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Budget Vote Speech by Minister Shabangu 2011-2: MPRDA review, Karoo fracking, SAMRAD and rehabilitation of derelict mines

2 June 2011 at 3:49 pm

1 June 2011

(Statements affecting environmental regulation of mining have been underlined by the CER)

“Honourable Chairperson,
Members of Parliament,
Ladies and gentlemen,

I am honoured to present this budget right on the very first day of the landmark month of June when we remember the sacrifices and the gallantry of the June 1976 generation that literally laid down their lives for the freedom and democracy that we enjoy today.

I also would like to welcome Honourable Deputy Minister Godfrey Oliphant, to the Department. His presence has made it possible for the Ministry to, amongst others, have a continued presence in the strategic engagements of the Portfolio Committee.

We dedicate this budget vote to the youth of 1976 who irrevocably changed the course of our history. We should not forget that it was in the same month of June, this time in 1955, that our movement, the ANC, together with its partners in the Congress Alliance, adopted the Freedom Charter as a blueprint for a just society that today underpins the foundation of our democratic society. It is indeed this perennial document that forms the bedrock upon which the transformational changes currently sweeping the mining industry are predicated.

The budget we are announcing today gives concrete expression to our determination to ensure that minerals and mining industry continue to contribute towards addressing the fundamental socio economic challenges facing our country including job creation and sustainable development.

We present our budget at a time where we have to contend with a mix of geo-political and financial dynamics which have led to the rise in the price of commodities, especially the precious metals. There has been a substantial increase in the price of gold which is favourable for our marginal gold mines. This will invariably help the gold sector with regard to further expansion projects as well as job creation and retention.

We are a department of state that has a mandate to regulate the country’s mineral resources in such a way as to effect transformation, safety and sustainability as well as to achieve growth.

In order to achieve the objectives which we have outlined in our strategic planning document we pleased to present a budget of R1,036 billion for the 2011/12 financial year, which represents an increase of R40 million from the previous budget of R995 million. This budget is allocated for departmental programmes as follows: R247 million for Administration to amongst others implement the Department’s Human Resource Plan with the following elements, talent management, retention and development skills, in the following occupational areas: electrical and mechanical engineering, geology, metallurgy, mine survey, mineral law and economics, environmental science, mine safety, occupational hygiene and medicine inspections. R147 million for Mine Health and Safety, R160 million for Mineral Regulation while R480 million is allocated to Mineral Policy and Promotion. This budget includes an amount of R438 million earmarked for transfers and subsidies to departmental agencies, public and private enterprises. Of this allocation, the Council for Geoscience will receive an amount of R153 million while the Council for Mineral Technology and Research (Mintek), The South African Diamond and Precious Metals Regulator and Mine Health and Safety Council will each receive R167 million, R39 million and R5,3 million respectively. An amount of R18 million has been budgeted for as a subsidy to marginal mines for pumping extraneous water from underground holdings. This is in addition to an allocation of R17 million included in the transfer to the Council for Geoscience to conduct research, develop and implement strategic solutions for mine water management.

The department has managed to align its budget with its programmes and has accordingly completed the compilation of detailed monthly spending plans. The department continues to manage its budget in line with good financial management principles and in compliance with the Public Finance Management Act. In this regard, we managed to spend 99.98% of our allocated budget for 2010/11. I want to pay tribute to my officials for placing great store in robust and continuous monitoring processes to achieve this feat. As we said last year, we will continue with the implementation of our cost containment measures in a bid to ensure that the taxpayers derive maximum benefits from our programmes. We will do so as we do everything in our power to stem the tide of rising costs of goods and services which remain a huge challenge. Accordingly, and in pursuit of a clean audit report, we have implemented a series of measures to address matters that were raised by the Auditor General in the last financial year.

Last year I informed this house that the Director General had undertaken a visit to all regional offices with the express purpose of reviewing administrative processes and clean up the data that was sitting on the NMPS system and subsequently design a system to improve efficiencies. In this regard I imposed a moratorium on new prospecting applications as we simultaneously went about correcting and improving our regulatory and administrative processes. The audits that took place during the moratorium was done through inspections and reviews, which were part of the overall plan, a process rather than an event, of improving administrative processes to achieve the optimal utilization of mineral resources.

The outcome of these audits pointed to cases ranging from, among others, administrative errors such double granting, lack of proper administrative system, fronting; non- payment of prospecting fees; non-compliance with approved Environmental Management Plans (EMPs); as well as right holders who could not be traced.

