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The mining industry is seething because its objections to the new draft mining charter were completely ignored. On the other hand, the oil and gas sector has been cheered by government’s response to some of its complaints about the Mineral & Petroleum Resources Development Act (MPRDA) Amendment Bill.

The MPRDA amendments have been under discussion since 2010. But when a final version was agreed in 2013, it was delayed because President Jacob Zuma expressed doubts about the constitutionality of certain provisions and the need for consultation with the National Council of Provinces (NCOP) and House of Traditional Leaders. In March the ANC leadership decided it had to speed up promulgation of the bill.

At a recent NCOP briefing on the amendments, minerals minister Mosebenzi Zwane and his team said three contentious areas relating to oil and gas would be addressed.

First, they have decided not to abolish the Petroleum Agency SA, which regulates oil and gas exploration and production activities, and maintains a database of granted rights.

Second, the clause that grants government a 20% free carried stake in any new oil or gas project has been altered to provide for a cost-recovery mechanism.

Third, the department has acknowledged that raising black economic participation to 26% from its current 10%, in line with the mining sector charter, is not feasible because of the high cost of upstream exploration.

The department plans to draft a new petroleum charter within 12 months of the MPRDA bill being passed, though it did not give any details.

Lizel Oberholzer, Norton Rose Fulbright’s director of oil and gas, says it is not unusual for governments to hold stakes in oil and gas projects, but it would be unusual for this to be a free stake.

The department is also proposing that the stake could be reduced by the minister of mineral resources in consultation with the minister of finance during the production stage, taking into account the nature and financial viability of the project.

Bowmans oil and gas head David Forfar says the department’s decision to change the free-carry clause was the result of consultation with upstream oil and gas companies under the Operation Phakisa programme, taking into account the "frontier nature" of this sector. He expects finer details of the clause will emerge from a revised draft of the bill.

Forfar says the original 2013 draft of the amendment bill, requiring a 20% state free carry and a potential 26% black ownership requirement, set unacceptable conditions for investment in an emerging hydrocarbons industry. To develop a new oil and gas industry, SA should offer incentives to investors, not deterrents. He welcomes the latest proposed amendments, but says it is still to be seen how they will be drafted.

Deep-water exploration drilling off SA’s shores can cost up to about US$200m per well, with no certainty of finding oil or gas, Forfar says. Development in a harsh environment offshore can cost billions of dollars before any hydrocarbons are extracted. These costs present huge financial hurdles for all investors, particularly in a low oil price environment.

For black investors, even at a 10% participation level, these costs are a barrier. But it is vital, and a statutory requirement, to find a way to include black South Africans in the upstream oil and gas sector, he says. In future, a mechanism such as a state-sponsored company representing black empowerment interests may need to be created.

Cliffe Dekker Hofmeyr oil and gas director Megan Rodgers says uncertainty on the MPRDA amendments, together with the oil price crisis, has hampered much-needed growth in the oil and gas sector in SA.

The solutions proposed by the department at the recent briefing will address core concerns raised during the initial consultation processes.

"The proposals to rework the state-carried interest by way of a cost recovery mechanism and to retain the Petroleum Agency as the dedicated regulatory authority align with industry trends throughout Africa," says Rodgers.

These moves, together with the 10% black empowerment interest, "strike the correct balance between transformation and creating a stable and investor-friendly environment in an emerging petroleum jurisdiction", she says.

Oberholzer says there has been no official word on when the MPRDA amendments will be passed, but the NCOP consultation agenda indicates briefings will be held this year, with a deadline for comments early next year. This would make it possible to pass the bill by the end of the first quarter of next year.