SUBMISSION
BY WEBBER WENTZEL BOWENS TO THE PORTFOLIO COMMITTEE ON MINERALS AND ENERGY ON THE MINERAL AND PETROLEUM RESOURCES
AMENDMENT BILL, 2007
REF: PSG LEON/ M VAN DER WANT
REGULATORY
LAW ISSUES
24 May 2007
1.
Introduction
As legal advisors in the
South African mining and petroleum industries, Webber Wentzel Bowens is
grateful for the opportunity to make a written submission to the Portfolio
Committee on Minerals and Energy ("the
PC") on the Mineral and Petroleum Resources Amendment Bill, 2007
("the Bill"). Our submission is made in the spirit of
transparency and with a desire to engage constructively in the legislative
process. These submissions by the
Regulatory Law Unit of the firm relate to matters of regulatory policy and
international best practice.
In view of the fact that we
first became aware of the opportunity to make this submission on
We respectfully request the
PC to afford us the opportunity to participate in the hearings to be held on
the Bill on 29 and
2.
Approach
In this submission, we:
o
draw the PC's attention to:
o
statements made by the Honourable Minister Buyelwa
Sonjica, Minister of Minerals and Energy ("the Minister"), in her speech at the Mining Indaba on 6
February 2007 in Cape Town, which are apposite to the Bill; and
o
certain objects of the Bill, extracted from the
explanatory memorandum to it, which do not appear to have been addressed in the
Bill;
o
examine the extent to which the Bill brings
o
point out that the Bill fails to afford sufficient
security of tenure to holders of OP26 prospecting sub-leases in the oil and gas
exploration and production industry; and
o
discuss certain technical failings of the Bill.
3.
The
Minister's speech at the Mining Indaba and the objects of the Bill
3.1
The
Minister's speech
In her speech at the Mining
Indaba in
"During 2007, the MPRDA will be amended to remove all identified
obstacles to mining investment."
The Minister's speech led
us to understand that the Bill would address obstacles to investment occasioned
by the Mineral and Petroleum Resources Development Act, 2002 ("the MPRDA"). We submit, however, that the Bill does
little, if anything, to remove such obstacles.
In our view, one of the
main reasons for the obstacles to investment referred to by the Minister, is
the failure of the MPRDA to provide sufficient guidelines to the Minister and
her delegates in the exercise of their discretion to grant or refuse rights
under the MPRDA. The grant, transfer and
retention of rights under the MPRDA is dependant on compliance with certain of
the MPRDA's socio-economic objects.
While we make no argument against these laudable and important
socio-economic objects, the failure of the MPRDA to establish objective
criteria, upon which compliance with such objects may be measured, has led to a
lack of certainty on the part of potential investors in the mining and oil and
gas industries, who have shown themselves to be wary of investing in the
absence of such certainty.
In any event, it is apparent that, despite the Minister's statements,
the Bill has been drafted without reference to the objective of removing obstacles
to mining investment. This is evident
from the fact that the objects to the Bill, as set out in the explanatory
memorandum to it, do not refer to this objective. We submit that without regulatory certainty,
to be achieved by provision in the MPRDA of clear and objective criteria upon
which an applicant's compliance with the socio-economic objects of the MPRDA
can be guided, the obstacles to investment identified by the Minister will
continue to affect South Africa's mining industry negatively.
3.2
The
objects of the Bill
Some of the objects of the Bill, as set out in the explanatory
memorandum to it, have not been adequately addressed in the Bill. For example, it is stated in the explanatory
memorandum that:
"the Bill seeks to amend the
principal Act to facilitate the smooth implementation of the new minerals and
mining dispensation by aligning it with sound administrative practices and the
objects of the Promotion of Administrative Justice Act, 2000.
