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ADDITIONAL COMMENTS ON THE PROPOSED REGULATIONS PERTAINING TO FINANCIAL PROVISIONING

Written by  Monday, 24 June 2019 09:26
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The FSE refers to the recent workshop facilitated by the DEA on the proposed Regulations pertaining to the financial provisioning on the rehabilitation and remediation of environmental damage cause by reconnaissance, prospecting, exploration, mining or production operations.

 

Firstly, the FSE wishes to express its gratitude to the DEA for the facilitation of the workshop, which provided an opportunity for meaningful engagement. 

 

The FSE hereby wishes to augment its oral comments, which the FSE put forth at the said workshop, in particular with reference to Regulation 6, subsection 6 of the proposed Financial Regulations, whereby it is stated: 

 

“The Chief Executive Officer of the applicant, holder, or person appointed in a similar position, or where liquidation or business rescue proceedings have been initiated, the liquidator or business rescue administrator of the company, is responsible for implementing the plans and report contemplated in subregulation (2)* and signing off all documentation submitted to the Minister.” 

 

*(Subregulation (2) directs an “applicant or holder to determine the financial provision through a detailed itemisation of all activities and costs, based on actual market related rates for implementing the activities for-

  1. Annual rehabilitation, determined in the annual rehabilitation plan conforming to the content requirements of Appendix 1;
  2. Final rehabilitation, decommissioning and mine closure, determined in the final rehabilitation, decommissioning and mine closure plan, apportioned per year and conforming to the content requirements of Appendix 2; and
  3. Remediation and management of residual and latent environmental impacts, including the ongoing pumping and treatment of polluted or extraneous water, determined in an environmental risk assessment report conforming to the content requirements of Appendix 3”).

 

The FSE’s involvement with the business rescue and liquidation processes of the Grootvlei Mine, the Blyvooruitzicht Gold Mining Company and the recent liquidation of the Mintails Group’s Mintails Gold (Pty) Ltd, Mintails SA (Pty) Ltd and Mintails Randfontein Cluster companies and Prof Tracy Humby’s research in this matter (Report attached) assisted the FSE in identifying certain challenges, e.g.

 

  • In terms of the Companies Act 71 of 2008 and the Insolvency Act 24 of 1936 the liquidators’ duty is to protect the interest of the creditors and the shareholders, and not the environment. 

 

Prof. Humby’s paper highlighted the following challenges:

 

