2 June 1998
Madam Speaker, I have been given to understand that I unfortunately have only 30 minutes in which to cover the two areas that my department is responsible for. I am hoping that I will indeed be able to do so within that short time.
The reading of my second Budget Vote speech is a proud moment, not only for me as the Minister responsible for Minerals and Energy in the Republic, but also for the Department and its officials. I am justly proud that since the May 1994 event, that is the national elections and the inauguration of President Mandela and his Government, I can speak in this National Assembly as a South African about the lives of all South Africans to all the people of South Africa.
In my speech I will discuss the main parts of the portfolio, that is mineral development, mine health and safety, energy and the associated institutions. Before I do that, I would like to draw the attention of this House to some of the corporate objectives and targets in the attainment of which the department has been successful.
Firstly, South Africa’s minerals industry is an important contributor to the country’s economy. According to the SA Reserve Bank, mining and quarrying contributed R39,122 billion, or 8,1%, to the gross domestic product in 1996, that is at current prices, and R8,072 billion, or 8,7%, to the gross domestic fixed investment.
During 1996 the nominal rand value of exports of primary mineral products increased by 16,2%, compared to an increase in total export revenue of 19,6%, and the share of minerals of the total export revenue declined from 43,6% in 1995 to 40,9% in 1996. The inclusion of various processed mineral products, such as ferroalloys and aluminium, would, however, raise the contribution to almost 50%.
The outlook for the platinum group metals market is very positive. South Africa is the world’s largest producer of platinum, having accounted for 75% of supply and 25% of palladium in 1997. Demand for platinum expanded to 162 tonnes during that year, and growth at about 2% per annum was forecast.
At the same time, the House is aware that the gold-mining industry has been experiencing a structural decline and serious job losses. This has been mainly due to a number of factors, including the diminishing of ore reserves on some of our marginal mines, the higher cost of deep-level gold mining and the declining gold price.
It was against this background that we, together with business and the employees in the mining industry, set up what we call the Gold Crisis Committee(GCC). The purpose of setting up the committee was to see if we could stem the tide of job losses by reviewing proposed retrenchment notices submitted by the industry to the committee, and recommending other alternatives. The formation of the GCC is possibly the first of its kind anywhere in the world where government, business and labour sit together in an attempt to find common solutions to a shared problem.
We have been able, as a result, to save well in excess of 25 600 jobs out of a total of approximately 310 000 in the gold mining industry which were at risk. Preliminary estimates show that, through the GCC, we have saved up to 42% of the jobs that were threatened. Various GCC task teams have been formed to continue to explore possible solutions to the gold crisis.
It is also my intention to cover in a nutshell the proposed mining and minerals policy. I will, for purposes of my remarks, confine myself to the issue of mineral rights, because I assume that members have had occasion to go through the entirety of the report, and the difficult area, in many people’s view, indeed relates to mineral rights.
We are confident that the White Paper that will flow from the process that we have just concluded will be available towards the end of the year. Last year I said that the process was so important that it could not be rushed, since we must ensure that we do the right thing and make correct decisions. The mining and minerals policy that we are developing is, in my view, a benchmark for mining in developing countries such as ours. The Green Paper has dealt adequately with the burning issue of the ownership of mineral rights, having taken into consideration the restructuring of the South African economy and the changes in local and international circumstances.
South Africa currently pursues a dual system of mineral rights in which ownership is distributed between the state, which holds roughly one third, and private ownership, which holds the rest. Recently there has been considerable debate as to whether ownership should vest entirely in the state. Mineral rights in South Africa are recognised as rights in property, and thus enjoy constitutional protection.
While Government recognises the constitutional constraints of changing the current mineral rights system, it does not accept the system of dual state and private ownership of mineral rights. Government’s long-term objective is for all mineral rights to vest in the state, but as a transitional measure a new system for granting access to mineral rights is proposed, the main aspect being that the right to prospect and to mine for all minerals will vest in the state. Security of tenure will be ensured by granting prospecting and mining rights for specified periods that can be cancelled or revoked only for material breach of the terms and conditions of the right concerned.
