Scientific articles • Wetenskaplike artikels

Public finances, service delivery, 1. INTRODUCTION ince the mid-1800s, and mine closure in has been primarily dependent Son mineral and energy (, South Africa): rFm production and export (Nel 2002). With the drop of the gold price, stepping stone to stumbling block1 increased mechanization, and the exhaustion of mineral resources in certain areas, the mining industry L. Marais2, A. Pelser3, L. Botes4, has experienced a decline in the number of operating mines. For example, in the coal-mining sector, N. Redelinghuys5 & A. Benseler6 "the number of operating coal mines ... has declined by more than half, from 112 in 1986, to 53 at the end Submitted to Town a n d Regional Planning, June 2005; of 2000” (Limpitlaw 2004:1). This has revised 12 Septem ber 2005. had a severe affect on the socio­ economic structure of areas reliant Abstract on the m ining industry. Towns that This article examines the interrelationship between mining activities, the depend on mining as a mono­ local municipality, and public finance in Koffiefontein (Letsemeng Local industry are hit the hardest because, Municipality). The international literature suggests that, all over the world, m ine upon the closure of the mine, the closure has had a severe negative influence on m unicipal and public economic bases of such towns are finances. Furthermore, addressing the influence of mine closure requires the erased (Laurence 2002). Thus, the involvement of all spheres of government. After being historically dependent decline of this industry, m ainly as a on the m ining industry, the beginning of the 1990s saw a major downscaling of result of resource depletion and, this industry. The existing symbiosis benefits the m unicipality to a large degree; recently, also as a result of an but in view of possible m ine closure, a high level of dependence has been unfavourable rand/dollar exchange created in Koffiefontein. It is argued in the article that mine closure will rate, has created challenges of influence negatively m unicipal revenue and service delivery and will increase economic diversification in many the num ber of indigent households. In order to address these problems, mining environments of South Africa. specific planning should be con du cte d for m ine closure. The contribution of Economic diversification has been various spheres of governm ent is also needed, since such planning cannot be effectuated fairly easily in Gauteng, m anaged by the Local Municipality alone. but is far more difficult to achieve in other areas.

S T A A T S F IN A N S IE S , D lE N S L E W E R IN G EN M Y N S L U IT IN G IN Internationally mine closures and K O F F IE F O N T E IN (VRYSTAAT, S U ID -A F R IK A ): VAN post-mining economic challenges G ELEEN THEID TOT STRUIKELBLOK have received a fair amount of Hierdie artikel ondersoek die onderlinge verband tussen mynbouaktiwiteite, die attention (Keyes 1992; Acquah & plaaslike munisipaliteit en openbare finansiering in Koffiefontein (Letsemeng Boateng 2000; Cronje 2000; Plaaslike Munisipaliteit). Die internasionale literatuur suggereer dat die sluit van Strongman 2000; Jackson 2002; myne wereldwyd 'n ernstige negatiewe impak op munisipale en openbare Laurence 2002; World Bank 2002; finansies het. Verder is dit nodig dat alle sfere van die regering betrokke is Haney & Shkaratan 2003). Although wanneer die im pak van mynsluiting aangespreek word. Suid-Afrika is histories van there has been a specific increase die mynbou-industrie afhanklik, m aar het sedert die 1990's 'n groot afskaling in in research in the South African hierdie industrie beleef. Die bestaande simbiose bevoordeel Koffiefontein se context, the amount of munisipaliteit tot ’n groot mate. Die moontlike sluiting van die myn het egter academically related work that has onthul dat Koffiefontein te afhanklik van die m ynbou geword het. Hierdie artikel been carried out in this regard argumenteer d a t die sluiting van die myn negatief op die munisipale inkomste remains small. Specific examples en dienslewering sal inwerk' en die aantal nooddruftige huishoudings sal include research conducted in the vermeerder. Ten einde hierdte problem e dan te spreek, behoort die sluiting van Free State Goldfields (Seidman 1993; die myn spesifiek beplan te/ word. Die insette van verskillende vlakke van die Binns & Nel 2001), and research regering word ook benodig aangesien sodanige beplanning nie alleen deur die related to the decline of the coal­ plaaslike munisipaliteit gedoen kan word nie. mining industry in Kwazulu-Natal (Binns & Nel 2003; Nel e t al. 2003).

1 Since this article was accepted for publication, Consolidated Mines indicated that the will close permanently in 2006. 2 Lochner Marais, Senior Researcher, Centre for Development Support (IB 100), University of the Free State, PO Box 339, , 9300. E-mail: < [email protected]>. 3 Andre Pelser, Department of Sociology and Research Associate, Centre for Development Support (IB 100), University of the Free State, PO Box 339, Bloemfontein, 9300. 4 Lucius Botes, Director, Centre for Development Support (IB 100), University of the Free State, PO Box 339, Bloemfontein, 9300. 5 Nola Redelinghuys, Department of Sociology, University of the Free State, PO Box 339, Bloemfontein, 9300. 6 Anja Benseler, Research Associate, Centre for Development Support (IB 100), University of the Free State, PO Box 339, Bloemfontein, 9300.