Furthermore, the administrative processes in the department have now been imbued with efficiency, transparency and accountability. This has been done through amongst others, the online licensing system called South African Mineral Rights Administration (SAMRAD). Since the launch of the system on 18 April this year, over 627 applications have been successfully lodged.

South Africa’s mining sector is the backbone of the country’s economy, with a current conservative in-situ value estimated at US$2.5 trillion with an economically exploitable lifespan of 150 years. Moving from this premise together with our social partners, organised labour, business and other sister State Departments, we have developed a growth and transformation strategy which identifies binding constraints to the sector’s growth potential and recommends action required to optimise the sector’s extractive capacity, attracting investment and job creation potential and these have been captured in the New Growth Path of the country thus ensuring that the growth of the mining sector is not an island but placed within the context of the broader growth of the country.

This was a process that not only unpacked the realistic growth potential of South Africa’s mining industry but has also recognised the recent poor performance of the country’s mining industry and exposed key competitiveness and transformational issues that hold back the growth and transformational potential of the sector. This strategy also contains a set of recommendations on solutions that can realistically unleash the sector’s real growth, employment and transformation potential to enable mining to be as a key “sunrise industry” for South Africa.

Last year I announced in my Budget Vote speech the work that was underway to establish a State Owned Mining Company (SOMCO). I am pleased to report that we have launched the African Exploration and Finance Mining Company in February this year. This is a nucleus of the State Owned mining company. The President has launched its first coal mining project and this company will subsequently supply Eskom with coal by June this year.

In order to improve general competitiveness level of our economy we are steaming ahead with addressing domestic issues, such as infrastructure bottlenecks, challenges in the regulatory framework, human capital constraints as well as other capacity shortcomings as identified by the sectoral mining growth strategy which was adopted by organised stakeholders in the mining industry in June 2010.

There is general stakeholder agreement that in order to optimise the contribution of the mining sector to the economy, the focus must be on the entire minerals value chain, not just exclusively the mining sector. Countries of the south such as China and India have got this balance right as evidenced by the proliferation of their beneficiation industries. They are doing this to the extent that they are taking the world’s market share and job prospects from countries such as South Africa.

We already have a large supplier base that provides goods and services into the mining sector (defined as side-stream beneficiation) and also a large downstream beneficiation sector that exists where the commercial opportunities are available. We need to move beyond the traditional and established form of beneficiation of locally mined minerals. Working together and in partnership with the Department of Science and Technology and other science councils such as Mintek and CSIR, we will collaborate on issues related to research and development (R&D).

Towards this end we have now reached a stage where we are taking the Beneficiation Strategy for the country through the cabinet process. Critical to this is the creation of a policy regime that offers positive incentives like a deeper skills pool, a favourable tax climate, lowering the cost of capital and a realisation and the need to address urgently the inherent limitations imposed on the mining industry by amongst others the paucity of our rail and energy infrastructure.

Last year, I announced the results of the impact assessment of the Mining Charter, which revealed serious instances of lack of meaningful transformation as well as the 2009 targets as contained in the Mining Charter were not met. Whilst that is, we are pleased that there are individuals like Ms Daphney Mashile Nkosi who have overcome formidable odds including personal tragedies to launch sustainable mining projects. A few weeks ago we participated in the launch of a manganese project in Kgalagadi which has already created 1400 jobs. These are the formidable products of a company with a 60% women ownership.

I am pleased to announce that with the collaboration of our stakeholders we have improved the construct of our charter to include definitions and set up clear targets thus eliminate ambiquities and multiple interpretations accompanied by a clearer scorecard with clear measures to enable consistent assessment of progress towards 2014. This process was finalised in September last year.The mining industry is expected to submit the first set of compliance reports from mining companies by the end of June 2011.

The review of the MPRDA is underway, this is aimed at improving the current construct of the Act to remove ambiguities, make provision for consultation processes, streamline the licensing processes. In this regard we will be strengthening the law in areas where it allows the Minister to invite applications for mining rights in areas that were previously granted, issued, revoked or even expired. The amendment would include strengthening of regulation of the environment in respect of minerals and mining. We continue to consult with all the affected and interested stakeholders. The Bill is currently serving before the Cabinet Committee and will soon serve before Parliament.

In addressing these issues, we have identified the need to entirely review the Mine Health and Safety Act. This review will strengthen enforcement provisions; to reinforce penalties; to provide clarity in certain in certain definitions and expressions; and to effect certain amendments to ensure consistency with other laws, particularly the Mineral and Petroleum Resources Development Act, 2002 (MPRDA). We are currently at the tail end of consultation on this issue and we anticipate that these amendments as well as new regulations will soon be tabled in Parliament.

