OIL AND GAS INDUSTRY
How the future of SA's energy resources hinges on passing of slow-moving amendments
The bill needs to become law soon as investors turn their attention to frontier jurisdictions such as Mozambique
In the cabinet reshuffle of February 26, Jeff Radebe become the sixth energy minister in less than five years. He started off his tenure with a clear sense of appreciation for the dire state of affairs that multiple changes to the leadership and Machiavellian policy sways of the Department of Energy have caused. He did not waste time. He swiftly signed 27 power-purchase agreements that had been left in limbo for more than two years. These will cumulatively result in R56bn being invested in SA by independent power producers, 12,000 jobs being created and ultimately more than 2,200MW of clean energy being added to the grid.
On May 16, Radebe delivered an upbeat and ambitious budget vote speech that was clearly aimed at restoring investor confidence and signalling that SA is committed to supply reliable and competitive energy to support the growth of the economy.
He undertook to work towards providing certainty on the country’s energy infrastructure build programme by reopening the revised Integrated Energy Plan (IEP) and Integrated Resource Plan (IRP) for consultation with all key stakeholders, with the objective of submitting the policy-adjusted IEP, IRP, liquid fuels and gas master plans for approval to the Cabinet by August.
Recognising that gas is the fastest-growing fossil fuel, which is expected to catch up with coal over the next 20 years, and that demand will therefore grow steadily, he emphasised the need to prioritise natural gas, whether imported via regional pipelines or liquefied natural gas (LNG) terminals at strategic port locations, given its ability to transition the economy to a low-carbon one.
Of key importance for the upstream petroleum sector was Radebe’s statement on the amendments to the Mineral and Petroleum Resources Development Act. He said that "to unlock the potential for oil and gas development in our country, it is imperative that the process of finalising the [act] be concluded as [a] matter of urgency. This will bring clarity on acreage both offshore and onshore as an attractive proposition for oil and gas exploration companies."
Not surprising, therefore, the hopes of all stakeholders in the energy sector are now firmly pinned on the new leadership of the energy department working closely with Mineral Resources Minister Gwede Mantashe in persuading MPs to seize the moment and usher in an amended upstream petroleum regulatory dispensation that will enable SA to finally ride the wave of participation in the upstream petroleum industry, create jobs locally and use the opportunity to contribute meaningfully to the growth of the energy infrastructure of the economy and the Southern African region.
For historical reasons, the upstream petroleum regulations are located in the act, which is regulated by the mineral resources department, while the energy department is responsible for overall policy and the regulation of the rest of the energy value chain. As such, mineral resources has driven the bill amendment process.
After the approval of the amendments to the act by the Cabinet and their being introduced in the National Assembly process, I wrote an article in this publication in October 2013, urging MPs to expeditiously pass the Mineral and Petroleum Resources Development Act Amendment Bill, where they would have carefully assessed the "show stoppers" to ensure an acceptable balance between public and private sector objectives, such that it could become a watershed for the future of foreign investment in SA.
The bill was not passed and continues to gather dust in Parliament. Investors, meanwhile, have turned their attention to other frontier jurisdictions such as Mozambique, where Exxon Mobil has acquired 25% of ENI’s interest in the Rovuma Basin off Mozambique’s northern Cabo Delgado province, while ENI, the offshore operator of that asset, signed a "final investment decision" on an $8bn deal for a floating LNG facility. It has also secured an LNG sales and purchase contract with BP, which will buy gas for 20 years.
It has been announced that Anadarko is raising $14bn-$15bn from banks and export credit agencies for its LNG project in the Offshore Area 1 of the deepwater Rovuma Basin, where it will produce 12.88-million tonnes per annum of LNG in its initial phase, expanding to 50-million tonnes per annum.
All this despite political uncertainties and economic stagnation in Mozambique.
The shifting of the political deck chairs within the ANC has led to a renewed sense of hope for and interest in SA as a potential investment destination, with ratings agencies suspending what seemed to be an inevitable downgrading of its currency and with the announcement on April 16 by President Cyril Ramaphosa of an ambitious new investment drive, the aim of which is to generate at least $100bn in new investments over the next five years. In his budget speech, Radebe expressed his wish for the energy sector to contribute as a minimum a quarter of this $100bn target.
Against a backdrop of the rise in oil prices to more than $75 per barrel, SA has one last chance to gain lost ground in ensuring that the regulation of a potentially significant new upstream oil and gas industry in SA provides immediate regulatory certainty and clarity, and is attractive and investor friendly.
The bill was debated exhaustively in June 2017 in the select committee on land and mineral resources at the National Council of Provinces, where a number of stakeholders were invited to make representations. Objections by some opposition MPs appeared to contribute to the stalling of the momentum that was starting to build in the finalisation and approval of the bill. These objections pertain in the main to a questionable interpretation of the parliamentary rules, which would require the opening up of the entire consultation process to deliver a standalone Upstream Petroleum Bill.
While there is no question that it is ideal for the upstream petroleum industry to have a standalone legislative framework, the interim solution presented by the bill offers the opportunity for technical studies to commence, to establish the commercial and technical viability of SA’s oil and gas reserves while an appropriate Upstream Petroleum Bill is drawn up, debated and ultimately passed into law.
The interim solution presented by passing the bill in the immediate term could see it coming into law by the end of July and technical studies commencing shortly thereafter.
On May 17, the select committee concluded its deliberations on the negotiating mandates submitted by the provincial legislatures on the bill.
The next step is for the committee to process the amendments that have been agreed to and initiate the provincial process leading up to the submission of final mandates by provincial legislatures.
SA waits anxiously to see whether the ministers of energy and mineral resources, as well as all other MPs, will proactively take all necessary steps to usher in SA’s upstream petroleum regulatory new dawn with appropriate speed and efficiency, thereby unlocking the floodgates of investment in this sector.
• Kingston is with Webber Wentzel Attorneys.