5 Reproduced by Sabinet Gateway under licence granted the Publ isher (dated 2012.) SSB/TRP/MDM 2005(48)

to O ) . 2 1 0 2 d e t a d ( r e h s i l b u P e h t y b d e t n a r g e c n e c i l r e d n u y a w e t a Figure Figure 1: Location of Koffiefontein and Letsemeng in the Free State, 2005 G t e n i b a S y b

6 d e c u d o r p e R Marais, Pelser, Botes, Redelinghuys & Benseler • Public finances, service delivery & mine closure in Koffiefontein

MATLOLE A SECHABA, PHANO YA DITSHEBELETSO LE HO KWALWA analysed, together with the possible HA MERAFO HO LA KOFFIFONTEIN (FREE STATE, SOUTH AFRICA): influences in the event of mine closure. HO TLOHA NTLHENG YA TSWELOPELE HO YA HO TSHITA Finally, a number of concluding comments are made. Tokomane ena e hlahloba dikamano tse kopaneng pakeng tsa diketsahalo tsa maeneng, puso ya lehae hammoho le matlole a sechaba ho la 2. MINE CLOSURE AND Koffifontein(Letsemeng local Municipality). Dingolwa tsa mafatsheng a kantle, di MUNICIPAL/PUBLIC SECTOR sisinya hore ho kwala ha dimaene ho bile le kgatlamelo e sa lokang Masepaleng FINANCE: AN OVERVIEW OF AN hammoho le matloleng a sechaba lefatshe ka bophara. Ho feta moo, tharollo INTERTWINED RELATIONSHIP kgatlamelong ya ho kwalwa ha dimaene ho hloka boiketlaetso le tshebedisano mmoho ya karolo tsohle tsa mmuso. Ka mora ho e tshetleha haholo kgwebong 2.1 BACKGROUND INFORMATION ya tsa merafo, ho ile ha bonahala ho theoha ho hoholo kgwebong qalong ya Mine closure is a phenomenon that dilemo tsa bo 1990. Tshebedisano mmoho e teng ha jwale e bontsha bo has affected both the developed masepala ba una molemo o moholo, empa ho kwala ha dimaene ho tlisa and the developing world. With the boitshetleho bo boholo masepaleng wa Koffifontein. Tokomane ena e bontsha Industrial Revolution, coal mining haholo hore ho kwala ha dimaene ho tlisa kgatlamelo e mpe lekenong la tsa became one of the main economic ditjhelete tsa masepala le phanong ya ditshebeletso mme e tla eketsa bofuma activities in the western world. In the bo boholo.Hore ho tlo lokiswe mathata ana, metjha e lokileng e tlameha hore e 1960s, however, resource depletion, latelwe ho e tsa meralo ya ho kwalwa ha dimaene. Dihlahiso le ditshitsinyo tsa poor scale-economies, increasing mafapha le meralo e fapaneng ya mmuso e ya hlokahala, hobane lekgotla labour costs and conflict, price la metse ha le kgone ho iketsetsa meralo e napahetseng. fluctuations, the use of alternative fuel sources, and the increasing One particular aspect of mine [more specifically the Letsemeng necessity of importing cheaper coal closure that has received limited Local Municipality (Letsemeng) and from Third-World producers led to a attention is the reciprocal the Xhariep District Municipality] in decrease in mining with job losses relationship between municipal/ the south-western Free State' (see amounting to over one million in the public sector finance and service Figure -7). It mainly draws on the western world between 1955 and 1968 delivery, on the one hand, and findings of a social influence (Nel, Hill, Aitchinson, & Buthelezi 2003). mining activities, on the other hand. assessment c o n d u cte d for De Beers Following from this, the a ffe ct of Koffiefontein Mine as part of the Not only the coal mining industry, but mine closure (or the decline of a mine's application for a new mining also other mining industries were single dominant economic sector) right (CDS 2004). Essentially, the a ffected by this trend. With the on public sector finance and article argues that, in the case of decline of mining in the western services has also not received Koffiefontein, a symbiosis developed world, mining activities dramatically

) adequate attention. This influence is increased in developing countries

. between the Koffiefontein (De Beers-

2 usually closely linked to the ability of owned) diamond mine and with a surge in mining investments in 1

0 the area to develop a diversified Letsemeng. The purpose is to provide the 1960s, 1970s, and 1980s. Many 2 econom y in a post-m ining era. a conceptual perspective on the of these mines are now approaching d e However, this need to diversify the influence of the downscaling of the the end of their feasible existence. t a economy of an area is even more mining industry on a small Free State The World Bank predicts that a d

( problematic in small towns (that town. In order to address this impact, m inim um of 25 large mines in

r dominates the Free State settlement Letsemeng, the Xhariep District developing countries will close within e h landscape) where declining Municipality, and the provincial and the next ten years. This will have s i l economic functions, declining national governments all have certain large-scale influences on the local b agricultural output in the surrounding responsibilities. The article starts off and national economies of the u

P areas, an outflow of skilled people, with an overview of the possible a ffected countries (World Bank 2002:5).

e along with an overall increase in the affects of mine closure on h 2.2 JOB LOSSES, BUSINESS t

number of people (usually unskilled) municipal/public sector finance and

y SUSTAINABILITY, AND THE IMPACT characterize the environment develop-ment. This is followed by a b

