Fears that ANC MPs would support greater state and black participation in offshore petroleum projects have proved groundless.
These are two of the most critical aspects of the draft Upstream Petroleum Resources Development Bill, which will have an effect on the willingness of foreign investors to fund offshore petroleum projects in SA.
Parliament’s mineral resources and energy committee — with an ANC majority — has decided to retain the 20% carried interest for the state and the 10% minimum participation by the historically disadvantaged, as provided for in the bill as approved by the cabinet. The minister will also be empowered to designate certain blocks for black people.
A carried interest frees its holder from bearing the upfront costs of exploration and production that are borne by the holder of the petroleum right. The holder of the carried interest will only contribute to the costs once revenue from production begins to flow.
In terms of the bill, the State Petroleum Company will have a 20% carried interest.
The committee decided that black people will be allowed to dilute their petroleum right from 10% but will have to give the state first right of refusal.
The majority of the speakers during the public hearings held in the provinces by the committee were opposed to the 10% black share, arguing that since black people were a majority in the country, the percentage should be higher, with anything from 20%-90% being proposed as an alternative. During committee discussions the EFF argued for the black share to be 51%.
Members of the public also believed the state share was too low, with suggestions ranging 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.
The Oceans Economy task team — which consists of industry representatives from the Offshore Petroleum Association of SA (Opasa), the SA Oil and Gas Association (Saoga) and CTC Global — proposed that the state’s carried interest be redefined as being up to 15% and that the historically disadvantaged be assigned a carried interest of up to 5% which would form part of their 10% participation.
The team said it would be too onerous for black participants to bear their proportionate costs of exploration and the development of the petroleum without a carried interest.
DA mining spokesperson James Lorimer was adamant that any increase in the state’s share above 20% would have driven away investment. He said the DA would oppose all the racial set-asides in the bill.
Lorimer was concerned that the bill as finally approved by the committee gave a lot of discretion on a wide range of issues to the minister. “This creates uncertainty for investors who want to know the conditions under which they will be investing because the minister can take capricious decisions and so they will stay away. That is our worry — that it will keep out investors.”
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. The government believes the separation will create regulatory certainty for the petroleum sector, enhance the ease of doing business and attract foreign investment. The bill has been in the pipeline since December 2019.
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