SA passes mine law opposed by BHP to Exxon

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BHPBillitonSign Reuters.

Cape Town - South Africa’s ruling African National Congress used its parliamentary majority to push through changes to laws that companies such as Exxon Mobil say will curb investment.

The amended 2002 Mineral and Petroleum Resources Development Act will secure the state a free 20 percent stake in all new energy ventures and enable it to buy an unspecified additional share at an “agreed price.”

It will also enable the mines minister to declare some minerals strategic and force companies processing them to sell some output to local manufacturers.

With elections scheduled for May 7, the ANC is pushing for the state to play a bigger role in the economy to try ensure the nation benefits more from its mineral endowment.

South Africa is the continent’s largest coal and gold producer and the world’s biggest supplier of platinum.

“We are on the path of changing the mining and petroleum industry in South Africa, whether you like it or not,” Mineral Resources Minister Susan Shabangu told lawmakers yesterday.

“Change is painful, change is bitter, especially when you are stuck in the past. This act is about the people of South Africa.”

The National Assembly adopted the amended law, with 226 votes in favour and 66 against, with eight abstentions.

It will now be referred to the National Council of Provinces, Parliament’s second chamber, for processing before being signed into law by President Jacob Zuma.

 

Unintended Consequences

 

Lawmakers held public hearings on the legislation in September, and BHP Billiton, Anglo American and a succession of other metals, oil and gas producers complained it was too vague and will have unintended consequences.

The mining companies won some concessions, with the Chamber of Mines saying legislators had “vastly improved” the law.

Provisions aimed at encouraging local processing remained problematic, it said.

Rules for energy companies were made more onerous after lawmakers scrapped a 50 percent cap on the size of the stake the state may demand in new projects.

The change would have “a chilling effect on investment,” Sean Lunn, chairman of the Offshore Petroleum Association of South Africa, whose 13 members include Anadarko Petroleum, BHP Billiton, Exxon and Total SA, said in an e-mailed statement on March 10.

 

Encourage Investment

 

Shabangu said the new law would remove ambiguities in the law and align and speed up the process of securing water, environmental and mining licenses, which would help encourage investment.

“South Africa’s broader developmental objectives require a paradigm shift to allow development of the country’s natural resources,” she said.

“The needs to balance the interests and benefits of investors and the people of this country can neither be over-emphasised nor treated as mutually exclusive.”

The Democratic Alliance, the main opposition party, accused the ANC of steamrolling the law through Parliament and flouting procedure.

“This bill, even in the most benign interpretation, is going to damage our mining and energy industry,” James Lorimer, the DA’s shadow minister of mineral resources, told the assembly.

“It will cost us investment and will cost us jobs. This bill gives the government the power to nationalise at fire-sale prices any operation that finds oil and gas. Will anyone drill under these conditions? I wouldn’t bet on it.”

 

Challenge Possibility

 

The law could be challenged on procedural or constitutional grounds, said Mike Davies, a Cape Town-based political risk consultant with Kigoda Consulting, which advises mining and energy companies.

“One of the main objectives of the bill is to streamline licensing processes to provide regulatory certainty,” Davies said in an e-mailed response to questions. “However, the clauses on beneficiation of minerals and state participation in the petroleum sector, combined with ministerial discretion, will have the opposite effect.”

South Africa’s mining industry shrank by an average of 1 percent a year, adjusted for inflation, during the 2001 to 2008 global boom in commodities, compared with the average 5 percent growth of the top 20 mining economies, according to data compiled by the Chamber of Mines. It blames a lack of clear policy, labor unrest and inadequate transportation and power infrastructure.

The bill’s passing “may well be the greatest threat” the exploitation of South Africa’s oil and gas resources and the economic benefits that such exploration could generate, Luke Havemann, a senior associate at Johannesburg-based law firm ENSAfrica, said in an e-mailed statement.

“As it stands, the bill is such that it would be unsurprising if international oil and gas companies were to choose to turn their backs on South African acreage and look for opportunities elsewhere,” he said. - Bloomberg News



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