Hello Gemseacher
This on the RSA situation provides some interesting depth:
Showdown in South Africa
De Beers exports of rough diamonds from South Africa have been frozen for
the past few weeks following a dispute between De Beers and Claude Nobels,
the newly appointed Government Diamond Valuator (GDV). Historically, De
Beers rough diamond exports were valued based on the De Beers Price Book and
the GDV simply verified and confirmed De Beers system of valuation. The new
GDV has taken the position that the De Beers Price Book is merely a
barometer and that government valuations should be based on
spot-market-prices. Needless to say, the GDV placed valuations of De Beers
rough diamonds significantly higher than De Beers valuations, resulting in
De Beers refusal to export the diamonds. The dispute boiled over this week
when the GDV applied values 30 percent greater than De Beers for large
diamonds (specials) being imported for the South African sight. This
resulted in a delay of the sight which finally proceeded without sale of the
specials to the South African sightholders. South African diamond exports
are governed by the Diamonds Act of 1986 which is under the purview of the
Minister of Minerals and Energy, Dr. PM Maduna. Several weeks ago the De
Beers/GDV valuation dispute was brought to Maduna who appointed a task team
to look into the matter. Maduna issued his ruling May 5, 1999. The full text
of the Maduna ruling is available in the news section at www.diamonds.net.
Maduna Report Maduna made clear his view that the Diamonds Act needs to be
reviewed in its entirety and that a report from the Commissions of Inquiry
set up for this purpose in December of 1996 should be completed by this
September. He also emphasized that the "only objective of section 59 (of the
Act) is to stimulate our local cutting and tool-making industry by ensuring
that they obtain a regular supply of unpolished diamonds." In his ruling
Maduna says, "all section 59 agreements will be reviewed to insure that they
only address the objective of that section and are not being used merely as
a vehicle to avoid payment of export duty." It should be noted that De Beers
currently exports their diamonds under a section 59 exemption. Maduna's
statement clearly indicates that he does not intend to enable De Beers use
of section 59 without clear evidence that it is being used to support the
local cutting industry. This represents a major change in the status-quo.
Maduna's task team confirmed that De Beers is of the opinion that their
Price Book should be used to etablish "fair market value" since the CSO
sells their diamonds at Price Book prices and not at spot-market-prices.
They also explained that it is the position of the GDV that "the CSO price
list should only be used as a barometer and not as the official list for
valuations by the GDV." In reviewing the relevant sections of the Act, "the
task team came to the conclusion that neither interpretation is strictly in
accordance with the letter and intent of the law." Maduna goes on to state
that the Diamond Act clearly describes the procedures to be used for the
exporting of rough diamonds and to determine "fair-market-value" as defined
by the Act. The exporter must specify the value of rough to be exported and
declare that such value is to the best of their knowledge the fair market
value of the diamonds. The GDV may retain the rough diamonds for no longer
than 10 days to have it's value assessed in the event he disagrees with the
value presented by the exporter. The assessment procedure specifies that the
diamonds may be put out to tender by the GDV. If there is no written tender
offer 15 percent greater than the exporters declared value then it shall be
accepted as the fair market value. Should a tender offer be more than 15
percent higher than the exporters declared value, then it will be accepted
as the fair market value. "The task team therefore concluded that, while De
Beers was wrong in insisting that the GDV should merely verify their system
of determining "fair market value," the GDV and the Diamond Board also erred
in delaying consignments of diamonds for longer than the period specified in
the regulations (i.e. 10 days), while not following the prescribed process
for having the value assessed." Maduna's Ruling Short term: In order to
resolve the current impasse in the interest of all parties concerned, and to
ensure that both commercial and statutory requirements are met, I have
appealed to the Diamond Board, the GDV and De Beers that the following
interim arrangements be adhered to: (a) For the purpose of contracts
between De Beers and its suppliers of Diamonds, the GDV will, as an audit
function, verify and confirm that the value of diamonds has been assessed in
accordance with the system as specified in such contracts. (b) The GDV
shall, only if he is not reasonably satisfied with the "fair market value"
