13 minute read
Finance and legal
UNSTABLE ELECTRICITY SUPPLY
AND ITS IMPACT ON MINING AND THE ECONOMY
The frequency of power outages, due to unstable electricity, creates downward pressure on productivity, labour output and the performance of mining and other key sectors. Beyond disruptions in the broader economy, the lack of stable power leads to adverse economic consequences for companies, workers, consumers and ordinary people. These can be measured in loss of income, increased costs and destruction of livelihoods.
South Africa presently experiences electricity supply instability and load shedding. The frequency of power outages indicates the ongoing crisis at the state-owned enterprise Eskom, especially its electricity generation capacity, due to maintenance-related problems at its power plants.
In the absence of stable electricity, the country remains vulnerable to poor economic activity and recovery. Additionally, where energy policy remains a murky and unclear terrain, the overall economic wellbeing of South Africa is unlikely to be good. Without a systematic change in energy and electricity policies and politics, Eskom’s failings pose an energy security challenge to the country. Furthermore, this crisis and the COVID-19 pandemic demonstrate that now is the time to redefine and rework the country’s entire energy policy regime.
Addressing the electricity shortage, while setting South Africa more firmly on the path towards a just transition for an environmentally sustainable economy, will be one of the defining challenges and features of President Cyril Ramaphosa’s administration. The challenge is even more significant when policies have to strike a balance between responding to the increasing impact of climate change and delivering the obligations of a state that deems itself to be developmental in its stance and objectives.
Balancing the two undertakings will determine the failure or success of the energy policy. Of course, all will depend on its implementation.
One of the indications of how things are changing is the establishment of the Presidential Climate Commission (PCC) to facilitate a just and equitable transition towards a low-emission and climate-resilient South African economy. To achieve this, a shi away from the current reliance on fossil fuel (coal) for electricity generation must occur. This is an unenviable process for the PCC, Mineral Resources and Energy Ministry, and the government, since they will have to explain and even justify this in terms of its potential impact on coal mining companies, workers and livelihoods.
SIGNIFICANT IMPACT
We know that the country’s current and dominant mode of electricity generation is coal, emitting the highest carbon dioxide content of the various fossil fuels. The overly high reliance on coal as the baseload source for power generation means the country’s energy policy has to address delinking from fossil fuel in the long term, and simultaneously respond to exogenous factors such as binding agreements of reducing greenhouse gas emissions as per South Africa’s commitment to the Paris Climate Accord.
At a glance, the above demonstrates the intersection of the electricity crisis with the nation’s energy security, climate change, inclusive and sustainable economic growth and development challenges. In a way the electricity issue is a multifaceted crisis that touches every aspect of society, including the lives of everyone. Here I will attend to the far-reaching impact the lack of stable electricity has on the country’s social, economic and political stability. Undoubtedly one of the most significant direct and indirect e ects of power outages on workers, companies, livelihoods and people is not just the productivity of those a ected, but also the economy’s performance. For example, the extent of load shedding and
Mamokgethi its frequency comes with disruption costs and
Molopyane declining performance in critical sectors such as Labour and mining analyst manufacturing and mining. In the past decade, capital expenditure on resources for alternatives such as generators has increased. However, even with such an investment, blackouts and load shedding have had a negative financial implication on companies indirectly too. They lead to a reduction in produced goods, decrease in sales, low labour productivity and idle machinery (both can have a cost-adding outcome), loss of data, and damages to hardware and machinery. The last mentioned is a consequence of the frequency of power outages that eventually cause machines to deteriorate and break down. Implications include the fall in consumer confidence and the inability of companies to meet their targets. In mining, unstable © ISTOCK – zha zhengzaishuru ojiankang electricity could lead to a company being perceived as incapable of meeting its production target, and being viewed as unreliable, leading to fewer sales. We have already witnessed some of the e ects of a lack of stable electricity. It has led to reduced demand that induces a decrease in sales, productivity, performance and total output – as illustrated by a 0.3% fall in annual mining output between 2016 and 2021. And then, and as a consequence, the decline leads to a fall in company and industry competitiveness at a domestic and international market level. Even with a boom in 2021 that saw 39.1% minerals sales (compared to 2020), reinvestment of those returns in new exploration projects in South Africa is less than 1% of the total global expenditure. Ultimately, as has been evident throughout the years, mining’s overall contribution to GDP has declined relative to other sectors. Taken together, these significant adverse e ects of load shedding, due to unstable electricity supply, are indicative of poor planning, ailing infrastructure and unresponsive political leadership to the crisis. They also reveal the severe implications of unstable electricity on the performance of companies and industries like mining and the overall economy. In short, a South Africa that could be advancing through economic growth is falling behind other developing economies, due to the unreliability of power supply, resulting from poor energy policies and lack of reforms relating to electricity-generating infrastructure. ■
INDIGENISATION, PROCUREMENT AND EMPLOYMENT
REQUIREMENTS IN AFRICA’S MINING INDUSTRY
Taking a look at the critical areas of indigenisation and local procurement and employment requirements in various key countries in Africa
Comprising a network of leading law firms in 28 African countries, LEX Africa is Africa’s largest legal alliance. In the mining sector, Africa is renowned for its focus on indigenisation requirements, as well as those around local procurement and employment.