  • The lack of articulation between the closure requirements in the MPRDA and the process for winding up companies as set out in chapter 14 of the Companies Act, 1973.  Chapter 14 establishes a process whereby insolvent companies are placed under the custodianship of a liquidator who manages the fair and equitable allocation of the company’s property amongst its various creditors. Various safeguards are built into this process to ensure that interested parties are made aware of an application to initiate the winding-up of a company; that reasons justifying the postponement or dismissal of the application for winding-up are considered; and that creditors are allowed to consider the company’s statement of affairs and prove their claims against the company. The winding-up process commences with a court granting a provisional liquidation order and appointing one or more liquidators who assume custody of the company’s affairs. The process culminates in the liquidator lodging a liquidation and distribution account with the Master of the High Court specifying how the company’s remaining assets must be applied in (i) payment of costs, charges, and expenses incurred in the winding-up process; and (ii) payment of the claims of creditors in a manner that approximates as far as possible the allocation of assets in terms of the law of insolvency. After the winding up is complete the liquidator sends a certificate to the Companies Commission which allows for the company to be dissolved and deregistered, thus ending its existence as a juristic person and it capacity to bear legal rights and obligations.
  • The MPRDA, chapter 14 places no specific obligation on the court to determine whether a company applying for a provisional liquidation order has applied for a closure certificate, ensured the transfer of environmental liabilities, or actually topped up any shortfall of funds in the chosen vehicle for financial provision. This lack of specificity is exacerbated by the narrow notice requirements, as chapter 14 requires only that employees, trade unions and SARS should be notified of a company’s intention to initiate winding up proceedings (s 346A Companies Act, 1971).
  • Government departments charged with the custodianship of mineral resources or the protection of the environment are not required to be notified and in practice are frequently caught on the back foot, becoming aware of a company’s pending liquidation after a winding-up order has already been granted by a court. Although notice of a provisional winding-up order is required to be published in the Government Gazette, capacity constraints are such that it is unlikely such departments will become aware of the application in time to participate in the court proceedings or later in the creditors’ meetings. Whether they would even be able to “represent” the financial provision for environmental rehabilitation at the creditors’ meetings is open to debate.
  • The duties and potential liability of the liquidator during the liminal phase between the granting of the provisional and final winding-up orders are unclear.  It is uncertain, for instance, whether the liquidator is obliged to apply for a closure certificate where the company itself has failed to do so, or whether the liquidator(s) would be responsible for environmental damage occurring during the liquidation phase.
  • It is not clear whether the financial provision for rehabilitation already “made” would be regarded as an asset of the company available for distribution to the creditors. In practice, the protection afforded to the financial provision would probably depend on its form. In the case of trust property, for example, s 12 of the Trust Property Control Act provides that trust property shall not form part of the personal estate of the trustee, except insofar as the trust beneficiary is entitled to the trust property. However in terms of the Standard Trust Deed used by the DMR for financial provision for rehabilitation, the trust is established for the benefit of the beneficiary, which when read with other clauses, clearly means the mining company responsible for carrying out rehabilitation and preventing and controlling pollution at its operations. Given this it would be possible to argue that protections afforded by trust legislation do not apply. Similarly, cash deposited into an account designated by the director-general could be regarded as an “asset” in the liquidation process.
  • Next, in the (likely) event of a shortfall in funds (i.e where environmental liabilities have been accounted for but funds have not actually been transferred to the vehicle for financial provision), there is no guidance on how such claim could be proved at creditors meetings. It is doubtful whether the financial provision for rehabilitation would rank as either a “secured” or a “preferent” creditor, as these terms are currently defined in the Insolvency Act. The department of mineral resources (or other state department or civil society actor) would thus have to fight with other concurrent creditors for the spoils of assets remaining after these two creditor categories have been satisfied.
  • The public interest in rehabilitation, specifically to ensure that the state and communities do not assume a disproportionate share of the environmental risks, should however be enough to justify the pre-liquidation settlement of the financial provision for environmental rehabilitation; i.e. it should be part of the court order granting provisional liquidation. However there is no clear obligation in law vesting in mining companies to do this. The Standard Trust Deed used by the department of mineral resources states that should a beneficiary go into liquidation prior to fulfilling its statutory environmental obligations it must not earlier than three months, and not later than one month prior to taking any steps terminating mining operations or initiating winding up proceedings, have final estimates prepared of the probable costs of compliance with outstanding environmental statutory obligations, to be certified by the regional manager (clause 17.1, Standard Trust Deed). If, on or after the date of termination of mining activities, the total amount estimated for outstanding environmental obligations exceeds the amount standing to the credit of the beneficiary in the trust’s account, the beneficiary “shall forthwith pay to the Trust the shortfall” (clause 17.2, Standard Trust Deed). However, the only consequence of non-compliance with this clause (and other clauses) of the trust deed is that it allows the Commissioner of SARS to apply certain tax penalties.
  • Finally, one of the most serious consequences of the winding up procedure is that the company ceases to exist as a legal person. The environmental obligations specified in the MPRDA are linked to the “holder” of a prospecting or mining right, and this in turn is defined with reference to a “person”. If no “person” legally exists these obligations by extension cannot be enforced. Amendment Act 49 of 2008 attempted to circumvent this by specifying in its amendment of s 43 that the obligation to apply for a closure certificate extends to “the previous holder of an old order right or previous owner of works that has ceased to exist”. However, the formulation “previous owner of works that has ceased to exist”, while laudable in its intention, cannot on its own resuscitate a dissolved company. How can obligations be enforced against an “owner” that is distinguished from other holders by non-existence? The amendment would have done better to refer to the “previous shareholder or shareholders of a juristic person that has ceased to exist”.