I think it needs to be said that although some people are screaming that we are embarking on a project to nationalise mineral rights, the truth is that we are not. We are saying that if one holds mineral rights, one can continue to hold those rights and remain the owner, at least, for the time being. What one cannot do, however, is to hold those mineral rights without utilising them. No one will be allowed to do so. We will intervene and make sure that access to those minerals, by way of prospecting as well as by way of mining, becomes available to larger numbers of people who want to participate in the mining industry. We are saying, in other words, that we will vigorously pursue a principle which is internationally known as "use it or lose it". I have decided to call this principle the use-it-and-keep-it principle.
I will now proceed to the next aspect, which concerns mine health and safety. Consequent to the recommendations outlined in the Mine Health and Safety Act of 1996, it is my great pleasure to announce that, on 30 June last year, we launched the Tripartite Mine Health and Safety Council which advises the Minister on health and safety issues in the mining industry.
In my speech last year, I reported that the Mine Health and Safety Act had come into operation on 15 January last year with the application of section 56(3) being suspended pending an agreement between labour and business on the reversal of onus.
An agreement was indeed reached and section 86(3) was deleted through an amendment exactly a year later. This means that the reversal of onus of proof has been replaced by a system of administrative fines, applicable to employers. The Act is of paramount importance because it has ushered in a new era and a new approach to the area of health and safety in mines. Compared with the 1996 figures, a decrease of about 10% in fatal mine accidents has thus been achieved. Our target is to improve this by 30% in the period between 1998 and 2001.
The next issue is that of the Mining Qualifications Authority (MQA). I have approved a comprehensive implementation programme for the MQA, a tripartite institution concerned with competency-based training in the mining industry. I am delighted to report that much work has already been done by the MQA, including the restructuring of the examination for the various blasting certificates as well as consensus on the implementation programme.
The next aspect is training. Our programme to train inspectors has also been successful. Of the original 50 pupil inspectors, we have 44 still remaining on the course who will duly qualify, certainly by the end of this year.
The next area which I wish to address is that of energy. South Africa is a country that is heavily endowed with abundant and divergent energy resources. Successful tapping of all possible energy carriers of our country is vital for sustainable growth and development. We are fortunate in South Africa to be in a position to have a broad spectrum of energy carriers such as coal, electricity, liquid fuels, renewables and many others.
Energy is one of the critical contributors to the economy of this country, needless to say. Including the energy-related taxes and levies, the energy sector contributes about 15% of South Africa’s GDP and employs about 250 000 people. Taxes on oil industry products contribute about 10% of fiscal revenue. Coal exports and savings on crude oil imports due to local synthetic fuel production by Sasol and Mossgas, contribute significantly to the balance of payments.
South Africa’s external and internal environment has undergone a fundamental shift in the meantime, which, not surprisingly, has resulted in significant changes in the context of energy policy. The socio-economic imperatives that we as Government have set, demand that we develop a new rationale and process for delivery to our people. It is therefore within the framework for delivery that my department has developed a draft White Paper on Energy Policy, which was submitted for purposes of consideration to Cabinet this past Wednesday.
As Government, we are committed to the promotion of access to affordable and sustainable energy services to all South Africans, in particular small businesses, disadvantaged households, small farms, schools, clinics, rural areas and a wide range of other community establishments. This production and distribution should not only be sustainable, but should lead to the improvement of the standard of living of all the country’s citizens.
The South African energy sector has tended, historically, to promote policies which predominantly address the supply side of the equation only. It is the intention of my department to develop policies that will cover the whole spectrum of the energy sector. Towards this end, we have identified a number of policy priorities which, as Government, we should address. These are, inter alia, increasing access to affordable energy services, improving energy governance, stimulating economic development, managing energy-related environmental impacts and securing supply through diversity.
The liquid fuels industry is one of the areas that presents the Government with an array of policy challenges. The ultimate objective of my Ministry is to stimulate the industry and to allow market forces to determine growth and development. In order to achieve this among other things the control of industry margins and the rationalisation plan will be phased out, and margins will ultimately be determined purely on a commercial basis. There will be a temporary moratorium on self-service and vertical integration to minimise job losses and promote small businesses. A social plan, we would like to believe, must be put in place to address the labour implications of potential retrenchments. Fuel standards and specifications will remain mandatory. Synthetic fuel subsidies will be phased out as, indeed, the process was started after a decision by Cabinet in December 1995.
