por­tant to en­sure in­clu­sive and sus­tain­able eco­nomic growth, in a time when real eco­nomic growth is re­quired.

There is a real risk that min­ing com­pa­nies ag­grieved by the Re­vised Min­ing Char­ter 2017 will not only chal­lenge the South African gov­ern­ment through do­mes­tic courts, but in­ter­na­tional in­vest­ment tri­bunals for breach of guar­an­tees in terms of ex­ist­ing BITs or mul­ti­lat­eral in­vest­ment agree­ments.

In these types of in­vest­ment dis­putes the big­gest loser will be the South African peo­ple as mil­lions of rands will be in­curred to de­fend pol­icy de­ci­sions; any ad­verse award to a qual­i­fy­ing in­vestor ex­poses the na­tional rev­enue fund to bil­lions of dol­lars in fu­ture eco­nomic losses payable to the in­vestor; and no di­rect or in­di­rect fi­nan­cial ben­e­fit ac­crues to the South Africa peo­ple in the form of jobs, eco­nomic de­vel­op­ment ac­tiv­i­ties and no rev­enue col­lec­tion from the in­vestor for gov­ern­ment’s so­cio-eco­nomic ini­tia­tives from min­eral re­sources which could have been mined.

PHOTO: SUP­PLIED

Open cast min­ing. The Re­vised Min­ing Char­ter 2017 could, in re­spect of cer­tain pro­vi­sions re­sult in BIT guar­an­tees be­ing in­fringed, say the writ­ers.

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