South Africa: New Law Will Give State Free 10% Stake in New Oil and Gas Ventures

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  •  Bloomberg news has reported that the South African government is drafting a new law that secures a free stake in all new oil and gas ventures.
  • Under the legislation, which the Department of Mineral Resources and Energy outlined to lawmakers in Cape Town this past week, the state would secure 10% ownership of energy projects at the exploration phase and the rights to 10% of their production at no cost.
  • The law, which is still being refined, will be submitted to parliament in the final quarter of this year, said Ntokozo Ngcwabe, a deputy director-general in the department.

Oil and gas companies that have secured exploration rights have held back on costly drilling while they await clarity from the government on the commercial terms.

The previous plan giving the state a 20% free stake in all new ventures and the right to a buy an unspecified additional share were put on hold in 2015.

The finalising of energy legislation has become more urgent since Total SA announced a mega deep water oil find off the coast of South Africa earlier this year. Read more

Key aspects of the proposed law:

  • The contract terms offered to companies will be informed by the location of their exploration block and whether they plan to tap a conventional or unconventional resource.
  • The national interest and the bearing projects will have on the security of the nation’s energy supply will also be taken into account.
  • Contracts should include a provision for black investors to be granted a 10% stake in new ventures.
  • The energy minister should have the right to reserve some exploration blocks for companies that are wholly owned by black investors.
  • There was no mention of the state being allowed to buy additional stakes in energy ventures.
  • The Mineral Resources and Energy Department also wants energy companies to be charged royalties on their profits ranging from 0.5% to 5% – a levy it says should be imposed in separate legislation drafted by the National Treasury.

Author: Bryan Groenendaal

Source: Bloomberg



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