CREEPING EXPROPRIATION OF MINING INVESTMENTS: AN AFRICAN PERSPECTIVE

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development and Investment
(Apr 2009)
CHAPTER 6D
CREEPING EXPROPRIATION OF MINING INVESTMENTS: AN AFRICAN PERSPECTIVE
Peter Leon ^*
Webber Wentzel South Africa ^**
2009 Chair IBA Mining Law Committee

Peter Leon is a partner with Webber Wentzel, attorneys, Johannesburg and was previously a member of the Gauteng legislature, where he served as leader of the official opposition. As head of Webber Wentzel's natural resources and regulatory practice group, he specialises in natural resources law, regulatory aspects of financial services law and international investment law. Recent matters include advising on an international arbitration claim against the South African government before the International Centre for the Settlement of Investment Disputes (Foresti and others v South Africa), advising on a major project to extend the life of PetroSA's Gas to Liquid (GTL) plant in Mossel Bay, advising the Federal Government of Nigeria on its new mining code, as well as advising on the Bisha mining project in Eritrea. He has also advised multinational mining groups on the legal implications of the SA Mineral and Petroleum Resources Development Act, 2002, as well as the draft Mineral and Petroleum Royalty Bill, 2003-2008. Mr Leon received his BA from the University of Cape Town, where he also obtained his LLB degree cum laude. He subsequently studied at Cambridge University, England, where he obtained a LLM degree with first class honours, completed a post-graduate dissertation in administrative law and was elected senior scholar of Christ's College for academic achievement. Admitted as an attorney in the former Transvaal province, South Africa in 1983, Peter Leon became an equity partner of Webber Wentzel in 1987. During the South African state of emergency, Mr Leon was chairman of Lawyers for Human Rights in Johannesburg. Previously outside general counsel to the Johannesburg Stock Exchange, Peter Leon was subsequently appointed as chairman of the adjudication panel for the JSE's electronic settlement system, STRATE. Mr Leon was chosen in 1993 to represent the South African attorneys' profession in their quest for rights of audience in the High Court, which was granted in 1996. He has published widely, on a variety of matters, legal and political. As a member of the Law Society of South Africa's standing committee on constitutional affairs and human rights, Peter Leon was extensively involved in the formulation of constitutional legislation and in submissions on South Africa's Constitution to the Constitutional Assembly. During the certification process of the Constitution in the Constitutional Court, Mr Leon led the Law Society's legal team. Peter Leon was elected to the Council of the University of Cape Town in 1999, where he served as deputy chair of the Council's appointments committee until July 2008. In December 2000, Mr Leon was appointed by the South African government as head of a national ministerial advisory committee to oversee the transition to a new system of local government for South Africa, which reported to the Minister of Provincial and Local Government in 2002. Peter Leon is the chairman-elect of the mining law committee of the International Bar Association (2009 - 2011) and was named one of the world's foremost mining lawyers by the International Who's Who of Mining Lawyers (2006 - 2008), as well as one of the world's leading business lawyers by the International Who's Who of Business Lawyers (2006 - 2008). In 2008, MiningMx named him as one of the most influential figures in the South African mining industry.

Introduction

In the realm of international law an expropriation of property is considered to be one of the most severe forms of interference with property rights as it destroys investors' legitimate expectations relating to their investments. With the exception of the Andean region,¹ direct expropriations have recently become rarer as governments, generally, are concerned about the negative impact this has on investor perceptions and country risk. As a consequence, indirect expropriations, an example of which is creeping expropriation, have grown in prominence.²

A creeping expropriation "may be defined as the slow and incremental encroachment on one or more of the ownership rights of a foreign investor that diminishes the value of its investment. The legal title to the property remains vested in the foreign investor but the investor's rights of use of the property are diminished as a result of the interference by the state".³

It is frequently asserted that the identification of indirect expropriation measures cannot be assessed using abstract legal principles, but rather depends on a case-by-case analysis of the specific facts.⁴ This approach was highlighted in the case of Tecnicas Medioambientales Tecmed SA v The United Mexican States⁵ ("Tecmed"), which was heard by an arbitral tribunal convened under the auspices of the International Centre for Settlement of Investment Disputes ("ICSID"), where the tribunal observed that "a broad number of actions have to be examined on

