The effect of the ‘once empowered always empowered’ rule on the mining industry

October 24th, 2016
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By Dineo Peta

The debate around the ‘once empowered always empowered’ rule arose once again following the publication of the draft Reviewed Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry (Mining Charter) on 15 April 2016. The purpose of the reviewed Mining Charter is to align it with the Broad-Based Black Economic Empowerment Act 53 of 2003 (BEE Act) and its recently amended Codes of Good Practice (the codes). This review happened while the industry was awaiting a High Court ruling for a determination on the ‘once empowered always empowered’ rule, more specifically whether the ownership element of the Mining Charter should be a continuous compliance requirement for the duration of the mining right as argued by the Department of Mineral Resources, or a once-off requirement as argued by the Chamber of Mines representing mining companies. The effect of this rule on the Constitution, the BEE Act and the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA) requires much attention in light of South Africa’s (SA) constitutional democracy and further achieving equality and economic transformation in the mining industry.

The preamble of the Constitution recognises the injustices of SA’s past. The achievement of equality is one of the values and founding provisions of the Constitution in terms of s 1(a). Section 9 provides for the right to equality. In terms of s 9(2) it states: ‘To promote the achievement of equality, legislative and other measures designed to protect or advance persons, or categories of persons, disadvantaged by unfair discrimination may be taken.’

The preamble of the BEE Act recognises that SA’s economy still excludes the vast majority of its people from ownership of productive assets. In terms of s 2(a) and (b) thereof, the objectives of the BEE Act are to promote economic transformation to enable meaningful participation by black people in the economy; and further to ‘achieving a substantial change in the racial composition of ownership … of … enterprises.’ Section 3 thereof provides that in applying the BEE Act it should be interpreted to give effect to its objectives and further to the Constitution. It, therefore, follows that as the Mining Charter is a code of good practice as contemplated in s 9 of the BEE Act, it must also be interpreted and applied in accordance with s 3 thereof, and also in accordance with the Constitution.

The preamble of the MPRDA reaffirms the state’s commitment to reform to bring about equitable access to SA’s mineral resources. Importantly, it considers the state’s obligation under the Constitution to take measures to address the results of past discrimination. In terms of s 2(d) and (h) respectively the objectives of the MPRDA are to, among others, substantially and meaningfully expand opportunities for HDSA’s and further to promote justifiable social and economic development.

Notwithstanding that international law instruments such as the Rio Declaration on Environment and Development and its Agenda 21 constitute soft (non-binding) international law, SA has adopted their principles into its national legislation. Of significance to the issue at hand is principle 3 of the Rio Declaration, which provides that ‘the right to development must be fulfilled so as to equitably meet developmental and environmental needs of present and future generations’. This principle is incorporated in the MPRDA through the definition of sustainable development. Of further significance is principle 5 which provides that: ‘All States and all people shall co-operate in the essential task of eradicating poverty as an indispensable requirement for sustainable development, in order to decrease the disparities in standards of living and better meet the needs of the majority of the people of the world’ (my italics). This principle is given effect to in the objectives of the BEE Act.

In Agenda 21 of the Rio Declaration, it is provided in para 3 (Combating Poverty) that factors creating policies of development, resource management and poverty should be integrated. It is stated therein that this objective is to be sought by among others the empowerment of disadvantaged and indigenous people. In para 5, governments are urged to develop and implement policies integral with their economic developments.

The effect of ‘once empowered always empowered’ rule is that a mining company will still be deemed to be in compliance with transforming its ownership structure even if that company does not currently have the required level of historically disadvantaged South African (HDSA) ownership. A Mining Charter audit conducted for that year of assessment would find unsuitable and non-compliant levels of HDSA ownership. Most importantly, in broader context, the ownership levels of SA’s mineral wealth would still remain with those who were historically advantaged. In light of the aforementioned laws, the effect of the ‘once empowered always empowered’ rule is then contrary to the constitutional right to equality, the BEE Act’s objective to achieve substantial change in the racial composition of ownership of enterprises and further the MPRDA’s function to achieve equal distribution of SA’s mineral wealth. It is further contrary to the international law principle of sustainable development.

Based on the Department of Mineral Resources (DMR) statistic’s, the ownership of SA’s mineral wealth and more particularly ownership of mining companies still lies in the hands of those who were historically advantaged by Apartheid. For as long as this grave inequality remains, it would be contrary to SA’s constitutional values and to its objectives to interpret any element of the Mining Charter, including ownership, as once-off compliance requirement.

Both the MPRDA and the BEE Act provide that there must be substantial change. Change refers to a difference. It is common cause that if a situation reverts back to what it was, there was no change. In the context of the Mining Charter ownership element, it cannot be said that a company has complied with the element of ownership if it acquired black ownership but subsequently lost it and on that element has reverted to its previous non-compliant position. There is then no substantial change.

In this regard it is important that there be due consideration to the principle of sustainable development. In its broadest sense, sustainable development means ‘the integration of social, economic and environmental factors into planning, implementation and decision making so as to ensure that mineral and petroleum resouces development serves present and future generations.’ The principle inter-generational equity embedded therein requires sustainability and continuation or a standing requirement. The attainment of substantial change in the racial composition of ownership of enterprises can, therefore, not be a once-off requirement if we apply the principle of inter-generational equity. It is my opinion that inter-generational equity does not only refer to environmental protection for future generations, but also to socio-economic development. Therefore, compliance to the ownership element in the Mining Charter necessitates – in my view – a continuation to benefit future generations in light of the BEE Act’s objective of achieving substantial change in the racial composition of ownership of enterprises.

In further considering the effect of the ‘once empowered always empowered’ rule it begs the question as to how this substantial change is measured by the DMR. The current process of conducting Mining Charter audits, which measures compliance to the elements of the Mining Charter, is purely based on the information submitted by mining companies to the DMR in terms of s 28(2)(c) of the MPRDA. It is my opinion that this process lacks consideration of socio-
economic factors and current circumstances of HDSA’s operating in the mining industry, which the Mining Charter is intended to benefit. The DMR should also consider whether additional information should be assessed from HDSA’s. This could, among others, include assessing the number of active HDSA companies operating in the industry, and how many of those have been meaningfully empowered as a consequence of implementation of the Mining Charter. In certain instances where there were previous empowerment transactions which have since terminated, the HDSA shareholder is sometimes in a worse off position by being indebted in financial arrangements to acquire shareholding in mining companies which has since been lost. Such socio-economic factors and circumstances must be considered, addressed and managed accordingly in policy formulation.

The principles of international law to which SA subscribes, obligates the consideration of socio-economic factors in policy formulation and consequently in implementation together with the review of such policies. Assessment of information submitted by mining companies alone does not give effect to this international law obligation. Socio-economic factors such as those mentioned above (the further impoverishment of HDSA’s) should not only be considered on policy formulation but also on its improvement too.

In light of the aforementioned national and international laws, it is my opinion the rule of ‘once empowered always empowered’ can have no legal standing in a constitutional democracy with a founding value of equality. Perhaps what needs to be revisited is the legal obligations imposed on mining companies in giving effect to the ownership element, however, the ‘once empowered always empowered’ rule cannot be an option in light of SA’s respective legislative mandates to meaningfully and substantially achieve economic transformation.

 

Dineo Peta LLB (UP) LLM environmental law (Wits) Prospecting & mining law Certificate (Wits) Post-graduate diploma in drafting & interpretation of contracts (UJ) is an attorney at Peta Attorneys Inc in Johannesburg.

 

This article was first published in De Rebus in 2016 (Nov) DR 32.

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