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South Africa

Author: Mike Cohen and Andres R. Martinez, Bloomberg|

01 July 2012 15:48

ANC fails to reach mining tax decision

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The consensus was that there should be greater state intervention – Godongwana.

The African National Congress failed to reach an agreement on imposing new mining taxes and ruled out nationalisation, while calling for “radical” policies to combat poverty and create jobs.

The ruling party didn’t finalise discussion on what instruments to use to extract more revenue from mining companies, Enoch Godongwana, head of the party’s economic transformation committee, said on Friday. He spoke at the conclusion of the ANC’s four-day policy conference.

A study commissioned by the ANC in 2010 called for a 50% “resources rent tax” on all mining operations, triggered once companies earn returns in excess of about 15% annually. The tax would generate about R40bn at current prices, according to the study.

“The greater consensus was that there should be greater state intervention,” Godongwana said. “We agree in principal that the tax instruments may be utilised to capture the mineral rent.”

President Jacob Zuma, who is seeking a second term as party leader in December, is struggling to create more jobs and combat poverty in South Africa. The ruling party is seeking more revenue from mining, risking investment in the world’s biggest producer of platinum, chrome and manganese.

Anglo American Plc, Xstrata Plc, Rio Tinto Group Plc and BHP Billiton Ltd. have operations in the country.

Radical policies

The ANC is pushing for “more radical policies and decisive action to achieve the change we envisage,” Zuma said in a speech to party members on Friday. “Mining should have a developmental impact and promote job creation. The state should also capture an equitable share of mineral resource rents.”

South Africa’s Chamber of Mines rejected the mining tax proposals as “unwelcome and insupportable,” according to a draft copy of a report submitted to the ANC, and obtained by Bloomberg News.

The ANC undertook a study on state intervention in the mining industry after the party’s Youth League lobbied for a policy of nationalising mines to give the black majority a bigger stake in the country’s mineral wealth. The study found that nationalisation would result in a near collapse of foreign investment and access to finance, widespread litigation by foreign investors, and be “an unmitigated economic disaster” for the country.

Land policy

ANC delegates this week agreed that nationalisation of mines is “inappropriate,” Godongwana said.

While the ANC’s study proposed export levies on coal and iron ore to ensure security of supply, the party failed to define “strategic minerals” during its discussion, Godongwana said.

The government has rejected imposing windfall taxes before. In 2005, it appointed a task team to investigate whether to impose the tax on Sasol, the world’s largest coal-to-motor fuel producer. The National Treasury decided against it in 2007, saying it may deter investment.

ANC delegates this week also discussed changes to the government’s land reform policy to speed up the redistribution of farms to black South Africans.

The policy of a “willing seller, willing buyer” must be scrapped to accelerate the process, Agriculture Minister Tina Joemat-Pettersson said on Friday. Fair compensation will be paid for the land, which the Constitution says can be expropriated in the public good, she said.

The ANC didn’t consider a proposal contained in party documents to force pension funds and insurers to buy the bonds of state-owned companies, Godongwana said.

“I’m not a proponent of that,” he said. “It’s not that the financial institutions don’t want to invest in bonds.”

Topics: ANC policy conference, nationalisation, mining tax, Enoch Godongwana, Zuma, Chamber of Mines

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