Mineral and Petroleum Resources Development Amendment Bill [B15-2013]: public hearings day 1

Meeting report

Introduction by Chairperson
The Chairperson welcomed all participants to the public hearings and remarked that the only change to the programme was that the Members of the Committee would be required in the House at some point during the meeting.  The Committee was going to try to push as hard as it could to make sure that every presenter was granted an opportunity to make their presentation. She encouraged presenters to be precise and straight to the point, as everyone was familiar with the MPRDA. The submissions were going to extend into the next week, as there was a great interest in the Bill.

The Chairperson said that the MPRDA was the central piece in the laws governing South Africa’s mining and petroleum sectors. In May 2013, the Minister of Mineral Resources, Ms Susan Shabangu, had announced that a new Bill would be introduced to amend the MPRDA, which had now been referred to the Portfolio Committee on Mineral Resources. The Committee had asked for written comments from the public and interested parties. Over 600 pages of comments had been received by 6 September 2013. The comments covered oil and gas issues, environment, land, mining communities and public participation, and other specific areas. Many other comments had been received and these were still to be analysed. The comments were welcomed by the Committee, which appreciated the efforts of the stakeholders in engaging on the Bill. The Bill covered social, environmental and economic issues. There were constant changes in the minerals sector and suitable changes in the legislation were inevitable and important.

In outlining the rules to be followed during the public hearings, the Chairperson stated that the Committee did not specify what a presenter could submit.  Each presenter would be allowed a maximum period of 15 minutes and thereafter a period of 15 minutes would be accorded for comments, questions and responses. If there were to be any questions which could not be answered in full, or additional points, the presenter could put them in writing and forward them to the Committee Secretary. 

Anadarko South Africa (Pty) Ltd
Mr Ranoszek, Managing Director of Anadarko South Africa, told the Committee that the company was a wholly owned subsidiary of Anadarko Petroleum Corporation, which was one of the world’s largest independent oil and gas exploration and production companies, with over 5 000 employees. In partnership with PetroSA, Anadarko had an exploration right in offshore Block 5/6 and Block 7, and had lodged an application for an exploration right over block 2C.  Mr Ranoszek outlined the basic concepts and key questions of exploration, the need for investment, and the government’s objective versus oil company objectives.

Mr Ranoszek told the Committee that the primary areas of concern with the MPRDA Bill included fiscal stability, fiscal uncertainty and a dedicated regulator to deal with the oil and gas industry.

On fiscal stability, Mr Ranoszek stated that the Bill lacked robust economic stability provisions to protect the rights and legitimate expectations of existing right and permit holders, moving from an exploration right to a production right. He recommended that the current regulatory framework and settled practices should continue to apply to future petroleum rights granted, pursuant to petroleum rights, and permits that had been granted or applied for prior to the promulgation of the Bill.  He also recommended a provision in the Bill to protect the interests of existing holders, or current applicants for a right.

On fiscal uncertainty, Mr Ranoszek explained that there was a high level of discretion and uncertainty in the Bill with respect to state participation, BEE participation and the Mining Charter, beneficiation, relinquishments, limitation on the transfer of shares in listed companies, duration and renewals of exploration rights, environmental management and retention periods.

On having a dedicated regulator for the oil and gas industry, Mr Ranoszek outlined the complexities in the upstream oil and gas industry and onshore mining industry, and recommended the creation of a dedicated regulator to ensure that there was a concentration of knowledge and skills.

Anadarko was committed to establishing a mutually beneficial relationship with the South African state.   Oil and gas companies were ready to make significant investments in South Africa.  The legislation currently in force offered the correct balance between risk and reward and had attracted many new companies to South Africa. The Bill in its current form disturbed this balance, and raised the commercial risk to unacceptably high levels. The industry accepted that the government had the right to amend legislation, but there was a need for economic stability provisions to protect the rights and legitimate expectations of existing rights and permit holders moving from an exploration right to a production right. There was also a need for meaningful consultation between companies and all spheres of government to arrive at mutually acceptable solutions that would promote upstream activity in South Africa.

Discussion
Ms N Ngele (ANC) asked where the money from royalty payments went to. Some companies claimed that this money was given to communities, other claimed to build clinics, schools and other projects. What was Anadarko doing in this regard?

Mr Ranoszek replied that royalty payments were based on the requirements of the royalty legislation. There was a formula which was applied to revenues and the payments were made to the national fiscus through the National Treasury.  Royalties for the oil sector were at 5%.  Anadarko could not ignore corporate social investment, and this was not calculated in the royalty figures.