 

These challenges were confirmed by the Parliamentary Portfolio Committee (PPC) on Mineral Resources during its oversight visit of Shiva Mine and the Mintails Group in September 2018.  We attach the Report hereto.  Please refer to pages 39 to 52 of the attached Report. (Ref. 22 November 2018:  ANNOUNCEMENTS, TABLINGS AND COMMITTEE REPORTS NO 174─2018. No 174—2018,  FIFTH SESSION, PARLIAMENT. Pages 39 – 52.)

 

The PPC found:

  • It is clear that some mining companies are still operating without adequate financial provision for repairing damage caused to the environment by mining activities, if they suddenly close.
  • Neither Shiva Uranium (Pty) Ltd and Mintails Mining SA (Pty) Ltd has saved all the money they were supposed to set aside under the law to pay for environmental rehabilitation. The shortfalls are R36.6-million for Shiva and R460-million for Mintails.
  • The state will inherit these liabilities if the mines are finally liquidated.
  • The DMR has failed to implement effectively and carry out the intentions of Parliament to ensure that all mines rehabilitate the damage they cause.
  • Changes to the mining law were made by Parliament after 2002 to ensure that in mining, as elsewhere, the polluter must pay.
  • The new laws have not proven effective in avoiding this situation where the state and the taxpayer still ends up paying for the environmental harm caused by mining.
  • There is a lack of clarity on the rules for the Department of Mineral Resources when it comes to Business Rescue Practitioners. It seems there is non-application of the law resulting in a free for all.
  • The DMR allowed Mintails to operate between 2012 and 2018, despite the fact that the Department had never approved the environmental management plans of the mine and had never issued the company with a mining right under the law.
  • There is a huge regulatory gap regarding the financial provision of environmental rehabilitation of a mine during the process of business rescue.
  • There is a lack of standardization by the DMR on how to relax environmental obligations of a mine during the business rescue stage.

 

The PPC recommended:

  • The DMR must identify clearly and specifically the gaps between mining, insolvency and company law that have led to this ongoing situation, where the polluter does not pay, it is the state that ends up paying.
  • DMR should get specific legal opinion on these complex issues.
  • The DMR must report to the Committee in Parliament on what it will do [or needs to do] differently in future to ensure that this situation does not continue.
  • DMR must report on what efforts they have made to hold directors and shareholders of Shiva and Mintails liable for the environmental debts of these failed ventures.
  • The DMR must actively ensure that the licensing of mines goes with responsibility and accountability.
  • The DMR should further explore the regulatory gaps resulting from the business rescue process and come up with regulations that will ensure full environmental compliance during the period when a mine s experiencing financial distress. 
  • The DMR should design and implement standardized approaches when dealing with the relaxation of environmental financial provisions for mines that are undergoing business rescue process.

 

The FSE’ presentation to the Australian High Commission and the Australian Centre of Geomechanics, which has relevance as well as some recent news media reports regarding Mintails, which also, have relevance are attached hereto. 

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Mining activists in SA face death threats, intimidation and harassment - report

