Parliament to vote on oil and gas law

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Bloomberg

The government’s plans to muscle in on new oil and gas ventures threaten to derail a fledgling industry, undermining 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 ANC, is pushing for the law to be passed before May 7 elections with a National Assembly vote scheduled for today.

Companies including Exxon Mobil, Anadarko Petroleum and Royal Dutch Shell began prospecting in South Africa’s waters in recent years. While the country had proven reserves of 15 million barrels last year, according to Oil & Gas Journal, there is little production.

“Many international oil companies have probably not invested enough at this stage to fight the legislation tooth and nail,” said Anne Fruhauf, a southern Africa analyst at US risk evaluator Teneo Intelligence. “Some upstream investors might simply relinquish their acreage if the bill is enacted in its current form.”

An earlier draft of the law limited the state to purchasing another 30 percent at “fair market value.” The more onerous ownership provisions were added by ANC members of Parliament’s mineral resources committee last Wednesday.

The Offshore Petroleum Association of South Africa criticised an early version of the law in September, saying it lacked clarity and would deter investment. On Monday it expressed concern that the law would compromise the industry.

“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,” group chairman Sean Lunn said in a statement on Monday.

Faith Bikani, an ANC legislator 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 allow legislators to properly consider its implications.

Mineral Resources Minister Susan Shabangu rejected splitting or delaying the law and Bikani backed down last week, saying the measure was needed to bring legal certainty to the energy industry.

“The government is taking this line because the ANC is trying to shore up its populist credentials before the election,” said Mark Rosenberg, an Africa analyst at New York-based Eurasia Group.

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 its ownership.

Oil and gas exploration and mining had different risk profiles and a distinction between them was needed, Sasol chief executive David Constable said.


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