Strong views have been expressed over the level of black and state participation in upstream petroleum projects, two of the most critical aspects of draft legislation now before parliament.
The EFF says the black share should be 51% instead of the 10% provided for in the Upstream Petroleum Resources Development Bill, while the DA insists that anything higher than 20% for the state’s free carried interest in petroleum projects will deter investment. The department of mineral resources & energy is adamant that the 10% black share is appropriate.
A free carried interest refers to the share allocated to the state in exploration or production operations without any upfront financial obligation on the state. The state will only contribute to the costs once revenue from production begins to flow.
Parliament’s mineral resources and energy committee has begun deliberations on the bill after public hearings were held in all provinces between February and May.
[T]he department [of mineral resources & energy] has no intention to increase the 20% carried state participation. The 20% carried interest is sufficient not to burden the rights holders by starting at a higher percentage.
— Olga Masekoa, chief director of mineral and petroleum policy, department of mineral resources & energy
The bill separates the regulation of petroleum resources, which has specific requirements from that of mining — both now covered in the Mineral and Petroleum Resources Development Act. Government believes the separation will create regulatory certainty for the petroleum sector, enhance the ease of doing business and attract foreign investment.
In addition to the reservation of blocks for black people, the bill provides for a minimum of 10% black participation (which can mean a company that is 51% black owned). Black people will be allowed to dilute their petroleum right to no less than 5% for purposes of raising capital.
The bill also provides for a 20% free carried interest by the state in petroleum rights covering both exploration and production. The state would be required to pay back 50% and 100% of the state’s proportionate share of exploration and production costs respectively from the proceeds of production.
The majority of the speakers during the public hearings were opposed to the 10% black share, arguing that since black people are a majority in the country, the percentage should be higher, with anything from 20%-90% being proposed as an alternative.
Public opinion divides
Regarding the state’s participation in exploration and production, which will be managed by a state petroleum company — a merger of Central Energy Fund subsidiaries: iGas, the Strategic Fuel Fund (SFF) and PetroSA — members of the public believed this was also too low.
Suggestions ranged from 25%-80%, though there were some who suggested that the 20% be decreased to 10% due to the dismal failure of the state to account for resources at their disposal. Some suggested that state profits from petroleum projects should be channelled into the National Revenue Fund or a sovereign wealth fund (SWF).
The department of mineral resources & energy’s chief director of mineral and petroleum policy, Olga Masekoa, briefed the committee Tuesday on the department’s response to the submissions made during the public hearings.
She said that the department will amend the bill to ensure that the dilution of black ownership to raise capital occurs only between black people. She noted that the 10% black participation was a minimum and that black people can participate in the petroleum right with higher percentages if they have access to the required finance.
“We don’t want the percentage to be a deterrent for black people to participate,” Masekoa said. She noted that the petroleum and mining sectors were very different in terms of the upfront investment required, therefore the 26% black participation in the mining sector could not be used as a benchmark for the petroleum sector.
The department was not opposed to the idea of a SWF, she said, but noted that this was the mandate of the National Treasury.
The department’s socioeconomic development analyst, Yonela Tukwayo, highlighted the multibillion-rand capital investment required for oil and gas projects.
Regarding the state’s free carried interest, Masekoa insisted that “the department has no intention to increase the 20% carried state participation. The 20% carried interest is sufficient not to burden the rights holders by starting at a higher percentage.” This will now however be in the hands of the committee.
EFF MP Phiwaba Madokwe said in an interview that given the lack of transformation and high level of inequality in the country, the black share of petroleum projects should be 51%. DA mining spokesperson James Lorimer said any increase in the state’s share would drive away investment, adding that the state will also benefit from royalties and taxes.
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