Mr H Schmidt (DA) noted that the Anadarko partnership with PetroSA had been described as non-coporatised. Anadarko had stated in its presentation some of the provisions of the Bill were not in keeping with the non-corporatised arrangements. What effects was this going to have on PetroSA, which was a state-owned company? On regulations, he preferred deadlines and timeframes in a legislative format in an Act of Parliament, rather than in regulations. His concern with regulation was that it was extremely wide. The Anadarko submission on regulations dealt with timeframes and not the substantive issues.

Mr Ranoszek replied that the word Mr Schmidt was looking for was un-incorporated.  PetroSA was a 20% shareholder in the areas where Anadarko already had a licence. Anadarko was one of the few companies in the world which had the technical knowledge to operate in the water depths where they were currently working. If the terms, conditions and risks were deemed to be too high and Anadarko decided not to proceed with operations, then it was going to relinquish its licences. How PetroSA was going to decide to handle such a situation was unknown, and he could not speak for them. That was the effect which such a situation could have. On regulations, he said that he had not seen the regulations, but he believed that they were in the process of being drafted.  

Mr J Lorimer (DA) said that according to his understanding, Anadarko had conducted its exploration so far on a certain set of rules and what was happening was that the rules were about to change. Was Anadarko saying that because of the change in the rules, it would no longer be worthwhile to spend the huge amounts it was spending on exploration? What kind of jobs was Anadarko creating with its operations in Mozambique?

Mr Ranoszek replied that the answer to the first question was similar to the one he had given to Mr Schmidt in relation to PetroSA. The jobs created in Mozambique were both direct and indirect. The revenue generated was in the billions of dollars, but the Company was literally building small towns along the coast. The jobs created were not only the direct jobs related to the project, but the other indirect jobs from service providers and other sourcing companies. Anadarko was already funding a programme in a Mozambican University for the study of petroleum engineering. The purpose was to upscale the locals in terms of petroleum skills and knowledge.

The Chairperson asked how many South Africans were employed by Anadarko and at what levels they were.

Mr Ranoszek replied that Anadarko currently had only four employees in South Africa, but looking at Mozambique, they had started off on a similar basis and had grown to several hundreds of jobs. As operations and production increased, the potential for job creation and employment was huge.

ExxonMobil
Mr Russ Berkoben, President of ExxonMobil, outlined ExxonMobil’s exploration interests in South Africa and its interactions with the South African Government.

While ExxonMobil appreciated that the Bill had admirable goals, such as streamlining administrative processes and removing ambiguities that existed within the MPRD Act of 2002, many of the proposed changes appeared to address issues specific to the mining industry. The Bill’s broad application would have several adverse consequences for the growth potential of the South African oil and gas industry. According to ExxonMobil, the current regulatory framework provided an atmosphere to promote, regulate and encourage exploration in the oil and gas industry, as demonstrated with the recent activity in the offshore area.

Mr Berkoben outlined the ExxonMobil proposals. On the proposed free carried interest (FCI) in Clauses 1(k), 54(f) and 59(d) of the Bill, there was need for clarity on the use of the phrase “free carried interest”. Additional clarity was also required pertaining to the state’s option to acquire a further interest. The current standard forms of exploration and production rights provided the clarity to attract investment in the oil and gas industry, but the language of the new proposals provided a lot of ambiguity as to the state’s intent. Further clarity was also required regarding the concept that the state would be issued “special shares” if it exercised an option for a further interest, and to have the right to appoint two directors to a management board of a production operation. It was not clear how the proposed legislation could be applied.

On historically disadvantaged persons (HDPs) of Clauses 1(1) and 54(b), the Bill proposed new language regarding this group of persons which required additional clarity as to the intent, purpose and implications. The proposal to amend the definition of HDP to exclude juristic persons might be in conflict with the MPRDA requirement that participating interest holders must have the ability to satisfy the technical and financial requirements of the exploration and production work programmes. Further additional clarity had to be provided regarding the proposal to require compliance with the Amended Broad Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry versus the Liquid Fuels Charter, which incorporated input from the petroleum industry.

With regards to beneficiation in Clauses 1(b), 2 and 21of the Bill, Mr Berkoben stated that previously, beneficiation requirements were not applicable to petroleum and the Bill was now going to give the Minister of Mineral Resources wide discretion whether petroleum may be exported, the percentage of production required to be offered to local beneficiators, and the prices at which it must be offered. It was therefore critical to clearly outline and understand any domestic obligations, as such requirements could have a substantial impact on additional capital investment.