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a case-by-case basis to conclude" that creeping expropriation has taken place.⁶ In this regard, the intensity of the measure taken by a state to interfere with an investor's investments in the host state generally determines whether an indirect expropriation has occurred.⁷

This paper, which examines creeping expropriation of mining investments in Africa, is accordingly divided into two sections; section one focuses on Africa's historically most important mining jurisdiction, South Africa⁸ and the second explores creeping expropriation in other African countries. The underlying effect of the current global financial crisis, however, cannot be ignored in this analysis as it has had a direct effect on these African countries. Certain African governments have responded to the crisis by either changing their stance towards expropriation or actually moving away from it. If ever an economic crisis had a positive effect, this must be it.

Section one: South Africa

South African mining law prior to 2004

Prior to 2004, the holding and exercise of mineral rights in South Africa was regulated by a combination of common law and legislation, principally the Minerals Act, 1991 ("the Minerals Act"), which came into force on 1 January 1992.⁹ Under this dispensation, ownership of minerals vested in the owner of the

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surface¹⁰ until severance from the ground.¹¹ Holders of mineral rights¹² had the right to exploit the minerals on the land, which included the right to assign or transfer their mineral rights for value.¹³ Mineral rights were real rights of indefinite duration and did not require the holder to exercise the rights in order to keep them.¹⁴ If mineral right holders, however, chose to exercise their common law right to prospect or mine, it was necessary to obtain authorization under the Minerals Act.¹⁵ In such cases, the relevant official was obliged to issue the necessary authorization provided that the relevant statutory requirements were fulfilled.¹⁶ Finally, common law rights to minerals were not subject to termination by a public authority for non-compliance with the Minerals Act or on any other grounds.¹⁷

Outline of the South African mineral law regime after 2004

Introduction:

The Mineral and Petroleum Resources Development Act, 2002 ("the MPRDA" or "the Act") is the cornerstone of the minerals rights policy introduced by the democratic South African government in the post-1994 era. The Act gives effect to section 25 (4) (a) of the South African Constitution,¹⁸ which requires that reform measures be implemented to bring about equitable access to all South Africa's natural resources. In this regard, the MPDRA abolished the existing dual system

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of public and private ownership of mineral rights and replaced it with a system of state custodianship of mineral resources "for the benefit of all".¹⁹ The enactment of the MPRDA brought an end to the old order mineral regime by repealing the common law to the extent that its principles were in conflict with the MPRDA,²⁰ while also repealing the Minerals Act and related statutes.²¹ As discussed below, the MPRDA introduced a fundamentally different system of mineral resource ownership and regulation from that which had previously existed, while making provision for the conditional conversion of certain existing rights into prospecting and mining rights under the MPRDA. With the state as custodian, mineral resource owners were deprived of their basic right of control, which they previously enjoyed.²² The Act essentially replaced the principles of private law, based on rights of ownership, with principles of administrative law based on conditional state licences. In this regard the MPRDA provided the initial impetus in the encroachment of the ownership rights of mining investors. The Act is effectively the underlying cause of the diminished value of mineral rights in South Africa.

The MPRDA must be seen in the context of two other important regulatory measures.

Broad-based Socio-Economic Empowerment Charter for the South African Mining Industry, 2002 ("the Mining Charter")

The Mining Charter²³ was promulgated pursuant to the broad-based black economic empowerment provisions of the MPRDA²⁴ and was signed by key

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stakeholders²⁵ in the South African mining industry on 11 October, 2002, with the purpose of providing the framework for the promotion of Black Economic Empowerment ("BEE") in the South African mining industry.²⁶ The Mining Charter, together with its annexed Scorecard for the Broad Based Socio-Economic Charter for the South African Mining Industry ("the Scorecard"), outlines nine social upliftment objectives,²⁷ designed to address the entry of Historically Disadvantaged South Africans ("HDSAs") into the mining industry at both management and equity levels...