South Africa is considering a law that will make 20 percent of all new gas and oil exploration and production ventures accrue to the state.
The bill passed by the country’s parliament on Wednesday also gives the Minister for Mineral Resources discretionary powers to decide which extracted resources would be processed locally.
According to the bill, the state can even go ahead to buy more into such new ventures, which would be acquired at a fair market price.
“We are on the path of changing the mining and petroleum industry in South Africa, whether you like it or not,” said Mineral Resources Minister Susan Shabangu told lawmakers on Wednesday.
Shabangu said the Mineral and Petroleum Resources Development Amendment Bill (MPRDA) boasted that the bill was one of the major steps required to boost economic development in the Southern African country.
Industry players do not share the minister’s view as they expressed concern about how the speed of passage of the bill by the parliament and the government’s decision not to inform them about such a major plan to change how things run in the industry.
They are also concerned about how the bill when signed into law would affect investments.
“There have been significant changes in recent days, which we have not been afforded an opportunity to comment on and which we are certain will have a chilling effect on investment in a high risk and capital intensive industry such as ours,” a statement by the Offshore Petroleum Association of South Africa said.
Shabangu, in a bid to allay fears of industry players worried about investors’ concern, said South Africa had completed a visit to Canada and “the MPRDA is accepted by international investors”.
Concerns however remain about the bill as the country’s main opposition party Democratic Alliance (DA) fears a part of the bill, which gives government the power to nationalise at fair sale prices any exploration that ends in a find, may be used by the government to force out companies that are not in their good books.
“Drilling companies can be forced, after they have given away 20 percent free carried interest, to give away the other 80 percent of the find at any low price the government is prepared to pay,” said James Lorimer, the opposition’s shadow minister of mineral resources.
Shabangu remains confident despite concerns from different quarters. “Change is painful,” she says, “Change is bitter, especially when you are stuck in the past. This act is about the people of South Africa.”
The bill when signed into law by President Jacob Zuma, may signal the beginning of an economic turnaround for South Africa whose economy has been hard hit over the years with corruption and mining strikes as usual culprits.
Earlier in the year, the World Bank cut South Africa’s economic growth forecast for 2014 to 2.7 percent from an earlier forecast of 3.2 percent, considering several indices that have been impeding growth.
Unemployment in the country still hangs over 20 percent, according to the African Development Bank (AfDB). It is expected that the bill when signed into law will among other things, reduce unemployment in the country and shore up its dwindling economic fortunes. Whether the law would discourage foreign investments however remains to be seen.