ON MUNICIPAL REVENUE (Meth 1994; Dewar 1997; Krige 1997). brief overview of the declining mining d e

t To a large degree, many small-town industry in the Free State. Thirdly, the The most direct affect that mine n economies are driven by j mining operations at Koffiefontein closure has on the community is the a r government social grants that are Mine are contextualized. In the fourth loss of jobs. Lack of em ploym ent is g

e paid out to people, as well ds by the place, the current state of finances "one of the most serious and long- c surrounding agricultural activities and developm ent initiatives of the lasting consequences of mine n e (although declining) (Krige, Roos, local and district municipality will be closure, even five or more years after c i l Lazenby, Barker & Mmoko 1994). the downsizing of the local mining r With this in mind, Krige (1995) states workforce" (Haney & Shkaratan e 7 Under current mine production, the d that "the majority of small towns are diomond resources at Koffiefontein 2003:ii). Additionally, a large n in crisis and the future developm ent Mine will in all likelihood be depleted

u proportion of the specialized skills of by 2007. De Beers Consolidated Mines' y scenarios are rather bleak". By nature, vision, however, states that the aim is mineworkers are restricted to mining a the possible development options of to extend the mine's life beyond 2007, operations - a factor which renders w e small towns are thus not positive. and management is currently re-employment in other sectors t exploring several alternatives to mine a difficult (Harichunder 2000:6). It is against this background that the closure that are aimed at prolonging G

the life of the mine. However, since the t paper analyses the possible affect of submission of the article, De Beers The exam ple of Virginia, in the Free e Consolidated Mines indicated that the n future mine closure on municipal State Goldfields, demonstrates that i Koffiefontein Mine will close b and public sector finance and permanently, and that negotiations businesses in general suffer from a service delivery in Koffiefontein , with labour unions are to commence! mine downscaling to such an extent S / y b

d 7 e c u d o r p e R SSB/TRP/MDM 2005(48) ) . 2 1 0 2 d e t a d ( r e h s i l b u P e

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n g u b y a w e D t O) a G t e n i b a S y b 8 d e c u d o r p e R Marais, Pelser, Botes, Redelinghuys & Benseler • Public finances, service delivery & mine closure in Koffiefontein

that they are rendered unsustainable 2.3 INFLUENCE ON OTHER LEVELS the power-generating (Seidman 1993). Industries and their OF GOVERNMENT equipm ent, in order to sell dependants (such as taxi transport) The potential influence of m ine power to the national energy that provide services to mineworkers closure on provincial government grid. collapse completely (Thompson should not be overlooked. Jackson 2003:14). Taxi operators, hawkers, • Roads: These are a major post­ (2002:33) demonstrates that in closure infrastructural problem, spaza shops, and small and micro­ Papua New Guinea, mining revenue enterprises are negatively affected owing to the high costs of road flows into provincial budgets. As in maintenance. by mine closure, the reason being the case of the local government, that out-migration and the loss of a this could result in a double affect • Health facilities: Staff fixed income entail the eradication on provincial government: on the shortages, under-funded of the consumer base, as well as a one hand, it might lose income medical provision and decrease in the purchasing power of generated through the mine, and, infrastructure maintenance are the community. In general, very few on the other, it might be obliged to challenges that local places have managed to replace invest in the area affected by mine government would have to the mine-related jobs in other sectors. closure. As municipalities face the face once mines have closed. The job losses and the a ffe ct on double blow of having to maintain Examples in the Ukraine, Russia, existing businesses hold serious infrastructure and having to deal with and Romania have consequences for municipal the increased number of indigents, demonstrated that, although revenue. Mine closure implies that while simultaneously losing large the health infrastructure is still municipalities suffer a dual blow. parts of their revenue, provincial utilised, it is in the process of On the one hand, a local assistance becomes imperative falling apart (Haney & government is usually severely (Wolfe 1992:197). Shkaratan 2003:29). a ffected by the loss of the local tax 2.4 BREAKDOWN OF INFRASTRUCTURE • Other infrastructure, which has base when the mine and other been built up by private Mines usually provide a whole array businesses close (Nel etal. 2003:376). individuals: Such infrastructure of infrastructure including buildings Municipal revenue can also be may include, for example, and roads, and, in some cases, a affected negatively when a large banks, private stores, offices, symbiosis develops between the number of higher-income earners and houses. Closure of the mine and the local municipality with leave the area after mine closure. m ine could lead, as regards to infrastructure provision. The possible decline of property mentioned above, to the The exam ple of G hana shows that values and the consequent eventual closure of these after the closure of a mine, decrease in land tax revenue also businesses and this would ) communities continue to utilise . play a role (CDS 2004). On the other 2 mine-related infrastructure. However, greatly impede the 1 hand, the sudden unemployment of development of any possible 0 large parts of the community could owing to lack of maintenance, these 2 facilities, such as the provision of alternative form of cash d lead to a dramatic increase in the econom y. e potable water, could eventually t number of poor people who need a local government support. break down (Acquah & Boateng • Infrastructure that was built by d

( 2000:27). Local government would

the mine for government r The case of the Ermelo mine then have to take over the operation e purposes: This would include, h closure, for instance, demonstrated and maintenance of these facilities s inter alia, government offices i l that employees who are to ensure adequate service and/or police stations, which b unemployed were not able to pay standards. u would have to be maintained

