Transformation ownership NUM presentation by Madoda Sambatha

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Panel discussion: Ownership - presentation by National Union of Mine Workers Regional Co-ordinator Madoda Sambatha at the 2013 Mining Lekgotla. 28 August 2013

Panel discussion: Ownership - presentation by National Union of Mine Workers Regional Co-ordinator Madoda Sambatha at the 2013 Mining Lekgotla. 28 August 2013

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  • 1. 2013 MINING LEKGOTLA PANEL DISCUSSION: OWNERSHIP 1 Presentation by Madoda Sambatha Regional Co-ordinator msambatha@num.org.za
  • 2. PRESENTATION FOCUS: HISTORICAL PERSPECTIVES Extent of state participation in mining in a sample of developing countries LEGISLATIVE DEVELOPMENT ANC LATEST DEVELOPMENT WHERE ARE WE ON MINING OWNERSHIP, Despite difference NUM POSITION ON MINING OWNERSHIP THE CASE OF SASOL CONCLUSION 2
  • 3. HISTORICAL PERSPECTIVES Freedom charter: oAdopted in 1955, and stipulates the following: The national wealth of the country, the heritage of all South Africans, shall be restored to the people; The Mineral wealth beneath the soil, the banks and monopoly industries shall be transferred to the ownership of the people as a whole, All other trade and industry shall be controlled to assist the well being of the people AND “Wealth of the nation shall be shared amongst those who work it”. Morogoro, ANC Strategy and Tactics: 1969 Morogoro S&T says: ‘In our country - more than in any other part of the oppressed world - it is inconceivable for liberation to have meaning without a return of the wealth of the land to the people as a whole. It is therefore a fundamental feature of our strategy that victory must embrace more than formal political democracy”. Further says “To allow the existing economic forces to retain their interests intact is to feed the root of racial supremacy and does not represent even the shadow of liberation”. 3
  • 4. EXTENT OF STATE PARTICIPATION IN MINING IN A SAMPLE OF DEVELOPING COUNTRIES Botswana Diamonds negotiable WI other minerals Mongolia 10% local/50% Govt. Chile 100%‐Owned SMC in copper  Namibia Diamonds – negotiable. New SMC DRC 5% F/negotiated equity shares 15% ‐51% Papua New Guinea 30%WI (not all mines) Zimbabwe Indigenization laws 51% Ghana 10% F /20% WI Sierra Leone 10% F/30% WI Guinea 15% South Africa 26% black ownership specified in legislation SMC? Kyrgyz Rep. Variable WI 15%‐66% Zambia Minority interests Liberia 15% F/Mittal only Law specifies 10% Source: McPherson, 2010. CI: carried interest; WI: working or paying interest; F: “free” equity. 4
  • 5. LEGISLATIVE DEVELOPMENT MPRDA, 2002 Stipulates that: o“Mineral and petroleum resources are the common heritage of all the people of South Africa and the State is the custodian thereof for the benefit of all South Africans”. 5
  • 6. ANC LATEST DEVELOPMENT Proposals on Ownership and Control, SIMS document adopted by Mangaung 53rd National Conference of the ANC- December 2012: Nationalization of Mining Companies: Section 25 of our Constitution allows for nationalization for a public purpose or in the public interest, but requires compensation for expropriation at the market value of such property. It is estimated that the cost for the state to acquire 100% of listed mining companies only would be just under one trillion Rand and including non‐listed companies it would be well over R1 trillion (the cost to acquire a 51% controlling share of listed companies would thus be around R500 billion). This exceeds the entire government budget, which is expected to exceed R1 trillion rand for the first time in 2012/13. Consequently, either complete nationalization or 51% would be totally unaffordable and could put our country into a situation where we lose fiscal sovereignty and have to follow the dictates of the Bretton Woods Institutions under a Structural Adjustment Programme (SAP), which would be untenable. Nationalization without compensation would require a Constitutional change and would result in a near collapse of foreign investment and access to finance, as well as widespread litigation by foreign investors domiciled in states that we have trade and investment (protection) agreements with, which would ultimately likely result in the payment of compensation, all the same. This route would clearly be an unmitigated economic disaster for our country and our people. This study proposes that we rather investigate the desired outcomes of state control, in terms of rent share, growth and development, and make targeted interventions to achieve such outcomes. 6
