The realities of royalties in South African Mineral and Petroleum Royalty Bill
Date
2008-11-04T09:02:12Z
Authors
Machaba, Thabiso Jacob
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Abstract
Everything about the Republic of South Africa is said to be entering exciting times and
facing new challenges. This is usually said within the context and against the backdrop
of a changing face of South African political and economic landscapes from the past
history of exclusion, deprivation, segregation and prejudice to the future of inclusion,
tolerance, equal distribution and social harmony. The economic equal distributive idea is
likened to the socio-democratic ideals of social justice, which advocates equal
distribution of wealth to all citizens of the country. The South African idea is that South
Africans are now in the new social era and the social transformation, on all fronts and
most particularly the economic front, must move with the times and reflect the times that
all its citizens find themselves in.
On the political front, the year 1994 ushered in a new face of South Africa with the first
democratic elections which, for the first time in hundreds of years, saw the inclusion and
participation of the African majority of its citizens. These changes were soon entrenched
by the adoption of the new South African Constitution, which espouses noble ideas of
respect, equality, tolerance, economic development, distribution and access to country's
wealth in a fair and equitable manner.
The Constitution forces its citizens and the government to seek to redress the past
imbalances particularly in the economic front and proactively take measures to see to
this equilibrium of South Africa's wealth. Legislature, various political fronts and various
economic fronts rallied around these principles and began talking the concept of Broad-
Based Black Economic Empowerment. This concept has one central theme, which is to
advance the economic participation of the previously (and in many respects the current)
disadvantaged individuals into the mainstream economic activities of the country. It
further aims to fast track their access to economic wealth and sharing of the fruit of
common market and to seek to even out the economic disparities in many sectors of the
society. As to how this empowerment process is being implemented and achieved, this
paper will not even begin to traverse the diverse proposals and ideas of its
implementation and realisations.
Various economic sectors produced sector-specific economic empowerment charters in
an attempt to lay the road maps on how to achieve this equilibrium of wealth distribution
into the African hands. Virtually all-economic sectors are being active in that front
including the mining sector. The Mineral and Petroleum Charter was among the first
industry-specific charter to be produced after much publicised debates as to the best
frame within which to approach and implement this concept.
After that charter has been adopted and its implementation being realised, the South
African government seeks now to introduces the Mineral and Petroleum Royalty Bill,
which aims to collect monies from the mining houses that conduct mining activities in
many areas. The move has caused many heated debates within the industry with the
government forging ahead with its proposal subject to various consultative processes,
while the business is also forging ahead with its attempts to halt this move right in its
drafting stages.
The purpose of this essay will be to look at the concept of the royalties, what they are,
why is the South African government keen to introduce this Bill, why is business against
them, why do we have them over and beyond the normal mining tax systems and the
requirements of Black Economic Empowerment programs. In doing so, the article will
also shed some light on their (royalties) nature and make necessary proposals in the
process which, it is hoped, would in the main assist government and the Department of
Minerals and Energy (DME) to implement, modify and manage royalty regime(s) in the
mining and the petroleum industries.
The essay will, to the extent that it can, rely on case law but the topic is mostly
theoretical in South Africa and very few case law authority exist to clarify and provide
thoroughly researched and considered legal analysis of the topic. The theoretical
research of this article will take the reader to various countries that are in more or less
the same boat as South Africa in terms of their relative reliance and dependence on
mining industry and mining products for economic survival and activities. Similarities also
extend to the relative sizes of these countries, similar perceptions of economic
participation or lack thereof by mining houses vis-à-vis paying taxes that are congruent
with their incomes, non-existing developmental corporate social responsibilities, no or
less royalty payments and generally prevailing negative social-environmental impact of
mines and mining houses on immediate communities within which they function and
carry on their businesses.
It is the writer's opinion that the political backgrounds of these countries, as compared
with South Africa, also have huge impact and influence on how the concept of royalties
can be understood locally. A comparative analysis of their modus operandi will be
undertaken to see if the legislative attempts by South Africa is in or out of order in
seeking to introduce royalties and whether its reasons are in or out of tune with sound
local or international economic principles. Immediate economic concerns surrounding
royalties are that royalties have the potential to attract or dismiss much needed
investments, be it direct or indirect investment. Their effect on shareholders’ dividends,
growing local mining costs/ business and their general impact on financial upkeep of
mining operations in South Africa will also be researched in this essay.
The essay will therefore assume this outline of topics, definition and origin of the
concept; international comparative analysis; the South African past mining regimes visà-
vis royalties; the current South African Royalty Bill; critics of the South African royalty
Bill; the defenders of the Bill; some proposals; way forward; and conclusion.
Description
Keywords
Mineral and Petroleum Charter, South Africa, Mineral and Petroleum Royalty Bill, Royalities, mining houses, South African government, Black Economic Empowerment