South Africa’s Tito Mboweni Says Criticism of Oil Law Unfair

South Africa’s proposal that the state be given a free stake in energy projects is being unfairly criticized as it’s in line with laws in many oil producers, former central bank governor Tito Mboweni said.

“It’s not unusual for a state to have a free carry,” said Mboweni, 55, who is non-executive chairman of SacOil Holding (SCL) Ltd., in a July 29 interview in Johannesburg. “When you go into a situation like that you have to accept that the state is going to participate.”

The changes to the 2002 Mineral and Petroleum Resources Development Act include giving the state the right to a free 20 percent stake in all new energy ventures and to buy an unspecified additional share at an agreed price. Total SA (FP), Exxon Mobil Corp. (XOM) and Anadarko Petroleum Corp. (APC), who have exploration stakes, are among those that have objected to the law on the grounds that it is vague and will undermine business.

Mineral Resources Minister Ngoako Ramatlhodi last week said he expects draft regulations on oil and gas soon, so companies can comment on the proposed rules and they’re able to continue with exploration. ArcelorMittal South Africa Ltd. sees oil and gas activity as promising for steel demand, it said in a statement.

South Africa’s shale gas reserves, concentrated in the semi-desert Karoo region, could be the world’s eighth-biggest, the U.S. Energy Information Administration said last year. The government estimates enough gas can be discovered to generate 1 trillion rand ($93 billion) of sales within three decades and help bring a country that imports 70 percent of its crude oil needs closer to supplying its own energy demand. Royal Dutch Shell Plc (RDSA) holds concessions to seek the fuel.

‘Experimental Dog’

At the same time the country is opening up offshore concessions to boost oil exploration.

“South Africa is an experimental dog” to the companies, Mboweni said. “People are trying to see how far they can push the free market.”

Many countries in Africa demand stakes in projects that companies haven’t objected to, he said.

Tanzania gives the state oil company the right to take a 25 percent stake in projects while the Ugandan government has the right to take a 20 percent interest, according to Deloitte. Mozambique and Kenya also give their state companies the right to take stakes in projects, the accounting firm said in a 2103 report.

Johannesburg-based SacOil has two licenses in Nigeria, where “we’ve spent a lot of money” before even being close to a production stage, Mboweni said. The company doesn’t have assets in South Africa.

Revenue that flows into countries from free carry should be controlled and contribute to a sovereign wealth fund, according to Mboweni. “You must ringfence that into a fund for the future generations.”

To contact the reporter on this story: Paul Burkhardt in Johannesburg at pburkhardt@bloomberg.net

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net Alex Devine, John Viljoen

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