Last Friday the mineral resources and energy portfolio committee met to discuss the impact of the September 2021 Pretoria high court judgment which struck down many provisions of Mining Charter III, as gazetted by mining and energy minister Gwede Mantashe in September 2018.

The high court judgment, handed down by Judge Fayeeza Kathree-Setiloane, is like the proverbial curate’s egg: a mixture of good and bad. The good parts rest on sound law and legal reasoning. The bad parts do not.

Good aspects of the judgment

The case was brought by the Minerals Council South Africa (the Council), which sought to have certain provisions (the ‘challenged clauses’) in the Mining Charter set aside, either under the Promotion of Administrative Justice Act (PAJA) of 2000 or for inconsistency with the principle of legality in the founding provisions of the Constitution. 

The key issue, said the court, was whether ‘the 2018 Charter constitutes law or policy’. According to the minister, the Charter was a distinctive (sui generis) ‘form of subordinate legislation, which was directly binding on holders of mining rights’. But the Minerals Council countered that the Charter was simply a policy document which had been ‘developed’ by the minister under Section 100(2) of the Mineral and Petroleum Resources Development Act (MPRDA) of 2002. This meant that the Charter was binding on companies only to the extent that its provisions had been incorporated into their mining rights at the time of their granting. 

According to the court, there were many reasons to identify the 2018 Charter as policy, not law. Though the MPRDA often spoke of ‘regulation’ or ‘law’, in the context of Section 100(2) it chose to use the word ‘Charter’ instead. Most laws or regulations were ‘enacted’ or ‘made’, but the Charter was instead ‘developed’. Moreover, for some six years after the MPRDA came into force, both the industry and the government accepted that the Charter was ‘a pact between them’ – and ‘the very antithesis of a law resulting from the unilateral exercise of…power’. 

Having considered all relevant factors, Judge Kathree-Setiloane concluded that ‘Section 100(2) of the MPRDA does not empower the minister to make law. In other words, the 2018 Charter is not binding subordinate legislation, but an instrument of policy’. 

Added the court: ‘The challenged clauses of the 2018 Charter are unconstitutional because the Minister lacked the power to publish a charter in the form of a legislative instrument binding upon all holders of mining rights, the breach of which will be visited by the consequences and penalties provided for in the MPRDA’. 

Having also found that the 2018 Charter ‘fell into the category of administrative action as it was intended to facilitate the implementation of the MPRDA’, Judge Kathree-Setiloane ruled that the Minerals Council was entitled to have the challenged clauses set aside under PAJA.

Many key clauses in the 2018 Charter were therefore struck down. Removed in this way were clauses requiring a 30% BEE ownership top-up on the transfer or renewal of existing mining rights, all preferential procurement rules, and a clause demanding 100% compliance with BEE ownership obligations – failing which companies could have their mining rights suspended or cancelled under the MPRDA. 

The Minerals Council applauded the ruling. The top-up requirements on renewal or transfer meant that companies would often have to ‘up their BEE ownership stakes…at considerable cost’ – which was a key part of the reason why potential investors were bypassing South Africa and ‘deploying their capital elsewhere’. In addition, the targets set in the BEE procurement rules were often ‘unachievable’ – and especially so for ‘specialised and very costly capital equipment’ which had to be sourced from overseas because it was not locally produced by BEE suppliers.

The bad parts of the ruling

Having found that ‘Section 100(2) of the MPRDA does not empower the Minister to make law’ – and that ‘the challenged clauses of the 2018 Charter were unconstitutional’ for this reason – the high court nevertheless left all the other provisions of the Charter intact.

These clauses include unrealistic employment equity targets, which skills shortages make difficult to achieve; costly skills and mine community development obligations; and a clause allowing the minister to ‘review’ and thereby revise the Charter at any time. 

It must, of course, be acknowledged that the Minerals Council did not ask for these further clauses to be set aside – and that the courts are generally bound to grant or refuse the relief that litigants have sought, not consider what further relief might also be appropriate.

But if some clauses of the 2018 Charter are unconstitutional because ‘Section 100(2) of the MPRDA does not empower the Minister to make law’, then the same would seem to apply to all other provisions of the Charter too. And the judgment – by ignoring the status of all clauses outside the challenged ones – says nothing to dispel this view.