Honourable Chairperson,
We are well aware of the problems currently besetting the diamond sector, including lack of access to rough diamonds. We are in the process of finalizing our country’s diamond strategy which will go a long way in addressing the structural challenges facing the sector within the context of the beneficiation strategy. The Deputy Minister will elaborate further on these challenges. Working together with other government departments, State Owned Entities, as well as experts in the diamond sector we aim to finalise this strategy before the end of current financial year.

As we said last year we have had to contend with the consequences of more than a century of mining in our country. One of these is the legacy of derelict and ownerless and un-rehabilitated mines. These mines pose significant environmental, health and safety risks to neighbouring communities. We have embarked on a programme to permanently eliminate the environmental damage by putting the land impacted by the mining activity back to a sustainable usable condition. Accordingly, 5 Derelict and Ownerless mine sites were rehabilitated in 2010/11 financial year.These sites are the following areas: Jebolo, Owendale, Strelley, Prieska rehabilitation (where there was actual rehabilitation); as well as Prieska Wall Construction.

We have also developed a new set of comprehensive measures to ensure that we do not have a repetition of the status quo. Going forward, companies will be requested to review their financial provision for rehabilitation so as to ensure that rehabilitation takes place post mining.

In February, I decided to impose a moratorium on shale gas exploration in the Karoo. I am pleased that cabinet has confirmed this decision. In this regard, I have since appointed a task team of senior government officials led by my department to conduct further research on these crucial issues and help formulate a government policy. We will be looking at international experience and deal with this in a manner that ensures that we achieve the necessary balance between energy security requirements and sustainable development.

The promotion of Health and Safety in the mining industry remains one major areas of our work. I am concerned about the report of the second quarter which indicates an 8% increase in fatalities, which translates to 53 fatalities compared to 49 this year.

Can the mining industry say things are in order when the corrective measures that have been taken palpably demonstrate minimal impact as people who continue to die in this industry? Still, is it correct to continue to mine unabated if people continue to lose their lives at this unacceptable rate?

You will recall that the Amendment Act no 74 of 2008, contained provisions for the administrative fines to be reviewed. These guidelines introduce financial penalties which may be imposed upon employers for the violation of the provisions of the MHSA. It will empower the inspectors to impose fines without neglecting the promotion of Justice and Access to Information.

We are doing all these steps whilst we are enhancing our internal capacity in the department. This includes the establishment of regional compliance and investigation units. The latter will be exclusively focusing on conduct mine inspections and audits, and the investigation units will be conducting investigations and inquiries. This will be strengthened by the appointment of legal advisors at the regional offices to assist with both investigations and inquiries, and assist us to enhance recommendations for prosecutions where necessary. Also the learner inspector programme assisted with improving the vacancy rate as 19 learner inspectors have been placed at the Regional Offices.

My department will embark on interventions which include among others, stoppage of unsafe mines in line with our legislation to ensure that corrective measures are implemented and maintained; receiving quarterly reports from the mining company boards on corrective measures that are being taken to improve mine health and safety issues; as well as the implementation of the recommendations by the task team to deal with massive falls of ground at platinum mines. I am satisfied, after having studied the report and I am now in a position to release it to Parliament.

Over and above the activities we are embarking upon as a department, the Mining Qualifications Authority (MQA) has allocated almost R260m to support the Mining and Minerals Industry with Skills Development. This figure excludes mandatory grants of approximately R350m given back to the industry.

There is need to continue our partnership with FET colleges through the MQAs FET artisan development initiatives particularly in areas where there is significant growth in mining. Already there is noticeable progress in a number of mining areas which include Upington, Rustenburg, Palaborwa, Sekhukhune and Vhembe with regard to artisan training. On our side we will continue to monitor these programmes to ensure that the intended beneficiaries (about 500) who are studying engineering courses, geology, metallurgy as well as environmental studies, at almost all our institutions of higher learning, do indeed benefit from these initiatives.

Finally, I want to thank senior officials and the rest of the DMR staff for their continuous commitment and dedication in advancing the cause of the department. I want in particular to thank the Director General, for the fourteen years of dedicated service to the Department. When he arrived here, exactly fourteen years ago he inherited a Department that was totally untransformed. I am pleased that the picture has completely changed and unfortunately the colour of his hair has also changed. As we bid farewell to him as he goes on early retirement where he will look after his garden, we will nevertheless continue to tap into his knowledge and experience as we continue to transform the industry.

I thank you.”

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