Chairperson,
The main objective of the Bill is to separate petroleum provisions from minerals provisions currently provided for in the Mineral and Petroleum Resources Act. It also seeks to provide for the orderly development and exploitation of petroleum and petrochemical resources in the country. As petroleum remains one of the most important sources of energy for our struggling economy, it is critically important that petroleum products and by-products are produced abundantly and in the most cost-effective manner possible.
The ACDP believes the Bill fails in this respect, despite it being an improvement on the 2019 version. It compels racial BEE considerations (every exploration and production right must have a minimum of 10 per cent participating interest by black persons. In addition, the Minister can reserve certain exploration or production areas for 100 per cent black-owned companies) alongside a new “carried interest” provision which, when combined, will add significant production costs. This will, in our view, limit and constrain production potential and lead to higher prices for petroleum products than could otherwise have been achieved for downstream businesses and customers.
The carried-interest provisions are nothing more than a form of taxation – entitling the state to a disproportionate 20 percent of benefits accruing from petroleum rights. This guarantees the state participation in successful oil and gas discoveries, while not setting out sufficient details as to how development and production costs can be recovered from the state.
A further concern relates to the impact that exploration rights will have on land, wildlife, and the environment. South Africa is losing its biodiversity at a rapid speed, with many indigenous species either threatened or facing extinction. While it is unclear how this Bill will affect current legislation protecting biodiversity, such as the National Environmental Management Act, what is clear is that communities and the courts will be keeping a close watch on exploration rights. An example is the Eastern Cape High Court ruling which revoked Shell’s off-shore exploration rights, after the court finding they were granted illegally. The judge acknowledged the key role of the ocean in the livelihoods and cultural life of coastal communities. A delicate balance needs to be achieved in this regard given the huge potential of offshore wells which have been described as potential game-changers for the country’s economy.
While the Bill is an improvement on the 2019 version, the ACDP believes that it does not sufficiently provide the regulatory groundwork for a flourishing petroleum sector, but could, as we have so often seen in the past, ensnare this sector in a web of political patronage at the cost of growing the economy.
The ACDP will not support the Bill.
I thank you.
