Bill Watch - Indigenisation Act amendment
BILL WATCH 16/2011
[6th April 2011]
Commentary on the New Indigenisation Requirements for Mining Sector
Summary of the New Requirements Affecting the Mining Sector
Summary of Amendments to the 2010 Indigenisation Regulations which affect all Business Sectors including the Mining Sector
Need for Scrutiny of the New Requirements by the Parliamentary Legal Committee – Unconstitutional and Ultra Vires Provisions
How to Make Submissions to the Parliamentary Legal Committee
In a Government Gazette Extraordinary released late on Friday 25th March there were two legal measures dealing with indigenisation, both made by the Minister of Youth Development, Indigenisation and Empowerment and both coming into effect immediately:
· General Notice 114/2011 setting out minimum requirements for indigenisation implementation plans for businesses in the mining sector [summary below]
· Statutory Instrument 34/2011 amending the Indigenisation and Empowerment (General) Regulations [SI 21/2010] [summary below]
Summary of the New Requirements Affecting the Mining Sector
The new requirements are to be found in General Notice 114/2011 [Electronic version of GN available.]
· All mining businesses hit The GN hits every mining business not already 51% owned or controlled by indigenous Zimbabweans [it actually refers to every mining business “whose net asset value is of or above one US dollar”, which covers all solvent businesses].
· 10th May deadline for submission of implementation plans Those mining businesses that have not already submitted compliant indigenisation implementation plans must do so within 45 days of 25th March, i.e. by not later than 10th May. There is no specific penalty for failure to do this.
· 24th September 2011 deadline for completion of indigenisation Every mining business must meet its “minimum indigenisation and empowerment quota” by disposing of a controlling interest or 51% shareholding to “designated entities” within 6 months of 25th March [i.e. not later than 24th September] but with provision for the Minister of Youth Development, Indigenisation and Empowerment to grant a 3-month extension, to 24th December.
· “Designated entities” The “designated entities” to which mining businesses must dispose of shares and/or interests are: the National Indigenisation and Empowerment Fund; the Zimbabwe Mining Development Corporation [ZMDC] or companies incorporated by ZMDC for the purposes of the indigenisation exercise; the proposed statutory sovereign wealth fund; and share ownership schemes or trusts for employees, managements or communities. [Comment: If shares are transferred to designated State entities, what is to stop them being subsequently disposed of in less than transparent circumstances, to political associates, for example? Parastatal boards have in the past been filled through political patronage – are they truly independent? The ZMDC’s past record, for instance, does not inspire confidence in its independence from political influence.]
· Valuation to take into account State’s ownership of minerals The 51% shares or interest must be disposed of on a basis of valuation agreed between the Minister and business, taking into account the State’s “sovereign ownership” of the minerals being or to be exploited. [Comment: If this means that the value of proven reserves will not be included when valuing a mining business, it runs contrary to standard practice in the mining world under which proven reserves are included in the value of a mining business. This provision has been described as a device to minimise the amount to be paid for shares disposed of.]
· Nationalisation in disguise? Compulsory transfer of shares to State entities amounts to partial nationalisation, which is not what the Indigenisation and Economic Empowerment Act is all about. Nationalisation would require a further Act of Parliament and possibly a constitutional amendment.
Summary of the New Amendments to the Indigenisation Regulations
Statutory Instrument SI 34/2011 amends the Indigenisation Regulations which are set out in SI 21/2010 [Electronic versions available of new SI 34/2011 and also the principal regulations, SI 21/2010, updated to include these amendments.]
These amendments of the principal regulations do not relate specifically to the mining industry. They are designed to strengthen implementation of the principal regulations generally, but obviously also apply to the mining sector. Highlights are:
· New Timeframe for Minister’s responses to indigenisation plans The Minister will be allowed 90 days to reach his decision, up from 45.
· Criminal penalties, not only for failure to submit an indigenisation implementation plan when specifically notified to do so by the Minister, but also for missing a deadline specified by the Minister when granting an extension of time for submission of a plan. $1000 or five years
· Re-submission where plan rejected A business whose indigenisation implementation plan has been rejected by the Minister must resubmit it within 45 days of the rejection.
· Criminal penalty for an investor who, without the prior written approval of the Minister of Youth Development, Indigenisation and Empowerment and the Minister responsible for the Zimbabwe Investment Authority Act, acquires a controlling interest in a business in a sector listed in the Third Schedule to principal regulations, SI 21/2010. The penalty on conviction is a fine of up to $2 000 or a gaol sentence of up to 5 years or both. [According to the Third Schedule’s heading, businesses in the sectors listed in the Third Schedule are “reserved against foreign investment in favour of indigenous Zimbabweans”, but this is not supported by anything in section 9 or elsewhere in the regulations. The new criminal penalties apply, if at all, only to acquisitions on or after 25th March. The need for double Ministerial approval has been in section 9 of SI 21/2010 from the beginning; what is new is the criminal penalty. But section 9 is still unclear and confusing – see Bill Watch 6/2010 of 22nd February 2010 – so the criminal penalty is for contravening an unclear and confusing provision, which is bad law. The amendment also leaves unchanged the problem for investors of having to convince two different ministries, with great potential for delay – it is difficult to see why permission should not be left solely to the Investment Authority, whose duty it is to see all laws are complied with.]