SATURDAY STAR | 19 APRIL 2019, 7:41PM | SHEREE BEGA Picture:Yvette Descham On August 13 2013, Billy M heard gunshots at the gate of his house. He didn't know who fired the gun, and, worried that local traditional leadership might be involved, he didn't report the incident to the police. For the next five years, the community activist from Fuleni, a small rural village in KwaZulu-Natal bordering one of SA's oldest and largest wilderness areas, the Hluhluwe iMfolozi Park, continued to receive threats.  "We know our lives are in danger. This is part of the struggle," he says, simply. Billy M's account is contained in a new report released this week, 'We know Our  Lives Are in Danger’: Environment of Fear in South Africa’s Mining-Affected Communities, which documents how community activists in mining areas face harassment, intimidation and violence. The report details how in Billy M's case, mining company Ibutho Coal had applied for rights to develop a coal mine in Fuleni in 2013. The development would have required the relocation of hundreds of people from their homes and farmland and destroy graveyards. "The mine's environmental impact assessment estimated that more than 6000 people living in the Fuleni area would be impacted. Blasting vibration, dust, and floodlights, too, could harm the community," says the report."During the environmental consultation processes, Billy M led opposition that culminated in a protest by community members in April 2016."The company reportedly abandoned the project in 2016 while another firm, Imvukuzane Resources is reportedly interested in mining in the area.The 74-page report, compiled by Human Rights Watch, the Centre for Environmental Rights (CER), groundWork, and Earthjustice, describes a system designed to "deter and penalise" mining opponents.The authors conducted interviews with more than 100 activists, community leaders, environmental groups, lawyers representing activists, police and municipal officials, describing the targeting of community rights defenders in KwaZulu-Natal, Limpopo, Northwest, and Eastern Cape between 2013 and 2018. They report intimidation, violence, damage to property, the use of excessive force during peaceful protests, and arbitrary arrest for their activities in highlighting the negative impacts of mining projects on their communities. "The attacks and harassment have created an atmosphere of fear for community members who mobilise to raise concerns about damage to their livelihoods from the serious environmental and health risks of mining and coal-fired power plants," write the authors."Women often play a leading role in voicing these concerns, making them potential targets for harassment and attacks."But municipalities often impose barriers to protest on organisers that have no legal basis while government officials have failed to adequately investigate allegations of abuse."Some mining companies resort to frivolous lawsuits and social media campaigns to further curb opposition to their projects.  The government has a Constitutional obligation to protect activists," write the authors. Picture: Shayne Robinson, Section 27 Authorities should address the environmental and health concerns related to mining "instead of harassing the activists voicing these concerns,” remarks Matome Kapa, attorney at the CER.The report starts with the high-profile murder of activist Sikhosiphi “Bazooka” Rhadebe, who was killed at his home after receiving anonymous death threats in 2016. Rhadebe was the chairperson of the Amadiba Crisis Committee (ACC), a community-based organisation formed in 2007 to oppose mining activity in Xolobeni in the Eastern Cape.  "Members of his community had been raising concerns that the titanium mine that Australian company Mineral Commodities Ltd proposed to develop on South Africa’s Wild Coast would displace the community and destroy their environment, traditions, and livelihoods. More than three years later, the police have not identified any suspects in his killing."Nonhle Mbuthuma, another Xolobeni community leader and spokesperson of the ACC, has also faced harassment and death threats from unidentified individuals. "I know I am on the hit list.… If I am dying for the truth, then I am dying for a good cause. I am not turning back," she says.But other mining areas have had experiences similar to that of Xolobeni. "While Bazooka’s murder and the threats against Nonhle have received domestic and international attention, many attacks on activists have gone unreported or unnoticed both within and outside the  country."This is, in part, because of "fear of retaliation for speaking out, and because police sometimes do not investigate the attacks", the authors found.The origin of these attacks or threats are often unknown. "So are the perpetrators, but activists believe they may have been facilitated by police, government officials, private security providers, or others apparently acting on behalf of mining companies. "Threats and intimidation by other community members against activists often stem from a belief that activists are preventing or undermining an economically-beneficial mining project. In some cases, government officials or representatives of companies deliberately drive and exploit  these community divisions, seeking to isolate and stigmatize those opposing the mine."The Minerals Council South Africa, which represents 77 mining companies, including some in the research areas, responded that it “is not aware of any threats or attacks against community rights defenders where (its) members operate”.The authors state that while the mining sector and the government emphasise how mining is essential for economic development, "they fail to acknowledge that mining comes at a high environmental and social cost, and often takes