Issue: September-November 2011


Chinese checkers

We live in interesting times. Pension funds, heavily exposed to mining, have a vested interest in the way that the nationalisation debate plays out. A big unknown is the deal with Beijing.

There’s nationalisation and there’s nationalisation. There’s nationalisation of the seizure variety, punted by Julius Malema, and there’s nationalisation of the subtle variety, arguably already in play.

When such cabinet heavyweights as Mineral Resources Minister Susan Shabangu, Public Enterprises Minister Malusi Gigaba and Higher Education & Training Minister Blade Nzimande speak out against nationalisation, which nationalisation is it?

If it’s nationalisation in any form, President Jacob Zuma could simply say as much and lay the issue to rest. He doesn’t because he can’t. To breathe easily is premature.

Under resolutions of the ANC national general council, a task force was appointed to investigate nationalisation around the world. Gigaba has indicated that it will report back to the ANC by the end of this year. Additionally, it’s to consider the formation of a stateowned mining company.

This raises the spectre of subtle nationalisation. It’s the theme of a carefully-crafted presentation by Hulme Scholes, a Johannesburg-based expert in mining law, likely to put the wind up anybody in a stupor that the debate will blow away. He anticipates that within the next five years there will be legislation providing for the forced sale to a state mining company of shares, or other participation interest, in every SA mining company. Try to fault him. His cry is that the mining companies become involved directly, not through the Chamber, in vigorous debate with government if there’s to be a chance of radical state intervention being prevented. Otherwise it will happen by default.

In a general sense, expropriation of assets is legitimate. But the warning point here is the 2008 Expropriation Bill, to become effective with “public purpose” defined to include “any purpose connected with the administration of the provision of any law by an organ of the state”, and “public interest” to include reforms “to bring about equitable access to SA’s natural resources”.

At s2 the Bill provides that “an expropriating authority may expropriate property for a public purpose or in the public interest subject to compensation contemplated in s25 of the Constitution”. Scholes believes that the way is being prepared for formation of a state mining company possibly funded by the Chinese government. This prediction is grounded in an interpretation of numerous public statements. To take a Reuters report following state visits last year:

Zuma and Xi

Zuma and Xi . . . inscrutable smiles

“SA deputy president Kgalema Motlanthe and Xi Jinping (Chinese vice president, expected to become president in 2013) will co-chair the fourth China-SA bilateral commission and sign a number of agreements . . . Beijing sees global mining power and regional financial services leader SA as a vital source of commodities and as a stepping stone to access other African states. For SA, China also serves as a model of state action in the economy.”

Piecing together a process ostensibly underway, already there’s been the freeing up of the state-owned African Exploration & Mining Finance Corporation to compete for prospecting and mining rights. Thus, in the granting of rights, the precedent is established for the state to be both player and referee.

The corporation could be further advantaged when applications are made for new-order rights, particularly if the mining houses are unable by 2014 to reach the stringent transformation targets set out in the Mining Charter. Such are the targets, Scholes contends, that the mining houses have been “set up for failure”.

Next phase would be a state-owned mining company to absorb AE&MFC. This has been proposed by the National Union of Mineworkers, citing the Freedom Charter and other historic ANC pronouncements, at hearings of the parliamentary portfolio committee. Neither individual mining houses nor the Chamber attended.

In NUM’s submission, a state mining company should be established under the Department of Mineral Resources and not Public Enterprises. Mining rights should be awarded in the proportions of 31% to a state mining company, 49% to private investors, 10% to employee share-ownership schemes, and 10% to “communities”.

All investments of state-related bodies, such as the Industrial Development Corporation and Public Investment Corporation, should be consolidated in the state company. And 10% of all raw materials extracted by any company should be handed to the state company for beneficiation.

Moreover, says NUM, the state should be allowed to expropriate not less than 50% of existing mines. It also wants the Mineral & Petroleum Resources Development Act amended to provide that the state company holds 60% of all shares, as well as “rights of determination”, in mining ventures. The Cosatu-aligned union further proposes that the amended Act apply to new and renewed mining licences, and a moratorium placed on the issuing of any licences until the Act is amended.

It doesn’t necessarily follow that NUM will get what it wants. However, there are powerful forces working in tandem. These forces are the task team and the national general council of the ANC.

The stated process of the parliamentary portfolio committee is to draft legislation in accordance with the council’s recommendations. Scholes considers on a present reading of the process that draft legislation, to establish a state mining company along the lines that NUM presented to the portfolio committee, is inevitable.

Note the contrasting approaches between the ANC Youth League and the ministers. The former is ideological, to seize assets without compensation and the consequences be damned. The latter is pragmatic, seeking solutions to “the evil triplets of poverty, inequality and unemployment” as Shabangu puts it. Turning his back on “unconstitutional measures”, Gibada wants a decision that will “unite the country”.

Read between the lines. First, the mining houses will have to go all-out to ensure timely compliance with the Mining Charter. They’d need to engage with government and demonstrate that they’re adequately addressing, in government’s eyes, the “evil triplets”. Shabangu has explicitly warned them to “do more to improve the lives of those living near their operations”.

Second, Gigaba’s assurance that “unconstitutional measures” are off the table implies that expropriation remains on it; but with compensation. Since government doesn’t have the amounts required, who’ll pay? Take a guess. Mining agreements have been struck with China, but details are under wraps.

Third is the concept of a state-owned mining company. It might not exactly help to “unite the country”, to use Gigaba’s phrase, but it should help to unite a factious ANC looking increasingly eastwards for strategic partnership.