South Africa’s oil bill set for parliament after cabinet approval
South Africa is working to split its mining and petroleum law, drawing lessons from an unsuccessful attempt to amend the legislation in 2014. Recent gas discoveries motivate policymakers to strengthen the regulatory framework, although political will is otherwise moderate and ongoing litigation with the mining industry is in the way.
Main Findings – State, empowerment and industry
On 12 May, the cabinet approved a draft bill to replace parts of the Mineral and Petroleum Resources Development Act (MPRDA). This Petroleum Resources Development Bill proposes to clarify the application of black economic empowerment (BEE) and the state’s role in the petroleum industry.
Currently, the government and extractives sectors do not have a mutually acceptable way to accommodate the continuing consequences of BEE deals. For example, this month, a high court reserved its ruling on the mining industry’s dispute with the government over the Mining Charter. And since 2017, the industry has been challenging parts of the charter that require firms to top up their black ownership and redo the BEE process when renewing or transferring a mining right.
Published in December 2019, the oil bill notably addresses the ‘once empowered, always empowered’ question about whether a firm would still be compliant with BEE requirements if a black partner has divested its equity. The bill states that an oil license holder must have at least 10% black ownership and will continue to be BEE-compliant for the period of its license if the relevant divestment occurs. But there are impediments for a holder seeking to renew or transfer their right.
This is the second time that the government is attempting to change the petroleum legislation. Parliament passed one bill in 2014 to amend the MRDA. The bill would have required oil and mining firms to cede a 20% stake to the government and it would have empowered the mining minister to designate any mineral as ‘strategic’, compelling firms to prioritise local beneficiation over export.
However, both oil and mining industries opposed the proposed legislation. The constitutionality was particularly disputed given the arbitrary powers it would have granted the minister to allocate products for export or local beneficiation - and set pricing accordingly. There was an inherent risk of expropriation. The Mining Charter would also have been raised to the level of legislation and the minister would have been allowed to amend it without a proper legislative process. The then-president Jacob Zuma vetoed the bill after that pushback in 2015 and it was withdrawn from parliament in 2018.
Outlook – Soft-pedal this, soft pedal that
Total and partners have made two crucial gas discoveries offshore South Africa since 2019 - ending a dry spell in upstream activity. Although this should stimulate the legislative process and spur more purposeful action, we do not expect speedy progress because this bill is not a political priority to the African National Congress at the moment. There is also some inertia carried over from the unsuccessful attempt to amend the MPRDA.
Even so, the current process will reflect lessons learned from that one in terms of the state’s role in the industry. The decision-makers will look to avoid more litigation on BEE requirements while they try to resolve ongoing litigation with the mining industry through dialogue. The outcome of talks with mining firms will affect the course of petroleum regulation.
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