For those who imagined that nationalisation and scaled up state intervention in the economy was thrown out of the window at Mangaung in December, think again.
If the Mineral and Petroleum Resources Development Amendment Bill is passed in its current form, the state will be empowered to simply declare a mineral “strategic”.
It will mean that Mineral Resources Minister Susan Shabangu will be able to force coal mines to sell a portion – which she will determine by regulation – of their output locally. Coincidentally, Eskom’s long-term coal contracts are nearing an end in the next few years. The minister will also determine the prices at which they will sell their coal to Eskom. Out goes competition, at least in that market, in one fell swoop.
It is well known to the government that there is potential for a whopping amount of oil – and presumably also gas – off the west coast of South Africa. There is also a promising seam lurking off the shores of KwaZulu-Natal. The country doesn’t have much gas to speak of at this stage – the Mossgas operation has been built on a relatively tiny amount, although it is viable.
The controversial Karoo shale gas extraction may yield a spectacular amount of natural gas, but exploration has not yet begun. Greater state stakes in the production rights may put off interested parties even if it turns out that there is plenty of gas.
Most of the big oil and gas companies have warned on the consequences of pretty much unfettered state intrusion into this market. The legislation provides plenty to worry about. The memorandum in the bill says: “The state has a right to a [currently unspecified] free carried interest in all new exploration and production rights.”
Another section allows for the inclusion of “state board participation” in the holders of production rights. This means the minister will be able to appoint two members to the South African boards of the companies exploring for oil and gas.
Exxon Mobil argued before the mineral resources portfolio committee on Wednesday that the entire oil and gas sector should be exempted from the amendments, while Anadarko argued that the current investor friendly regulatory framework should apply to future petroleum rights that are granted – or applied for – prior to the promulgation of this bill.
Investments of this sort mean big bucks. Anadarko’s southern Africa managing director, Marek Ranoszek, said the total exploration spend prior to production was about $860 million (R8.6 billion).
Noting that seven out of 10 exploration ventures failed, total investment in development of the first oil was about R40bn. Total investment in the entire project could quickly reach over R70bn.
What the government is trying to do can only be described as a form of creeping nationalisation. On top of that, PetroSA, which calls itself the national oil company, wants to bag the rights to all local oil resources. For a company with a distinctly unflattering record of investments in Africa, this should set the warning bells clanging.
Eskom, which has held the consumer to ransom for years now, wants its government sweetheart relationship further extended. Bloomberg reported that coal reserves would be exploited in the “national interest” with exports of some grades of thermal coal only being permitted after being offered to domestic energy producers at cost, providing for fair returns. Domestic energy producers would also have first right of refusal on forfeited coal exploration rights.
Derailing competition in the oil, gas and mineral markets can be the only consequence of such legislative madness.