How South Africa’s industrial policy feeds its coal addiction: The case of the Musina-Makhado SEZ

Loss of sovereignty at the hands of the DTIC: The 2018 handover ceremony the Musina-Makhado SEZ Operator License to Shenzhen Hoi Mor Resources

The driving force behind the exploitation of the coal buried beneath a vast swathe of Limpopo’s far north is a speculative mining venture currently trading as MC Mining and its backers, which include the Industrial Development Corporation (IDC) and Chinese coal buyers. In 2010, the former Coal of Africa bought the rights to the Greater Soutpansberg Coalfield from Rio Tinto for US$75 million, but has yet to begin strip-mining its assets in earnest.

Despite having signed offtake agreements with several Chinese SOEs including Huadong Coal Trading Center and Haohua Energy International Resource Co Ltd, its second-biggest shareholder, triple-listed MCM, has been unable to raise the capital to mine what is low-grade coal in this remote area located on a broken railway line some 630 Km from the nearest port, Maputo. There’s a reason Rio Tinto offloaded the rights to the 1.04 billion tons of reserves it had discovered in Limpopo’s northernmost district of  Vhembe, and it wasn’t its climate conscience. What jumps out for the keen reader of MC Mining’s latest annual report, is that even with the IDC’s willingness to keep rolling loans that now total R400 million, its auditor still frets that the company which is yet to break ground on its “flagship” Makhado Colliery, can even “continue as a going concern”.

So what’s the problem here, you ask? Is this not the market at work, allocating capital to the most productive uses, where returns are highest – and that turns out not to be coal, without even applying a full-cost accounting for coal’s externalised costs of boiling the planet? Where weak environmental regulatory barriers had failed, the ruthless efficiency of the market has stepped in to save the Mapungubwe World Heritage Site and UNESCO Vhembe Biosphere Reserve from twelve new open-cast coal mines. Opponents can retire from the courtroom, sit back and savour the spectacle of the unprofitable mining firm going bust, whilst government’s visionary alternative natural capital-based development plan for the region – to create a landscape-scale conservation corridor linking the western Mapungubwe and eastern KNP and Great Limpopo Trans-Frontier Conservation Areas, encapsulated in the Limpopo Conservation Plan[i] – attracts investment and spurs growth for the immediate benefit of land-owning rural communities through the innovative Operation Phakisa programme for the Biodiversity Economy.

Not so fast. The problem is that we don’t live in an economics textbook and market forces are easily manipulated. What would change MC Mining’s ill fortunes is if either a buyer for its coal were to appear on the edge of its coal pits, or if Portia Derby were persuaded to build a functional rail link to port at the taxpayer’s expense. A bonus would be a dedicated water supply – processing coal is not just dirty, it’s very thirsty, and the Vhembe is as dry as it is far from anywhere.

Not by co-incidence, the Department of Trade Industry and Competition (DTIC) has decided with Chinese-backing to create a super-sized coal buyer in the form of a latter-day ISCOR to be built at a site adjacent to the Makhado Colliery. Better still, the heavy industrial zone known as the Musina-Makhado Special Economic Zone (MMSEZ) will come replete with supporting infrastructure to overcome the immense challenges of the location paid for from the public purse, including a dedicated power supply, rail links and a Cohora Basa for the Limpopo River. According to the Internal Masterplan for this China-South Africa Production Capacity Framework Agreement mega-project, the cost portion that will be shouldered by the SA fiscus is around US$22 billion. Funding plans are shrouded in secrecy, but the flimsy Business Case does mention the DTIC’s opaque SEZ Fund and the cheerfully indefatigable IDC. In stubborn defiance of the fact that South Africa’s crude steel manufacturing industry is already operating far below capacity and survives on taxpayer handouts and protection from Chinese dumping under the DTIC’s Steel Industry Masterplan, the new Chinese smelter at Makhado will more than double South Africa’s annual steel output.

Happily for Nhlanhla Nene, MC Mining’s boss whose prayers are about to be answered, the DTIC has almost divine powers to annex whatever land it wants without having to concern itself with such trifles. The 2014 Special Economic Zones Act gives effect to the DTIC’s key SEZ Policy that was crafted under Chinese tutelage so that South Africa might mimic the so-called Chinese Shenzhen miracle of state-engineered industrialisation. Section 24 of the act grants the Minister near-unfettered power to designate an area a Special Economic Zone in furtherance of the development gospel that China evangelises.

