South Africa’s plans to muscle in on new oil and gas ventures threaten to derail a fledgling industry, undermining state efforts to safeguard energy security and curtail imports.
Proposed changes to the 2002 Mineral and Petroleum Resources Development Act will give the government a 20 percent free stake in all new energy projects, and the right to buy an unspecified additional share at an “agreed price.”
The ruling African National Congress, which wants the state to play a bigger role in the economy, is pushing for the law to be passed before May 7 elections with a National Assembly vote scheduled for tomorrow.
Companies including Exxon Mobil Corp. (XOM), Anadarko Petroleum Corp. and Royal Dutch Shell Plc have begun prospecting in South Africa’s waters over recent years, as new technology boosts their ability to find and pump oil from deep beneath the seabed.
While the country had proven reserves of 15 million barrels at the end of 2013, according to Oil & Gas Journal, there is no significant production. About 70 percent of the nation’s crude needs are met through imports with the balance processed from coal and gas.
“Many international oil companies have probably not invested enough at this stage to fight the legislation tooth and nail,” Anne Fruhauf, a southern Africa analyst at New York-based risk evaluator Teneo Intelligence, whose clients include U.S.-based energy companies, said in an interview yesterday.
“Some upstream investors might simply relinquish their acreage if the bill is enacted in its current form.”
More Onerous
An earlier draft of the law limited the state to purchasing an additional 30 percent at “fair market value.”
The more onerous ownership provisions were introduced by ANC members of the National Assembly’s mineral resources committee on March 5, the day before it adopted the measure in its entirety.
The Offshore Petroleum Association of South Africa, whose 13 members include Anadarko, BHP Billiton Ltd. (BIL), Exxon, Sasol Ltd.’s petroleum international unit and Total SA, criticized an early version of the legislation in parliamentary hearings in September, saying it lacked clarity and would deter investment.
The association yesterday issued its first public comment since the hearings, expressing concern that the law would compromise the industry.
Split Suggested
“There have been significant changes in recent days which we have not been afforded an opportunity to comment on and which we are certain will have a chilling effect on investment in a high-risk and capital-intensive industry such as ours,” Sean Lunn, the group’s chairman, said in an e-mailed statement.
Faith Bikani, an ANC lawmaker and acting chairwoman of Parliament’s mineral resources committee, initially suggested that provisions covering oil and gas could be split from those covering mining and incorporated into new laws more suited to the energy industry’s state of development.
She also said consideration should be given to delaying the legislation until after the election to enable lawmakers to properly consider its implications.
Mineral Resources Minister Susan Shabangu rejected splitting or delaying the law and Bikani backed down on March 5, saying the measure was needed to bring legal certainty to the energy industry.
‘Populist Credentials’
“The government is taking this line because the ANC is trying to shore up its populist credentials before the election and demonstrate progress on its platform of strategic state intervention in the economy,” Mark Rosenberg, an Africa analyst at New York-based Eurasia Group, said in an e-mailed response to questions yesterday.
“I believe there was an effort by more pragmatic elements in the party to stall the bill, but these forces clearly lost the battle.”
A survey of 3,564 adults interviewed by research company Ipsos in October and November showed support for the ANC, which controls almost two-thirds of the seats in Parliament, plunged by 10 percentage points to 53 percent from a year earlier.
Oil and mining companies operating in South Africa incur most of their costs in rand. The local currency gained 0.1 percent to 10.7371 per dollar at 9:51 a.m. in Johannesburg, paring the decline this year to 2.3 percent.
The law’s other provisions include giving the state the right to appoint two directors to the operating boards of energy ventures and voting rights in proportion to their ownership.
Oil and gas exploration and mining have different risk profiles and South Africa needed to make the distinction between the industries, said David Constable, the chief executive officer of Sasol, the biggest producer of liquid fuels from coal, which has both energy and mining interests.
“In countries that don’t have a lot of proven hydrocarbon reserves, they make themselves very accommodating and drive incentives for the industry to come and find the stuff, versus making it very challenging,” Constable said in an interview at the company’s Johannesburg office yesterday.
