Imposing royalties on mining companies compounds an earlier injustice

The SA government committed an injustice when it confiscated the mineral rights of the mining companies that owned them without paying them any compensation. It now intends compounding that injustice by levying royalties on sales made by the mining companies of those very minerals that were confiscated.

In submissions before the parliamentary portfolio committees of finance and minerals and energy, mining companies are contesting the amount of the royalty to be paid. Instead, they should be objecting to the bizarre notion that they should pay royalties on property that has been forcibly taken from them and for which they have not been paid.

Is property not protected in the Bill of Rights? It is. Section 25 of the constitution states that, ‘No one may be deprived of property except in terms of law of general application, and no law may permit arbitrary deprivation of property.’ However, the protection is not total because it states further that property may be expropriated in terms of a law of general application, for a public purpose, in the public interest (the public interest is defined to include ‘the nation’s commitment to land reform, and to reforms to bring about equitable access to all South Africa’s natural resources’) and subject to compensation.

So, what is the problem then, if government can expropriate property for the stated purposes? The problem is that no compensation has yet been paid as required by the constitution.

Even though the minerals and energy department claims that no expropriation of mineral rights has taken place, what is certain is that the former owners (the mining companies) no longer have ownership and control of their mineral rights. Property is defined in dictionaries as ‘something that is capable of being owned’. As mineral rights were owned, and confiscated, they definitely represent property. Section 25 of the constitution also makes clear that ‘property is not limited to land’.

According to media reports mining companies have been given until the end of 2009 to convert their ‘old-order-rights’ into government licences to mine the minerals they previously owned. Apparently prescription of their right to claim compensation has been extended to avoid a deluge of claims from companies that have not yet had their ‘old-order-rights’ converted. Claims for compensation could amount to billions of rand.

Government appears to be playing ‘chicken’ with the mineral rights owners over the institution of claims for compensation versus future mining rights. If a company institutes a claim, will it diminish its chances of being granted mining licences? Of course, government should not function on such a basis but mining companies can be forgiven for making that assumption and acting accordingly.

Introducing a demand for royalties into this murky soup of shattered rights and arbitrary government action is ill advised and unjust. Ill-advised because it will have extensive negative consequences for the mines, their employees and the economy. The mines are already paying huge taxes to government and further erosion of their profits will leave less money for re-investment and dividends to shareholders, which is essential to attract new capital into the industry. It is unjust because the mines are being deprived of a higher-order-right, namely full ownership of a mineral right, and in return being given a lower-order-right, which is a limited mining right granted at the discretion of, and subject to conditions imposed by, government officials.

An apt analogy would be if the government nationalised, appropriated, or expropriated your house (whatever term one wished to use for the process) paid you no compensation, and then required you to apply for a licence to live in your house subject to discretionary conditions imposed by a government official. And then, on top of this, required you to pay it rent for the pleasure of living in the house you previously owned outright. That would be rank injustice.

Author: Eustace Davie is a director of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author's and are not necessarily shared by the members of the Foundation.

FMF Feature Article / 11 March 2008