Upstream Petroleum Resources Development Bill: DMRE briefing; with Minister

Meeting report

Minister’s overview 

Mr Gwede Mantashe, Minister of Mineral Resources and Energy, said the draft Upstream Petroleum Resources Development (UPRD) Bill was meant to strengthen petroleum provisions and preserve energy sufficiency for South Africa. He also added that petroleum development meant the exploration and exploitation of gas.

He remarked that when developing oil and gas, “we are swimming against the stream” because there was the belief that the era of fossil fuels and coal was coming to an end. He therefore estimated that if there was a breakthrough in the development of oil and gas, there would be gross domestic product (GDP) growth of 5% to 8% annually. This estimate was supported by the 42% GDP improvement in Namibia following its discovery of oil, and provided him with the confidence that it could happen in South Africa.

The Department's presentation highlights the evolution of the oil and gas sector from 1911 to 2021. The presentation would then locate the Upstream Petroleum Development Bill within that process. He added that it would also provide information on the process followed in developing the Bill.

The Minister expressed excitement about the process of the Bill and its importance to the country, and called

on the Deputy Director-General (DDG) to lead the presentation. 

DMRE on Upstream Petroleum Resources Development Bill 

Ms Ntokozo Ngcwabe, DDG: Mineral Policy and Promotions, Department of Mineral Resources and Energy (DMRE), said the development of petroleum resources was currently administered under Chapter 6 of the Mineral and Petroleum Resources Development Act (MPRDA), which was considered a minerals-based regulatory system. In this Chapter, there were provisions for the regulation of the upstream petroleum industry, and it designated the Petroleum Agency of South Africa (PASA) as the regulator. However, the provisions of the MPRDA did not sufficiently address pertinent issues required for the development and growth of the upstream petroleum industry.

The draft UPRD Bill was intended to strengthen upstream petroleum provisions and present a value proposition for SA. In this context, upstream petroleum development refers to the exploration and production of oil and gas.

Ms Ngcwabe provided a brief overview of related legislation, which illustrated that during the history of South Africa, mining, oil and gas had been regulated as far back as before 1911. The pre-1911 period had seen the creation of the Mines and Works Act, which focused mainly on mining, with no provision for oil and gas.

The year 1991 saw the establishment of the Minerals Act, which included oil and gas resources as minerals. However, at that time, there was no legislation dedicated to the oil and gas sector.

2002 saw the establishment of the MPRDA, which included provisions for oil and gas in Chapter 6. Upon factoring in South Africa’s potential for oil and gas, it was considered it would not be beneficial to have oil and gas as an appendage to mining. This would require separate legislation for oil and gas before the development of the upstream petroleum process.

The process followed by the DMRE started with a research and benchmarking exercise, where different jurisdictions were looked at. This exercise also looked at how upstream oil and gas referred to the pre-exploration and development phase. The exercise also examined how oil and gas were regulated in comparably developed economies by studying countries such as Norway, Nigeria, Congo (Brazzaville), Canada and the United States (US).

After studying these countries, it became apparent to the DMRE that for the oil and gas sector to reach its full potential, it required dedication towards its regulatory framework. This led to drafting the Bill and a round of stakeholder consultations.

In November 2019, Cabinet approved the draft bill to be published after a consultation process. The draft bill was then gazetted for input from stakeholders before being finally submitted to Parliament for final consultation. 

The objectives of the UPRD Bill were varied:

• The first objective was to recognise the internationally accepted right of the state to exercise sovereignty over all the petroleum resources within the Republic.
• The second objective was to give effect to the principle of the state’s custodianship of the nation’s petroleum resources and promote equitable access to the nation’s petroleum resources to all the people of South Africa.
• The third objective was to expand opportunities substantially and meaningfully for black people to enter and actively participate in the upstream petroleum sector and benefit from the exploitation of the nation’s petroleum resources. 

The DDG then proceeded to outline the various significant clauses and provisions of the Bill.

See the DMRE presentation for further details

Discussion

Mr J Nyambi (ANC, Mpumalanga) voiced his appreciation for how the presentation used the clauses of the Upstream Petroleum Resources Development (UPRD) Bill to provide clarification, saying that this would make the Bill easier to communicate to communities within the provinces.

He asked about the tagging of the Bill, seeking confirmation from the DDG or Minister if it was 76 or 75, as this would help avoid the past problem of incorrect tagging. He said the Bill would address the challenges faced by the historically disadvantaged and some of the limitations of the Mineral and Petroleum Resources Development Act (MPRDA).

He wanted a clear plan regarding the availability of the relevant DMRE officials as permanent delegates in the National Council of Provinces (NCOP) when they would be visiting the provinces. The right people needed to be available so that the Bill would be able to “see the light of day” without compromising the entire process.

