12 December 2019 | Johannesburg
By Peter Leon, Patrick Leyden, Ernst Muller and Amanda Hattingh, Herbert Smith Freehills
Last week StatsSA (South Africa’s official statistics authority) announced that South Africa’s economy contracted by 0.6 per cent during Q3. It is likely to contract further in Q4 as a further round of electricity blackouts occurs as a result of Eskom load shedding. The economy’s current travails are mainly driven by a contraction in the mining, manufacturing and transport sectors. The mining sector, in particular, contributed 6.1 per cent less in this quarter to the country’s Gross Domestic (GDP) Product following a decrease in production of platinum group metals, coal and iron ore.
StatsSA’s announcement followed that of the International Monetary Fund (IMF) in its Article IV Mission to South Africa on 25 November 20191 that South Africa’s medium term growth outlook remained subdued. The IMF explained this was largely due to stagnant private sector investment and exports coupled with declining productivity. This dearth of investment (both foreign and local) is in turn driven by a lack of reform to address weaknesses in the business climate, including regulatory constraints, labour market rigidities and inefficient infrastructure.2
It is within this context that the proposed amendments to the Mineral and Petroleum Resources Development Regulations (the Regulations) – which the Minister of Mineral Resources and Energy (Minister) published on 29 November 20193 (proposed amendments or Draft Regulations) – should be considered. In particular, whether or not the proposed amendments will promote or deter investment in the South African mining industry.
While the Draft Regulations seek to streamline the processes associated with applications for prospecting and mining rights and the manner in which these rights should be exercised,4 the obligations which they impose on applicants or right holders are often unduly burdensome. In certain cases the proposed amendments appear to conflict with the provisions of the Mineral and Petroleum Resources Development Act, 2002 (MPRDA) or seek to grant the Administration greater powers than the Act affords it. If so, the lawfulness of these amendments is questionable.
If the proposed amendments are promulgated, they may well exacerbate the regulatory uncertainty which has long plagued the mining sector. This is likely to be investment negative.
This Brief accordingly considers the proposed amendments and highlight some of the key concerns which they occasion.
The proposed amendments can be categorised as follows:
- amendments which streamline the consultation processes required to be undertaken between applicants for – and holders of – rights under the MPRDA and interested and affected parties;
- amendments related to Social and Labour Plans (SLPs);
- repeal of environmental related provisions in Parts III and IV of the Regulations;
- amendments to the internal appeal process;
- inclusion of regulations regarding the curtailment of mining operations affecting employment;
- inclusion of provisions related to the approval of the use of land contrary to the objects of the MPRDA; and
- inclusion of provisions related to the payment of compensation in certain cases under the MPRDA.
New consultation requirements
Both the National Environmental Management Act, 1998 (NEMA) and section 10 of the MPRDA provide that interested and affected persons must be consulted before an application for an environmental authorisation or a prospecting or mining right may be granted. Owing to the separate nature of the application processes prescribed under two different Acts unnecessary duplication in the consultation process often occurs.
The proposed amendments address this and seek to streamline the consultation process by providing that consultation required under the MPRDA must be conducted in accordance with the procedures prescribed under the Environmental Impact Assessment Regulations 2014 (the EIA Regulations) published under NEMA.5 This includes the consultation required under the SLP process (which is prescribed under the MPRDA).6
Once the final regulations are published the procedure stipulated in the EIA Regulations will need to be followed in order to obtain the necessary rights and authorisations to conduct activities under the MPRDA and NEMA. This will ultimately benefit applicants under the MPRDA.
In addition to the suggested consultation process, the proposed amendments also propose to:
insert a definition for “meaningful consultation” in broad terms;7 andam end the definition of “interested and affected persons” by including an open list of persons who must be consulted (such as Host Communities, Traditional Authorities, persons whose socio-economic conditions may be directly affected by the prospecting or mining operations and relevant Government Departments).