The upliftment of synfuels will be required only while synfuel manufacturers are barred from the retail sector. The key challenge for us is to determine the appropriate level of Government involvement during the transition to this competitive environment that we desire. Transformation of the liquid fuels industry will mostly occur through negotiations with all participants.
We want an oil industry that progressively becomes less dominated by a few. We want an oil industry in which there is broader participation by all, irrespective of race, colour and gender. Government will have to help this process, particularly in the course of restructuring of state assets in this area. I need to say that my concept of a fully fledged, state-sponsored oil entity has not died. It is very much alive. We are pursuing it with the necessary vigour.
I will, now in the final stages of my speech, discuss some aspects of national importance regarding associated institutions. The first one is the Atomic Energy Corporation, AEC. In 1990, the AEC 2000 Plus plan that provided for the transformation of the corporation from the heavily state-funded strategic parastatal to a commercially driven organisation, was initiated. Resulting from the objective stated therein, the AEC’s state dependence was reduced by R815 million per annum or 80,3% of its budget.
A further reduction of state support for operational activities is planned through growth in the new and promising projects over the next five years that will add advanced and new industrial capacity to the South African industry. Of course, this is being done alongside a process of review of the AEC, which will tell us what exactly its role in changing and changed circumstances will be. The AEC restructuring has unfortunately resulted in personnel numbers having to decline from a peak of 8 166 in 1986 to an all-time projected low of 1 500 in 1998.
The next one is the Central Energy Fund (CEF) Group of Companies. In February this year, I placed an advertisement in the media calling for the nomination of the CEF board of directors by the general public. The response was phenomenal and resulted in the appointment of the current directors to the boards of the CEF itself, Strategic Fuel Fund Association, Mossgas and Soekor. One of their tasks is to prepare proposals for the restructuring of the CEF Group of Companies. This restructuring will take place, needless to say, in terms of the National Framework for Rationalisation of State Assets and national policy.
The next component of the CEF that I want to briefly deal with is the Strategic Fuel Fund Association (SFF). For the financial year ending 31 March 1997, a commercial profit of R192,9 million was realised by the SFF. A commercial dividend of R200 million was paid to the State Revenue Fund on 1 April 1997. An additional R1,2 billion was paid from sales of strategic reserves. The strategic crude oil stock levels were reduced this year, allowing an initial payment of R800 million into the State Revenue Fund.
Excluding proceeds from the selling of strategic crude oil stocks, commercial activities have yielded a net profit of almost R621 million since 1998. More than 25 million barrels are being stored for third parties for delivery to them at a later stage. South Africa will maintain a strategic crude oil stock level as directed by Cabinet. I must say that whatever we are keeping in reserve, we have a first option thereon should a crisis, which unimaginable right now, descend upon us.
An Environmental Impact Assessment, EIA, commissioned before finalising the proposed SFF-Saldanha commercialisation, was concluded during the year. A report was submitted to the Independent Review Panel for their assessment and recommendations. A new EIA was commissioned prior to storing refined petroleum products. This should be completed early in 1999.
The next one is Soekor. Soekor started producing oil from the Oribi project off the coast near Mossel Bay in May 1997. Approximately 6 million barrels of oil have already been produced from these fields, with the production history showing that the field is performing as expected. Production is expected to last another four years. The CEF has accepted a recommendation that the nearby E-AR or Oryx oil field also be brought into production by Soekor at a further cost of $75,9 million.
Soekor commenced with a one-year drilling programme in October 1997. The programme is designed to appraise existing discoveries as well as new oil prospects. Soekor’s exploration and production division will be fully commercialised in the near future.
I must add that Cabinet has since approved that Soekor can also indulge in prospecting for oil and other hydrocarbons beyond our shores.
The next one is Mossgas, which is poised to play a key role in the restructured CEF Group of Companies. It converts natural gas into liquid fuels, thereby saving about R1,3 billion of foreign exchange annually. It generates a cash surplus, before any State assistance, of about R500 million per annum. Mossgas provides direct employment to some 1 050 and indirect employment to some 7 000 others. The ratio of employees from previously disadvantaged groups has increased from 22% to 38% in the past four years.