as declared by the exporter in terms of section 61(2) of the Act, retain and
have the value of the relevant diamond(s) assessed. Such retention and
assessment of value shall be done strictly in accordance with section 65 of
the Act and the relevant regulations. Medium term: In order to formally
remove any uncertainty as to the manner in which the value of diamonds is to
be assessed in terms of the Act, it is recommended that further regulations
be prepared as provided for in section 76(b). Furthermore, all current
section 59 agreements will be reviewed to ensure that they only address the
objective of that section and are not being used merely as a vehicle to
avoid payment of export duty. Longer term: In order to realign diamond
legislation with the Constitution and Government policy as well as to remove
practical problems such as a lack of clarity and conflict of interest, the
Diamonds Act will be reviewed in its entirety. In conclusion, ladies and
gentlemen, I wish to assure you that it is neither the intention nor will it
be the result of my decision to harm the South African diamond industry. A
healthy and prospering diamond industry should be as important to our
country as it is to the shareholders of the companies directly involved in
the industry. This, however, means that we as Government must ensure that
the taxes, dues and fees are being paid by the industry as intended in the
various acts.
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Statement by PM Maduna on South Africa
STATEMENT BY DR PM MADUNA, MINISTER OF MINERALS AND ENERGY, AT A MEDIA
CONFERENCE ON MAY 5,1999 INVESTIGATION INTO A DISPUTE CONCERNING CERTAIN
FUNCTIONS OF THE GOVERNMENT DIAMOND VALUATOR
Ladies and Gentlemen of the media, I am sure you are all anxious to be
informed of the outcome of the investigation into a dispute about the
functions of the Government Diamond Valuator which I instituted some three
weeks ago. Before I do so, please allow me to provide you with some
background. It is no secret that for quite some time now, Government has
been concerned about several issues relating to the South African diamond
industry. For this reason, a Commission of Inquiry, chaired by the late
Judge Denis Levy, was appointed by the President on December 13, 1996. Due
to the untimely death of Judge Levy in February last year, the Commission
could not produce a final report. Cabinet subsequently decided that,
instead of appointing a new Commission, a task team consisting of officials
of my departments and the South African Diamond Board should study all the
submissions made to the Levy Commission and then report to me on the issues
that need to be addressed. The massive task should be completed by the end
of September this year. In the meanwhile, however, there are urgent matters
which cannot be left unattended. You may recall that I mentioned a few of
these during my budget-vote speech in the National Assembly on May 22, 1998.
Those of you who may wish to consult Hansard will see that I then
anticipated the termination of the contract with the previous company who
had been appointed as Government Diamond Valuator as well as a total review
of the relevant agreement. I also referred to the continued exemption from
export duty of unpolished diamonds which had been granted by agreements in
terms of section 59 of the Diamonds Act of 1986 and the need for such
agreements to be reviewed. There are clearly many misconceptions surrounding
the issue of section 59 agreements. Let me make this quite clear: the mere
existence of a section 59 agreement with an exporter does not automatically
exempt that exporter from paying export duty in terms of section 62 of the
Diamonds Act. In order to qualify for exemption, he has to comply with all
the requirements of the law and in particular the requirements of section 63
of the Act. The only objective of section 59 is to stimulate our local
cutting and tool-making industry by ensuring that they obtain a regular
supply of unpolished diamonds. I will again refer to this issue as a part of
my final decision. This then, ladies and gentlemen, brings me to the
subject of today's media conference. Following a tender process, the South
African Diamond Board on March 5, 1999 appointed DVIC Valuations SA (Pty)
LTD as the new Government Diamond Valuator. About a month later, on April
13, 1999 the Managing Director of De Beers met with me to discuss his
company's concerns regarding the Government Diamond Valuator (GDV) and the
South African Diamond Board. It soon became clear that the most urgent
matter which had to be addressed was the impasse which had arisen as a
result of differences between De Beers on the one hand and the Diamond Board
and the GDV on the other hand concerning the manner in which the GDV was
interpreting its functions relating to the valuation of diamonds for export
purposes. Concerns raised at the same meeting about corporate governance in