Regarding the proposed disbandment of the Petroleum Agency of South Africa (PASA) in Clauses 1(g), 46, 47 and 48 of the Bill, Mr Berkoben emphasised the differences between the petroleum industry and the mining sector. After listing many of the complexities associated with the petroleum industry, his opinion was that retaining PASA would help South Africa to attract and retain investment in the oil and gas industry. As oil and gas exploration took several years, it was important to maintain a central agency and streamlined regulatory process to accelerate exploration.

Mr Berkoben made further submissions on the position and recommendations of ExxonMobil with regard to environmental matters, proposed changes to time periods, fines and penalties and relinquishment. On fines, he explained that the Bill sought to impose broad amounts of fines and penalties which might not be appropriately applicable to the nature of the offences under the MPRDA. These proposed fines could compromise the viability of certain petroleum operations and discourage expenditure on exploration and development work programmes.

Discussion
Ms Schmidt said that the issue of regulations was very important, because it was like entering a playing field without knowing what the rules were. With all the Ministerial discretions, there was great uncertainty. There was no set of regulations available. Had ExxonMobil been consulted about the intention of the Department about all the issues raised in the submission?

Mr Berkoben replied that the answer was simply that ExxonMobil had not been consulted on what the bases of the proposed changes were. The changes felt like they were being imposed on the oil and gas industry, and were unwarranted.

Mr C Gololo (ANC) noted that ExxonMobil had spent over $33.2 billion on corporate social investment. Was this paid to the national treasuries, or as part of philanthropy?

Mr Berkoben replied that the money spent was considerable, but it was geared towards the development of the ExxonMobil Foundation, to enhance the company’s objective of being a good corporate citizen.

Impact Oil and Gas Limited
The submission was presented by the Impact, Mr Sean Lunn.

Mr Lunn, Managing Director of Impact Africa Limited, told the Committee that the company held an exploration rght and three technical cooperation permits along the eastern coast of South Africa. It had carried out a number of geological, geophysical and environmental studies and found the eastern coastline to be prospective for oil and gas. Potential prospects so far identified lay in very deep water and a long way offshore. The Agulhas current, one of the world’s major currents, flowed constantly along the coastline. ExxonMobil was partnering with Impact, subject to government approval, in the further exploration of our blocks.
 
Offshore exploration was technically very challenging and carried considerable financial risk. Impact believed that the industry as a whole was willing to take those risks, provided the rewards were commensurate with the risks taken. The potential benefits for South Africa were great, not to mention that the country could become self-sufficient in oil and gas. The oil and gas exploration industry was a dynamic, worldwide business and countries were ranked by their prospectivity and their fiscal terms. South Africa was currently considered to have a very high geological risk, as no major oil or gas fields had yet been found.  If the current process was unable to find a mutually workable solution, the possibilities that existed offshore might, therefore, lie untapped for decades to come and the huge potential benefit to the country could remain unrealised.

Mr Lunn said that Impact Africa Limited was a member of the Offshore Petroleum Association of South Africa (OPASA), which had prepared a detailed submission. Impact aligned itself with the OPASA suggestion and proposal that the industry should be meaningfully consulted when the relevant sections of the Act were being implemented by Ministerial regulations.

Discussion
The Chairperson asked for an explanation of the partnership between Impact and ExxonMobil.

Mr Lunn replied that the partnership was at the block and licence level. Before the partnership, Impact owned 100% of the blocks and after the deal, they were going to own 25% while ExxonMobil would take 75%.  This was before any Historically Disadvantaged South Africans (HDSA) deals were concluded.

Mr Gololo said that as per the presentation, South Africa was currently considered to have a very high geological risk, as no major oil or gas fields had yet been found. Was the presenter aware of the shale gas discoveries in the Karoo?

Mr Lunn replied that he was not aware of any discoveries in the Karoo, but his understanding was that it was prospective hydrocarbons, and that it was still under exploration.

Mr Schmidt asked if the presenter could indicate what consultations had taken place with the Department, and if any proposals had been taken on board.

Mr Lunn replied that in the previous round, Impact had submitted essentially a cover letter, because the detail had been dealt with in the OPASA submission.  A number of written submissions had been made, but he did not believe that any of them had been incorporated into the draft Bill.

Offshore Petroleum Association of South Africa (OPASA)
The Acting Chairperson of OPASA, Mr Vusumuzi Sihwa, after listing the members and major partners of the association, stated that the current regulatory framework encouraged investment in South Africa. This was evidenced by the current petroleum exploration and production activities in South Africa. A commercial discovery could lead to substantial potential benefits for South Africa, with increased state revenue from taxes and royalties, stimulation of job creation, large potential contribution to GDP growth and the creation of a world class service industry. There was a challenging environment, high risk and a surprisingly low success rate, with a massive capital outlay to explore a hostile offshore environment, with no guarantee of commercial success.  South Africa’s potential resources, coupled with the current legislation, encouraged the industry to take these huge risks.