P for water and electricity (Sadler Experience has shown that various by local government and e 1997:11). This implies a dual affect h types of infrastructure exist, which would remain, in most cases, t on local governm ent: not only will useful assets. y need to be planned for after mine the income and revenue base of b

closure (Jackson 2002:22-24). The the municipality decrease, but, Research conducted by the World d

e following list, although not

t simultaneously, the service demands Bank demonstrates that simply exhaustive, gives an indication of the n on and expenditure obligations of handing over mining infrastructure to a challenges for planners and r the m unicipality will increase. local governments rarely brings g

m anagers in this regard: about the desired results, since local e (Strongman 2000:14; Haney•& c Shkaratan 2003 :iii). • Physical buildings on the mine, governments are often not geared n e / towards maintaining the assets

c houses for mineworkers and i In addition to the above, the l (World Bank 2002:11).

recreational facilities: These

r downsizing of communities is highly

e buildings could be used for problematic as various systems and The simplest type of infrastructure d business, LED, or tourism n facilities would have to be modified take-over occurs when a local

u purposes. to accommodate the/reduced government is strong and the y a number of inhabitants. For example, • Power-generating equipment: infrastructure left behind by the mine ■ w water and sanitation systems would Such equipment becomes is minimal. Conversely, the most e t have to be modified to serve only a redundant after the closure of , complex cases of infrastructure take­ a pre-selected area. Similarly, schools over are found in instances where a

G the mine, since it is unlikely to

t might have to be consolidated into be of any use to the local government is weak and the e

n smaller units. Provincial support is com m unity. In one town in infrastructure left behind is extensive i

b essential for the successful completion Papua New Guinea, however, (Jackson 2002:25). In contrast, a of these tasks (Wolfe 1992:197). 7 locals are hoping to take over communities might tend to welcome S y b

d 9 e c u d o r p e R SSB/TRP/MDM 2005(48) ) . 2 1 0 2 d e t a d ( r e h s i l b u P e h t y b d e t n a r g e c n e c i l r e d n u y a w e t Figure Figure 3: Gold mining in the Free State a G t e n i b a S y b 10 d e c u d o r p e R Marais, Pelser, Botes, Redelinghuys & Benseler • Public finances, service delivery & mine closure in Koffiefontein

extensive infrastructure rather than Since 2002, the strong Rand in 4. A BRIEF HISTORY OF MINING minimal infrastructure, as they may particular has resulted in lower AT KOFFIEFONTEIN feel that an extensive infrastructure income for many mines, causing a Koffiefontein Mine is situated in the would be more beneficial in terms of large number of mines to operate at Xhariep District Municipality in the their own development purposes. a loss and to retrench thousands of Free State, approximately 135 km However, extensive infrastructure workers. Mining em ploym ent southwest of Bloemfontein and 100 could also place more pressure on a opportunities in the Free State, for km southeast of Kimberley. The first local community to maintain it (worst example, declined from diam onds in the area were case) or make productive use of it approximately 120 000 in 1996 to discovered in 1870 on a farm that (best case). It could easily change about 58 000 in 2002 (Urban-Econ would later become the town of from a potential asset to a liability. 2004). As a result of the problems Koffiefontein. In 1880, the experienced in the industry, the 2.5 POSITIVE INFLUENCES Koffiefontein kimberlite pipe was mining sector's proportionate discovered and the farm was bought In many cases, the whole economy contribution to the gross domestic by the London and O range Free of a town relies on a mine. Although product in South Africa has declined State Exploration Company. it remains difficult to determine the from 7,2% in 1999 to 6,6% in 2004. This entailed the development of the positive affects of the closure of Similarly, the mining industry's town around the mining activities. De such a mine on the town, there are proportionate contribution to the Beers gained full control over the some positive aspects. Firstly, Nel e t total gross geographic product mine after 1 243 claims were ceded al. (2003) mention that municipalities (GGP) in the Free State dropped to the company in 1911, after which are forced to live up to their from 13,6% in 1998 to 8,5% in 2003 mining operations continued until mandate of developmental local - a de clin e of almost 38% (Pelser & the depression in 1932. During the government and they become more Redelinghuys 2005). period 1932 to 1950, the mine was proactive in the development of the The declining mining industry has not in use and it was only in 1971 town. Secondly, mine closure might that the mine became fully had a detrim ental a ffe ct on the rest result in a decrease in som e of the operational again. The mine closed of the Free State's economy as well. infrastructure requirements, such as again in 1982, causing 1 200 During the period 1998-2003, the water provision. employees to become retrenched. average annual economic growth Against the background of the rate for the Free State was The influence of the Koffiefontein above exposition of the possible -0,5%, compared with 1,9% for Mine closure in 1982 caused great affects of mine closure on the South Africa as a whole. In fact, pessimism (Kotzee 1982:41). A week m unicipal environment, the focus will during this time, the Free State was after the sudden mine closure of ) . now shift to mining in the Free State the only province in South Africa with 2 June 1982, the prediction was that 2

1 and, specifically, at Koffiefontein. a negative economic growth rate - the town would lose half of its white 0 a situation driven mainly by the 2 population and also its black 3. THE DISTRESSED STATE OF d declining mining sector (Pelser, purchasing power on which many of e MINING IN THE FREE STATE t Marais, Botes, Redelinghuys, & the businesses depended. At first a Historically, mining in the Free State Benseler 2005).