The court also disregarded some of the key words in Section 100(2) of the MPRDA. This says that ‘the minister must, within six months from the date on which this Act takes effect, develop a broad-based empowerment Charter that will set the framework for targets and time table for effecting the…active participation of historically disadvantaged South Africans [in] the mining industry’ (emphasis supplied by the IRR).

Under this wording, the mining minister is empowered to develop only one charter: the 2002 one which came into effect in 2004, at the same time as the MPRDA, and hence within the six-month time limit. This indicates that the minister has no capacity to develop any other charter, let alone repeal and replace the original one – and that the only valid Charter remains the 2002 one, with its 26% ownership requirement and otherwise largely aspirational goals.

The court’s failure to deal with this important point is another bad aspect of its judgment. Again, of course, it must be noted that the Council did not raise this point and the court was not obliged to deal with it. On the other hand, however, the judgment took pains to stress the importance, even on a contextual or purposive reading of a statute, of always ‘remaining faithful to its actual wording’, as the Constitutional Court has urged. This meant that a purposive approach to interpreting the MPRDA ‘could not justify an interpretation which has insufficient regard to the language in which the Legislature chose to express itself’. 

Since the wording used in Section 100(2) authorises the development of only one charter – and this was surely crucial to the validity of the 2018 Charter – why did the court have ‘insufficient regard’ to its language in this vital respect?

Where to from here?

One practical benefit of the judgment is that mining companies with existing rights cannot be penalised under the remaining clauses of the 2018 Charter for failing, for example, to appoint enough black women to senior management posts. Instead, their employment equity obligations depend on what was included in their mining rights, not on what the Charter says.

However, there is also little incentive for companies to invest in exploration or greenfields ventures while the 30% ownership target for new mining rights – and a host of other onerous obligations – remain in the Charter as a pointer to what applicants for rights will be expected to achieve. Particularly concerning too is the minister’s capacity to push up all these targets at any time by ‘reviewing’ and revising the Charter.

A significant decrease in exploration investment in South Africa underscores the damage being done. S&P Global Market Intelligence data shows that South Africa’s budgeted exploration spending dropped by some 20% between 2019 and 2020: from roughly $97m (or R1.4bn) to $77m. In 2007, by contrast – in the early years of the MPRDA – that spending was above $400m.

According to Paul Miller, director of AmaranthCX (which analysed the data), ‘exploration spending in South Africa in 2020 accounted for just 0.95% of the global total – “a devasting statistic for what was once the greatest mining country on earth”’. 

South Africa’s share of African exploration spending has also decreased further and is now at a two-decade low of 7.7%. This puts the country in sixth position on the continent, behind the Democratic Republic of the Congo, Ivory Coast, Burkina Faso, Mali, and Ghana. 

Circumventing the judgment

The high court ruling practically invited the minister to overcome his current inability to ‘produce binding subordinate legislation’ for the mining industry by amending the MPRDA to include ‘the Charter’ in its definition of ‘this Act’.  

Amending the statute is what Mr Mantashe’s department now proposes to do. In November 2021, some two months after the ruling was handed down, officials told the portfolio committee that no appeal would be lodged against the judgment to avoid becoming bogged down in the courts. 

Instead, the MPRDA would be changed to ‘incorporate the transformation objectives the judgment overturned’ and thereby make ‘compliance obligatory’. The 2018 Charter could also be ‘annexed to the MPRDA’, said deputy director-general Tseliso Maqubela.

Some MPs criticised the decision not to appeal the judgment, saying it was a ‘setback for transformation’. The committee decided to hold public hearings on the ruling with stakeholders, including the Minerals Council, trade unions, and mining communities. It is this process which is now in train.

Last week, the National Union of Mineworkers (NUM) told the committee that the 2018 Charter was a ‘toothless’ instrument that should be incorporated into the MPRDA and have punitive sanctions for non-compliance. The Association of Mineworkers and Construction Union (Amcu) agreed. 

