MINERALS AND ENERGY MINISTRY
19 September 2000
MEDIA BRIEFING
The Minster of Minerals and Energy, Pumzile Mlambo Ngcuka, indicated that the South African government is involved in the process of preventing trade in diamonds from regions involved in conflicts and to ensure that the diamond industry carries out its activities in an ethical manner, as it is one of the big trading commodities on the African continent. Her department will spearhead this campaign and this month in Pretoria an international ministerial conference is scheduled to take place in order to develop proper mechanisms to screen diamonds from conflict areas that are headed for the global diamond market.
The Minister indicated that the year 2000 is regarded as the transition from RDP-driven electrification programme to government-driven electricity provision - meaning that the government is taking a political responsibility for this. That responsibility has been placed upon the National Electrification Co-ordinating Committee (NECC) which was appointed by the Minister in April 2000 and it includes a number of stakeholders.
The Minister noted that the department in co-operation with the World Bank is currently organising a workshop from the 26-28 September 2000 to develop a ten-year plan for rural electrification. Progress has been made in delivering grid-connected electric supply to rural schools and clinics with about 4 563 schools connected and 35 clinics and an European Union-funded project would supply 500 more schools by 2001. There is a backlog of 17 000 schools and 1 000 clinics. In five years 9 000 schools would be electrified and the clinics backlog would be wiped out in three years. With regard to households, 93 per cent of households in urban areas and 58 per cent in rural areas would be electrified by 2005. A special category of farm worker households is estimated to amount to 400 000 units and 100 000 have been electrified through a subsidy of R1 000 per household.
The Minister stated that a Mineral Development Bill is being drafted and would be published for public comment at the end of September 2000 and public consultation process would run from October to December 2000. The purpose of the Bill would be to open up the mining industry to all who wish to participate in it. Secondly, to undo the apartheid past where the mining industry was a preserve for the few.
The Minster indicated that the Ministerial Task Team on the Liquid Fuels industry has been involved in formulating a framework to ensure that the previously disadvantaged are given an opportunity to take part in this industry. The Minister has also conducted discussions with the big oil companies (Shell Oil, Sasol Oil, BP, Engen, Total and Caltex) where the issue of Black Economic Empowerment was debated. A summit for the Liquid Fuels Industry is planned for 30 October 2000 to discuss the plans of different companies on this matter and it is hoped that a charter would be agreed upon.
In terms of government thinking, the Minister stated that 25 per cent of ownership in the industry should be sold and transferred to the historically disadvantaged of South Africa. Companies participating in the liquid fuels empowerment initiatives would be encouraged to facilitate financing of equity initiatives and focus should also be on finding other sources of finance. The Minister said that the historically disadvantaged should buy equity shares if they intend to stay in the industry for the long-term. As part of other financing mechanisms the Minister indicated the model of spreading and sharing risk which the government believes would address risk questions.
QUESTIONS
(Q) How do you hope to get the diamond industry to co-operate with the preventative measures you are about to introduce?
The Minister stated that the government is aware that the diamond industry has, as part of its programme, a social responsibility programme. However given the context of the African continent which is ravaged by conflicts and poverty, the department would like the industry to play a much more active and dedicated role considering ethical questions.
(Q) Previously your department has been very critical of the oil industry, are you happy now? When will the equity deals between companies and historically disadvantaged groups start?
(A) The department is quite confident that the industry would co-operate, and in terms of the deals, talks with preferred partners in the industry are underway and their co-operation would be spelt out when the real work begins. In our view this includes fine-tuning prices and the government is prepared to give the companies space to make their proposals as well.
(Q) The government appears to be a crucial stakeholder in this transfer process, would the government play an interventionist role?
(A) The government would give companies space to indicate what they would want to do and that approach would give the government space to critique and suggest corrective measures in the process.
(Q) In terms of the oil industry, exactly where are you looking at for the transfer, upstream or downstream?
(A) The government is looking across the board.
(Q) Can you comment as to when and how you hope to deregulate the industry?
(A) The government would not wait until the deal is done, currently the department is studying the petrol price structure and the tax structure with the intention of finding viable options of providing petrol cheaper. However with the current situation of liquid fuel price hikes, the government would like the media to make it clear that the price hike is a global phenomenon and that even oil-producing countries are affected by the prices.
(Q) The 25% appears to be a rough guess can you dissect the percentage and give a clearer picture?
