Upstream Petroleum Resources Development Bill: briefing with Deputy Minister

Meeting report

The Chairperson said that there is information circulating that the fuel price will still increase at the beginning of June 2022 which is unfortunate as the Committee has been trying to avoid that.

Draft Upstream Petroleum Resources Development Bill, 2019
Ms Sibongile Malie, DMRE Manager: Licencing and Regulation, said that the development of petroleum resources is currently regulated under Chapter 6 of the MPRDA but those provisions do not sufficiently cover pertinent issues required for the development and growth of the upstream petroleum industry. The UPRD Bill therefore strengthens upstream petroleum provisions and presents a value proposition for SA. The general state interest includes fiscal and non-fiscal items while general investor interest includes interest to monetise, stability, enforceability and regulatory design. The objects of the Bill are:      
• Give effect to the principle of state custodianship of the nation’s petroleum resources;
• Provide for active state and black person participation;
• Promote economic growth and petroleum resources development in the Republic;
• Encourage and promote national development of petroleum resources through the acceleration of exploration and production;
• Promote and facilitate the acquisition of petroleum geotechnical data;
• Provide for security of tenure in respect of exploration and production operations.

Two types of licensing rounds will be triggered by a Ministerial notice invitation:
1. Administrative Adjudication Process
- criteria defined in the notice of invitation, including minimum work commitment.
- time frame to be indicated in the notice.

2. Open Door System   
- criteria for award not pre-defined in the notice.
- time frame to be indicated in the notice.
- Option 2 will be initiated under exceptional circumstances.

Permits and rights include reconnaissance permit, retention permit, and petroleum right. The provisions for transfer have been aligned with the MPRDA. Ministerial approval is required for mortgage by financial institution. The institution or financial institution approved by the Minister will also be subject to a written undertaking that any sale in execution or any other disposal pursuant to the foreclosure of the mortgage will be subject to the Ministerial consent. The 10% participating interest in petroleum rights for black persons on commercial terms has been retained.

The definition of ‘black persons’ for purposes of 10% participation by black persons on commercial terms has been clarified to mean a company that is 50 + 1% owned by black persons. Black persons are allowed to dilute to no less than 5% for purposes of raising capital. Two years extension provision for the holder or an applicant of a petroleum right who is not able to secure the required black person participation. There is provision for retention of empowerment credentials of a black person provided that at least 50 per cent net value has vested in black persons after a set time period. That recognition is confined to the petroleum right in question and not transferable. The Bill empowers the Minister to set aside blocks for black persons and issue an invitation that those blocks are set aside for black persons’ participation.

The provision for the state's 20% carried interest in all petroleum rights remains. The holder will be entitled to recover a maximum of 50% and 100% of the state’s proportionate share of exploration and production costs respectively. Cost recovery rules will be prescribed in the Regulations. The National Petroleum Company is to be a party to a joint operating agreement.

Strategic stock requirements
There is a requirement for petroleum right holder to sell a percentage of petroleum at prevailing market price to the National Petroleum Company subject to terms and conditions to be agreed upon. The percentage of petroleum to be sold will be determined by the National Petroleum Company. There is provision for arbitration in case of a dispute. An agreement of the sale of petroleum to be annexed to the petroleum right.

Amendment of a petroleum right
The petroleum right may be amended after the expiry of the initial term of the production phase (30 years), having regard to the need for the state to derive a fair share of benefits from the production of its petroleum resources. The amendment must be preceded by consultation with the petroleum rights holder in good faith to agree on an equitable arrangement that takes into account the impact of the proposed amendments on the holder. If the parties are unable to reach an agreement on an equitable arrangement, either party shall be entitled to refer the matter to arbitration as provided for in the terms and conditions of the petroleum right. The arbitral tribunal shall have its seat in South Africa and will be conducted in accordance with South African law.

Transitional Arrangements
The Bill consists of Schedule 1 which contains comprehensive transitional provisions to affirm security of tenure of existing permits or rights by giving them an opportunity to transition to this Act.

- Pending applications
Exploration right, Permission to remove and dispose, reconnaissance permit and production right.

- Existing rights
Exploration right, Permission to remove and dispose, reconnaissance permit and production right and technical cooperation permit.
Terms and conditions (BEE, Social Labour Plan (SLP) and Work Programmes)

Concluding remarks
Passing of the Bill is a critical step for:
- Development and growth of this sector;
- Industry’s contribution towards energy security; and
- Ensuring fair share of revenue for the industry and the people of South Africa.