Mr R Jankielsohn (DA, Free State Legislature) referred to the 50% to 100% of exploration cost by companies in recovering the 20% owned by the state, and asked how this was decided because between 50% and 100%, especially when it covered petroleum exploration, was a huge amount. Who would decide if it was 50% or 100%, and how would that be decided?

His second question was about the licensing application process, which included an adjudication process. Who were the individuals tasked with adjudication, and who appointed them -- was it the Minister, or through a gazette? This was because, with the legislation, there was too much in the gazette, and too little in the UPRD Bill, making this a problem. He said it granted the Minister too much authority over aspects involving an industry that brought a large amount of revenue, which in turn led to corruption.

He asked about shares for black people. Who decides those deemed to be acceptable shareholders -- would it be the petroleum company itself, or the Minister? He argued that such a system had been abused in the past. He wanted to know if, for example, a company could declare that they were going to take that 10% share to create a trust for their black employees and put the shares in a trust for them. Would this be possible, or was it going to be another case of elite beneficiation?

Mr M Nhanha (DA, Eastern Cape) said that in the presentation, the DDG had mentioned the risk of investor deterrence, and referred to the “pushing away” of investors. He wanted to know if, during her consultation process, she consulted leaders of the petroleum industry and potential investors. Had those stakeholders given any indication of what would deter investments? If so, what were the deterrents, and what had the DMRE done to mitigate such risks?

His second question involved the definition of a black person in this context. He wanted clarity, since black people were already involved in the industry, and they had made themselves multimillionaires through mining and other related activities. He asked if these people should be considered based, on their skin colour, when permits were issued despite their obvious wealth.

Ms L Mapena (ANC, Free State Legislature) asked how “our people” were going to benefit from this Bill, because they were the mostly economically affected. Was this Bill going to be presented in the provinces like other previous bills that had been presented to their constituents? She commented that the Bill was complicated when compared to previous bills put before the provinces. However, she did appreciate that there would be a delegation from the national government to explain the Bill to provincial communities and answer their questions.

The Chairperson agreed with Ms Mapena that Committee Members should return to their provincial constituents and brief them on the Bill and the Department. She also agreed that it was a very difficult bill, and promised to request the Department to assist the Select Committee when briefing provincial communities.

Ms W Ngwenya (ANC, Gauteng) wanted to know if the Bill aimed to create a conducive environment that would allow the historically disadvantaged to play a meaningful role in the economy. When the Bill was passed, what impact would it have on oil and gas companies?

Mr Z Mkiva (ANC, Eastern Cape) wanted the DMRE to confirm it had indeed met with stakeholders, particularly those along the country's coastal belt, to ensure representation and provide details on their expectations.

Mr Mkiva wanted confirmation from the Minister that the Bill was indeed progressive and if it had considered historical circumstances when it came to other riches and benefits in the minerals sector. He sought assurance that there would be no recurrence of the marginalisation of black Africans when it came to the exploitation of these resources.

He pointed out that the petroleum sector was dominated by the so-called “oil majors,” but the Bill itself provided provisions for the meaningful participation and contribution of “our people” in the factors of production within the petroleum sector. He wished for assurances from the Minister that the Standing Committee would not be expected, after ten to 20 years, to ask for a Charter to ensure the participation of the black African majority, rather than the instrument itself as it was being presented. He added that the Bill had accommodated “our people” to the extent that they would not just be receiving employment, but would be part and parcel of those controlling and managing the means of production, including ownership.

Overall, he welcomed the UPRD Bill and voiced his support.

DMRE's response

Minister Mantashe said he would address only political issues, as opposed to the technical issues, which he would leave to the Department.

The Minister said the Bill was tagged as 76, not 75.

In response to Mr Jankielsohn, he said that recovering 100 % from the state would be decided by the operator, and not the Minister. He added that the Department would address this in more detail.

Regarding the Minister being granted too much authority, he commented that he was aware that when people spoke of the Minister, they were referring to Gwede Mantashe. However, there was a separation between Gwede the individual and his role as the Minister. Therefore, it was not a question of power being given to Gwede, but the power being granted to the Minister with a portfolio.

Regarding shares being abused by black people in the past, he requested examples of such cases as it would be helpful.

The Minister commented that the UPRD Bill had considered what had happened in the past, and recognised that “once empowered, always empowered.”

He referred to what had happened at Harmony, where shares had been given to a person, and said Harmony had been compliant, but when the share price rocketed, that person had sold the shares and left the industry. That was not abuse -- it was a black person taking advantage of an opportunity.

The Minister said that the Department would not insist on getting another black person to replace the previous shareholder, because the question of black empowerment would have been fulfilled.

The Minister then responded to Mr Nhanha's question on investor deterrence, and what he considered “a very strange question” as to whether leaders of industry had been consulted. He did not know who the potential investors were -- they were the people who would invest in the petroleum industry once it was in place. His view was that Mr Nhanha believed that black empowerment would deter white investors, and commented that this was "a racist mentality" that did not accept reality.