[("PAJA")]
We have not found anything in the Bill which may be construed as
aligning the MPRDA with sound administrative practices or with PAJA. As stated above, the lack of objective
criteria to guide the Minister's decision-making powers in relation to the
grant or refusal of rights under the MPRDA, has not been addressed in the
Bill. The provision of adequate
guidelines by parliament to an administrator charged with taking a decision is
fundamental to the Constitutionally enshrined principle of the rule of law and
is relevant to the principle enshrined in section 33 of the Constitution, as
well as in PAJA, that administrative action be lawful (in the sense that the law should be such that those subject
to it will be able to be guided by it), in addition to being reasonable and
procedurally fair. We address the rule
of law principle further in paragraph 6.1 of this submission.
Moreover, we note that the Bill removes all references to "written
reasons" accompanying decisions to refuse rights under the MPRDA (see, for example, clauses 12 and 18 of the
Bill). While we appreciate that section
6(2) of the MPRDA provides that every administrative decision made under the
MPRDA must be accompanied by written reasons, we are concerned that the removal
of explicit reference to the requirement of written reasons, particularly in
those sections of the MPRDA which deal with the grant and refusal of rights,
might lead to the failure of administrators to furnish reasons with their
decisions to refuse rights. This
criticism must be read in the context of our experience that refusals of rights
under the MPRDA are accompanied by reasons which are insufficiently clear,
consisting of the citation of statutory or regulatory provisions without
providing any particularity as to the manner in which an applicant has failed
to comply with such statutory or regulatory provision.
Another instance in which the Bill fails adequately to address
fundamental administrative law concerns, and thereby fails to accord with the
stated object of "the smooth implementation" of the
MPRDA, is the Bill's failure to set exact time limits for the taking of
decisions under the MPRDA. This omission
is also relevant to the issue of certainty and investment incentives discussed
elsewhere in this submission. The
substantial delays in the processing of applications for rights under the MPRDA
is a matter of record. Despite the
provision contained in section 6(1) of the MPRDA, that decisions under the
MPRDA must be taken "within a
reasonable time", we submit that the Bill should provide that
important decisions, including, without limitation, those to grant or refuse
applications for rights under the MPRDA, must be taken within a specific period
(for example, 180 days from acceptance of an application), failing which such
application shall be deemed to be accepted.
4.
International
best practice: examples from other African jurisdictions
The Minister has indicated that removing obstacles to investment must be
a driving force behind the Bill. The
Minister clearly recognises that, in a global environment of fierce competition
for mining investment, and in the context of a capital intensive, high risk
industry, companies are more likely to invest in a country which incorporates
international best practice into its regulatory framework. Key requirements of international best
practice in the mining industry are:
o
certainty;
o
stability; and
o
guarantees in favour of holders of rights.
Several mineral
rich countries in
In respect of investors in member countries'
mining industries, the RMC provides:
o
the freedom to select suppliers, subcontractors
and partners;
o
various guarantees relating to foreign exchange
control (for example, free transfer of foreign currencies and free transfer of
dividends)
o
various guarantees in term of management and
organization (for example, free circulation of goods, free circulation of
samples);
o guaranteed
stabilization of the tax and custom regimes during all the period of validity
of the rights, together with the possibility to opt for a future regime if it
is more favorable to the right holder.
The
mining code of
o
simplifying procedures for the granting of
mining rights and establishing certainty in those procedures;
o
guaranteeing non-discrimination by the State;
o
providing substantial tax relief, such as total
exemption from all taxes and duties during the prospecting phase and caps on
taxes during the exploitation phase; and
We
submit that, if the legislature is serious in its intention to attract
investors to South Africa's mining industry, valuable lessons may be learned
from the approach of other African jurisdictions such as those outlined above.
5.
Security
of tenure in relation to the OP26 prospecting sub-leases for natural oil
Under
the regulatory regime which preceded the MPRDA, holders of OP26 prospecting
sub-leases for natural oil were afforded substantial protection in that, inter alia:
o
terms and conditions of the prospecting
sub-leases were guaranteed for their duration;
o
legislative and fiscal stability were guaranteed
by the State. These guarantees took the
form of a guarantee in favour of the sub-lessee in the event of a detrimental
change in the governing legislation; and
o
the form of mining lease in the event of a
discovery was included in the form of the prospecting sub-lease.
