Ruling party warms to Chile mines policy

2011-12-10 13:52

Final document to be decided upon at ANC’s elective conference

South African mining companies must begin to brace themselves for greater state involvement and higher taxes in the sector.

This as discussions in the governing ANC are leaning towards an appetite for the Chilean model of partial nationalisation.

If the “Miracle of Chile” is pursued, ideological, financial and political compromises lie in the wake as mooted dramatic changes to the nation’s mining dispensation are gaining momentum.

After considering 13 country case studies and models for extracting greater revenue from the natural resources sector, some models were found to be inappropriate to the South African context, and a few, including the Chilean model, were considered relevant.

Enoch Godongwana, the deputy chairperson of the ANC’s economic transformation committee (ETC), said: “The research is complete and the document just needs to be made user friendly.”

He confirmed that the Chilean model had been “well examined”, so was the Venezuelan model, which leans towards wholesale nationalisation.

Godongwana said the document would be tabled for discussion at the January 30 meeting of the ANC national executive committee (NEC).

Thereafter, it is expected to journey to the ANC elective conference in Mangaung, Free State, in June where its fate will be decided.

Sources close to the process say the Chilean model is preferred because it advocates co-existence of the private and the public sectors in the mining sector. Chile is also attractive because it has similar challenges to South Africa, especially its inability to create jobs in downstream industries.

The Australian royalties tax dispensation is said to have also impressed the ANC heavyweights after a visit to that country by Godongwana and Gwede Mantashe, the governing party’s secretary-general.

Professor Chris Maluleke, who is following the discussions on behalf of labour federation Cosatu, said the debate has began to revolve around hybrid models of state interventions in the resources sector rather than blanket nationalisation.

The discussions have honed in on what South Africa can do to extract a fair share of revenue from the $2.5 trillion (about R20 trillion) mining industry for the benefit of all its citizens.

Key features of the Chilean model are a focus on strategic minerals especially its copper, in which it is the world’s leading producer. It is understood that if South Africa were to follow

Chile’s model, minerals such as platinum, chrome and iron ore may be targeted by the state for partial ownership.

Another characteristic of the Chilean model is a multiple ownership structure, with the state playing a significant role in the ownership of resource assets.

A Chilean law, titled the Codelco Law of 1992, authorises the state-owned copper company Corporación Nacional del Cobre de Chile (Codelco) to form joint ventures with private firms to exploit untapped deposits.

The model also asserts a royalty tax of 5% of the operating income of mining companies in certain sectors. The Chileans have a copper fund called the Copper Stabilisation Fund – a sort of sovereign wealth fund that allows the state to impose a supertax during booms to finance the fund.

It ensures that Chile has a nest egg that protects it when commodity prices fall.

There are dissenting voices, however, on nationalisation.

ANC veteran and think-tank Joel Netshitenze, who is a member of both the NEC and the ETC, has warned in his writings that the risks of adopting such a policy may outweigh the benefits as nationalisation has failed in many countries.

Bheki Sibiya, chief executive of the Chamber of Mines (CoM), declined to comment on the latest developments in the mine nationalisation debate.

He said: “The information available to the Chamber of Mines on the nationalisation debate is very scant. We feel it is premature to formulate an
official position while the debate is ongoing.”

In the wake of the 2008 global economic crisis, the resurgence of state interventionist economic thinking, where governments had to bail out failed banks and even took over some of them, the ANC is discussing state intervention in the mining sector in a more accommodating environment, experts say.

Dr Petros de Kok, a senior researcher at the South African Institute of International Affairs, said: “In the twilight of neo-liberal economic thinking that frowned on a major role for the state in the markets, discussions have been more open than before.”

Peter Leon, a mining expert at law firm Webber Wentzel, said in the 1970s resource nationalism (or partial nationalisation) was understood to be an attempt by the developing countries to address inequality caused by former colonial governments.

However, in the 21st century, the policy is driven by global concern for resource security, sustainable development, environmental sustainability and poverty reduction.

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