  • 7. WHERE ARE WE ON MINING OWNERSHIP, RECOGNIZING DIFFERENCE Latest DMR report on ownership stipulates that: “ The underlying empowerment funding model has resulted in the actual ownership of the mining assets intended for transformation purposes being tied in loan agreements. Accordingly, the net value of large proportion of empowerment deals is negative, due to high interest rates on the loan and moderate dividend flows, compounded by the recent implosion of the global financial markets. The rapacious tendencies of the global financial markets have consistently thwarted the intended progress towards attaining the goals of transformation, as embedded in the Charter(DMR, 2009) This report estimates that: “The current asset value of the Industry at R2 trillion, indicating that 15% HDSA ownership at current rates would be R300 billion represent only 5% of the current net value of the industry. It claims that ownership at the present is no more than 9%, and by far the biggest bulk is concentrated in the hands of anchor partners or special purpose vehicles(SPV’s)”. 7 NUM AGREES WITH THIS REPORT SAMDA AGREES WITH THIS REPORT, (Kio Advisory Services research report is the most comprehensive report) CHAMBER OF MINES DIFFERS WITH THIS REPORT
  • 8. NUM POSITIONS ON MINING OWNERSHIP: Nationalization of mines: o Based on the SIMS research document, NUM not in support of wholesale nationalization: In support of nationalization of Strategic Minerals In support of the call to consolidate the State ownership, under the “State Owned Mining Company”. In support of Mineral Beneficiation Strategy In support of the suggested new “Tax Regime”, based on SIMS report Calling for new approach on ESOPs 1. NUM ON ESOPs: NUM proposes that there must be a section in the MPRDA and Mining Charter, dedicated to ESOPS, the SIOC ESOP principles be adopted and used in the suggested section. ESOPS should be compulsory and mandatory linked to granting of a mining license and failure to implement and comply should jeopardize the status of the mining license. This should be implemented and understood on the basis of the Freedom Charter Clause on, “Wealth of the nation shall be shared amongst those who work it”. A loan free scheme or employer funded ESOP Importance of the value of the scheme or percentage of ownership in the company Returns profit sharing or dividends needs to be paid out each time the company declares profit. oKumba last year turned its 6 000 employees into half-millionaires in a R2.7-billion payout. Interesting support, in NUM’s argument: o“Workers could and should be made part owners of South Africa’s mines”, says scenario planning consultant and former Anglo American executive Clem Sunter . 8 As the Union, we will argue for these changes in the MPRDA amendments
  • 9. 2.State Owned Mining Company: Interestingly, SIMS research reveal that: oMost middle income developing countries such as Brazil, China, Malaysia and Chile, have state mining vehicles, but in general they are mineral specific (state copper mining companies, iron mining companies, etc.) In support of the call to establish a State Owned Mining Company, NUM argued that: oConsolidation of all current state assets in the mining industry oMajority ownership in the strategic minerals: As NUM we refer to- coal, platinum, chrome, manganese and iron ore oSOMCO, based on Parliament legislation oSOMCO, model similar to CODELCO Chile, and may consider JV’s and partnerships in operational model 3. Community Trusts and “Worker co- operatives”: Based on current mismanagement of the community trust funds, and the current situation in NW with Bapo ba Mogale Community Trust; oCall on DMR and COGTA to develop a new legislation on Mining Community Trusts, and approach on “Traditional Authority Ownership”. oThis legislation must include a necessary shift from empowering individuals through BEE, and incorporate a new shift on empowering both communities through community trusts or traditional authority ownership, and “worker co- operatives”. 4. 26 % BEE EMPOWERMENT: Concentrated in the hands of anchor partners or special purpose vehicles(SPV’s). Necessity to have this 26% as unencumbered cash/ investment, between 2014 and 2019 Open a debate to increase the BEE share of the Mining charter(26%) to at least 35 % from 2019. 9 As the Union, we will argue for these changes in the MPRDA amendments
  • 10. THE CASE OF SASOL Created in 1950 as public entity, privatized from 1979, shares sold at discount to established white monopoly capital Now supplies 35% of our petrol needs, but global price of oil now well above $100/barrel, and SASOL sells at the pump at import parity price- we are subsidizing super profits for SASOL. 2013, SASOL announced that R200bn will be invested in gas of liquid plant in Louisiana(USA). “Born courtesy of taxpayers….South Africa’s biggest company and world leader in various critical energy technologies is investing ever more deeply in the US than it is here. This may be right thing for the company, but is it right for the country”, David Gleason, Business Day. What should be done? oMedium term: State must impose a “Windfall Tax” to SASOL In 2007 a task established by the then Minister of Finance, recommended the need for Windfall Tax Instead Treasury agreed on another project for SASOL oLong Term: SASOL should be re- nationalized 10 As the Union, we will argue for these changes in the MPRDA amendments
  • 11. CONCLUSION  The principle stipulated in the Mining Charter, “Effective ownership is a requisite instrument to effect meaningful integration of HDSA into the mainstream economy”.  NUM believes on the necessity to transform ownership of the mining industry, we believe this is possible without invoking any anarchic tendency, we firmly believe in combination of Growth and Redistribution. 11 THANK U, SIYABULELA