In
addition to the object in section 2(g) of the MPRDA relating to security of
tenure generally, item 2 of Schedule II to the MPRDA states that one of the
objects of the transitional arrangements, applicable to, inter alia, the OP26 prospecting sub-leases, is to "ensure that security of tenure is protected
in respect of…exploration and production operations". Despite this object, the MPRDA in its present
form fails to grandfather the rights held by a sub-lessee of a prospecting
sub-lease, despite guarantees made by the State to do so, which guarantees are
contained in the texts of the OP 26 prospecting sub-leases themselves.
In
the course of our oil and gas regulatory practice, we have had the opportunity
to peruse and comment on the draft exploration and production rights ("the draft rights") intended to
apply to exploration and production operations in
This
lacuna is in urgent need of
rectification and we submit that the Bill presents the legislature with the
ideal opportunity to do so. As indicated
above, we would be happy to provide drafting suggestions to resolve this issue.
A
separate issue relating to the draft rights, is that they do not currently
reflect the various amendments to be effected by the Bill. Consideration should be given by the
designated agency to whether the rights should reflect the language of the
Bill.
6.
Selected
comments on the Bill
We set out below our preliminary observations on
certain of the amendments to the MPRDA contained in the Bill. As stated above, time constraints in the
preparation of this submission lead us to reserve our right to supplement these
submissions in due course.
6.1
Amendment
of the definition of "exclusionary act" (clause 1 of the Bill)
We submit that this
amendment broadens an already unconstitutionally overbroad definition. Under section 17(2)(b)(i) of the MPRDA, the
Minister must refuse to grant a prospecting right if the granting of such right
will result in an "exclusionary act". On a literal interpretation, the grant of any
prospecting right to any person in respect of any property would result in an
"exclusionary act", as
defined. The meaning and scope of an
"exclusionary act", as
defined, is accordingly unclear, vague, imprecise and, as such, it falls foul
of the foundational requirement of the rule of law, enshrined in section 1(c)
of the Constitution, that the law should be sufficiently clear such that those
subject to it will be able to be guided by it.
The significance of the
rule of law was set out in a separate and concurring
judgment in President of the
"[t]he
need for accessibility, precision and general application flow from the concept
of the rule of law. A person should be able to conform his or her conduct
to the law."
This position
was confirmed in Investigating
Directorate: Serious Economic Offences and Others v Hyundai Motor Distributors
(Pty) Ltd And Others; In Re Hyundai Motor Distributors (Pty) Ltd and Others v
Smit NO and Others,[2]
where the court held:
"the
Legislature is under a duty to pass legislation that is reasonably clear and
precise, enabling citizens and officials to understand what is expected of
them."
Moreover, where legislation
confers a discretion upon a functionary, such as the discretion to decide
whether the grant of a prospecting right will result in an "exclusionary act", the ambit of
the discretion must be described with sufficient clarity to allow those subject
to it to know what the extent of the functionary’s powers are so that they may
order their affairs accordingly. The
legislation must also provide guidelines as to how the discretion should be
exercised, both so that the official vested with the discretion does not
exercise the discretion in an arbitrary fashion and so that those affected know
what is relevant to the exercise of the discretion. Without the requisite guidelines in the MPRDA
as to how the discretion to decide whether the grant of a prospecting right
will result in an "exclusionary act"
should be exercised, an applicant whose application is refused on this ground
will consequently not be in a position to challenge the decision. This is also contrary to the rule of law
requirements in section 1(c) of the Constitution.
The principle
of the rule of law in relation to discretionary power was discussed by the
"If
broad discretionary powers contain no express constraints, those who are affected by the exercise of the broad discretionary
powers will not know what is relevant to the exercise of those powers or in
what circumstances they are entitled to seek relief from an adverse
decision"
Finally, we note that
"exclusionary act" and
"prevent fair competition"
are terms of art in competition law. The
inclusion of these terms in the MPRDA as well those provisions which enjoin the
Minister to refuse an application for a right if the grant of the right will
"result in the concentration of the
mineral resource in question under the control of the applicant"
represent an unwarranted intrusion into the territory of competition law. The competition authorities in
6.2
Amendment
of the definition of “day” in the MPRDA (clause 1 of the Bill)
We welcome this amendment, but suggest that the Bill
should adjust certain of the periods in the MPRDA to minimise delays in the
processing of applications.
