S. African Law to Give State 20% of New Energy ProjectsMike Cohen
South Africa’s government plans to make it law for energy companies to cede 20 percent of all new oil and gas ventures to the state, which will have the right to buy a further 30 percent.
The state has “a right to a free carried interest in all new exploration and production rights, from the effective date of such rights, including in production rights derived from existing exploration rights,” according to amendments to the Mineral and Petroleum Resources Development Act and distributed to lawmakers in Cape Town today. “The state is entitled to a further interest of 30 percent” to be acquired at a market-related price, it said.
Companies including Exxon Mobil Corp. and Royal Dutch Shell Plc criticized a previous version of the draft law in parliamentary hearings last month for failing to specify what size stake must be ceded, saying the lack of certainty will deter investment. The mineral resources department previously said the issue would be dealt with in regulations accompanying the legislation.
South Africa imports about 70 percent of its oil needs, processing the remainder of its fuels from coal and gas. The country had proven oil reserves of 15 million barrels in January 2011, located to the south and off the west coast near the Namibian border, according to Oil and Gas Journal. While Irving, Texas-based Exxon Mobil and The Hague-based Shell have stakes in offshore blocks, extraction is yet to take off.
The Offshore Petroleum Industry Association of South Africa, a grouping of 18 energy companies, said a compulsory state share in projects would breach accords already signed for cooperation permits and exploration-rights.
“At present, state participation is provided for in-exploration rights and production rights and is capped at 10 percent,” the group, whose members include BHP Billiton Ltd., Shell, Sasol Ltd. and Total SA, said in a written submission to lawmakers last month. “The state, while not liable for past costs, is liable to pay” its share of production costs should it elect to participate, it said.
The revised law also enables the mines minster to designate a percentage of mineral products for local processing at “differentiated prices” after taking into account “national developmental imperatives.”
Mining companies including Anglo American Plc have said the provision would discourage investment. Forcing them to sell their products for less than market prices was a form of expropriation and may be unconstitutional, the companies said.
Parliament’s mineral resources committee will continue hearings on the law tomorrow.