Since the MMSEZ, designated in 2017, cannot be separated from the extensive coal mining which it is openly intended to support, it is also a case of the SEZ Act serving as the chief instrument of the Department of Minerals and Energy (DMRE) agenda of coal resource exploitation at any cost – and not even for national energy security. This is not some paranoid conspiracy theory of the climate zealots – the proximity of unexploited coal resources as a raw material is presented in countless planning documents from the Technical Feasibility Study to the Economic Rationale and Business Case reports as the motivation for the development of a coal-consuming industry in the coal belt regardless of all other openly-conceded drawbacks of both the industry and location. The coal that will be burned in the great blast furnaces beside the Makhado Colliery will emit a billion tons of CO2e over the 30-year lifetime of the zone, “significantly altering the national greenhouse gas trajectory that has been published and committed to” according to the Specialist Climate Change Assessment report produced for the Environmental Impact Assessment. The rest of the coal stripped out of the Limpopo Valley in successive 16-year Life-of-Mine clips on MC Mining’s tenements over 100 farms in the foothills of the Soutpansberg Mountains, will be exported by road and the upgraded rail network, whilst the true potential of wild Limpopo is irreversibly destroyed.

To misrepresent China’s interests in Africa as economic neo-colonialism is a self-serving narrative of Africa’s erstwhile colonisers who have latterly shifted on geopolitical tectonic plates from the West to the Global North, but it is hard to avoid the neo-imperialist shades of an SEZ. The SEZ Policy, drafted under the influence of a major foreign power, bills an SEZ as a special geographic area where certain laws of the land and taxes don’t apply and where special sweetners are offered in order to attract much-fetishised foreign direct investment in manufacturing. They are meant to be little paradise islands for foreign business – places where power and water are cheap and the taxman is barred at the same factory gates where workers even lose their right to strike. Since the proclaiming of the SEZ Act in 2016 11 such zones have been created across the country with more in the pipeline. The promised re-industrialisation miracle has so far eluded us.

When control of a duly designated tax haven for dirty industry can then be ceded under the same act to a foreign businessman from the same foreign power for a term of 100 years, whose job it is to tempt in more of his countrymen dangling our coal and water resources – as is the case of the MMSEZ, whose operator, Shenzhen Hoi Mor-SAEMSEZ, is little more than a front for its CEO, Yat Hoi Ning who boasts a public record for fraud – it’s a tough sell that this is really in the national interest. Perhaps we should look up the terms of Rhodes’s 1888 British-South Africa Company land agreement with Chief Lobengula as a reference point before we decide?

That Minister Rob Davies handed over a slice of sovereign territory for a century to a foreign fraudster to run a coal-fueled toxic industrial zone in a highly sensitive area, and that this went unchallenged by South Africa’s normally vigorous civil society, is extraordinary. It is the consequence of the closed-door process by which the decision can be taken to designate an area as an SEZ under the provisions of the disgracefully un-South African SEZ Act.

Considering that SEZs are principally aimed at driving industrialisation, that heavy industry is unavoidably environmentally destructive, that the development of these zones requires huge subsidies from public coffers and that SEZ workers, like the environment and surrounding communities, are intensely vulnerable in these peculiar sovereign Bermuda Triangles, it is unacceptable that they can just be created by the DTIC itself whose mandate it is to create them, without any proper public participation process or independent ratification of the decision and that it can then also abdicate responsibility for and control of these geographic areas to foreign corporates. The MMSEZ was gazetted in the UNESCO Biosphere Reserve despite an absurd risk and cost-benefit profile and in contravention of the integrated multi-sectoral land use planning frameworks, including the Vhembe Bioregional Plan, which are meant to ensure that development is balanced and sustainable, because no-one but the DTIC gets to determine whether the vague requirement under s23.2(b) of the act that the SEZ be ‘consistent with applicable national laws and policies’ has been upheld.

That this foreign land grab, plunder of our water resources, detonation of a climate crisis-intensifying environmental Chernobyl and debt-trap is being pursued to enrich the clutch of incestuously related backers of a two-bit offshore coal mining company, Mr Ning and the Chinese contractors he has pulled in to build this leg of the Belt and Road Initiative at the SA taxpayer’s expense, is galling. But the DTIC serves the coal-fixated DMRE, and Ibrahim Patel, despite presiding over South Africa’s irreversible industrial decline, wields a potent weapon against which all other threatened economic sectors from farming to tourism, broader society and nature are largely defenceless – the SEZ Act. Minister Mantashe owes the Chinese a thank you letter.

The extent of the land-grab in Limpopo: MC Mining - Greater Soutpansberg Coalfield Tenements held