South Africa’s National Assembly passed the Mineral and Petroleum Resources Development Amendment Bill (MPRDA) which will allow the state a 20% free carry in all new energy projects and gives the mines minister discretionary power to place certain minerals in a value addition category requiring some domestic processing. The bill will still have to be passed by the National Council of Provinces before being signed into law.
The bill has been widely criticised by South African opposition parties who have described it as nationalisation by stealth and by the Offshore Petroleum Association of South Africa as likely to have a chilling effect on investment. If the 20% free carry cannot be considered as part of South Africa’s 26% black economic empowerment (BEE) requirement, then companies will be left with slightly over 50% interest in energy projects that will certainly be prohibitive to developments. Also that such a significant stake 20% is free carry adds materially to the cost burden.
In addition, Peter Leon, a partner and head of Webber Wentzel’s Africa mining, energy and projects practice says that while the 20% was always in the bill, the real surprise was the ability for the state to take up the other 80%. This Bill gives government the power to nationalise at fire sale prices, any drilling operation that finds oil or gas. Drilling companies can be forced, after they have given away 20% free carried interest, to give away the other 80% of the find at any low price the government is prepared to pay.
This bill may well have put paid to the development of South Africa’s shale gas and any offshore oil potential. Will anybody drill under those conditions, even for the lower risk shale gas?
The Onshore Petroleum Association of South Africa says that it had reviewed the amendments to the Act, and raised concerns that the new bill was passed without consultation with stakeholders in the sector.
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