d glance, initial predictions and fears ( was strongly associated with the Free of a population outflow - and also of r Research by Binns and Nel (2001) e State Goldfields - although it should an erosion of the purchasing power h highlighted the implications of s be noted that some diamond in the town - thus seemed to be i l down-scaling in mining in the Free

b mining operations have been confirmed. Three years after closure, State goldfields and the difficulty of u ongoing in this area as well (see Koffiefontein had lost almost one-

P creating a post-mining economy. Figures 2 & 3). The period after third of its pre-closure population of e For the past few years, De Beers h World War II saw the discovery not 1980 (see Table 1). t

Koffiefontein Mine has been only of rich gold deposits in the Free y

b plagued by the same problems that There were fears of a large

State, but also of the start of a very

d the rest of the mining industry in the population loss at the tim e of closure lucrative gold industry in the e t and it was anticipated that at least province that brought development, province and country is facing8, n This is elaborated upon in the half of the businesses would have to a prosperity, and wealth to many. r section below. close. Those that remained would g

e In recent times, however, the once have to downscale the numbers of c ab undant gold deposits in the n their employees. This trend was also e

c Goldfields have become expected to affect the municipality. i l

increasingly depleted as a result of The town clerk predicted that service r

e intensive and extensive mining delivery would have to decrease, d operations. In fact, problems 8 Small, rural m ining Towns h a ve always owing to an anticipated loss of n been more adversely affected by mine u experienced by the Free State revenue of approximately R200 000 closure than is the case with larger y Goldfields mirror those of the mining towns closer to metropolitan areas. The to R300 000 per year. Therefore, the a industry in the rest of South Africa. reason tor This is.the facT that the municipality had to delay the w economic base’of a small mining town e t Sustained increases in production is quite often linked to a single implementation of projects that it a costs, resource depletion, and, of resource (i.e. the resource That is had planned (Kotzee 1982:41). In

G extracted], and little, if any, eco no m ic course, the unfavourable rand/dollar terms of its commitments to the then t diversification Takes place. In the case e exchange rate all have interlocked of mine closures in larger urban centra, Koffiefontein municipality, De Beers n i to ravage the mining industry in a secondary service sector - such as a continued to fulfil all its financial b well developed financial and/or service a recent years - including the sector - usually assists to alleviate the obligations to the m unicipality in full, S

diam ond mining industry. impacts of mine closure. as if the m ine were still open. y b d e 11 c u d o r p e R SSB/TRP/MDM 2005(48)

Table 1: Pre- and post-closure population levels at Koffiefontein 000 worth of purified water to the (1980 and 1985) Koffiefontein Mine per annum. Furthermore, approximately 30% of Total population Total population Population change 1982 the income from rates and taxes for 1980 1985 1980-1985 Letsemeng is generated in 6 046 Mine closure 4 247 -29,75% Koffiefontein (CDS 2004). The fa ct that the rates and taxes for the Source: Statistics South Africa (2004) houses ow ned by De Beers are paid in advance limits the risk of non­ The m ine was re-opened in 1987. between these towns. payment and reduces the income The re-opening of the m ine saw an The Letsemeng Local Municipality risks to the municipality to a increase of more than 105% in the consists of the urban areas of considerable extent. The possibility total population of Koffiefontein - , , , that these housing units m ight not be from the pre-opening total of 4 247 Koffiefontein, and Oppermansgronde. occupied in the future implies a (1985) to 8 722 in 1991 (Statistics potential loss of incom e for South Africa 2004). Currently, the The current financial affairs of Letsemeng. Following this exposition Koffiefontein Mine is the largest Letsemeng seem to be fairly healthy. operating d ia m o n d m ine in the Free It is one of the few municipalities of the income side of Letsemeng's State. According to recent with investments and with limited budget, the expenditure side is reflected in Table 3. indications, the Koffiefontein Mine debt. The municipality hgs a budget of R34 million (excluding capital will have to prepare for perm anent The fairly low percentage of the investment grants from other tiers of closure somewhere between 2007 budget allocated to the salary government) (see Table 2 & Table 3). and 2012, owing to the depletion of component should be noted. This all current underground resources, Having considered the income side reduces the possibility that a sudden and also as a result of the affect of of Letsemeng's budget, it is decrease in revenue may lead to the Rand/Dollar exchange rate. necessary to reflect on the municipal officials losing their jobs, It also makes the budget fairly flexible, 5. THE INFLUENCE OF POSSIBLE relationship between the mine and as extensive staff retrenchment MINE CLOSURE IN the municipal income reflected procedures would not impact on KOFFIEFONTEIN ON THE above. The rates and taxes for the shifting budget priorities. In contrast LETSEMENG LOCAL 254 houses owned by De Beers at to the average municipality, MUNICIPALITY AND THE XHARIEP Koffiefontein are paid in advance Letsemeng has actually managed to DISTRICT MUNICIPALITY e a ch month. The am ount totals approxim ately R4,3 million per build up some reserves during the 5.1 CURRENT FINANCIAL STATUS OF past three years. The current reserves

) annum, of which 43% is generated . THE LOCAL MUNICIPALITY total approximately R7 million (CDS

2 by land tax, while 57% is for services 1 With the transformation of local delivered. In respect of land tax 2004). This provides a fairly good 0

