Draft bill ensures the state will have a share in oil and gas projects
The government has outlined details of a draft bill in parliament that will regulate the petroleum and gas sectors
A draft bill dealing with the regulation of the oil and gas sector proposes that the state get a 20% free-carry share in these enterprises.
The state interest in these projects will be held by a state-owned enterprise (SOE) and the state will also have representation on the boards of petroleum companies. Provision is also made for the state to have reserve blocks for national development imperatives.
The draft bill also introduces a production bonus payable on the granting of a production right and proposes that this production bonus be 0.07% of the total recoverable petroleum resources at the prevailing oil price, and 0.35% for gas.
Deputy director-general in the department of mineral resources and energy Ntokozo Ngcwabe noted in a briefing to parliament’s mineral resources and energy committee on the department’s legislative programme on Friday that the average production bonus internationally is 0.1%. A petroleum resource rent tax is also envisaged.
The department anticipates that the bill will be introduced into parliament in the first three months of 2020.
The draft bill emerges from the decision by the government to withdraw the Mineral and Petroleum Resources Development Amendment Bill and to separate the petroleum from the minerals provisions of the act. Currently, the Mineral and Petroleum Resources Development Act governs both the minerals and petroleum industries.
The draft bill makes provision for 10% broad-based BEE at the exploration and production stage and empowers the minister of mineral resources and energy to reserve a block or blocks for 100% black-owned companies with relaxed requirements. The bill also empowers the minister to develop a petroleum resources charter to pursue a transformation agenda.
The draft bill will not deal with royalties, which will be incorporated into a separate money bill, but Ngcwabe said it is envisaged that royalties based on profits will range between 0.5% and 5%. She noted that under the current fiscal regime it could take up to 10 years before the government receives tax revenues and it is therefore proposed that the fiscal regime for the upstream petroleum sector be reviewed.
The primary contract type for the development of petroleum resources will be concession contracts, and the bill also makes provision for production-sharing contracts (where the state shares in the output produced), and service contracts (where the state is the owner of the project), as is prevalent elsewhere in the world.
“The contract type will be informed by a number of factors including the location of the block on offer, whether it is a conventional or unconventional resource, the maturity of the block and the national interest,” Ngcwabe said.
Ngcwabe said the bill is intended to regulate the development of the country’s upstream petroleum resources; create a conducive environment for investment, growth and job creation; and balance business needs with national development imperatives.
She said the government wants to strengthen the regulation of the upstream petroleum industry, including the shale gas sector.
Ngcwabe said state participation in the sector is important to ensure security of supply and that the department has looked at regulatory regimes in Norway, Qatar, Nigeria and Angola, among others.
“The bill entrenches the principle of security of tenure and the protection of the sanctity of investments as an integral part of SA’s petroleum regulatory framework, and provides for state participation and economic transformation of the upstream petroleum industry,” Ngcwabe said, adding that the bill would give effect to the principle of the state’s custodianship of the nation’s petroleum resources.