Jonathan Veeran, Partner at Webber Wentzel, believes South Africa’s Upstream Petroleum Resources Development Bill is taking too long to develop and appears to ignore many of the lessons that should have been learnt from South Africa’s mining sector legislation
“South Africa should have the ability to produce a more credible draft Bill for the upstream oil and gas sector,” Veeran said. “Some of the impracticality and policy uncertainty which plague the Mineral and Petroleum Resources Development Act (MPRDA) seem to have found a home in the Upstream Petroleum Bill.”
The Upstream Petroleum Bill, which is currently before the National Assembly, was recently amended to take public comments into account. The latest version was published in late September.
This Bill was originally introduced in mid-2021, but it follows a previous attempt to amend the MPRDA in 2016 to accommodate oil and gas exploration.
“The length of time this process is taking is very concerning,” Veeran noted. “Mozambique has become a gas province due to its massive dry natural gas reserves and it is likely that production will commence soon. Namibia likewise has become the ‘go-to’ destination for oil and gas exploration.”
“The sooner this Bill is finalised, the better, because the longer the delay, the more insecure the holders of existing exploration permits become,” Veeran said.
Some of the positive aspects of the Bill are that it recognises the principle of “once empowered, always empowered” in clearer language, although this aspect will not be welcomed by all commentators.
Veeran believes several problems still remain. “These include whether certain provisions will stand up to Constitutional scrutiny, vague wording in some sections, and uncertainty over tenure.” Although the Bill contains important provisions on black empowerment and state participation, it is uncertain whether the requirements are appropriate for this industry. Veeran says the requirements should be less onerous in the exploration phase but can become stricter once IOCs move into the production phase.
“The Upstream Petroleum Bill also has a misplaced emphasis on state participation: the state-owned entity will pay 50% of exploration costs and 100% of production costs,” Veeran explained. “Given South Africa’s limited financial resources and other social spending priorities, it would be better to let the IOCs shoulder all the costs of exploration and production and focus rather on the economic benefits, which will translate into tax revenues.”
Any form of extractive industry will affect the environment, communities and socio-economic welfare and these issues will need to be managed carefully and stringently. “South Africa’s mining experience should show how to manage these issues better,” Veeran noted. “Without clear and conducive legislation to guide oil and gas exploration, South Africa will continue to attract various NGOs, both local and international, who see the country as fertile ground to tackle the IOCs on climate change.”
A study by the Department of Trade, Industry and Competition and oil companies several years ago examined the multiplier effects of bringing more natural gas to South Africa. The experience of other countries such as the US and Australia has been that natural gas can stimulate local industries as well as gas-to-power projects.
“The South African economy is urgently in need of reindustrialisation, and if it can develop a gas economy it will create more jobs and subsidiary industries, help to address the current power crisis, and make the economy more attractive to local and foreign investors,” Veeran concluded.
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