SOUTH AFRICA: Revenue Watch Comments on Draft Royalty Bill

Revenue Watch has submitted its analysis of South Africa's latest draft royalty bill, now in its third and reportedly final draft. The submission comes in response to a call for public comments by the South African government.

The Mineral and Petroleum Resources Royalty Bill is a key component of important reforms underway in South Africa, but we are concerned that certain aspects of the draft bill may not be in South Africa's long-term interests.

As our analysis explains, the third draft of the bill marks a significant departure from earlier drafts—and from common practice in royalty systems internationally. It moves completely away from specific royalty rates on gross value in favor of a profitability-related variable rate that can, under certain circumstances, reach zero. A Draft Explanatory Memorandum provided by the National Treasury offers examples explaining the operation of the royalty formula as well as other provisions of the draft bill.

The draft bill appears in the midst of a dynamic time in South Africa's mining sector. It is designed to help realize the objectives of the Mineral and Petroleum Resources Development Act, 2002 (MPRDA), which came into effect in 2004 and ushered in the transition from a system of private ownership and control of mineral resources to state sovereignty over South Africa's mineral endowment.

The implementation of a new royalty regime is integral to this transition, but it is only one part of the picture. The process of transitioning from "old order" mining rights to "new order" rights requires compliance with the terms of South Africa's Mining Charter. The Charter (and the "scorecard" giving effect to it) aims to address the historical, social and economic inequalities in South Africa's mineral industry.