Since each member of LEX Africa is an independent law firm, we spoke to a few from various African nations to find out the requirements for their country.
EGYPT
According to Merna Osama, associate at Marghany Advocates in Egypt, when it comes to local ownership rights, should a local company wish to start operating in the mining field, it must obtain a licence for exploration or licence for exploitation from the Egyptian Mineral Resources Authority.
“According to the Mineral Resources Law No 198 of 2014 and its executive regulation, there are di erent types of ownership with regard to this matter. For one thing, the ownership of the land where the exploration or exploitation takes place does not fall to the mine. However, if they have obtained a licence for exploitation, they shall have ownership over the ore extracted,” says Osama.
“They would, however, have to pay a rental value for their mines and quarries, on a per square kilometre basis – the rental value for mines under exploration is EGP25 000/km2, while for white sand it is EGP9/km2.”
However, when it comes to foreign ownership of mining rights and local procurement and employment quotas, things are not onerous.
“There are no restrictions regarding foreign companies with respect to mining rights, but the same rules apply to them as for local entities. There are also no quotas with regard to local procurement and employment, but practically speaking, the employer has the right to hire foreign employees at a ratio of one for every nine local employees.”
GUINEA
One of the major requirements regarding ownership of rights and equity in Guinea, says Jean Noé Mwizerwa of Thiam & Associates, is related to the Guinean state participation in the share capital of rights holders.
The mining code, he notes, provides that the grant by the state of a mining operation title immediately gives the state an ownership interest, at no cost, of up to a maximum of 15% in the capital of the company holding the title.
“The mining code also provides that the state has the right to acquire a supplementary participation, in cash, according to the terms agreed with each relevant mining company within the scope of the mining agreement. It should be mentioned, however, that the total participation of the state may not exceed the 35% threshold of the share capital,” he says.
“With regard to the Local Content Decree (LCD), this generally applies to large infrastructure projects, including mining infrastructure. Thus the LCD provides that project operators must acquire materials, constructions and associated services on the local market. However they may obtain such materials from abroad when these materials or services cannot be found on the local market.”
Mwizerwa says the LCD also provides
In Nigeria, there are no restrictions to “ foreign ownership of mining rights and shares in a company with a mineral title. “ – Giwa-Osagie
Chris Stevens.
Jean Noé Mwizerwa.
thresholds for local sub-contractors. So 30% of the expenses incurred for the implementation of a project must be dedicated to local sub-contractors.
“Mining title holders, and companies working on [their] behalf, must however give procurement preference to Guineanowned or -controlled companies for goods or services. During the exploration phase, the mining title holders, and companies working on their behalf, must contract with 10% of Guinean small and medium-sized enterprises. During the development phase, this percentage increases to a minimum of 20%.”
The LCD, which governs and protects local procurement, also contains provisions on the employment of Guinean workers, he says. “Such provisions are, more or less, similar to the provisions of the mining code.”
MOZAMBIQUE
In Mozambique, and pursuant to the Mining Law, the state is required to progressively increase its participation in mining projects, says Faizal Jusob, partner at Couto, Graça & Associados.
“Nevertheless, the new Mining Law is unclear as to whether this means that the state shall be a larger participant in mining projects in the future, or whether the state is expected to obtain greater interests in particular projects, over time.”