The Minerals Council stressed that the industry had always been committed to transformation as a matter of policy (not law) and remained so regardless of the judgment. The council’s senior executive for public affairs and transformation, Tebello Chabana, also called for the establishment of a ‘transformation council’ to review the progress being made. 

In addition, as Business Day reports, Mr Chabana lamented the absence of ‘a template or scorecard in the Mining Charter to measure and record the transformation achievements of the industry’ and allow these to ‘be verified by verification agencies’. 

Since the 2018 Charter does in fact contain a detailed scorecard – but one that is often difficult to interpret – what the Council presumably seeks is a scorecard that is clearer and gives mining companies points for all progress made. 

But if a better scorecard is to be devised, should it be based on current BEE policies? It is becoming ever more evident that BEE helps only a relatively small elite comprising about 15% of the black population. It bypasses the remaining 85% of black South Africans, who have little prospect of ever gaining access to BEE deals, management posts, or preferential tenders. 

Worse still, BEE actively harms that 85% by encouraging corruption, undermining efficiency, reducing investment, curtailing growth, limiting employment – and helping to consign more than 11 million black South Africans to joblessness and destitution.

Time to think out of the BEE box

Since BEE is fatally flawed, it is time to think out of the BEE box and find far more effective ways of empowering the disadvantaged. In the mining sector, this would require a new scorecard that puts the focus on what the IRR terms ‘economic empowerment for the disadvantaged’ or ‘EED’ – and replaces the ‘blatant elite enrichment’ that characterises BEE.

EED differs from BEE in three key ways. First, it avoids using race as a proxy for disadvantage. Instead, it cuts to the heart of the matter by using income and other indicators of socio-economic status to identify those most in need of help. 

Second, EED reaches right down to the grassroots by providing low-income households with tax-funded vouchers to help them pay for the schooling, housing, and healthcare of their choice. It redirects much of the revenue being badly spent by bureaucrats into the hands of disadvantaged families, turning them into consumers with significant buying power. It also means that schools and other suppliers must compete for their custom, which pushes quality up and keeps prices down.

Third, EED overcomes the key barriers to upward mobility by actively promoting investment, growth, and employment. It rewards the most important contributions that business can make by giving companies EED ‘points’ for investments made, jobs and salaries provided, taxes paid, and innovations fostered, among other things. 

An EED scorecard for the mining industry would allow mining companies to earn EED points for their contributions in four categories: economic, labour, environmental, and community. Given the overarching importance of growth, their economic contributions would count the most.

In the economic sphere, mining companies would gain EED points for foreign direct investment (FDI) attracted, capital invested (especially in greenfields projects), minerals produced, dividends declared, goods and services bought, and contributions made to tax revenues, export earnings, and R&D spending.

In the labour sphere, companies would earn EED points for jobs maintained and/or expanded, for salaries and PAYE paid, and for initiatives to improve skills, health, and mine safety, among other things. 

As regards the environment, companies would obtain EED points for reducing electricity and water consumption, minimising rock and other waste where possible, treating polluted water, rehabilitating land, and paying an affordable annual levy into a fund to be used in countering pollution from abandoned and derelict mines.

As for their community contributions, companies would earn EED points for topping up the schooling, housing, and healthcare vouchers of poor households in mining communities, or for helping to improve the quality of provision in these three spheres.  

The need to shift from BEE to EED is becoming ever more urgent. The country can keep on with current BEE policies in mining and elsewhere, but these will do little to foster growth or expand opportunities for the disadvantaged. Instead, all South Africans will reap a bitter harvest as the economy falters still further, joblessness worsens, and crime, vandalism, and social unrest accelerate.

By contrast, a shift to EED in mining and elsewhere would free the economy from the leg-iron of ever more damaging BEE requirements. It would also empower the majority in a way that BEE interventions – and the 2018 Charter, in particular – will never be able to achieve.

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Dr Anthea Jeffery holds law degrees from Wits, Cambridge and London universities, and is the Head of Policy Research at the IRR. She has authored 11 books, including People’s War: New Light on the Struggle for South Africa and BEE: Helping or Hurting? She has also written extensively on property rights, land reform, the mining sector, the proposed National Health Insurance (NHI) system, and a growth-focused alternative to BEE.