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CER calls on Department of Mineral Resources to use statutory powers to verify status of Optimum rehabilitation funds

27 October 2016 at 10:34 am

On Saturday, 22 October 2016, the Department of Mineral Resources finally responded formally to the intensifying media speculation about the status of the Optimum Mine Rehabilitation Trust – the trust fund established to meet the legal requirement for setting aside funds to cover the cost of rehabilitating the environmental damage caused by the mining at the Optimum colliery. The tone of the DMR’s media statement and accompanying tweets was bristling:

“Owing to media speculation pertaining to Optimum Coal Mine, where various aspersions have been cast on the integrity of the Department of Mineral Resources (the Department) and its processes… all parties are urged to act responsibly and avoid making unfounded allegations that have the effect of bringing the Department into disrepute and as a result, the Department reserves its rights to take appropriate action in order to protect its integrity.”

Unfortunately, the DMR’s statement does not address the fundamental issues that have been raised by a string of journalists, and also by the Centre for Environmental Rights in a letter to the DMR, sent on 26 October 2016. In that letter, the Centre asked the DMR Director-General Msiza to ensure that the DMR uses its powers under the Mineral and Petroleum Resources Development Act and the National Environmental Management Act to confirm the status of the Optimum Mine Rehabilitation Trust. Given the public interest in this matter, as in all matters of environmental damage caused by mining, the CER also called on the Department to make this information public.

In the letter, the CER referred to three separate aspects of the media speculation:

  1. speculation, based on allegations emerging from other court proceedings, that some or all of these rehabilitation funds have been transferred from the Optimum Mine Rehabilitation Trust in order to be used for purposes other than the rehabilitation of the extensive environmental damage caused by mining at Optimum Colliery;
  2. the suspicion that some or all of these rehabilitation funds have been used to provide security for the part funding of the purchase of Optimum Colliery; and
  3. broad speculation about the exact amount of financial provision in the Optimum Mine Rehabilitation Trust.

In its media release, the DMR confirms only the following:

  1. That the Minister of Mineral Resources had approved Optimum’s application to cede its mining right to Tegeta “upon Tegeta meeting all relevant criteria”, which had been made “after Tegeta had acquired Optimum Coal, a subsidiary of Glencore South Africa (which had been placed under business rescue posing considerable risk to the mining sector inter alia due to significant job losses)”;
  2. That the DMR had been notified of the intention to transfer the funds from Standard Bank to “another financial institution”, and that it had “proactively advised” that the holder had to transfer funds to a financial institution registered with the Reserve Bank. The DMR also “emphasised that the funds should remain in the trust, as rehabilitation funds cannot be used for any other purpose”.
  3. That neither permission nor approval has been sought by the holder for the withdrawal of the funds, and as such the Department has not granted approval for a withdrawal of the financial provision.

No reference is made in the DMR’s statement to any of its own verification, using its extensive powers of inspection and investigation, that the full amount of the Optimum rehabilitation fund is still held with Bank of Baroda, and that it has not been encumbered in any way. The fact that DMR had not been asked to approve the withdrawal of the financial provision, i.e. reduction of the amount of the provision, and that it “proactively advised” that the funds should remain in the trust, certainly does not guarantee that the funds have not been used for any other purpose.

Furthermore, no reference is made to the DMR’s own verification that such funds as are held in the Trust remain adequate to cover the cost of rehabilitation, particularly in the circumstances where there is such wide public speculation on this issue.

In April 2016, when rumours around the possible accessing of these funds to facilitate the payment of the purchase price for Optimum colliery first surfaced, the CER submitted a PAIA request to the DMR asking for a list of records related to the amount of the financial provision for the colliery, as well as to the transfer of the mining right and the funds to Tegeta. Save for the records relating to the transfer of assets (which were refused by the DMR on the basis that they did not have such documents) the DMR granted our PAIA request in May 2016. Unfortunately, despite follow-up, these records have not yet been disclosed.

Financial provision for rehabilitation is meant to be sacrosanct. The exploitation of rehabilitation funds in any way for a purpose other than rehabilitation is not only illegal, but sets a most dangerous precedent. Already, South Africa is dealing with a legacy of massive environmental degradation which will burden the taxpayer for decades, if not centuries, to come. It is therefore imperative that the facts around the Optimum Mine Rehabilitation Trust be established and put in the public domain, which is what we have asked the DMR to do.

On the evening of 26 October 2016, it was reported in the media that a creditor had brought an application for the liquidation of Optimum Mine on the basis of debt that has been unpaid for 13 months. If this is correct, it is even more important for the DMR to take all steps necessary to ensure the integrity and protection of the Optimum Mine Rehabilitation Trust.

Update: On 27 October 2016, Tegeta said that they had paid the balance owed “under protest”, and expected the liquidation application to be withdrawn. But the application is a useful reminder of why rehabilitation funds are kept off balance sheet. If rehabilitation trust funds are not adequate or not secure, and the mining right holder is in liquidation, there will be no way fully to recover that shortfall.

For more on CER’s work on the impacts of poorly regulated coal mining in Mpumalanga, see our 2016 report Zero Hour:  Poor Governance of Mining and the Violation of Environmental Rights in Mpumalanga. (Case studies of mines in Mpumalanga with inadequate financial provision are described on pp.32-35.)