(A) Oil companies do not want government to go to that extent and I would not do it suffice to say that the 25% position is what the White Paper on Energy of 1998 states.
(Q) In the statement by the Reserve Bank Governor the oil price hike seems to be a great concern, what are the alternatives which would alleviate this oil price hike?
(A) South Africa has the technology that would help in excavating fuel inside that would form private investment for example where Sasol would utilise Moss gas to provide fuel. However the difficulty is that such a move would be very expensive and what if the oil prices would go down that becomes waste, and what if the prices rise again. That is the dilemma many countries currently faced. At the moment all that the government can do is to request the private sector to sell fuel at a rate that would not undermine the country’s stability and the government is still looking at finding ways of increasing tips in order to assist.
(Q) In your statement you have indicated the necessity to fix prices, why?
(A) Price fixing is a mechanism through which supply can be secured and to ensure returns to the investors. Noting the plight of Black investors, it is also necessary to ensure their sustainability therefore tightening and loosening form part of the means to reach government’s goals and part of the goals is to guarantee the quality of the product.
(Q) What do you mean by risk-sharing for the schemes?
(A) By sharing of the risk, the government intends to ensure that the risk-profile of a company is spread so that for any funds borrowed, pay-back is guaranteed especially considering the new partners under the Black Economic Empowerment programme.
Appendix 1:
DEPARTMENT OF MINERALS AND ENERGY
A. Conflict Diamonds
In order to address challenges facing the African diamond industry, the Ministers responsible for Mining and Minerals in Africa requested South Africa to coordinate the establishment of an initiative (as a result of diamond being mined in conflict areas) to address the potential threat of the conflict diamonds campaign. The Ministers agreed that a Ministerial Conference be held to discuss this matter as it was observed that:
In preparation for the Ministerial Conference, a Technical Forum of diamond experts was held in Kimberley, South Africa from 11 to 12 May 2000. At that Technical Forum consensus was reached to effect a global diamond certification system as an effective way of regulating, controlling and monitoring the international flow of diamonds. It was further decided that an International Working Group is formed to prepare for the Ministerial Conference. Subsequently, the International Working Group met in Luanda, Angola from 13 to 14 June 2000, and on 20 July 2000 in London, United Kingdom. The final preparatory meeting was to be held in Windhoek, Namibia from 3 to 5 September 2000. The Ministerial meeting will be held from 19 to 21 September 2000 at the Sheraton Hotel, Pretoria, South Africa.
Discussions at the conference will broadly capture the following areas:
* A global certification system for diamonds (a practical certification system will be explored);
* Establishment of an international Diamond Ethical Committee;
* The role of the diamond industry in the socio-economic development of the African continent; and
* The processes to follow after the Ministerial conference.
The South African Government will introduce a comprehensive approach to the fight against causes of inflict in Africa. Our stance is that, we will intensify the focus on other drivers of conflict i.e. oil, political instability, corruption and poverty etc without diminishing our particular focus on the diamond industry.
One of the key outcomes we will be pursuing with greatest vigour at the Ministerial Conference in Pretoria will be to get industry to unequivocally commit to what they will do about socio-economic development and rehabilitation of communities living in and around the mineral resource. For us this is as critical as establishing the Global Certification system for diamonds.
B. Rural Electrification
(i) Year 2000 Eelectrification Programme
The year 2000 is regarded as a transition period from the RDP target driven programme that started in 1994 and finished in 1999, to a future electrification programme where government will assume the political responsibility for integrating electrification with other development programmes.
Eskom will continue to play a major part in making electricity available on a large scale.
(ii) The National Electrification Co-ordinating Committee (NECC)
Government has assumed political and primary financial responsibility for the new National Electrification Programme. The Minister of Minerals and Energy appointed the NECC in April to advise on the way forward.
The NECC functions on the basis of the involvement of stakeholders in a number of Task Teams that were formed to address specific issues concerning the establishment of a future National Electrification Programme. The stakeholders involved in NECC are: Department of Minerals and Energy; Eskom; National Electricity Regulator; South African Local Government Association; Development of Southern Africa; Department of Water Affairs and Forestry; Department of Public Enterprises; National Treasury Department and Department of Housing.
A great deal of work has been done to ensure a smooth and effective rollout of the National Electrification Programme by 01 April 2001. The target date of April is to align the programme with the Departmental Budget cycle.