“We’re looking for fairness and certainty.”
bloomberg.com
Proposed changes to the 2002 Mineral and Petroleum Resources Development Act will give the government a 20 percent free stake in all new energy projects, and the right to buy an unspecified additional share at an “agreed price.”
The ruling African National Congress, which wants the state to play a bigger role in the economy, is pushing for the law to be passed before May 7 elections with a National Assembly vote scheduled for tomorrow.
Companies including Exxon Mobil Corp. (XOM), Anadarko Petroleum Corp. and Royal Dutch Shell Plc have begun prospecting in South Africa’s waters over recent years, as new technology boosts their ability to find and pump oil from deep beneath the seabed.
While the country had proven reserves of 15 million barrels at the end of 2013, according to Oil & Gas Journal, there is no significant production. About 70 percent of the nation’s crude needs are met through imports with the balance processed from coal and gas.
“Many international oil companies have probably not invested enough at this stage to fight the legislation tooth and nail,” Anne Fruhauf, a southern Africa analyst at New York-based risk evaluator Teneo Intelligence, whose clients include U.S.-based energy companies, said in an interview yesterday.
“Some upstream investors might simply relinquish their acreage if the bill is enacted in its current form.”
More Onerous
An earlier draft of the law limited the state to purchasing an additional 30 percent at “fair market value.”
The more onerous ownership provisions were introduced by ANC members of the National Assembly’s mineral resources committee on March 5, the day before it adopted the measure in its entirety.
The Offshore Petroleum Association of South Africa, whose 13 members include Anadarko, BHP Billiton Ltd. (BIL), Exxon, Sasol Ltd.’s petroleum international unit and Total SA, criticized an early version of the legislation in parliamentary hearings in September, saying it lacked clarity and would deter investment.
The association yesterday issued its first public comment since the hearings, expressing concern that the law would compromise the industry.
Split Suggested
“There have been significant changes in recent days which we have not been afforded an opportunity to comment on and which we are certain will have a chilling effect on investment in a high-risk and capital-intensive industry such as ours,” Sean Lunn, the group’s chairman, said in an e-mailed statement.
Faith Bikani, an ANC lawmaker and acting chairwoman of Parliament’s mineral resources committee, initially suggested that provisions covering oil and gas could be split from those covering mining and incorporated into new laws more suited to the energy industry’s state of development.
She also said consideration should be given to delaying the legislation until after the election to enable lawmakers to properly consider its implications.
Mineral Resources Minister Susan Shabangu rejected splitting or delaying the law and Bikani backed down on March 5, saying the measure was needed to bring legal certainty to the energy industry.
‘Populist Credentials’
“The government is taking this line because the ANC is trying to shore up its populist credentials before the election and demonstrate progress on its platform of strategic state intervention in the economy,” Mark Rosenberg, an Africa analyst at New York-based Eurasia Group, said in an e-mailed response to questions yesterday.
“I believe there was an effort by more pragmatic elements in the party to stall the bill, but these forces clearly lost the battle.”
A survey of 3,564 adults interviewed by research company Ipsos in October and November showed support for the ANC, which controls almost two-thirds of the seats in Parliament, plunged by 10 percentage points to 53 percent from a year earlier.
Oil and mining companies operating in South Africa incur most of their costs in rand. The local currency gained 0.1 percent to 10.7371 per dollar at 9:51 a.m. in Johannesburg, paring the decline this year to 2.3 percent.
The law’s other provisions include giving the state the right to appoint two directors to the operating boards of energy ventures and voting rights in proportion to their ownership.
Oil and gas exploration and mining have different risk profiles and South Africa needed to make the distinction between the industries, said David Constable, the chief executive officer of Sasol, the biggest producer of liquid fuels from coal, which has both energy and mining interests.
“In countries that don’t have a lot of proven hydrocarbon reserves, they make themselves very accommodating and drive incentives for the industry to come and find the stuff, versus making it very challenging,” Constable said in an interview at the company’s Johannesburg office yesterday.
“We’re looking for fairness and certainty.”
bloomberg.com
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