Minister not empowered to rewrite the Mining Charter

Peter Leon

WHEN Mineral Resources Minister Mosebenzi Zwane published a “draft reviewed Mining Charter” on April 15, he said it was meant “to enhance the ease of doing business, create regulatory clarity, predictability and certainty”. Regrettably, it has done the opposite, leaving the regulatory outlook for mining in SA unclear, unpredictable and uncertain — perhaps more than ever before.

Imposing a range of drastic and unrealistic demands on a sector affected by everrising costs and falling commodity prices, this unexpected publication is the latest in a long series of charter-related blind-sides that have gradually eroded the relationship between the government and the mining industry. The first was 14 years ago, when a leaked draft of the first Mining Charter demanded that mines become more than 50% black-owned within 10 years. This sent shock waves through the markets: in the next 72 hours, R52bn was erased from the country’s JSE-listed mining companies.

At the time, the Mineral and Petroleum Resources Development Act had just been passed by Parliament amid concerns that it gave the Department of Mineral Resources too much discretion and too little guidance in the exercise of its wide regulatory remit as “custodian” of SA’s mineral resources, including to grant, refuse, revoke or suspend prospecting and mining rights on imprecise grounds. Although these concerns were never resolved satisfactorily, the act was passed.

Meanwhile, the mining industry and the government engaged exhaustively to negotiate a more achievable charter, reaching a relatively workable compromise by October 2002. Promulgated in 2004, soon after the minerals act itself, the original Mining Charter required companies to ensure that at least 26% of their equity or units of production was acquired by historically disadvantaged South Africans by May 2014, while requiring somewhat softer empowerment targets in employment, procurement and community development.

The Mining Charter was published under section 100 of the act, which enjoined the minister to “develop a broad-based socioeconomic empowerment charter that will set the framework, targets and timetable for effecting the entry of historically disadvantaged South Africans into the mining industry”. The minister at the time, Phumzile Mlambo-Ngcuka, appeared to accept that this provision empowered her to develop a policy or strategy that would guide the government’s approach to the mining industry’s transformation, rather than a rule book against which companies could be regulated and disciplined. Section 100 of the act, however, has been misused or misunderstood by her successors.

In 2009, then minister Buyelwa Sonjica dealt the industry its second shock when, without any warning, she gazetted Codes of Good Practice for the Minerals Industry, hardening some of the charter’s aspirational targets into strict scorecards, while contradicting others. Any company found wanting would “be in breach of the Mineral and Petroleum Resources Development Act and subjected to section 47” (suspension or cancellation of its rights).

A fortnight later, Susan Shabangu, assuming ministerial office in the Zuma administration, accepted that the codes should not supplant the charter, but insisted the latter be amended to accelerate transformation. By June 2010, the industry and the government appeared to reach another compromise, setting firmer goals in the areas of employment, procurement and community development, while maintaining the target of vesting 26% equity in empowerment partners by 2014.

Crucially, this appeared to specify that mining companies would still be credited for partners who sold their stakes to nonempowered purchasers (the “once empowered, always empowered” principle).

When the second Mining Charter was gazetted in September 2010, however, it deviated from what the industry thought it had agreed. Delivering a third surprise, the revised charter decreed that noncompliance “shall render the mining company in breach of the act and subject to section 47”, as well as, ominously, sections 98 and 99 (offences and penalties). Shabangu thus purported to elevate the charter from the status of policy in 2002 to legislation bearing criminal consequences. As the May 2014 milestone approached, the charter became more of a blunt instrument to wield against the industry than a tripartite social pact as originally agreed in 2002.

After the May 2014 deadline, the industry engaged Shabangu’s more pragmatic successor, Ngoako Ramatlhodi, to coordinate metrics for assessing achievement of the charter’s aims. To this end, the minister announced in March last year that he and the Chamber of Mines had agreed to apply jointly for a declaratory court order on the status of the “once empowered, always empowered” principle.

Six weeks later, the industry was dealt a fourth shock, as the minister pre-empted the court application by releasing a report, lamenting that only a “paucity” of mining companies had complied with the charter, disregarding data compiled by the chamber to the contrary and discounting the “once empowered, always empowered” effect. This left the chamber with little choice but to apply on its own for a court order confirming the principle. The action remains pending. Despite Zwane promising to seek a settlement, none has been forthcoming. Instead, he produced a fifth surprise, publishing the draft charter, which would not only repeal the “once empowered, always empowered” principle, but do so retrospectively, eliminating any ownership credits.

Mining Charter III requires all mining right holders to be restructured around permanent special purpose vehicles holding the 26% ownership stake among black entrepreneurs, workers and communities. This will have complex and costly transactional and tax implications, which appear not to have been considered. The draft directs mines to procure more goods and services from a narrower pool of empowered suppliers (disqualifying importers in favour of domestic manufacturers, and doubling the social contribution required for multinational suppliers to qualify). The international trade law implications of this, likewise, appear to have been overlooked.

Finally, it demands drastic increases in black and female employment across all levels of management, at a time when many mining companies are unable to avoid downsizing. This highlights how vastly the draft charter diverges from economic reality. Last week, Zwane denied he had acted precipitously: “We knew there would be strong reaction and the reason we published it was to generate robust debate…. Whether or not the Mining Charter is before a court does not preclude us from legislating.”

But the Constitution does. Under the doctrine of the separation of powers, it commands that the authority to legislate is reserved for Parliament alone, while the authority to enforce them is entrusted to the executive and the bureaucracy. While effective enforcement often requires Parliament to delegate the practical refinement of legislative rules to the executive, ministers cannot get carte blanche to write or rewrite the rules as they see fit. Thus, the Mineral and Petroleum Resources Development Act does not — and constitutionally cannot — empower the minister to legislate.

As the Constitutional Court warned in an unrelated, yet relevant, judgment in 2000, “it is inappropriate that the minister should be able to exercise an unfettered and unguided discretion in situations so fraught with potentially irreversible and prejudicial consequences to business people and others who may be affected”. Perhaps it is time to heed that warning, stop debating the fairness or feasibility of the latest targets imposed by the minister and start disputing his power to impose them at all.

The draft directs mines to procure more goods and services from a narrower pool of empowered suppliers

Leon is a partner and co-chair of the Africa practice group at Herbert Smith Freehills

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