Mr Sihwa said that the Bill created perilous uncertainty for the industry through lack of stability, uncertainty and the disbandment of PASA.  Oil and gas companies could simply shift their focus to other global opportunities.

In terms of a way forward, OPASA recommended the insertion of a transitional provision that “Any exploration right or production right granted pursuant to an exclusive right held in terms of a technical co-operation permit or exploration right that was applied for or granted prior to the commencement of this Act, is to be granted on substantially the same terms and conditions that would have applied if this Act had not come into force”. It also proposed the insertion of “meaningful consultation” into key sections of State Participation and HDSA, as well as the relevant considerations that related to beneficiation and exportation.  OPASA proposed that a working group of all stakeholders be convened before the President signed the Bill to engage meaningfully and in good faith to reach a mutually agreeable way forward. It was international best practice to have an independent petroleum regulator. OPASA recommended that an upstream petroleum regulator be retained as one unit in one location.

Discussion
Mr Lorimer asked how the regulatory system contemplated in the Bill compared to other international jurisdictions. What did OPASA mean by “meaningful consultations”, since it was not even setting out what it wanted to be discussed in the consultations?  Why did OPASA find it so important to retain PASA as an independent regulator?

Mr Sihwa replied that the current regulatory system was very favourable, which was why almost all the blocks were taken up. This was testament of the fact that the oil and gas community viewed the current legislation as favourable. The issue at hand was that the current amendments had brought in an element of uncertainty, and the element of retrospectivity was a problem in the sense that the oil and gas industry came into South Africa expecting one set of fiscal and legislative rules to apply, but now the rug was being pulled from under the feet of the industry which they were in -- exploration. In terms of meaningful consultation, OPASA meant that after a process of business and investment analyses of the new draft of rules and regulations, it had been established that the new legislation was going to present an unfriendly and difficult environment for the oil and gas sector. Meaningful consultation meant that before the Act was brought into be operation, the industry would like to be engaged on the issues contained therein for solutions that could work for both South Africa and the industry.

Mr Lunn added that according to their legal advisers, the retrospective impact of the legislation on the industry could undermine the rule of law and could fall away as unconstitutional.  

On the retention of PASA, he said that PASA was a competent petroleum regulator with very qualified and skilled individuals who could accurately communicate with the industry, and the fact that it was operating as one unit meant that the coordination required for licensing could be done internally and with consistency in the application of principles applying to the industry.  It did not matter what it was called or who it reported to, but the set of important skills should be kept together.

Ms B Tinto (ANC) asked if it was a problem for OPASA that historically disadvantaged persons were being included in the Bill. Parliament had never passed a Bill without broad consultation, and that was the exact purpose of these public hearings. 

Mr Sihwa replied that the HDSA inclusion the Bill would be governed by the Mining Charter whereas before, the oil and gas industry had been governed by the Liquid Fuels Charter. This was something which the industry had agreed to, but the industry had not been consulted in relation to the Mining Charter, so the contention was that something was being imposed on the industry which had not been discussed with the industry.

Mr Gololo asked how many South African companies were members of OPASA.

Mr Sihwa replied that the oil and gas industry was an international one, and since South Africa was not a very renowned oil and gas country, it was mostly the role of the international companies to come in with the desired skills and technology to break into the industry and thereby train the local business community.

Ms Ngele said that she was impressed that of all the presenters, there was not even one woman. It was a very disappointing fact.

The Chairperson said that the gender issue was one of the objectives of the Bill and it was important for the industry to consider prioritising a gender balance.

Mr Sihwa replied that it was unfortunate that no woman had presented, but the greater portion of the work which had gone into the preparation of the presentations had been done by women.

The Chairperson asked if there was any connection between OPASA and Onshore Petroleum Association of SA (ONPASA), in terms of membership.

Mr Sihwa replied that there was no connection.

Onshore Petroleum Association of South Africa (ONPASA)
Mr Christopher Mumby. Chairperson of ONPASA, told that Committee that he had not come to present the actual facts in terms of the proposals on the Bill, as those were already included in a written submission which had been sent to the Committee. The objective of his presentation was to outline some fundamental principles which ONPASA wanted to have enshrined in the legislative framework.

Mr Mumby explained that global energy demand was expected to grow 35% by 2035, and this growth would be driven by key structural growth drivers such as population growth, industrial production intensity, globalisation and world commercial energy use. The changes to energy supply sources were to be driven by three key parameters – economics, emissions and energy independence. Advances in technology, including hydraulic fracturing, had led to higher production efficiency for unconventional gas and a growth in reserves. Natural gas production in the USA was going to continue to grow and international shale reserves had yet to be monetized.