2 buffer, should the mine close. The

government structures, local alone, De Beers contributes over

d low percentage of the budget being municipalities in smaller towns 60% to Letsemeng's total income •. e t spent on service loans is also a usually consist of a number of small from land tax. In addition to this, a positive aspect. In fact, it seems that d towns as well as the agricultural land Letsemeng sells approxim ately R650 ( all loans might be fully paid off within r e the next four years.

h Table 2: An overview of the Letsemeng Local Municipality's income s

i (2003/2004) l 5.2 A DECREASE IN THE REVENUE b Item u R % OF THE LOCAL MUNICIPALITY P Land tax 2 890 000 8,5

e Against the above background, the h important question is what affect the t Services/water/sewage/waste management 18 360 000 54,0

y closing of the mine would have on Subsidies: Equitable share clinic b 11 050 000 32,5 the local municipality. In the first d Other 1 700 000 5,0 e place, it m ight result in a decline in t

n Total 34 000 000 100,0 revenue from land tax. De Beers will a

r remain liable to pay the land tax on

g Source: CDS (2004)

their properties if the housing units e c are not sold. Although there seems n Table 3: An overview of the expenditure of Letsemeng (2003/2004)

e to be a fairly high demand for the c i housing units, it is unlikely that, l Item R %

r considering the possible mine e Salaries 10 880 000 32,0

d closure, a large percentage of n General costs 10 880 000 32,0 pe o p le will actually buy the units. u Furthermore, it should also be noted y Maintemance fees 1 700 000 5,0 a that only 20% of the higher-income w Capital 1 938 000 5,7 bands have shown any interest in e t Contribution funds 7 820 000 23,0 buying some of the housing units a

G ow ned by De Beers (CDS 2004).

Contribution to loans 782 000 2,3 t Therefore, the possible decline in e Total 34 000 000 n 100,0 land tax revenue will only b e c o m e a i b Source: CDS (2004) reality should De Beers sell the a

S housing units or transfer the land to y b

d 12 e c u d o r p e R Marais, Pelser, Botes, Redelinghuys & Benseler • Public finances, service delivery & mine closure in Koffiefontein

Letsemeng. If these units are sold to survey, a large percentage of regard to the sewage dams. The individuals, it would increase the business respondents and upgrading of both systems is income risk related to non-payment respondents in senior management currently in progress and has thus - a factor that is at present not positions in Letsemeng suggested saved Letsemeng consultation fees. problematic as De Beers currently that the quality of services might Letsemeng also uses some pays these fees in ad van ce. Transfer decline, equipment of the Koffiefontein Mine. of the land to Letsemeng would More specifically, large trucks for The increase in incom e risk to the result in an im m ediate loss of land transporting heavy items, as well as m unicipality will also result in tax revenue. However, it was earth-moving equipment, are often increasing pressure on the cash flow interesting to note during interviews used. Letsemeng also uses the of the municipality. The anticipation with officials of Letsemeng that they Koffiefontein Mine's fire-fighting of increased pressure on municipal were quite willing to have the land vehicle. The fa c t that these services income has subsequently also transferred to the municipality. From (and equipment) are available from increased the fear that land tax will a mining-asset point of view, it the mine means that Letsemeng be im plem ented in farm ing would probably make sense to does not have to maintain such com m unities in order to transfer the land to Letsemeng. services. The Koffiefontein Mine's IT compensate for the loss of income However, in our opinion, the transfer team has also assisted Letsemeng in from the mine and to increase of land and housing units to setting up some of the latter's IT municipal revenue. Against this Letsemeng would be more of a systems. On one occasion, the mine background, it is important that the liability than an asset. The also assisted Letsemeng with land municipality should ensure that its appointment of a joint working surveying. financial systems are geared to group between Letsemeng and De identify non-payment for services It seems that the above services are Beers to assist De Beers to privatise immediately, as soon as it occurs. provided for four reasons. The first is the housing units might be more The m unicipality will also need to the fact that the municipality does appropriate. take measures to ensure that it will not necessarily have the financial Secondly, the income from services be able to contend with the possible means to provide for these services and the sale of purified water to De im p a ct on its cash flow. itself. Secondly, the m unicipality does Beers will decline. If the housing units not necessarily have the required were standing empty, at current 5.3 THE TERMINATION OF SERVICE technical capacity. Thirdly, the rates, this would result in a de clin e in AGREEMENTS (FORMAL AND technical expertise provided by De income of R3 million per annum. INFORMAL) WITH THE Beers also ensures that no external This amount constitutes KOFFIEFONTEIN MINE technical consultants need to be