(iv) The Rural Electrification and Transformation Workshop
Preparations are underway for the above-mentioned Workshop at Midrand, from 26 - 28 September 2000. The Workshop, titled "Peoples' Power Workshop", is organised by the Department of Minerals & Energy in collaboration with the World Bank.
The objectives of the workshop include:
* Developing a 10-year strategic plan aimed at addressing the backlog in rural electrification;
* Developing an implementation strategy for the energisation of rural areas with the effect of socially and economically promoting rural development; and
* The development of an advanced implementation strategy for renewable energy in South Africa.
(iv) Progress with the Rural Schools and Clinics Electrification Programme
The current Schools and Clinics Electrification Programme (SCEP) addresses the electricity needs of mostly rural schools, and to a very minor extent that of clinics.
For grid-connectable schools, the RDP Fund contributed R30 million in 1995. Eskom for the period 1996 to 1999 committed a capital expenditure of R15 million annually through the Eskom Development Foundation. To date a total of 4 563 schools and 35 clinics are grid-connected. The EU funding allows for another 500 schools to be electrified by June 2001.
Recent estimates indicate that there still exists a backlog of some 17 000 schools (9 000 of which would have been electrified in 5 years) and 1 000 clinics (in 3 years this backlog would have been wipe out). With regard to households, by 2005, we would have electrified 93% in the urban areas and 58% in the rural areas.
(v) Non-Grid Electrification
In 1999, two non-grid electrification programmes were officially launched, in the Eastern Cape, and in the LUBOMBO SDI area in Northern KwaZulu-Natal. The areas selected for Phase 1 Non-Grid Electrification rollout are parts of the Northern Province, Eastern Cape Province and KwaZulu Natal.
(vi) Farm Worker Houses
A special category of rural households, are the farm worker houses on commercial farms spread throughout the country. It is estimated that there are 400 000 and about 100 000 have been electrified to date. In the Year 2000 Programme, ESKOM is planning on electrifying a further 8 000 farm worker houses, partially subsidized at a rate of R1 000 per house.
C. Mineral Development Bill
In October 1998, Cabinet approved the White Paper on a Minerals and Mining Policy for South Africa. This policy has laid the foundation for the draft Mineral Development Bill.
The South African Constitution enjoins the State to take legislative and other measures to -
(a) promote equality;
(b) advance persons, or categories of persons, disadvantaged by past racial discrimination; and
(c) promote reforms to bring about equitable access to South Africa's natural resources.
The above-mentioned constitutional obligations and the universally accepted right of a State to exercise permanent sovereignty over its natural resources form the foundation of the Bill.
The fundamental principles underpinning the Bill are -
(a) mineral resources are the common heritage of all South Africans and belong collectively to all the peoples of South Africa;
(b) it is a universally recognised right of the State to exercise full and permanent sovereignty over all its natural resources;
(c) the State, as the representative of the people, is the custodian of the nation's mineral resources;
(d) to redress the results of past racial discrimination and ensure that historically disadvantaged persons participate in the mineral and mining industry and benefit from the exploitation of the nation's mineral resources; and
(e) guarantee security of tenure in respect of prospecting and mining operations.
This Bill will usher in a new dispensation in minerals and mining law in South Africa. In accordance with international norm and principles, prospecting rights and mining rights will be granted on the basis of public ownership of and State custodianship of mineral resources.
International law recognises that States have the right to exercise full and permanent sovereignty over their natural resources. The principle of public ownership of mineral resources is recognised and accepted in all major mining countries. During the Apartheid years, our minerals and mining industry was, to a great extent, closed off from the rest of the world. The time has come for it to be opened up to all who wish to participate in this industry.
Notwithstanding the proposed changes, Government undertakes and commits itself to guaranteeing security of tenure in respect of prospecting and mining operations.
Apart from the Constitutional obligation and international law and precedents, there is a political imperative which demands that the South African minerals and mining industry be transformed and align itself with the societal values and Government policy of the new South Africa.
The Bill will be published for public comments at the end of September. The public consultation process will run from October to December 2000
D. Black Economic Empowerment in the Energy Sector
The Ministerial Task Team on the Liquid Fuels industry has been meeting over the past few months to formulate a framework for the implementation of the "sustainable presence, ownership and control by historically disadvantaged South Africans of approximately a quarter of all facets of the liquid fuels industry or plans to achieve this."
