THE DOMINO EFFECT: MINERAL INDUSTRY FACES MORATORIUM & MINISTERIAL PLAN OF ACTION

The Minister of Mineral Resources Susan Shabangu, announced at a media conference in Pretoria on Tuesday 17 August 2010, that there will be a six-month moratorium on new prospecting applications while a full audit of all mineral rights granted since 2004 is conducted.

The Minister’s reasons for moratorium include:

	The Mineral and Petroleum Resources Development Act 28 of 2002 (“MPRDA”) contains a number of ambiguities.
	Due to the fact that the MPRDA is a relatively new piece of legislation, there is a lack of well developed jurisprudence which would ordinarily assist with interpretation of the law. In the absence of such precedents, officials have been applying the letter of the law as opposed, for example, to interpreting the spirit or intentions of the law.
	The lack of transparency in and access to licensing data of the Department of Mineral Resources (“DMR”) causes unnecessary suspicion of the systems used at the DMR.
	The DMR has administrative capacity problems.
	There are increasing perceptions of corruption and/ or incompetence.

The Minister has accordingly instructed the implementation of the following plan of action to remedy the aforementioned:

	A joint Stakeholder Task Team has already identified a list of amendments to the MPRDA and these will be submitted to Parliament for processing as soon as possible.
	With effect from 01 September 2010, information on the status of exploration and mining licenses will be accessible on the DMR’s website. This is in the interest of transparency and means that all stakeholders, including members of the public, will have access to our new electronic administrative system.
	In the interim, the DMR is developing a totally new, integrated system of ‘license-process-tracking’ which will be ready for public access within the next six months. With effect from 1 September 2010, the DMR will impose a moratorium on the receiving of prospecting applications. The moratorium is to be published in the Government Gazette shortly and will last for six months to allow for a comprehensive audit of the licenses granted since the promulgation of the MPRDA. This will further enable us the DMR to clean up the database, thus paving the way for the incorporation of uncorrupted data into the DMR’s new integrated electronic application administrative system. All other existing licensing activities will continue as normal.
	With immediate effect, prospecting rights will no longer be issued at Regional Office level and will instead be issued from the DMR Head Office.
	The Director-General has since the beginning of this year initiated a process which has identified a number of administrative inefficiencies and fault lines, including capacity problems. To give some context to the issues at hand, it is important to consider that the DMR has dealt with no less than 25 600 license applications since 2004. The investigation conducted internally, which is ongoing, has revealed in excess of one hundred cases of apparent administrative irregularities. These differ in degrees of materiality. A decision has already been taken that Chief Directors will be deployed to regional offices as of 4 September 2010 in order to strengthen leadership and oversight at the coalface of service delivery;
	All cases of double granting of licenses will be resolved within the next three months.
	The upgrading of all the Regional Offices will continue and is scheduled to be completed within the next six months.
	Allegations of abuse of office and/or corruption will be dealt with speedily and effectively. Toward this end the DMR would like to encourage the media and the general public to furnish the department with relevant information in order to investigate and refer for prosecution such cases.

Although the moratorium relates to new applications for prospecting rights, it is clear from the above that the Minister’s plan of action may impact on new applications for technical co-operation permits, exploration rights and production rights. The impact on pending applications is however unclear at this stage. We anticipate the publication of the moratorium in the Government Gazette will provide clarity. In the meanwhile the Petroleum Agency of South Africa (“Agency”) has advised that no directives have been received from the Minister’s Office. We have been informed, by the Agency, that we will be notified should any directive in this regard be received. In the interests of our clients, Bowman Gilfillan’s Oil and Gas team will be particularly vigilant as a full appreciation of the legal consequences unravels.