Mr Nhanha interrupted the Minister on a point of order, and stated that what the Minister had said about him was untrue. He was still a black person, despite his membership in the DA, of which the Minister was aware. He accused the Minister of purposely misinterpreting what he said, and warned him not to “try it.”

The Chairperson warned the Minister not to further antagonise Mr Nhanha by misinterpreting what he said.

The Minister commented that if the meeting was physical, then he and Mr Nhanha could have “talked it out,” but since it was virtual, he could not engage and insisted that they drop the issue.

He said that black economic empowerment (BEE) deterred investors. Nevertheless, the government was correcting the legacy of the past by opening up space for black participation in the economy, and would continue to do so.

The Minister responded to the question of blacks already operating within the petroleum industry, and if they were considered black. He stated that black was black, regardless of class, and that blacks would still be considered if they applied. The Department would consider only those who wished to be involved.

He reported that last week he had been in the goldfields and discovered a number of young black entrepreneurs who were running gold mines. Although they were not rich yet, they were en route to becoming millionaires, which he appreciated. 

He always appreciated that the Department should help to create black capitalists, and vowed that it would happen through the UPDB. Therefore, the Department would consider any person who applied to participate in the petroleum sector. Although it was currently closed, it must open for black participation.

On the subject of how “our people” were going to benefit, the Minister commented that the first question should be who was considered “our people.” He answered that South Africans were "our people.” That was why the Bill provided for 20% state benefit and 10% black empowerment, which addressed “our people.”

He commented that when the state benefits, it was not for the sake of the state. That was why even the government experienced fiscal problems, social grants and other payments to citizens were not cut. Instead, the payments continued because it was the benefit “our people” received directly from the state that was responsible for them.

The Minister admitted that he did not know much about the marginalisation of black Africans. All he could say was that South Africans, whether black or white, must take the initiative and be proactive in wanting to be involved in the petroleum sector. If one was not involved, one could not become a businessperson. The state was not going to look for entrepreneurs. He added that entrepreneurs were not created, but facilitated.

He then addressed Mr Nhanha, saying he had not intended to antagonise him. He had just wanted to comment on an observation he had made.

DDG Ngcwabe said she would comment on the two questions just to supplement the Minister’s responses.

She recognised the question raised by Mr Jankielsohn about adjudication, and answered that the South African Petroleum Agency would be the regulator adjudicating the applications submitted.

In response to Mr Nhanha's question about factors deterring investors, she said that following the consultations with stakeholders, the security of tenure was the main issue regarded as an investment deterrent. This explained why the Department provided a tenure of 30 years for a petroleum production right because that was deemed as sufficient time -- enough time to create an investment that was worth billions of rands into a project. There was also the option to renew for a further ten years until the resource was exhausted.

The Chairperson thanked the DDG and Minister for their responses and asked if the Select Committee was satisfied. 

Mr Nyambi commented that there was only one issue outstanding, which involved the DDG ensuring the establishment of a delegation with the “right people” to meet and brief the communities in the provinces. Once that issue was sorted, “we will be ready to hit the ground running,” as the Bill was long overdue.

Mr Nhanha accepted the Minister’s comments about not intending to insult him. 

The Chairperson agreed with Mr Nyambi that the DMRE should acquire the relevant personnel for the provincial briefings. She added that this should be “the sooner, the better” -- preferably before the reopening of Parliament in February. She requested that community public hearings must start in January.

The Chairperson once again reiterated that the Upstream Petroleum Development Bill was very important, which was why the Committee would prefer staff from the DMRE, excluding the Minister and DDG.

Minister’s closing remarks

Minister Mantashe commented that he appreciated that the DMRE always availed themselves to the NCOP whenever called upon. If the NCOP requested the physical presence of the DMRE, they would always comply. He added that when the Department appeared before the NCOP, they would arrive in relevant numbers so relevant personnel could be available to address issues.

The Chairperson thanked the Minister and the DMRE, and allowed them to leave the meeting.

Committee matters

The Chairperson asked Mr Asgar Bawa, the Committee Secretary, if any items were left for the Committee to address.

The Bawa responded that there were still two more items left to be addressed. These items were the discussion of the fourth term programmes that Ms C Labuschagne (DA, Western Cape) had wanted to address. However, she had departed from the meeting. The other item was the adoption of the draft minutes of 14 November.

Ms L Bebee (ANC, KZN) proposed the adoption of the minutes, and Ms Ngwenya seconded.

The Chairperson said the minutes were duly adopted and there were no further items to address.

She expressed the hope that as soon as possible, Members would return to their provinces and brief their communities on the Upstream Petroleum Development Bill before the next parliamentary term. She also thanked the Members from different provinces, and urged them to inform their communities about the upcoming briefings and the importance of the Bill.

The meeting was adjourned.