New provisions related to Social and Labour Plans
Both the MPRDA and Mining Charter III8 currently impose specific obligations on prospecting and mining right applicants in relation to the preparation of SLPs. Apart from the consultation obligations mentioned under the previous section, the proposed amendments do not seek to add to these obligations. Instead, the proposed amendments seek to reiterate existing obligations. For example, the proposed amendments repeat the obligations stipulated under:
clause 2.5 of the Mining Charter, which obliges holders of mining rights to contribute towards the socio-economic development of the areas is in which they operate as well as “labour sending areas” (the latter being defined in the proposed amendments as “areas from which a majority of mineworkers both historical and current, are or have been sourced”);9
clause 2.5.4 of the Mining Charter, 2018, which indicates that SLPs must be amended, if required, in accordance with the mechanism prescribed under section 102 of the MPRDA.10 It is unclear from this whether applicants must undertake a comprehensive consultation process before submitting an amendment application; and
clause 2.5.2 of the Mining Charter, which provides that approved SLPs must be published within thirty days of being approved.11
Repeal of environmental-related provisions
Under the objects of the One Environment System introduced in 2014 which seeks to achieve the streamlining of the licensing process for mining, environmental authorisation and water use, the proposed amendments seek to remove unnecessary duplication in relation to the environmental provisions of the Regulations. To do this, the proposed amendments intend to repeal in full:
Part III, Environmental Regulations for Mineral Development, Petroleum Exploration and Production (excluding regulation 56, 57, 61 and 62), and
Part IV, Pollution and Control of Waste Management Regulations.12
This is a welcome amendment and will streamline the environmental compliance obligations of rights holders.
Amendment of appeal related provisions
The proposed amendments to regulation 74 (which governs the internal appeal mechanism under section 96 of the MPRDA) are a cause for concern. This is so for various reasons.
First, the Draft Regulations seek to limit the scope of regulation 74 to appeals under section 96(1)(a) of the MPRDA and contains no reference to appeals under section 96(1)(b). This appears to be an arbitrary omission which effectively creates a lacuna in the law.13
Second, the proposed amendments conflict with the mechanism created under the MPRDA in so far as:
they incorrectly identify the Minister (as opposed to the Director-General) as the competent authority in relation to an appeal under section 96(1)(a);14 and
the timeframe to submit a notice of appeal is restricted to thirty days from the date of the decision itself,15 regardless of when the decision came to the attention of the appellant (or when the appellant ought to have known about such decision).16
Finally, additional burdens are placed on appellants by stipulating that they must serve copies of the application on the appeal authority, the relevant regional office and interested and affected persons. This must occur within thirty days of the decision in question. Contemporaneously, the Regional Manager must be afforded ten days to consider the notice and apprise the appellant of any additional persons to be notified of the appeal. Such persons must likewise receive the notice of appeal prior to the expiration of the thirty day period.17
The time periods prescribed by the proposed provisions appear impractical as well as unreasonable.
On a more positive note, the proposed amendments contain a more comprehensive timeline within which an internal appeal ought to be decided. While this is a useful improvement, it is questionable whether it will result in the more expeditious handling of internal appeals by the appeal authorities. Owing to capacity constraints within the Department of Mineral Resources and Energy (DME) itself, the existing timelines contained in the Regulations are often not met. In our experience, despite the timelines currently provided, internal appeals can take up to two years to finalise.
The table available here provides a comparison of the existing procedure and timelines for internal appeals and the proposed procedure under the proposed amendments.
Curtailment of mining operations affecting employment
Before mining companies may downscale their operations for financial reasons, they are obliged to comply with the obligations imposed under section 52 of the MPRDA as well as the mechanisms of the Labour Relations Act, 1995 (the LRA). The LRA applies to all sectors of the economy, while and section 52 imposes specific additional obligations on prospecting and mining right holders.
