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Proper regulation is vital to cash in on commodity boom

Published Apr 19, 2011


In a recent briefing note, Chamber of Mines chief economist Roger Baxter ascribed the South African mining industry’s inability to “take full advantage” of the global commodities boom to a combination of factors, including “infrastructure challenges (rail, ports and electricity), regulatory red tape (especially environmental permits) and production disruption due to safety shutdowns”, as well as the “squeeze on global banks and investors”.

It is hard to imagine that environmental permitting is holding back the mining industry to the same degree as a lack of transport, electricity and financing.

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Be that as it may, two facts bear mention: firstly, in a spectacular case of preferential treatment, all other industries in South Africa, including all those that contribute more to the national revenue fund than mining, have to comply with more rigorous environmental rules than mines, despite mining having the most detrimental impact of any single industry on our environment, particularly our scarce water resources.

Secondly, despite this preferential treatment, many mining companies, including some JSE-listed companies, choose to deal with this “red tape” by simply commencing mining before they have approved environmental management programmes, and then expecting authorities to authorise their illegal activities after the fact. Such contempt for the regulatory regime is incentivised by the absence of meaningful compliance monitoring and enforcement.

Last month, the Fraser Institute’s annual survey of mining companies for 2010/2011 made headlines in South Africa, with reports generally coming to the conclusion that South Africa had “slid further down the country rankings”, dropping six places since 2008, and now only outscoring neighbouring Zimbabwe by four places.

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But look beyond the headlines of the Fraser survey. In the report, participants (which included almost 500 exploration, development, and other mining-related companies around the world) were asked whether and how environmental regulations in particular countries affected their investment decisions. Of the respondents, 65 percent said that environmental regulations in South Africa encouraged investment or did not deter investment, and 22 percent described it as a “mild deterrent”. Only 12 percent regarded it as a “strong deterrent” or a factor that would persuade them not to pursue investment in South Africa. By contrast, a whopping 70 percent rated “uncertainty concerning the administration, interpretation and enforcement of existing regulations” as a deterrent against investment in South Africa.

An even higher 76 percent of respondents rated the reliability of legal systems (“legal processes that are fair, transparent, non-corrupt, timely, efficiently administered”) as a deterrent to investment in the South African mining industry, and 66 percent rated “uncertainty concerning disputed land claims” as a deterrent.

It is apparent from the Fraser survey that reducing environmental regulation for mines is not the answer to restoring confidence in South Africa’s ailing mining sector. What is needed by the international mining industry is certainty about the rules, and how those rules will be applied.

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Weakening an already ineffective environmental regulatory regime for mining will not provide that certainty. It will in fact increase uncertainty, as decisions made under such a regime will continue to be subject to legal challenges because they are unlikely to pass constitutional muster. They will also expose mining companies to considerable damages claims, and pose significant risks to the environment, workers and communities reliant on natural resources.

Earlier this month, 13 NGOs submitted to the minister of mineral resources a list of changes they expect to be included in the draft amendment bill to the Mineral and Petroleum Resources Development Act (MPRDA) to be submitted to the cabinet shortly. This coalition of NGOs includes not only environmental and environmental justice organisations such as WWF South Africa, the Endangered Wildlife Trust and groundWork, but also legal organisations and law clinics such as Lawyers for Human Rights, the Centre for Applied Legal Studies and the Centre for Environmental Rights, which regularly give legal advice and representation to communities struggling to cope with the impacts of mining on their livelihoods.

Key issues raised included:

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n The need to replace the MPRDA’s weak environmental management system with the environmental management system under the National Environmental Management Act (Nema) applicable to all other industries (which would also facilitate the implementation of an integrated environment permit for mines).

n Penalties that are so low as to be completely ineffective – the maximum fine for an environmental offence under the MPRDA is R500 000, compared with R5 million for similar offenses in Nema.

n Inadequate notice given of new applications, violating the principles of administrative fairness, and inadequate time and opportunities for public participation.

n Inadequate time given for proper assessment of environmental impacts.

This submission was compiled at the NGOs’ own initiative and cost, since the Department of Mineral Resources did not consult with civil society and establish what their concerns about the MPRDA were before the submission of the draft MPRDA amendment bill to the cabinet.

The ministry’s response was that, while its submission was welcomed, “a more suitable occasion” for their inputs would be during “parliamentary due processes”.

Considering that the department has been consulting with industry and labour since the initiation of the review of the MPRDA, one has to ask whether the department has any interest in addressing the concerns of civil society organisations and communities at all.

Until such time as the draft amendment bill is published, it is very difficult to comment sensibly on what provisions it could possibly contain. The minister has certainly, on a number of occasions, spoken in public about further reducing the time periods applicable to the processing of applications for prospecting and mining rights, which would necessarily mean further weakening of an already weak environmental regulatory regime.

The focus of civil society concern and endeavours on this front is not to oppose mining, but to ensure that adequate assessment and mitigation of detrimental impacts take place within reasonable timeframes before prospecting and mining commence, followed by predictable compliance monitoring of requirements set, and strong enforcement action taken when non-compliance is found. This is the only way to ensure certainty for investors, together with responsible environmental practices at mines, in the interest of workers, communities and the country.

Melissa Fourie is the executive director of the Centre for Environmental Rights, a non-profit organisation and law clinic dedicated to advancing environmental rights in South Africa.

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