6.3
Amendment
of section 9 of the MPRDA (Clause 5 of the Bill)
This clause provides that
any "subsequent applications"
must be processed at least 40 days after
the applications contemplated in subsection (1) has been rejected or refused".
The meaning of this
amendment is imprecise in that it is unclear whether "subsequent applications" refers to those lodged by the entity
whose application has been refused or to applications lodged subsequently to
such application by other entities. The
meaning of this provision needs to be clarified.
Secondly, the word "processed" should be replaced with
the word "decided", as the
word "processed" implies
that it is only after 40 days that subsequent applications should be considered, as opposed to decided.
If the latter is, in fact, the intended meaning of the Bill, then we see
no reason to delay the deciding of such applications by 40 days. This would not seem to not comply with the stated
object of the Bill to facilitate the “smooth
implementation” of the MPRDA.
6.4
Amendment of section 11 of the MPRDA (Clause 7 of the Bill)
On a literal interpretation
of section 11(1), an interest in any
close corporation or company, regardless of whether it holds an interest in a
prospecting or mining right, may not be disposed of without the consent of the
Minister. We suggest the phrase " company or close corporation"
must be qualified by specifying that the company or close corporation must hold a controlling interest in a
prospecting or mining right.
The deletion of the words
"a controlling", before “interest” does not accord with the
stated object of the Bill to allow "the
smooth implementation [of the MPRDA]".
The amendment results in the Minister’s consent being required for the
disposal by a company which holds a one percent interest in a mining right or
prospecting right of one percent of its share capital, this
will cause unnecessary delays.
Moreover, a
listed company is not defined in either the MPRDA or the Bill. This requires clarification.
6.5
Amendment
of section 16 of the MPRDA (clause 11 of
the amendment bill)
The proposed section 16(2)
to the MPRDA provides that the Regional Manager must accept an application for
a prospecting right if "no other
person holds a prospecting right, mining right, mining permit or retention
permit for any mineral and on the same land".
Section 16(3) of the MPRDA
provides that if the application does not comply with the requirements of
section 16(1) (including the absence of any right for any mineral having been
granted on the same land) the Regional Manager must reject the application.
First, it should be noted
that the amendment applied here by the Bill has been applied to all sections of
the MPRDA dealing with the conditions of acceptance of any application for any
right or permit.
Secondly, the Bill
effectively prevents the possibility of conducting different activities (i.e.
reconnaissance, prospecting, mining, exploration and production) on the same
land for different minerals.
Practical consequences of
this are very important as this may prevent, for example, a gold company from
prospecting on an area where it is known that substantive gold reserves exist,
as long as another entity already holds a mining right for coal on the same
area for a 30 years period.
These amendments will
result in the sterilising of
6.6
Amendment
of section 17 of the MPRDA (clause 12 of the amendment bill)
The Bill amends section
17(5) of the MPRDA as follows:
"The granting of a prospecting right in terms of subsection (1) becomes
effective on the date on which
(a)
the
environmental authorization is issued; and
(b)
the
right is executed."
This amendment is applied
in a similar way in relation to the effective date of mining, exploration and
production rights.
The amendment presupposes
that an environmental authorization will always be issued on the same date as
the right in question is executed. In
our experience, an Environmental Management Programme (the equivalent of the
environmental authorisation) is not always approved on the same date as a right
is executed. This requires
clarification.
6.7
Registration of renewals of rights
Provision should be made in
the Bill for the registration of renewals of rights.
[1] 1997 (4) SA 1 (CC) at paragraph 102.
[2] 2001 (1) SA 545 (CC) at paragraph 24.
[3] Cited as Dawood and Another v
Minister of Home Affairs and Others; Shalabi and Another v
Minister of Home Affairs and Others; Thomas and Another v Minister of Home
Affairs and Others
2000 (3) SA 936 (CC) at paragraph 47.