In their current form, the Regulations do not contain any provisions which further expound on the section 52 process or qualify the interaction between the LRA and MPRDA. As a consequence, mining companies are required to follow the processes prescribed under both Acts, which can be very onerous.
To address this, the proposed amendments introduce a new Part V: Regulation on Notice of Profitability and Curtailment of Mining Operations Affecting Employment.
If Part V is promulgated, mining companies will be obliged to submit supporting documentation such as due diligence reports, competent person’s reports and alternative cost considerations to the Minister together with the required notice under section 52.
While the purpose for the additional information is plain, it seems anomalous to expect financially distressed companies to conduct expensive and burdensome investigations into their own financial affairs. The rationality of this may be questionable.
Moreover, companies facing economic hardship need to be able to quickly restructure their assets. Owing to the need to comply with the obligations under the proposed amendments in addition to those under the LRA, the ability of companies to quickly restructure may be compromised. It is possible that owing to this, financially distressed companies may be pushed closer to business rescue or even liquidation. Employees are likely to bear the brunt of this.
Use of land contrary to the objects of the MPRDA
The use of land surface rights is principally regulated under section 53 of the MPRDA. In addition to the mechanisms stipulated under this section, the proposed amendments propose to add additional requirements as well as the procedure which applicants must follow to obtain the required approval.18 The obligations in this respect are addressed in the proposed new Part VIII: Regulation on compensation payable under certain circumstances in terms of section 54 of the Act.
These proposed amendments require, among other things, that an application under section 53 is made to the Regional Manager, submitted in hard copy and electronically, and must include all the information listed under the proposed regulation 73B. Examples of the information required, includes detail on rights holders within two kilometres of the project, geological and geotechnical information and reports on consultations with the Council for Geosciences regarding the mineral potential of the land, environmental impact assessment reports and comments submitted by interested and affected parties.19
Depending on the nature and size of the project for which approval under section 53 of the MPRDA is required, these obligations could be onerous and unreasonable and may bring the rationality of these provisions into question.
Compensation payable under the MPRDA
Finally, the proposed amendments propose to insert a new regulation 73C20 which will further regulate cases where compensation is payable to persons under section 54 of the MPRDA.
Among other things, the proposed mechanism seeks to better regulate the dispute resolution process and impose specific time periods within which disputes must be resolved or referred. Unfortunately, the Draft Regulations incorrectly refer to an Arbitration Act and a Conciliation Act. Although unclear, it is presumed that reference to the “Arbitration Act” is reference to the Arbitration Act 42 of 1965. However, the “Conciliation Act” mentioned simply does not exist.
While the Minister’s intention to streamline the processes discussed in this Brief are laudable, the manner in which he seeks to achieve this is less apparent. Many of the provisions impose obligations which are either unduly burdensome on the holder of or applicant for a prospecting or mining right or conflict with the existing provisions of the MPRDA.
Interested and affected parties are, however, afforded an opportunity to voice their concerns. Although the Draft Regulations indicate that comments must be submitted to the DME by Friday, 27 December 2019, the comment period has subsequently been extended by the Minister until 31 January 2020.21
1. IMF (25 November 2019) South Africa: Staff Concluding Statement of the 2019 Article IV Mission available online at https://www.imf.org/en/News/Articles/2019/11/22/mcs11252019-south-africa-staff-concluding-statement-of-the-2019-article-iv-mission
2. See note 1 above.
3. See Government Gazette 11009, Government Notice 42870 fated 28 November 2019.
4. The Mineral and Petroleum Resources Development Act, 2002 (MPRDA) prescribes the primary mechanisms in this regard.
5. Chapter 2, Part I: Mineral and Petroleum Regulation, proposed additional regulation 3A of the Draft Regulations.
6. Chapter 2: Part II: Social and Labour Plan, proposed additional regulation 42(4) of the Draft Regulations.
7. Chapter 1, proposed amendment of regulation 1, clause (c) i