the Diamond Board are still being investigated and I will make an
announcement in that regard after I have received a report from the Director
General. In order to find an urgent solution to the impasse which had been
preventing diamonds from being exported, I appointed a task team led by the
Director-General of Minerals and Energy and further consisting of the Deputy
Chairperson of the SADB and senior officials from the Departments of
Minerals and Energy. Trade and Industry, Finance and South African Revenue
Services. The task team submitted its report to me on April 23, 1999. The
investigation by the task team confirmed that De Beers is of the opinion
that the role of the GDV is simply to verify and confirm the company's
system of valuation, which is based on their Standard Selling Value (SSV)
according to the price list of the Central Selling Organization (CSO) as
adjusted from time to time. They claim that this system, which has become
firmly entrenched over a number of decades, provides a true reflection of
"fair market value" since the CSO sells at SSV prices and not at spot-market
prices. The Diamond Board and the GDV on the other hand argue that the De
Beers system is a price system, whereas the Diamonds Act requires a
valuation. They are of the opinion that the CSO price list should only be
used as a "barometer" and not as the official list for valuations by the
GDV. In their view, the concepts of SSA and SSV are proprietary information
of De Beers and the relationship of these concepts to fair market value is
both complex and indirect. In order to find a solution to the crux of the
problem, namely which of these opposing but rather convincing
interpretations are correct, the task team used the Diamonds Act as its
point of departure. In reviewing the relevant sections of the Act in detail;
the task team came to the conclusion that neither interpretation is strictly
in accordance with the letter and intent of the law. It is clear from the
Act and the regulations issued in terms thereof, that the legislator
intended the export of diamonds to be strictly controlled, amongst others to
ensure that a "fair market value" is determined, based on which the
respective levies or charges (e.g.: export duty) are to be imposed. The
procedures to be followed when an exporter intends to export unpolished
diamonds are clearly described in the Diamonds Act. According to section 60,
no exporter shall export any unpolished diamond from the Republic unless
that diamond has been registered and released for export as prescribed in
the Act. The exporter must furnish the registering officer (which
incidentally is the Government Diamond Valuator appointed by the Diamond
Board) with a return on a prescribed form in respect of the unpolished
diamond which he or she wishes to export. In this return, the exporter must
specify the value of the diamond and declare that such value is to the best
of his or her knowledge, the fair market value of that diamond (section 61).
The registering officer may in terms of section 65 retain the unpolished
diamond to have the value thereof assessed in a manner prescribed by
regulation or by any person designated by the board. Section 65 (2) provides
that the person who has assessed the value of the unpolished diamond, shall
furnish the registering officer with a certificate in which he specifies the
value of that diamond and the name of a person who is prepared to purchase
that diamond at the value so specified. In order to determine the "fair
market value" of an unpolished diamond for the purposes of Levying export
duty, section 66 provides that the value of the diamond as declared by the
exporter or the value of the diamond as assessed in terms of section 65,
whichever is the higher, shall be deemed to be the fair market of that
diamond. Regulation 7 of the regulations issued on April 1, 1987 provides
that the registering officer may not retain diamonds to have the value
thereof assessed for longer than 10 working days. Regulation 9 provides that
the registering officer may have the value of unpolished diamonds that have
been registered for export assessed by putting them out to tender to a least
5 persons authorized to purchase such diamonds. These persons are to be
chosen at random from a list of approved tenderers compiled by the Diamond
Board. This regulation further determines that, should no written tender be
received before 12 noon on the 7th working day following the day on which
the diamonds were retained, the registering officer shall accept the value
declared by the exporter as the fair market value. Further, if the highest
tender is less than the exporter's declared value or exceeds such value by
less than 15% the registering officer shall accept the value declared by the
exporter as the fair market value. However, should the highest tender
