Govt shifts iron-ore emphasis from corporate rights to national interest

July 26, 2010 by: admin

The South African government moved on Thursday to further shift the emphasis in the ongoing dispute between Kumba Iron Ore (KIO) and ArcelorMittal South Africa (AMSA) beyond the realm of corporate and legal rights, to one that was also sensitive to South Africa’s national interests.

The State’s bid to influence the tone of the discussion began in earnest last Friday, when Trade and Industry Minister Dr Rob Davies made a public offer to mediate in the escalating conflict – this after AMSA threatened to shut capacity and retrench up to 4 000 of its 10 000 workers should KIO proceed with a pay-and-take pricing model as from August 1.

The strategy was further consolidated by Monday’s “constructive engagement”, which involved Davies, Mineral Resources Minister Susan Shabangu, Economic Development Minister Ebrahim Patel, as well as AMSA CEO Nonkululeko Nyembezi-Heita and KIO CEO Chris Griffith. After the Pretoria meeting, government said that all the participants had committed themselves to reaching an agreement that would “put the country first”.

However, Engineering News Online understands that government and the governing African National Congress have, for some time, been considering ways to intervene, particularly owing to the fact that the dispute had the potential to undermine government policies in the area of minerals beneficiation and industrialisation.

That opportunity arose when the tussle threatened to spill over beyond the steel industry at the very moment when government had reach internal alignment around its developmental goals in the area of steel pricing – a process that seemingly was given impetus by public disquiet over the Department of Mineral Resources (DMR) decision to grant prospecting rights at Sishen to a little-know, yet well-connected, resources company.

In a statement issued jointly by Davies, Shabangu and Patel on Thursday, government moved to reinforce its position, which was reportedly also canvassed at the Cabinet lekgotla, by noting that an interim pricing resolution between AMSA and KIO had not resolved “critical issues arising from the dispute”.

Earlier in the day, KIO and AMSA announced that they had agreed to an interim pricing agreement, retrospective to March 1, 2010, that would endure until July 31, 2011, while dispute settlement processes were pursued.

AMSA would pay a fixed $50/t of iron-ore delivered to Saldanha Steel, and $70/t for iron-ore delivered to AMSA’s inland plants. AMSA would be entitled to purchase a maximum of 520 000 t/m, with a maximum of 125 000 t/m for Saldanha Steel. Any additional tonnage would be procured at the prevailing spot price, based on export parity prices.

In its statement, government stressed that the 2001 unbundling of Iscor, while having been pursued under the now commercial contract, had also involved two core public developmental obligations:
– To ensure the viability and cost competitiveness of local steel production; and
– To ensure a competitive steel pricing regime to support the development and deepening of value-added manufactured products in downstream industries.

Such “developmental outcomes” were in the “national interest”, government said, adding that they were also “critical to the success of the Industrial Policy Action Plan and a shift to a new more labour-absorbing growth path”.

CONDITIONS & TAXES?

“Government will use all tools available to it to ensure that these outcomes are realised,” Davies and Patel warned.

Engineering News Online understands that government will consider attaching conditions to the eventual granting the Sishen mineral rights, insisting that the iron-ore is used to support a competitive steel industry, which, in turn, passes these benefits on to steel consumers.

Also under consideration, is the imposition of export taxes on locally-mined iron-ore to further encourage beneficiation.

The Ministers said that a meeting would be held with stakeholders soon to assess the impact of the interim settlement on these long-term developmental objectives.

The Ministers would also seek to ensure that the settlement did not have a negative impact on the steel price in the short run and that in the long run the rents arising from South Africa’s mineral resources are used to develop the economy.

SURCHARGE TO BE DROPPED?

Davies had already lodged a formal complaint with the Competition Commission over AMSA’s recently-instituted iron-ore surcharge.

There were strong indications on Thursday that the controversial Sishen surcharge, which was implemented to part recovery the increase in iron-ore prices, would be withdrawn in the wake of the more hands-on approach being adopted by government.

An announcement was expected before the monthly price adjustments were announced, which are typically released to customers on the last working day of each calendar month.

No mention, however, was made about whether a second settlement might be in the offing between the Department of Mineral Resources (DMR) and KIO over the DMR’s granting of AMSA’s “lost” rights at Sishen to Imperial Crown Trading as “prospecting rights”.

DMR is reviewing whether the award was made properly following a complaint lodged by KIO. But that company had also instituted separate legal proceedings against the department as a further safeguard.

The case, which involves some politically well connected South African business people, is being closely watched by the international resources industry, which is concerned that the DMR’s actions, which some hold were unduly influenced, could impact the security of other mineral rights in the country.

Source engineeringnews.co.za

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