) approximately 8,8% of the total hired. Fourthly, it is to the advantage

. As suggested by the literature, there

2 income of Letsemeng's budget. In are usually close relationships of Koffiefontein Mine to ensure that 1 municipal services are delivered 0 terms of income generated by between mines and municipalities. 2 Letsemeng itself (excluding inter- The Koffiefontein Mine and efficiently for the benefit of their d employees. All of these informal e government grants), this might Letsemeng have a number of t service agreements will fall away a am ount to as m uch as 15%. If these informal service agreements at d when the Koffiefontein Mine is ( housing units were to b e sold, the Koffiefontein. The following should be

r income risk of non-payment would mentioned specifically: closed, This will m ean that e h probably increase, as there is a Letsemeng itself will have to provide s i From tim e to time, De Beers provides these services, which might require l likelihood that the lower-income b earners would occupy these units water to Letsemeng, This utilisation of extensive capital investment as well u water provided by De Beers is the as investment in upgrading the P and the benefit of a single advance

e paym ent from De Beers would be result of regular maintenance of the technical capacity of Letsemeng. In h

t main Kalkfontein canal by the view of the fact that the closing of

lost. The declining scale of service y Kalkfontein Water User Association. provision would also limit the the m ine will already increase the b Moreover, there are not enough pressure on municipal income, the

d potential to cross-subsidise the water e boreholes in the area to provide ability of the municipality to provide t supply and would increase the n financial burden on the municipality. sufficient water to Koffiefontein. these services will decline. The a

r Currently, De Beers pays a water levy reason for this is that Letsemeng will g

Thirdly, the indirect im p a c t of the in order to have water diverted from not be able to replace these e c closing of the mine on Letsemeng's the Kalkfontein Dam into the mine services and that the technical n

e finances should be considered. dam. If the municipality needs water, capacity might not be available c i Mine closure and the inevitable it pumps it from there to the within the municipality. l

r laying-off of the workforce, together m unicipal reservoirs. If the mine e Considering the above reality, it is

d with the subsequent decline in closes, obtaining water for the im portant that De Beers (Koffiefontein n business activities and the loss of municipality in such circumstances u

Mine) should scale down their jobs in businesses, would probably will b e co m e m ore expensive, y involvement in respect of mining a increase the level of non-payment whereas currently, the municipality w for services. taps into the water supply of the assistance to Letsemeng. This could ' e t mine during these maintenance be done over a period of three a All these factors will most certainly years, It is important that the entire

G periods. impact negatively on the delivery of influence of mine closure on the t e services, which, in turn, will have an Koffiefontein Mine also provides relationship between Koffiefontein n i impact on the inhabitants' levels of some technical assistance in respect Mine and Letsemeng should not be b a access to water, sanitation, and of the upgrading of the water felt all at once. The m ine could assist S waste management. During the purification system, as well as with in financial planning in this regard. y b d e 13 c u d o r p e R SSB/TRP/MDM 2005(48)

For exam ple, it is crucial to Approximately 3 000 households in on financial assistance from the determine the monetary value of the Letsemeng are currently registered provincial government. The current assistance and to phase in as being indigent. No specific figure provincial government has already the practical budgetary implications was provided for Koffiefontein. The had to assist the Xhariep District of the loss of this assistance over a increasing unemployment (directly Municipality with R5 million during period of three years. and indirectly related to the closing the 2004/2005 financial year. of the mine) will probably result in a However, there is no guarantee that 5.4 AN INCREASE IN THE NUMBER sharp increase in the number of this assistance will be repeated in OF INDIGENT HOUSEHOLDS9 households that are indigent. the future. The closing of mines usually goes Estimates by the interviewees 6. THE CLOSURE OF MINING hand in hand with large-scale indicated that this number could OPERATIONS IN A SINGLE retrenchments. These retrenchments easily increase to between 3 500 INDUSTRY TOWN: WHAT DOES often result in increased poverty. and 4 000 households, should the IT HOLD FOR URBAN AND Although some of the ex-employees m ine close (CDS 2004). REGIONAL PLANNERS? of mines migrate to other areas, the Should the mine close before 2013, The case ca n be argued that a mining area usually has to cope with when the results of the 2011 census mine begins to close the day it starts an increase in poverty rates. This will b e available, the current formula operating. Preparing for mine increased poverty also increases the (based on 2001 census data) will closure entails a process that should inability of the affected individuals probably not be accurate. Closing continue throughout the life of the and their households to pay for the m ine will cause the num ber of operation (CDS 2004). Planning for services provided by the indigent households to increase. mine closure involves planning municipality. The future closure of the However, the current intergovern­ effectively for the after-mining m ine at Koffiefontein will almost mental grant only makes provision landscape, a process that involves certainly increase the number of for the currently existing number of all activities required before, during, indigent households. such households. This increase in the and after the operating life of a number of indigent households and Current South African policy to mine that are needed to produce the inability of the current formula to address the problem of non­ an acceptable landscape, address such an increase will ensure payment for services as a result of economically, and to develop further pressure on the cash flow of low income includes, inter alia, an stable communities. Activities the municipality. This increased intergovernmental grant to subsidise related to the planning of closure pressure on the cash flow might low-income households. In often include, amongst others, the result in a deterioration of services. Letsemeng, all households with an following: preparation of detailed income ot below RT 400 per month drawings of disturbed landscape, ) 5.5 XHARIEP DISTRICT MUNICIPALITY . are regarded as indigent and their

2 compilation of baseline information,

1 Mines usually contribute in taxes to service fees are being subsidised by discussions with regulators and 0 some form of provincial government. 2 an R8-million intergovernmental

stakeholders on end land-use

d Once the mining areas close, these grant from the National Government. considerations, crafting of supporting e t second-tier governments are usually The size of this grant is determ ined research programmes, preparation a affected negatively because they d by a national assessment of the of budgets and schedules, and the ( relative levels of poverty in all local lose the income. In the South African r submission of environmental impact e context, businesses usually pay a municipalities countrywide. assessments, as well as social and h s percentage of their salary bill to i labour plans (CDS 2004). l The 2001 census d a ta have already District Municipalities. This levy was b u indicated that, despite the fact that introduced in the late 1980s to assist A critical element of successful P