The Mining Law establishes that the mining contract must be signed with companies that have the state as shareholder and a minimum local content. The Mozambique government must create mechanisms of involvement of Mozambican companies or individuals on the mining ventures and must promote, gradually, the increase of the level of its participation in mining ventures, says Jusob.
“There are no restrictions regarding foreign ownership – however for small-scale and artisanal operations, some mining titles are reserved for citizens of Mozambique.”
Under the new Mining Law, preference should be given to goods and services purchased or obtained from Mozambican individuals or entities, he adds. Further, the Mining Law requires that goods or services, the value of which exceeds a particular amount (to be determined in subsequent regulations), must be purchased by way of a public tender.
“The criteria for the hiring of foreign citizens have been adapted for the mining >
Merna Osama.
Faizal Jusob.
sector to ensure that more qualified workers are attracted to mining operations. Additionally, the Mining Law states that mining companies must guarantee employment and training of Mozambicans in the areas of mining activity, thus promoting local employment and technical-vocational training plans.”
However there is no specific legislation in Mozambique regulating the hiring of citizens from the local communities in which mining activities are carried out, Jusob says.
NIGERIA
According to Osayaba Giwa-Osagie, senior partner at Giwa-Osagie & Co, only companies incorporated in Nigeria are entitled to have a mining title. The company can be 100% owned by foreigners but must be registered in Nigeria. An applicant for a mining title is required to show proof of sufficient working capital and technical competence to carry out the proposed mining exploration or operation.
“There are no restrictions to foreign ownership of mining rights and shares in a company with a mineral title. The Nigerian Investment Promotion Commission Act allows companies incorporated in Nigeria to be wholly foreign-owned.
“However, in practice, where the proposed company that desires to operate in the mining sector is 100% owned by foreigners, the Corporate Affairs Commission may require that the company has a Nigerian director to reflect local content.”
There are currently no regulatory policies on local content and/or procurement in the mining sector, he says. “However, there is a proposed bill at the National Assembly to provide for local content across various sectors in Nigeria, including the mining sector. This bill is yet to be enacted into law.”
The Minerals and Mining Regulations provide that an applicant for a reconnaissance permit, exploration licence, mining lease and water-use permit should have in their employment a person with a qualification and experience in exploration or mining (as applicable).
They must also be registered with the Council of Nigerian Mining Engineers and Geoscientists (COMEG) and any other relevant professional body, he says.
“There are currently no regulatory policies on the employment of employees from local communities in mining operations. However, in practice, employing from local communities is necessary to foster a good relationship with the local communities.”
SOUTH AFRICA
“There are no general provisions dealing with restrictions in ownership of rights or equity in the holders of rights by citizens of South Africa. Thus a foreign company could potentially own 100% of a right or the equity in the holder of a right,” says Chris Stevens, head of mining, environmental and resources practice at Werksmans Attorneys.
“However this is qualified to the extent that the mining legislation and the Mining Charter 2018 are applicable to ‘historically disadvantaged persons’. Applicants for new mining rights now require a 30% historically disadvantaged person ownership.
“The original version of the Mining Charter 2018 required a 5% free carry in favour of host communities and qualifying employees, but the provisions in relation thereto have been scrapped as a result of a court judgment in litigation instituted by the Minerals Council South Africa against the Department of Mineral Resources and Energy, and therefore the obligations to have such free carries are no longer applicable,” says Stevens.
As a result of this court decision, there are now also no set restrictions or targets for procurement regarding either goods or services. It is anticipated that such obligations will be ultimately provided in regulations or amendments to the Mineral and Petroleum Resources Development Act.
“All companies in South Africa are subject to employment equity targets in terms of the Employment Equity Act including mining companies. In addition, Mining Charter 2018 imposes obligations on mining companies in regard to the employment of people which will promote equal opportunity and fair treatment.
“This is to eliminate unfair discrimination and ensure implementation of affirmative action measures to redress disadvantages experienced by designated groups, thereby ensuring equitable representation in all occupation levels of the workforce.”
There are therefore requirements for a minimum of a certain percentage of historically disadvantaged people and women on the boards of mining companies, as well as executive management, senior management, middle management and junior management, he says.
“There are also requirements regarding employees with disabilities and employment of historically disadvantaged persons in core and critical skills,” he says. n