A satellite development project was completed and the gas fields were successfully brought into operation in June last year. As the actual gas flows achieved at sea exceed the conservative flows used in the project studies, it is anticipated that the project will earn significantly more than was originally anticipated. The Cabinet has already authorised commitments up to R180 million to secure long delivery items and the hiring of drilling facilities. The cost of the project will be covered over four years from cash surpluses generated by Mossgas.
Although it is viewed by many as a white elephant - the previous apartheid regime allowed it to cost too much - it is now a valuable resource that should be used to maximum benefit. Mossgas has sold products to the value of R1,8 billion in the past two years and its net operating surplus over the same period was R1,1 billion.
The next one is the Council for Geoscience, which during the year participated in programmes and projects of the SADC mining sector. The volumes on the bauxite resources of the SADC and the heavy mineral deposits of the SADC were published during the year, while the volumes on the diamond deposits and the dimension stone deposits of the SADC have also been completed. We have also completed the mapping of a larger area, and we are ready to present the relevant maps to the head of state and his deputy.
Then there is Mintek which is gaining recognition and stature. Overseas and local organisations are approaching Mintek for test work and process development. Large client-funded projects were carried out recently for a new copper cobalt venture in the Democratic Republic of Congo and nickel producers in North America and Australia.
Then follows the Council for Nuclear Safety (CNS). Following consultation with the broad spectrum of interested and affected parties, the CNS submitted a draft national radioactive waste policy to the department for consideration as part of the integrated pollution control of the Department of Environmental Affairs and Tourism. That is still under consideration.
Then there is the SA Diamond Board. The newly appointed SA Diamond Board’s preoccupation during the first year of its tenure has been to open the diamond industry to previously disadvantaged groups, and to establish a greater degree of transparency and interaction in and within the industry. The current unprecedented applications for licences of various types marks a measure of success of the board’s policies and openness.
I have to report to the House that unfortunately Judge Levy, whom we had appointed to head a commission of inquiry into the diamond industry, died in February this year. This was very unfortunate, as I said because the work that the judge and his commission had done remains unconcluded. We still have to decide what to do with the existing product. We are hoping that we will be able to avoid appointing another commission. However, there are a few areas that I, as Minister think that we need to focus on as matter of urgency.
The first one is to investigate the possibilities of expansion in the beneficiation of our diamonds, which, we believe, will allow for the involvement of others, who until fairly recently have never been considered for purposes of participation in this industry. We also want to investigate whether the industry cannot contribute more to the fiscus. We will also expand our participation in the diamond industry world-wide.
In addition to these general issues, there are a number of specific matters which my Ministry is attending to. The first one relates to Alexkor, which is not my direct political responsibility. Indeed, it was my department that signed a very interesting contract which is marred by a series of anomalies.
It is my intention to raise this matter with the Minister concerned and with the interministerial Cabinet committee responsible for the restructuring of state assets so that we decide whether we cannot, indeed, sever that kind of marketing arrangement with De Beers. I am told that it is a situation that has existed for the past 67 years, and there are other people who want to participate in marketing Alexkor’s diamonds and who say that they cannot do that for us cost-effectively so that the fiscus could benefit. I indeed want to recommend that that be investigated.
The second aspect relates to the Government Diamond Valuator. Again, the first opportunity to give notice of termination, if we want to terminate the necessary contract between the SA Diamond Board and the company that is dealing with the Government Diamond Valuator, is 1 July. There are indeed many reasons why I do think that the whole arrangement has to be gone into. I do think that a totally different arrangement may indeed yield a better result for the fiscus. So it is my intention to give appropriate instructions that the whole Government Diamond Valuator system and the relevant agreement be overhauled.
The next element relates to the provisions of section 59 of the Diamonds Act and all manner of agreements relating to the export of our diamonds. I am indeed not satisfied with what is happening in this area, and it is my intention to give appropriate instructions that these areas be dealt with.
The last aspect relates to entrapment. I am not persuaded that current entrapment yields the kind of results that it is intended for, and we shall also look into that with a view to overhaul it.
In the last four minutes at my disposal, what remains for me to do is to thank the Deputy Minister, Madam Susan Shabangu, the Director-general, Sandile Nogxina and the entire department, as well as Mr Duma Nkosi, the Chairperson of the Portfolio Committee on Minerals and Energy, and the entire portfolio committee, for the assistance they continue to render to my department in the performance of its arduous task.