received exceed the exporter's declared value by 15% or more, the
registering officer must accept such higher value as the fair market value
of the diamonds. The Act does provide for the GDV, or "registering officer"
as he is referred to in the Act, to agree with the "fair market value" as
estimated by the exporter. This does not mean, however, that the GDV always
has to agree with the exporter's valuation, even though such exporter may be
dominating the market as in the case of De Beers. Should the GDV disagree
with the value of a diamond or consignment of diamonds, he may, in terms of
section 65 of the Act, retain such diamond(s) in order to have the value
assessed. Very importantly, as I have said, the GDV may not retain a diamond
for longer than 10 working days. Equally important is the fact that the
exporter is in no way obliged to sell his diamond(s) to the person who has
indicated his willingness to purchase during the valuation process. The
task team therefore concluded that, while De Beers was wrong in insisting
that the GDV should merely verify their system of determining "fair market
value," the GDV and the Diamond Board also erred in delaying consignments of
diamonds for longer than the period specified in the regulations, while not
following the prescribed process for having the value assessed. Addressing
not only the symptoms but also the cause of the current problem, and based
on recommendations made to me by the task team, I have decided as follows:
Short term: In order to resolve the current impasse in the interest of all
parties concerned, and to ensure that both commercial and statutory
requirements are met, I have appealed to the Diamond Board, the GDV and De
Beers that the following interim arrangements be adhered to: (a) For the
purpose of contracts between De Beers and its suppliers of Diamonds, the
GDV will, as an audit function, verify and confirm that the value of
diamonds has been assessed in accordance with the system as specified in
such contracts. (b) The GDV shall, only if he is not reasonably satisfied
with the "fair market value" as declared by the exporter in terms of
section 61(2) of the Act, retain and have the value of the relevant
diamond(s) assessed. Such retention and assessment of value shall be done
strictly in accordance with section 65 of the Act and the relevant
regulations. Medium term: In order to formally remove any uncertainty as to
the manner in which the value of diamonds is to be assessed in terms of the
Act, it is recommended that further regulations be prepared as provided for
in section 76(b). Furthermore, all current section 59 agreements will be
reviewed to ensure that they only address the objective of that section and
are not being used merely as a vehicle to avoid payment of export duty.
Longer term: In order to realign diamond legislation with the Constitution
and Government policy as well as to remove practical problems such as a lack
of clarity and conflict of interest, the Diamonds Act will be reviewed in
its entirety. In conclusion, ladies and gentlemen, I wish to assure you
that it is neither the intention nor will it be the result of my decision to
harm the South African diamond industry. A healthy and prospering diamond
industry should be as important to our country as it is to the shareholders
of the companies directly involved in the industry. This, however, means
that we as Government must ensure that the taxes, dues and fees are being
paid by the industry as intended in the various acts. All that I hope to
achieve is therefore to restore good order by insisting on strict compliance
with the law, and at the same time to ensure that a sustainable balance is
maintained between private and public interests.
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De Beers Press Release on South Africa
De Beers welcomes Minister Maduna's effort to resolve the diamond export
impasse and the company is encourage that the Minister, in line with the
recommendations of his task team, has indicated that the De Beers sorting
and valuation system has a vital and relevant role in the determination of
the proper valuation of its diamond production as required by South Africa's
Diamond Act. An important process has been started with the task team
investigation into the industry. De Beers has and will continue to
co-operate with Government to examine the workings of the diamond industry
and particulary to demonstrate the merits of the single channel marketing
system which De Beers runs to the advantage of all stakeholders, including
the industry and the state. De Beers believes the great benefit of the
single channel marketing system, specifically in the context of South
Africa, has been the optimising of job retention and revenues for the mines,
and particulary the older more marginal mines.
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Hope to comment on NWT developments later.
Regards |
