Exploration for oil or minerals is a very risky activity. And when a significant find is made there is the further risk that the terms allowed to the finder may turn out to be unexpectedly adverse. Indeed, the larger the resource proved, the more adverse these terms are likely to be.
Any original successful risk-taker is hostage to the government where the discovery was made. With any potentially valuable discovery under the ground or water, what was essentially unknown will have become much more of a valuable known. Accordingly, the share of the value added allowed to the discoverer can easily become a matter of ex-post negotiation rather than a rule of previously agreed laws.
Exploring for oil or gas in deep, turbulent SA waters is surely a particularly risky endeavour. Rules applying to exploration for oil or gas are still to be redrafted and voted upon. Yet despite all this inherent uncertainty — all the known unknowns — Total and its partners went ahead and explored off our coast. And they have discovered what is clearly a significant quantity of hydrocarbons in their concession area. They will be drilling further wells to determine the full potential of the gas and oil available for exploitation.
How then should SA respond to this fait accompli, this new economic opportunity of great potential significance? Surely to maximise the output of oil and gas, upon which taxes or royalties can and will be levied? But these would have to be of an internationally comparable and competitive scale to fully encourage production and further exploration activity.
In addition, due concern for safety and the environment, and the business of bringing the oil and gas to market should best be governed by no other consideration than that of maximising output at minimal cost. What is in prospect, if all goes well, is construction activity on a very large scale undertaken over many years.
Drills will be sunk from platforms to be built, served by helicopters and launches with bases and workers onshore. Pipelines will be laid to bring the oil and gas onshore and extend the network to new refineries and their customers in the urban areas. Much further capital expenditure in oil- and gas-intensive industry for export and the local market will become feasible off the newly established grids. The economy could take off.
To make the best of what has become possible, minimal consideration should be given to any other potential interests in the resource, other than the general interest in faster economic growth. Interests that might impose themselves on the project managers and the capital providers should be actively disallowed.
Let construction companies bid competitively for the work, which they should be free to organise as best they see fit. This means they should be subject to minimal interference in the form of the patronage, crony capitalism, corruption and extortion that has been so expensively and damagingly characteristic of construction activity in SA recently.
Think of the huge overruns at Kusile and Medupi and the perils of constructing pipelines and roads in KwaZulu-Natal, where extortion has become commonplace. Or ask any construction company (a declining number) for details of how they now have to do business in SA.
The genuine public interest in redistributing the benefits of the project would then be satisfied by the extra revenue generated for the government — not by opportunistic rent-seeking. And the extra revenue could be well spent for the benefit of the poor in better-funded schools and hospitals or cash grants, maybe even lower tax rates.
This would be a case of growth and then redistribution rather than erratic redistribution at the expense of growth. It would represent a true game-changer for the SA economy.
• Kantor is chief economist and strategist at Investec Wealth & Investment. He writes in his personal capacity.
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