sharing in governance of extractive industries

The Mining Charter (June 2017) makes reference to the need for mine communities to be awarded shares. Whether or not this version of the charter passes the legal challenges it will no doubt face in coming weeks and months, it cannot be disputed that community development for mine-affected communities, whether through a mechanism of share ownership or not, is vital. However, the proposal that the communities’ share be held in trust, raises concerns. One wonders how this will differ from the funds currently held in trusts for mine-affected communities, and more importantly whether the communities will actually have a say in the matters related to their trusts and who will ultimately benefit from these trusts.

Just recently I brought up the topic of mine community trusts for a prominent South African gold mining company’s affected communities at the company’s AGM. It was not a matter that was brought into the AGM sphere out of the blue, I had been asking questions, as a shareholder, about these trusts since October 2016. Responses from the CEO and EVP Sustainable Development had been vague, promising to investigate, and in March 2017 I was referred to the trust administrator, whose responses have been even vaguer bordering on non-existent. Responses at the AGM from the company’s chairperson, a prominent political and community activist, and the chairperson of the social & ethics committee were quite defensive, claiming that the trusts are set up as independent and that the company has no control over what happens. “What bollocks!” one is tempted to say out loud. If the trusts are independent, administered by an administrator and governed by trustees who have no connection to the community, who is keeping an eye on things? The situation with these trusts are that the community members (both under the shadow of the headgear and from labour sending areas) are not represented anywhere, not in its administration nor in its governance, and the company who formed these trusts now claim they have no control over the trusts and the outcomes as the trusts are independent entities. So one wonders who has control over the trusts? The predominantly white Johannesburg legal firm that is appointed as the administrator? The white consultant, not from the area, who has been appointed to deal with some of the community issues? The trustees who are not from the area and not representative of the beneficiaries? How would anyone, whether a community member or a company shareholder, know what is really going on?

The basic questions which have not been answered by the company’s board (despite promises at the AGM to do so), senior management or the trust administrator are:

1)     Are there any annual or quarterly non-financial reports that is available to be scrutinized by community members? If so, how do they access these?

2)     What are the amounts spent thus far on host community projects, what are the amounts spent thus far on labour sending community projects? What amount spent on administration and trustee fees to date?

3)     What sum of money is reserved for this current year for host community projects, and what sum of money is reserved for labour sending community projects?

4)     What infrastructure projects are implemented via the community trusts in host community as well as in labour sending areas?

5)     How do ex-mine workers directly benefit from these trusts?

6)     Community members felt that the education trust could be used to also upskill ex-mine workers instead of concentrating only on the youth and bursaries. Linked to (6) above, is this being addressed? And if so, how?

7)     Why are community members not represented on the management of the trust, i.e. as trustees?

8)     How often are there meetings with communities discussing the affairs of their trusts, both in host communities and in labour sending communities? Do the trustees allow members of the communities to be present at trustee meetings? What access do community members have to trustees and to the administrator if they have queries?

9)     What are the criteria used for selecting projects when considering proposals from local community organizations? How many such projects have been approved and what is their nature?

If this is how a company that claims to be a responsible corporate citizen handles the trusts created for the development of its affected communities, one shudders to think how future trusts will be handled.

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Comment by Gwendolyn Wellmann on July 7, 2017 at 15:38

Hi Mulya,

Indeed I think there is a lot of investigative research to be done on this topic, not only in SA, but across the continent. I intend to keep pressure on those companies where I can do so as a shareholder, while also looking at the topic from an academic perspective.... if only days had more hours in them... :-)

Comment by Mulya Jules on July 7, 2017 at 15:33

Hi Gwendolyn

What you saying about the legal independence (of convenience) of these trusts from companies which pump billions of rand in to them reveals a even more shocking situation than I thought first.  It'd be very interesting to compare the names and profiles of these trustees across those 100 top companies...and check if some funny pattern would emerge. Perfectly understand your indignation.

Comment by Gwendolyn Wellmann on July 7, 2017 at 13:01

Dear Mulya and Antipas,

Thanks for your very thought-provoking comments.  The post deals primarily with what is happening in South Africa at the moment, and I do not have sufficient information and knowledge to comment in any way on what is happening in most other African countries.  

I am currently reading through a report published recently that refers to the billions (in South African Rand) allocated to these trusts by the 100 top companies listed on the Johannesburg Stock Exchange.  These companies are from various sectors and not just mining.  Whilst I still need to finish scouring the report and another one produced by the same agency two years ago, I can already see that it reveals the same problem: companies are lauded for the amount of money spent for communities, but no evidence that any amount of much significance is really spent in a sustainable manner in the affected communities.  From where I stand (and based on my experience and observation to date) it is only the administrators and consultants who benefit from these millions.

The reason for the non-transparency in these trusts and foundations, even when these are formed by a listed company, is the loophole (at least in South Africa) that these companies are not obliged to share this information publicly because the trusts and foundations are 'independent' of the company.  I think that is absolute nonsense and I continue to push the specific company mentioned in my post to release the information.  They have now invited me to a meeting on the 19th July but still no information forthcoming.  It is quite disturbing.  

I agree with you Mulya that laws are important, but as we know, a law is only really useful if there is political will and when adequate resources are made available to implement it properly, and I think that is where many countries fail.   

Comment by Mulya Jules on July 6, 2017 at 18:18

Hi Antipas

DRC has such allocations stipulated into the Mining Code...but it still not happening! I believe Tchad had similar laws on oil but it hasn't been implemented in the name of national sovereignty. It boils down to governance and stewardship. Laws, surely are very important but more is needed.

Comment by Antipas Massawe on July 6, 2017 at 18:01

Hi Gwendolyn,

Thank you for this very interesting one dwelling on the affected mine communities I briefly shared on before here: https://www.google.com/url?sa=t&rct=j&q=&esrc=s&sou...

Expected a national law would guide how the national share of mineral revenues would be allocated to the directly affected local, district, regional and national community, and utilized sustain-ably and most effectively for the maximum benefit of all throughout their generations the revenues belong to.

Such  law would also required the allocations of the national share of mineral revenues  to be deposited in sovereign wealth funds of the directly affected local, district, regional and national communities, who would be trained how to manage and exploit them most effectively and sustain-ably for the maximum benefit of all throughout their generations.

Mine community trusts are not good enough for the communities they would maintain on dependency in their development and living endevours.

Comment by Mulya Jules on July 6, 2017 at 14:03

Dear Gwendolyn

This is a very disturbing information indeed. For all the talk on transparency in extractive industries some companies still struggle to come out clean on trusts and how they are managed. This reluctance to disclose info  is a recipe for unhealthy community relations and everyone is aware of it. It's a case of tempting fate by people who historically should know better.

Could EITI do something to get all these rogue companies and their avatars (Trusts) to mend their ways? ...naming and shaming


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