BUSINESS MAVERICK

South Africa’s upstream petroleum bill proposes new SOE, 20% state stake and BEE rules

By Ed Stoddard 16 May 2021

(Photo: Unsplash / Zachary Theodore)

The Upstream Petroleum Resources Development Bill calls for the state to take a 20% stake in exploration and production ventures, and proposes the creation of a new state-owned enterprise (SOE), the State Petroleum Company. Given South Africa’s track record on SOEs, what could go wrong?

The Upstream Petroleum Resources Development Bill was approved last week by Cabinet and it is not clear when it will be tabled in Parliament. It comes in the wake of gas finds off South Africa by France’s Total and against the backdrop of a rise in risk aversion among big oil and gas producers faced with a global drive towards renewable energy sources, last year’s price collapse and violent flare-ups such as the jihadist attacks in northern Mozambique.

“The state has a right to a 20% carried interest in petroleum rights, including in both the exploration and production phase,” says the bill. This was not unexpected.

It adds that, “The State may elect to take its proportionate share of petroleum production in kind or in cash.” So, cash or gas.

The bill also has a BEE component, but one that seems to draw on the lessons learned from the thorny “once empowered, always empowered” issue that has bedevilled the mining sector. 

“Every petroleum right must have a minimum of 10 percent undivided participating interest by black persons,” the bill says. But it goes on to say that “the dilution of black persons’ participation… will not trigger a requirement for the holder of the petroleum right to augment black persons’ participation interest to 10%.

“Where black persons exit from a specific petroleum right, the empowerment credentials of the specific petroleum right must be recognised for the duration of the petroleum right.”

This means that if a black owner, or owners, sell their stakes, the company will not have to do another equity raising exercise to make it available again to exclusively black shareholders.

But there are some caveats. The empowerment credentials will remain recognised provided that “black persons have held undivided participating interest for a minimum period equivalent to a third of the duration of the initial term of the production phase of a petroleum right”. There must also be “an agreement detailing exit mechanisms and black persons’ financial obligations” submitted to the Petroleum Agency.

So, in typical fashion, lots of red tape. The minister may also “reserve a block or blocks for black persons”.

A new State Petroleum Company is also seen playing a role here.

“The State Petroleum Company is designated as a state-owned entity responsible for managing state participation in exploration and production activities through a carried interest in petroleum rights,” the bill says. 

So, another SOE, and one which will be wading into the hydrocarbon space, which in the region has not had the best reputation on the governance and transparency fronts. Mix that in with the track record of South African SOEs and what could go wrong?

Royalty payments, production bonuses, taxes and the fiscal side of things have not yet been spelt out. If these are excessive, on top of 20% going straight to the state, investment in the sector will be a hard sell. 

After the collapse of oil prices last year in the face of the Covid-19 pandemic, and the brutal conflict in northern Mozambique which has brought Total’s $20-billion gas plant project to a halt, oil majors are becoming pretty risk-averse and picky. DM/BM 

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All Comments 9

  • Oh dear…so many brazenly shocking things in there perpetuating things our entire society is trying to avoid, I dont know which to feel worse for. We all know by now that when things seem to have no apparent logic, look to the money.

  • So what is the legal definition of “black person” This is blatant racial discrimination pure and simple. How NOT to run an economy 101.

    • Just another ANC financing structure and an opportunity to make the entitled cadres even richer!
      There’s little hope left!

  • Once again, the ‘government’ is meddling in affairs about which it has no clue. Just another trough for government piggies to feed from.

    Government should govern – period. It should not under any circumstances have any SOEs – leave those to business people who know what they’re doing.

  • The party in govt. simply WILL not learn – even from past mistakes. We see clear evidence of how SOE’s have been and continue to be abused – and the current debacle about state-owned petroleum companies is yet to be resolved (or the guilty princess T appearing in court)
    Disgraceful!

  • Setting the tone for a purchase of Reatile recently purchased from Sasol at a much higher price than the R4billion paid to Sasol! Some ANC crony is going to make a lot of money on this one. Money that taxpaying Shareholders should be earning for their loyalty to Sasol.

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