· New supporting documents required Every indigenisation implementation plan must be accompanied by a “secondary document” containing proof that the “responsible person” submitting the plan has been properly authorised to do so, e.g., by a resolution of the company where the business is a company. Where plans have already been submitted, the secondary document must follow on or before 10th June.
· Ministerial certificate of compliance There is a new provision for the Minister to provide a business with a certificate that its indigenisation implementation plan has been approved and that it has achieved or exceeded its minimum indigenisation and empowerment quota.
· Criminal penalty for undervaluing assets Any business that undervalues its net asset value by 10% or more commits an offence and there is also provision for the court convicting a business of this offence to grant summary civil judgment ordering the business to pay the costs incurred by the Minister in obtaining a second valuation. The penalty on conviction is a fine of up to $2 000 or a gaol sentence of up to 5 years or both.
Need for Parliamentary Legal Committee Scrutiny
Both GN 114 and SI 34 merit urgent special attention by the Parliamentary Legal Committee [PLC] for consideration of whether some of their provisions are unconstitutional and ultra vires
Under section 40B of the Constitution, the PLC must examine every statutory instrument gazetted, and may report not only whether it is consistent with the Constitution but also whether it is ultra vires – i.e., beyond the powers conferred by the enabling Act on the Minister or other authority making it. In addition Parliamentary Standing Orders oblige the PLC to ensure that no statutory instrument contains matters more appropriate for parliamentary enactment. [Note: Although GN 114/2011 is not labelled as an SI, it is nevertheless a statutory instrument for the purposes of the Constitution – it is a notice having the force of law, and section 113 includes “any notice having the force of law” in its definition of “statutory instrument”.]
Normally the PLC should report on a statutory instrument within 26 business days of the end of the month in which it is gazetted. But as GN 114 and SI 34 have such a potentially adverse impact of the mining sector and the general economic outlook of Zimbabwe, the PLC is urged to consider these instruments urgently.
Constitutional and Ultra Vires Issues
Some of the constitutional and legal issues raised by the new measures [this is by no means an exhaustive list] are:
Do the New Mining Rules Provide for Unconstitutional Expropriation? Most of the designated entities that will benefit under GN 114 are State-controlled entities. The effect of this restrictive list is to provide for compulsory acquisition by the State of shares or interests in businesses. Compulsory acquisition laws must comply with section 16 of the Constitution, which deals with the compulsory acquisition of property and makes detailed provisions for assessment and payment of compensation and recourse to the ordinary courts. Neither the Indigenisation and Economic Empowerment Act [“the Act”] nor GN 114 complies with section 16.
Unconstitutional violation of freedom of association The effect of GN 114 is to impose partners on mining businesses – which may infringe the constitutional freedom of association [Constitution, section 21]. By contrast, the Act allows business entities freedom to choose partners. So this provision of the GN may be ultra vires as well as unconstitutional.
Ultra vires change of emphasis from indigenisation to compulsory acquisition by State? The Act envisages that over time at least fifty-one per centum of the shares of every public company and any other business will be owned by indigenous Zimbabweans. The term “indigenous Zimbabwean” refers to individuals and companies, associations, syndicates or partnerships of which indigenous Zimbabwean individuals form the majority of the members or hold the controlling interest. The State is not an indigenous Zimbabwean as defined, nor is the Government. To provide for transfer of control to Government-controlled entities is, therefore, inconsistent with the object of the Act and accordingly beyond the Minister’s powers under the Act.
Departure from principles of natural justice GN 114 appears to rule out “empowerment credits” for the mining sector, even in individual cases where the Government has previously agreed to allow them. To do this without having given mining companies notice of the proposals and an opportunity to make representations, amounts to a breach of natural justice principles in breach of the Administrative Justice Act.
Regulations badly drafted SI 34 does little to make SI 21/2010 more comprehensible. SI 21/2010, even as now amended for the third time, still falls far short of the standard of clarity that citizens are entitled to expect of laws that lay down rules governing their conduct. This, too, is something the PLC should look into.
Submission to the Parliamentary Legal Committee
PLC membership The members of the PLC are: Hon Shepherd Mushonga [chairperson], Hon Innocent Gonese, Hon Munyaradzi Paul Mangwana, Hon Beatrice Nyamupinga and Hon Thandeko Mnkandhla.
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