South African Minister Urged to Revisit Mineral-Price Agreement

South African Mineral Resources Minister Ngoako Ramatlhodi said he is facing strong pressure from within the government to revisit a pricing deal struck with the mining industry to encourage local processing and he is taking legal advice on the matter.

Draft laws currently being reviewed by Parliament propose that mining companies be able to charge local processors the prices they can obtain for exports, less the transport cost for minerals that the government designates as strategic. While the companies agreed to that formulation, some officials are still pushing for so-called “developmental prices,” Ramatlhodi said.

“There is a view that we need to re-discuss that issue,” he said in an interview with Bloomberg TV Africa at the Investing in African Mining Indaba conference in Cape Town Wednesday. “That issue also poses a legal challenge. There is an opinion that suggests that in fact we could be in violation of our obligations to the World Trade Organization treaty, to which we are signatories. I’m looking at soliciting further advice to see if that can be done.”

While Parliament adopted changes to the 2002 Mineral and Petroleum Resources Development Act last year, President Jacob Zuma refused to sign it into law, citing concerns that it may not be compliant with the country’s constitution. Ramatlhodi hopes to have the revised law finalized within six months.

Minerals used in fuel cells, catalytic converters and jewelry are among those the government may designate as strategic once the law is passed, the minister said.

State’s Share

The minerals law also proposed giving the state a free 20 percent stake in all new oil and natural-gas projects and enabling it to buy an unspecified additional share at an “agreed price.”

Separate laws will be drafted to regulate the energy industry and a maximum state interest will be specified to give investors greater certainty, Ramatlhodi said.

The oil companies are “not complaining about the 20 percent free carry at all,” he said. “The issue was the extent to which we can get additional rights as the government.” The “recommendation is that we have to be at under 50 percent as the state in case we acquire more shares. Those issues will then be debated in the legislature and then we’ll see what comes out.”

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