May 22, 2018

Government neglect jeopardises future of mining

The mining sector is in significant disarray, according to a report tabled this month by the Portfolio Committee on Mineral Resources. Political uncertainty has led to low investor confidence and continuing breaches of trust between government and industry have seen a decline in constructive engagement.

It is therefore somewhat strange to read in the very same report that, compared with other government departments, the Department of Mineral Resources (DMR) had a very good year in 2017. It received a clean audit report from the Auditor General, who described the DMR as a ‘model portfolio’, and achieved 82% of its performance goals for the year.

This is the kind of detail you encounter during budget season in Parliament. It is that time of the year, and that stage in the protracted budget process, when all the Committees of the National Assembly table their reports on the Annual Performance Plans (APPs) and budget votes of the 40 national government departments.

That runs into thousands of pages of commentary, and it is published in April and May each year in what is known as the “ATC” or Parliament’s daily assemblage of announcements, tablings and committee reports. The ATC has become so voluminous that it is no longer printed, but is available electronically on Parliament’s website.

It’s a lot of reading, and includes loads of minutiae about the workings of each government department and the “entities” attached to each one. But in these reports the determined reader can sometimes find much of interest about government performance, delivery and spending.

The Committee report provides other perspectives, and these point to the failure of government to take proper care of the mining sector.

Early in May, the Portfolio Committee on Mineral Resources tabled its report – after considering the government’s budget proposals for the Department and its APP as well as those of its five ‘entities’, the Council for Geoscience, the Council for Mineral Technology (Mintek), the Mining Qualifications Authority, the SA Diamond and Precious Metals Regulator and the Mine Health and Safety Council.

This report makes for interesting reading. When it comes to its Key Performance Indicators, the DMR performed well above average and the on its budget it followed all the rules. In the monitoring system of Parliament and government in general this is what counts.

But notwithstanding the “excellence” of the DMR’s performance, the Committee report provides other perspectives, and these point to the failure of government to take proper care of the mining sector.

A close read of the report tells a whole lot more about what was promised and what was not delivered in this sector – which is a goose that still lays golden eggs.

The most obvious missed promise is the finalisation of the amendments to the Mineral and Petroleum Resources Development Act (MPRDA), which have been in process since 2013. The amendment Bill was sent back to Parliament by the President in January 2015 – because of a lack of consultation ‑ and it is now back with the National Council of Provinces (NCOP), its status still unresolved. Despite promises that it will be completed by June 2018, it has undergone years of policy uncertainty, and this must have an impact on investment in mining.

An associated promise relates to the review of the Mining Charter, the key legislative tool to promote transformation in the sector. The targets for the industry were previously set until 2014. It took until June 2017 for a new Charter to be gazetted but the process was botched by the DMR, leading to legal challenges and the suspension of “Charter 3”. There is now an effort to finalise a Charter with stakeholder agreement, also said to be due in June 2018.

But the debacle over the Charter and the MPRDA have hidden from view the lack of progress of other legislative changes that are part of the department’s 2014 to 2019 strategic plan that was approved by Parliament.

The legislative establishment of the Mining Company of South Africa as the state-owned mining company and amendments to the Mine Health and Safety Act were planned for completion in the APP of 2016/17. Yet neither Bill has been tabled.

The Committee report raises a deeper problem which touches on the role of the state (as a whole) as the “custodian” of the mineral wealth of the nation, for the benefit of all South Africans.

The Committee points out that industry experts agree that the South African mining sector has fallen behind in technology, research and development, and in exploration. The huge mineral wealth of the country has to be developed now for the future, and as the custodian of the nation’s mineral wealth it is the responsibility of the state to ensure that this is done.

While the DMR may have spent its budget allocation in line with all the rules, and even got a clean audit last year, according to the report “the budget is too limited to support the duty of care owed by a custodian”.

The key example raised by the Committee is the failure of government (ie Treasury) to properly fund the critical research work of the Council for Geoscience. This is a national science council funded through the budget vote of the DMR. Its function is to support exploration for new minerals, to replace the deposits that have been mined out.

The Council for Geoscience has motivated for a ten-year programme of geological mapping. This will help prospectors to decide where to explore for minerals and it will also allow better planning for national infrastructure and food and water security. The cost is R20-billion over 10 years. But the entire budget vote for Mineral Resources is less than R2-billion a year.

The Committee raises the concern that “on the face of things, Budget 2018 brings no significant changes to indicate government’s appreciation of the priority that needs to be accorded now to the development of the mineral and petroleum sector. That is the conclusion one must draw from the figures, from ‘following the money’.” The truth is there is no real increase in the budget vote for the DMR, and no effort to support prospecting and exploration.

The mining industry more than pays its way. Company Income Tax from mines exceeds R16-billion a year and royalty payments to government in 2018/19 are expected to be R8 billion. Mining contributes R24 billion a year directly to government revenue, yet the annual budget of the DMR is R1.9-billion. This is a sector that is critical for 27% of export earnings, for energy (from coal beneficiated locally) and for hundreds of thousands of jobs.

In its report the Committee quoted a previous comment it had made to Parliament: “The DMR has indicated that it cannot fulfil its mandate if the current cuts implemented by National Treasury continue. Treasury should ensure that DMR has the financial resources available to carry out its wide and essential responsibilities as the custodian of the nation’s mineral resources for present and future generations.”

The revival and promotion of the mining sector is crucial if South Africa is to reduce unemployment, poverty and inequality.

Sourced from Parliament’s Announcements, Tablings and Committee (ATC) report.

Additional Info

  • Author: Moira Levy
Last modified on Wednesday, 16 May 2018 18:06

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