Discussion
Ms P Madokwe (EFF) asked for an explanation of state custodianship and state participation. What informs the 10% black participation percentage considering the current state of affairs in South Africa where there is the unemployment of black people and less participation in certain industries? Why is the percentage capped at 10%? As the petroleum industry is highly skilled, what procedures are in place to ensure that the projected skills requirement will be met? She asked for more clarity on 'first come; first served' licensing. On exploration methods, does the Bill make a provision that the exploration method used will not negatively affect the marine environment and livelihood of people that depend on fishing?

Mr V Zungula (ATM) said that the ATM is very serious about the empowerment of black people and would like to see the Bill being clear about the empowerment of black people. The empowerment of black people must be proper and fair, particularly in light of the present reality in South Africa where unemployment and poverty are seriously high. In clause 4(4) ATM would like to make a submission that PetroSA must house the assets as alluded to by the Bill. If PetroSA is given the responsibility of housing the assets, then the current PetroSA staff component can be trained to play a meaningful role and future retrenchments may be avoided.

In clause 4(5) the principle of 'once empowered, always empowered' is seen as a fraudulent expression as it is a misrepresentation. The ATM rejects this concept. When black companies or participants want to sell, they must sell to other black people and must not sell to just anyone. The IDC or another funding instrument that was used to assist the old owners must be used to assist the new owners as well. If it happens that black people want to venture into something else and want to let go of their stake, that stake must always stay with black people. That opportunity that was previously given to black people must not be lost because the participant has decided to move on and venture into other businesses.

It is an insult to state in Clause 31 that black participation is only 10% whereas 80% of the South African population consists of black people. It must be very clear that the ATM is calling for no less than 50% black participation.

The Chairperson stated that for now, Members may ask questions of clarity. There will still be a discussion among Portfolio Committee members about the next step. It is only when the Committee deliberates can Members’ positions on the Bill be stated.

Deputy Minister’s response
Dr Nobuhle Nkabane, Deputy Minister of Mineral Resources and Energy, said that the Department will respond only to clarity seeking questions and not to the comments on positions made by Members. In response to the question on marine exploration, anything that DMRE does is tested by science. It is possible that offshore exploration affects the marine environment and the livelihood of people. The process that the Department undergoes when doing seismic surveys and offshore exploration has been tested scientifically and different technologies were used to test this. The Department is confident to report to the Committee that indeed it is safer now and perhaps the Chairperson can request DMRE to come and share with the Committee about that process.

The Department understands that it is not only its responsibility to ensure that people have the relevant skills in demand in the job market but it is the collective responsibility of all departments. DMRE has very competent entities that from time to time absorb interns to be exposed to practical experience on what is needed in the sector. There are outreach programmes conducted from time to time reaching out even to rural communities to showcase those skills in demand in the sector and to provide bursary opportunities.

Department’s response
Ms Malie replied that the principle of state custodianship is that the state is the custodian on behalf of the people. All the petroleum and mineral resources in the country belong to all the people of South Africa. The state plays the role of a custodian on behalf of South Africans and is guarding those resources. On state participation, the state is actively participating and has a shareholding on behalf of the people. Of the 10% black participation, the Bill is not saying that black people can only participate up to 10%. Black people can apply for a right at any point when the Minister publishes an invitation.

As the industry is capital intensive, it might be difficult for black people to be able to apply for rights which is why the percentage is 10 however that does not prevent black people from applying for rights over and above that 10%. The Bill proposes that the Minister can also publish notices and set aside certain blocks only for black persons so there is the 10% participation and the blocks.

Mr Bongani Sayidini, Petroleum Agency SA Chief Operating Officer, replied that the overarching objective of state participation is to safeguard the state’s interest in the petroleum sector. State participation is a lever to give effect to the state custodianship of petroleum resources in the country. State participation ensures that the state influences decisions taken by a joint venture partnership in exploration and production. What informs the actual percentage is the petroleum potential in the country. In a country that is not proven to be prospective, state participation would be low. Normal state participation in the SADC region is 10 to 15% therefore the 20% set in the Bill is an increased share.

On environmental impact, the Bill provides for an environmental authorisation which includes an environmental impact assessment. The environmental impact assessment must assess the impact of the technologies on the environment and the application must demonstrate mitigation measures to protect the environment.

Ms Malie replied that the Petroleum Agency has the Upstream Training Trust which the exploration and production licensees contribute towards annually and through that trust bursaries are issued to students. This is to address the needs of a highly skilled industry. 'First come, first served' is implemented through the Open Door System licensing round when the minister makes a notice of invitation.

Committee Report on Mineral Resources and Energy Budget Vote
The Committee considered if the additions made to the Committee Report's Observations and Recommendations were a correct reflection. There were no further changes and the Committee adopted the report.

Committee Report on Gas Amendment Bill public hearings
The Chairperson asked if there is any matter about the public hearing process that has not been captured properly.

After Mr J Lorimer (DA) indicated a technical amendment, the report was adopted.

The meeting was adjourned.