In the South African context, the National Development Plan identified the country’s development requirements, emphasised the need for unconventional gas exploration and identified the need for greater policy and regulatory certainty for investors. This was going to encourage employment, empowerment, equity investment and economic growth.

In terms of the proposed amendments to the MPRDA, there was the need for consistent legislation. Rules should not change after rights had been granted and legislation needed to be clear and unequivocal. Legislation required finite time frames for compliance and discretionary elements to rules and laws should be limited with clear guidelines regarding beneficiation.

On consistent and uniform implementation, there needed to be a single regulatory body for licensing, and not multiple approval authorities. The knowledge pool needed to be centralised and all departmental authorisations needed to be issued in an integrated licence compiled by PASA, and issued by the appropriately authorised Minister.

Government participation had to be finite and defined and in accordance with licences already issued. Production licences must be granted in accordance with the terms contained in the exploration rights, as economic viability could not be determined in the absence of certainty.

Members did not have any comments or questions for the presenter.

The Committee adjourned to allow Committee Members to attend to some business in the House.

AgriSA
The submission by AgriSA was presented by the Legal and Policy Advisor, Ms Annelize Crosby.  After briefly introducing AgriSA to the Committee, she said that the comments from AgriSA were limited to matters relating agriculture, and to ownership and occupation of land.  These issues included: notification of landowners and occupiers in Section 10, regulation 3 of the MPRDA; partitioning of prospecting and mining rights in Section 11; consideration of the agricultural use and potential of land in Section 3 (3), 17 and 23; and claims for damage to land in Section 54.

On the notification of landowners and occupiers, AgriSA proposed that Section 10 be amended to deal in more detail with the obligations of the applicant to notify the owner or lawful occupiers of an application, by deleting the reference to “and the applicant” in the Section 10(1) of the draft Bill and by inserting a new section 10(1A) which provided that the applicant shall publish a notice of application and cause to be served upon the owner and/or lawful occupiers a notice of application. The notice of application shall contain a clear and full description of the property, state the right and the duration of the right for which the application is made, specify the mineral and the proposed surface infrastructure. Ms Crosby provided the Committee with further details about the notification of landowners and occupiers.

In terms of the partitioning of prospecting and mining rights, the following wording was suggested for Section 11(2A)(a): “the transferee has simultaneously lodged the applications mentioned in Section 16 or 22, as the case may be and has complied with Section 10 and the Regional Manager’s directive in terms of Section 16(4) or 22(4) as the case may be”.

Ms Crosby presented to the Committee the further details on the consideration of the agricultural use and potential of land, and the payment of compensation.

Discussion
The Chairperson remarked that the scope of the issue became broader every time a presentation was given. It was important to note the environmental and water issues. The idea was that there were too many points to go to in the issuing of a license, and the time frames had become too long. The logic was to develop a one-stop-shop where the application for rights and licenses could be tested through the various mineral, environmental, water and agricultural concerns. The process had to be self-corrective. The agricultural and food production aspects were also very critical.

Government and Parliament had to look at a way of handling these cross-cutting issues. It was not about a constant and reckless change in laws, but it was South Africa’s young democracy which was improving,  and there was a need for continuous improvement. These current changes were informed by the legacies of the past.

Mr Lorimer asked how serious the problem of notification was.

Ms Crosby replied that AgriSA held that it was quite a big problem and it was very important for landowners and occupiers to know of an application long before the exploring companies pitched up at their gates. 

Mr J Moepeng (ANC) said that the question of land remained an emotive issue in South Africa, and it was difficult to look at issues of land, development and mining without properly considering all the other related issues. The Committee could go back to the introduction of the MPRDA. One of the greatest frustrations for the development of mining in South Africa was that with mineral rights held in private hands, which often could not be traced, it effectively meant that it was impossible to develop mining to the current levels. It was important to draw some analogies from the experience of mineral rights held in private hands with the question and challenges of land which confronted South Africa. Parliament also had been careful not to try to solve administrative inefficiencies with policy. His concern was that businesses and companies always had the tendency of raising business issues as if these were the most important, but at the end of the day what was important was the interests of the people on the ground, the communities and families affected. The deliberations and aspirations of business had to be in constant conformity with the Constitution.

The Chairperson remarked that Mr Moepeng’s comment was the best conclusion for the meeting. She stated that the public hearings were going to continue the following day and would extend into the next week.

The meeting was adjourned.