In addition, the Minister has conducted bilateral discussions with the major oil companies wherein more detailed information was shared between government and industry on this milestone. The companies consulted were Shell Oil, Sasol Oil, BP, Engen, Total and Caltex.
It was agreed at these meetings that the Minister would be provided with written detail of the plans that the companies have put in place. In addition, the department will facilitate, as a matter of priority, that focus be given to the procurement function because of its significance in terms of job creation, skills development and the general thrust of Empowerment. In pursuit of that end, a workshop is planned for the month of October.
The workshop will seek to identify and present examples of successful case studies with a view to encourage the industry into accelerated action on this front.
It is also envisaged that a unit within the department will be tasked to monitor the progress of companies with respect to the established guidelines. The department is also investigating the adoption of regulatory incentives and sanctions, which will be applied in the industry.
A summit for the Liquid Fuels Industry is planned for 30th of October 2000, and it is expected that this summit will adopt the charter agreed upon by the multilateral task team and reach an understanding on the process and the way of dealing with the issues addressed above.
1. PROPOSED GOVERNMENT GUIDELINES ON THE IMPLEMENTATION OF 25%
BEE IN THE LIQUID FUELS SECTOR
The following are preliminary guidelines on government's thinking on the implementation of the 25% HDSA "sustainable presence, ownership or control" as envisaged in the White Paper on Energy, of 1998.
OWNERSHIP, CONTROL & SUSTAINABLE PRESENCE:
The 25% ownership and control referred to in the White Paper on Energy Policy (1998) means equity ownership in the entity that holds the South African operating assets of an oil company. Ownership in a special project or joint venture that is confined to a certain segment of the value chain will therefore not fulfil the ownership requirements of the White Paper.
The sale and transfer of the 25% equity stake should be completed within a period of ten years; by which time the 25% shareholding must vest with the HDSA's. The 1999 audited financial statements will be used to guide government's view on the size of the asset base of each company. In addition, sustainable presence requires that skills development; employment equity, procurement and the financing mechanisms (all of which can undermine sustainability) should be carefully considered by the partnerships thus formed.
Financing Mechanism
The companies participating in this liquid fuels empowerment initiative are encouraged to facilitate the financing of the empowerment deals. The focus should be on finding sources of finance, finance structures and mechanisms, which will ensure the sustainable presence of the HDSA groups.
In the event that the HDSA company opts to later sell a stake in an oil company acquired through this process, it is government's desire that such shares be ring-fenced and warehoused in a facility provided by government institutions such as the IDC.
Government supports the IDC's initiative, in conjunction with some members of the industry, in the financing of new HDSA-owned franchise dealerships. In addition, government is currently, through the IDC, exploring a risk-sharing mechanism for the larger empowerment deals in the sector.
Historically Disadvantaged South African (HDSA) Shareholders
Industry is encouraged to ensure that the HDSA shareholders be as broad-based as possible, to include a representative spread have organized, individual and stakeholder investors such as ESOP's. Those HDSA's that obtain their shares through this initiative should preferably remain long-term investors in the industry. It is therefore preferable that the majority of shares obtained in this manner to be in the hands of direct investors who, by definition, have "an interest in gaining control of or meaningful say in the management of the enterprise" thus acquired. Stakeholder investors (e.g. the Retail Dealers, company employees) also form an important component of the HDSA shareholder base due to their inherent involvement in the industry.
Employment Equity & Skills Development
The conditions and requirements of the Employment Equity Act and the Skills Development Act will be considered to be the minimum requirements for the industry. A number of players in the industry have already identified their own employment equity targets. These targets and the progress made towards meeting the targets will form part of the annual industry review that is undertaken by the Department.
Procurement
At least one quarter of oil companies' procurement expenditure must be earmarked for HDSA suppliers. Core and skill-intensive (e.g. legal and finance) goods and services must form part of the pool of goods and services procured from HDSA's. In addition, the department will endeavour to ensure that government's procurement of Liquid Fuels and related products and services are given a more systematic approach that is in line with the 25% empowerment objective.
Monitoring and Measurement
In January of each year the Department will continue to publish a report on the progress that the industry has made towards achieving the milestone set out above, as well as compliance therewith.
Issued by GCIS on behalf of the Department of Minerals and Energy