place without adequate consultation with,or consent of, local communities".The absence of effective government oversight means that mining activities have harmed the rights of communities across South Africa in various ways. "Such activities have depleted water supplies, polluted the air, soil, and water, and destroyed arable land and ecosystems."Researchers also documented cases of police misconduct, arbitrary arrest, and excessive use of force during protests in mining-affected communities, "which is part of a larger pattern in South Africa".Last year, the Centre for Applied Legal Studies (CALS) at Wits University documented various efforts by traditional authorities to stifle opposition to mines in their communities. "In some cases, traditional authorities label those opposing mines as anti-development and troublemakers, thus alienating and stigmatising them.As a result, community members are often afraid to speak out against a mine in open consultations," CALS found.Research by the SA Human Rights Commission, too, has found that community members sometimes “are afraid to openly oppose the mine for fear of intimidation or unfavourable treatment (by the Traditional Authority)."The SAHRC says many mining-affected communities are experiencing “the creation of tension and division within communities as a result of mining operations.Sometimes, threats and intimidation against activists come from community members who have been promised economic benefit from the proposed project or are politically allied with the government or traditional authority."Local communities often do not benefit from mining activities, says the report. "Although South African law requires the development of social and labour plans (SLPs) that establish binding commitments by mining companies to benefit communities and mine workers, CALS has documented significant flaws in the development and implementation of SLPs."Despite the environmental and social costs of mining, the government is not adequately enforcing relevant environmental standards and mining regulations throughout South Africa. The SAHRC has found that the Department of Mineral Resources (DMR) often fails to hold mining companies accountable, "imposing few or no consequences for unlawful activities and therefore shifting the costs of pollution to local communities."Compliance with regulatory obligations, as well as monitoring and enforcement of such responsibilities, remains a crucial concern in the context of mining activities," says the SAHRC, noting how the DMR and other governmental agencies often do not respond to complaints filed against mines by community members.The report's authors describe how the lack of government action and oversight has also helped make the mining industry one of the least transparent industries in South Africa. Information that communities require to understand the impacts of mines and to hold mining companies accountable for harmful activities is often not publicly available. "Such information includes environmental authorisations, environmental management programs, waste management licences, atmospheric emission licences, mining rights, mining work programmes, social and labour plans, or compliance and enforcement information."The only way to access such information is through a request under South Africa’s access to information law, a procedure that the World Health Organisation has called 'seriously flawed' and which the DMR regularly flouts. In addition, mining companies and the government rarely consult meaningfully with communities during the mining approval process, resulting in uninformed and poor government and industry decisions that do not reflect community perspectives or have their support," says the report.The authors assert how the threats, attacks, and other forms of intimidation against community rights defenders and environmental groups have created an environment of fear "that prevents mining opponents from exercising their rights to freedom of opinion, expression, association, and peaceful assembly, and undermines their ability to defend themselves from the threats of mining".In its November 2018 review of South Africa’s compliance with the International Covenant on Economic, Social and Cultural Rights, the UN Committee on Economic, Social and Cultural Rights expressed concern about “reports of human rights defenders, particularly those working to promote and defend the rights under the Covenant in the mining and environmental sectors, being threatened and harassed". It recommended that South Africa provide a safe and favourable environment for the work of human rights defenders to promote and protect economic, social, and cultural rights, including by "ensuring that all reported cases of intimidation, harassment, and violence against human rights defenders are promptly and thoroughly investigated and the perpetrators are brought to justice". Mining activist Mariette Liefferink, who made submissions to the UN committee, tells how it has become increasingly difficult to work as an environmental rights defender in South Africa.   "There is an overwhelming body of evidence of intimidation, whether it is by means of frontal attacks or more insidious attacks on activists."International and South African law requires South Africa to guarantee the rights of all people to life, security, freedoms of opinion, expression, association, and peaceful assembly, and the rights to health and a healthy environment, say the authors."The attacks, threats, and obstacles to peaceful protest described in this report prevent many community activists in South Africa from exercising these rights to oppose or raise concerns about mines, in violation of South Africa’s obligations." 

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