Koffiefontein Mine and supporting with the redistribution of funds to closure planning is the involvement e businesses employ a large number h poorer areas. Koffiefontein Mine only of all stakeholders. History shows, t of members of the local population, pays 0,35% of its salary bill and however, that, with a few exceptions, y b the area is still characterized by 0,14% of its turnover to the Xhariep mines do a poor job of ongoing,

d poverty. In 2001, the poverty line was District Municipality. De Beers meaningful public consultation and e t R1 140 per month. Census data (Koffiefontein Mine) pays many mines would benefit from n

a indicate that 57% of the approximately R450 000 to the professional assistance. In fact, the r g Koffiefontein population live below Xhariep District Municipality per dominant role of large multi-national

e the poverty line. C om pared with the annum . This is 13,6% of the latter's mining conglomerates has meant c n Xhariep District municipal figure of total in com e from levies. that "traditional town development e c 71%, Koffiefontein residents are Furthermore, businesses (including processes and institutions have been i l therefore proportionately better off the mine) in Koffiefontein contribute undermined by the emergence of r e than the general population in 22% of the total levy income in company or closed towns'1, leading d Xhariep (Statistics South Africa 2001). n Xhariep (CDS 2004). Should the to single resource towns such as u

Koffiefontein Mine close down, this Koffiefontein (Tapela 2002:2). A y will have a negative influence on the

a particularly useful consultation

w 9 This sec linn considers ine in fluence for functioning of the Xhariep District process involves forming a local e t Letsemeng only The term in a iq p n t Municipality. In the first place, it will committee to provide guidance to a refers lo veiy poor people (ihe poorest probably lead to retrenchments, as the m ine in its closure activities with

G of the poor). Allhough Ihe term

t indigent may be derogatory tor some approximately 63% of the budget the aim to establish ongoing e people, the researchers used this term goes to salaries. Secondly, it will dialogue with stakeholders and n

i because it is used in official policies probably make the Xhariep District b by South African government identifying the goals important to a departments. Municipality even more dependent stakeholders. It is during this stage - S y b 14 d e c u d o r p e R Marais, Pelser, Botes, Redelinghuys & Benseler. Public finances, service delivery & mine closure in Koffiefontein

but, in general, also during the can make a contribution Municipality will be left to deal with exploration and operation stages - towards the redesigning and the consequences of mine closure, that urban and regional planners upgrading of existing which will have considerable can and should play an important infrastructure/areas in order to impacts on their finances, their role. In this regard, the following stimulate other economic ability to deliver services, and their inputs and professional assistance activities, or to ensure their ability to address the impacts of from planners seem imperative: efficiency. This could entail, for poverty. However, to make example, converting the Letsemeng and the Xhariep District Planning interventions in mining existing mine shaft and Municipality solely responsible for towns have traditionally been buildings into a tourist managing the consequences of the preserve of corporate attraction with accom­ mine closure would probably not be mining com panies. The role of modation, retail outlets, fair. National and provincial local government has often entertainment, etc. government should surely play a been limited to creating the Unfortunately, however, role. This role should entail, at least, necessary conditions for the because of their relatively small addressing the issue of the indigent mine to operate "efficiently". size, narrow eco no m ic base, grant, but it should also entail More specifically, this role was and the "company-town" style technical and professional usually restricted to the of their operations, mining assistance from town and regional provision and maintenance of towns often do not have a planners, as pointed out above. physical infrastructure and g o o d track record in local Although it is our argument that social services. During the initial economic diversification and making Letsemeng solely responsible stages of a mining operation, pro-active development for managing the consequences of town planners should insist that planning practice (Tapela mine closure would not be they become part of all 2002:4). The closure of a m ine appropriate, Letsemeng will planning processes and in such single-resource towns nevertheless have to take some structures, particularly the thus often has dire responsibility. Pro-active planning to Integrated Developm ent Plan consequences for mining take over some of the services (IDP), but also of all planning towns and regions as the provided by the m ine will be and expansion initiatives of the demise of the core economic important, while Letsemeng should mine. In other words, the local activity (mining) inevitably also ensure that its credit control authority and mine results in the abandonm ent of policies and systems are geared to management should not plan the town, or the so-called address the higher risks that mine and function in isolation from "ghost town” outcome where closure will bring about. Despite each other. Tine critical task is infrastructure becomes these conclusions and )

. to optimize local economic recom m endations, it seems as if

2 disused, support industries go

1 mine closure will inevitably have a and community development bust, municipalities fail to 0 in single-industry mining towns severely negative impact on 2

render services, and the real Koffiefontein and Letsemeng. It will d through pro-active planning estate market collapses. e t activities. require an extraordinary effort to a The emphasis of planning in a assist in the diversification of the d

( Already during the exploration

single-resource town should mine economy and establish a post­ r stage, i.e. before mining e strongly take into consideration mining local and regional economy.

h operations commence, town s the economic needs and i l planning should be done in interests of the wider region as 8. REFERENCES b such a way as to ensure the u well. In the case of ACQUAH, PC. & A. BOATENG. 2000.

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