The long-awaited transparent record of South Africa’s mineral rights – the lifeblood of the mining industry’s future – is barely out of the starting gates and is already mired in distrust.
There is no question that a functioning cadastral system is critical to attract mining investment to South Africa.
In most other mining jurisdictions that have such a system, it means investors looking to pour funds into exploration need only to open a web browser to access an up-to-date record of who holds which mining rights over any particular property.
If there is no mining right over a particular property, the investor could submit an application for it. If another party already holds the right, the investor could determine when it is due to expire or who the holder is, approach them to buy it or, as is often the case, to form a joint venture (JV).
In South Africa, where no such system exists, it’s an infinitely more painful experience for a potential investor to confirm who owns which rights. It involves engaging with often obstructive regional Department of Mineral Rights and Energy (DMRE) offices, which, in terms of regulation, are meant to determine if a property is available for application within 14 days.
Currently, it takes over six months.
It is no wonder then that exploration investors bypass South Africa, with the country now receiving just 0.76% of global exploration funds, down from 5.42% in 2004.
That the tender process for the system has begun should inspire hope, but the already messy nature of the matter has instead evoked an all-too-familiar dread among industry observers, and suspicion over the integrity of the process is mounting.
Badgered by the media for information about the system, Mineral Resources and Energy Minister Gwede Mantashe had described the development of the cadastre as his "nightmare" because of how delayed it had been and how slowly the State Information Technology Agency (SITA) was moving to progress the tender process and procurement of the system.
SITA was quick to tell Business Day that the hold-up was not its fault but that the procurement process had stalled because the DMRE officials sitting on the procurement committee had failed to address the concerns of external auditors. "Instead of people answering, they are running," SITA MD Luvuyo Keyise reportedly said.
Responding the Fin24’s questions this week, SITA said it was not at liberty to disclose what issues the auditors have raised, "save to say they have been brought to the attention of the relevant parties".
The developments point to something stakeholders are increasingly worried about – that the tender has been irreparably flawed from the very start and will ultimately fail to remedy the problems of record-keeping within the department.
DESIGNS ON THE PRIZE
While industry believes an off-the-shelf, cloud-based cadastral system is the quickest and surest way to provide what is needed (including the Minerals Council South Africa, which even offered to pay for it), government has instead sought out a vastly more complex custom-built "enterprise solution" to completely replace several departmental systems.
"It's the kind of mega-project that has CIOs of major listed companies shaking in their boots," says Paul Miller, director of mining consultancy AmaranthCX.
In Miller’s view, the bid documents appear designed to intentionally exclude the obvious candidates.
Because the specifications require bidders to have a BEE level of between 1 and 4, foreign-owned specialist technology providers could not bid – a bit of a bungle given that only a handful of technology providers specialise in mining cadastral systems, and none of them is South African-owned.
A senior manager at one technology company told Fin24 the bid documents were standard in some parts, but exceptional in other instances.
For example, the DMRE wants to retain all the source code for any software solution procured.
Because the software needs to be updated regularly, this typically does not work for technology providers or clients. In the case of the DMRE, the manager noted that "millions of lines of code are useless to a department that can’t keep the printers in their offices working".
Not only were the obvious technology providers unable to bid, Miller says, "the tender was so badly written, it's so irrational, that many of the big systems integration houses which would otherwise be all over a tender like that, like PwC, Deloitte, Business Connection, the big guys, didn't bid either".
A list of the bidders provided to Fin24 by SITA confirms as much, although two major information technology companies, Accenture SA and Tech Mahindra SA, are listed among the 12 bids received.
The other 10 bidders are:
Terra Moneo Consortium
MegaCross IT Solutions
Exodus IT and Property Solutions
Omni Tell Technology
Cahead Info Technologies Africa
Idol Consulting Firm
Industry sources say other major companies deemed the reputational risk simply too high.
"Even the best team with the best technology and a good budget were probably not going to come away successful because of the deeply entrenched problems at the DMRE and the unlikelihood that reputational risks could be properly managed," one source said.
A key concern is that the underlying data held by the department is so dirty that a new system will not solve the root of the problem.
"The way the DMRE is structured into regional offices, the amount of paper-based transactions that take place in the system, every bit of data needs to be revalidated. It is a complete mess," the source said.
Recognising this as a critical problem, Miller argues the DMRE should do a data dump of what is legally public information anyway and allow the private sector to use their own systems to help them validate and clean the information.
He is, however, not confident that will happen. "The data will show us where the overlaps are on prospecting rights; who's been getting so many prospecting rights that they can't possibly fund all the exploration programmes. And it will show us which ANC-connected parties and companies and directors are getting prospecting rights."
'THE ANC MUST EAT'
Addressing Parliament last week, the DA's James Lorimer was scathing of the DMRE’s handling of the matter and accused the ANC government and its officials of not wanting a transparent licensing process.
"Here’s why. One: The ANC has given us a generous record of crooked contracts, where the tender is inflated, so money goes back to the ANC and back to connected, crooked officials. That’s why they must control this tender and build an in-house system. And two, if there was transparency in mineral rights, everybody will see how many rights connected comrades have in their pockets. They squat on those rights and demand a cut when any real miner comes along," Lorimer said.
Lorimer added that, in the absence of a plausible alternative explanation, one must believe the entire system is rotten. "South Africans should know, all that new mining investment and all those potential new jobs will not come because the ANC must eat."
While Miller advocates for scrapping the tender and starting again, SITA says it’s premature to talk of cancellation.
It said the Bid Evaluation Committee had finally reconvened last week and is currently reviewing the queries that the auditors raised. Thereafter both sita and the DMRE will explore the options that are available to them. The agency said that a typical procurement event of this nature could take up to six months.
The DMRE did not respond to questions.