[miningmx.com] — THE termination of bilateral investment treaties
(BITs) with European Union member states could have a potential negative impact on
already fragile investor confidence in the local mining sector, law firm Webber
Wentzel said on Friday.
The group was commenting on the South African government’s stated intention to
terminate its BIT with the Belgo-Luxembourg Economic Union, announced on
September 7.
The BIT will terminate when its ten-year term expires on March 13 2013, while the
government also announced its intention to not renew twelve other BITs that it
previously entered into with other EU member states.
BITs are binding international treaties between two states, under which each state
undertakes certain reciprocal obligations in respect of any investments made by
nationals of the other state within its territory. These treaties generally oblige each
state party to accord fair, equitable and non-discriminatory treatment to investments
of nationals of the other state.
Under the BITs, existing investments enjoy a ten-year sunset period of protection, but
any investments made after the date of termination will not receive any of the
investor protections afforded by the BITs.
The decision to cease the renewal of the BITs between South Africa and EU member
states is pursuant to the BIT policy framework review conducted by the Department of
Trade and Industry (DTI) in June 2009.
The DTI concluded that South Africa’s BITs extend too far into the policy sphere, as
the first generation of BITs, which the government entered into post-1994, were
skewed towards investors. First-generation BITs apparently did not contain the
necessary safeguards to preserve flexibility in a number of critical policy areas, the
review said.
The DTI further observed in the review that BITs sometimes allowed the legal and
business community to challenge regulatory changes, which the government
considered to be in the public interest. It accordingly recommended restructuring
South Africa’s BITs to ensure that the treaties are harmonious with the country’s
broader social and economic priorities.
In a note posted to clients, Webber Wentzel said that the absence of BITs are likely to
afford international investors significantly less protection against resource nationalist
measures.
“Resource nationalism is cited as the number one business risk facing mining and
metals investors in a recent Ernst & Young study on business risks facing mining and
metals globally,’ the law firm said.
Measures recently proposed by the ruling ANC in its State Intervention in the Minerals
Sector (Sims) report include increased taxation, mandating the regulation of “strategic
minerals’ with regard to their beneficiation, exportation and sale, and the strategic
nationalisation of mineral resources on the “balance of evidence’.
“These proposed reforms may strip the mining industry of typical BIT obligations to
accord “fair and equitable treatment’ to investments,’ said Webber Wentzel.
“By discarding favourable conditions for investments, which BITs generally create, the
reforms could have a significant impact on the sustainability of the mining industry by
acting as an investment deterrent.’
