Speech to Parliament on the Upstream Petroleum Development Bill
26 October 2023
Mr Chairman
It has been said the ANC never misses an opportunity to miss an opportunity. This bill presents another classic case where possible economic growth, money to the fiscus and jobs for our people are being sacrificed on the alter of the ANC’s race obsession, and for them it has the added benefit of a few comrades getting very rich.
Make no mistake, if we have the oil and gas endowment that we think we have, it has the potential to improve the economic circumstances of every South African. Countries with large oil and gas reserves, with credible legislation governing the exploitation of those reserves tend to be very rich countries with high standards of living, countries like Norway or the United Kingdom or the United States.
But there are other countries with huge petroleum endowments which are at the other end of the scale marked repressive failing kleptocratic state. Venezuela springs to mind. Bear in mind that Venezuela has the largest crude oil reserves of any country, and yet 77% of its people live in extreme poverty. So the presence of oil reserves is no guarantee that a country’s people will be rich. Given the ANC’s abysmal record of picking role models, we should be worried.
The crisp question of this debate is the following: To which end of the spectrum of oil producers will this bill before us lead us to, Venezuela or Norway?
All of this rests on the assumption that we have the oil and gas that initial indications show we have.
The brightest prospect seems to lie off South Africa’s west coast. Just north of the boundary of our territorial waters with those or Namibia, the oil supermajors Total and Shell have found large amounts of oil and gas. It is believed the field they have discovered contains some 5 billion barrels of oil. The same geological feature that contains that oil extends into south African waters and right down our coastline to south of Cape Town.
It is thus considered likely, although not certain, that South Africa may have reserves of another 5 billion barrels of oil. It’s also estimated that between us and Namibia, the west coast may contain reserves of some 50 trillion cubic feet of gas. Remember that on reserves of 1 trillion cubic feet, the Mossgas project produced thousands of barrels of liquid fuel for more than 20 years.
Remember that for every barrel of oil taken out of the ground, the government will get more than half of the value through state ownership and taxes. If what we hope is there materialises, it will supercharge state finances.
But these finds are complex and expensive to retrieve. The Petroleum Agency PSA says it takes R800 million to drill must one of these offshore wells. The only people with the expertise and the money to drill are the major oil companies. So what legislation will persuade them to spend their money exploring for oil and gas in our territory?
Ten years ago the ANC tried to rewrite the rules governing oil and gas in an amendment of the MPRDA. It proposed conditions that were unacceptable to investors. Even though that amendment was scrapped, investors sat on their hands or left the country. We lost ten years in which we could have had exploration and development. Incompetence cost us money and jobs.
There are provisions in this bill that will put off investors. The bill demands 20% of every project goes to the state oil company, essentially Petro SA. It’s not an uncommon requirement. Norway has a state oil company but the United Kingdom and United States do not. Our view is that it is not necessarily a bad idea, if the state oil company is well run. Is Petro SA well run? Not on current evidence.
On top of that 20% giveaway, this bill demands another 10% be set aside for BEE companies. There’s a very loose provision that gives the minister the right to declare certain blocks, blacks only blocks, setting up racial barriers for investment. These are a bad ideas. BEE has been proven to deliver great riches for very few, and by its existence chases away investment, resulting in fewer jobs and tax benefits for the many.
Bear in mind that to an investor, the 10% to BEE interests is the same, essentially as the allocation of 20% to the state. To them it means giving away 30% of the project. But the BEE 10% will not provide benefits to the people of South Africa, it will provide benefits only to those BEE companies and the people who own them. Another way of describing this is crony enrichment. This is a clear case where the people get less, and the cadres get more.
The ANC continues to tell us that all black people will benefit because a few black people will be rich. BEE is like the joke people used to tell about the ANC’s old friends in the Soviet Union. That joke says that the Soviet Encyclopedia defines champagne as a delicious drink consumed by the people through their carefully selected representatives.
Consider this from the point of view of a prospective investor. Do you go to Namibia where they know the oil and gas exists and where you have to give away 10% to a state oil company? Or do you put your money into South Africa where we have not yet found the oil and gas and where they have to give away 30%. Which place would you choose to invest?
Section 32 allows the Minister to Reserve a block or blocks for black people only. It does not limit how many blocks can be so reserved and provides no guide for under which circumstances the minister can decide to do this, other than in pursuance of black ownership. The minister can wake up one morning and simply decree this.
The bill says any bidding company will have to set up a joint corporate structure with Petro SA before bidding. They’ll have to disclose all their proprietary information at that stage. What’s to stop the Minister from seeing a good prospect and simply declaring that a block set aside for black participation only. Will investors trust this government not to do that? Don’t hold your breath.
Apart from the racial set-asides, which are a failure in practice, and 30 years after democracy are a moral failure too, there is another big problem.
That is the extensive discretionary powers granted to the minister.
The Minister will also decide when to open applications for blocks. That gives him huge power to advantage bidders who may be his friends. This opens the door to corruption. This is the type of provision that is in the laws of the Venezuela end of the oil producer spectrum.
Also bad is Section 107 which allows the minister to decide local content plans and local recruitment and procurement. This “make it up as you go along” clause gives the minister the ability to impose such regulations that that have set back the growth of the mining industry, enriched a few comrades and if repeated in the oil and gas industry will send any potential investor running for the hills.
One of the schedules of this bill deals with transitional arrangements, but it seems to us to be incomplete. There’s a very credible view that there will need to be changes to the way The Income tax, the Royalty Act, the Customs and Excise Act and the Exchange control Act are structured. Nobody knows what those changes will look like. So we are left with uncertainty. Nobody will invest happily before there is certainty. During processing the DA asked for a financial impact study, but that request was fobbed off. We just don’t know the implications of these changes, neither do potential investors.
Namibia will be producing oil and gas in four years. Unless the oil companies take a very long view, this bill could mean development of our resources could be set back for another ten years.
That means less investment, fewer jobs and no supercharge of the fiscus.
Passing this bill will have consequences.
Passing this bill will ensure the ANC’s usual toxic combination of greed, ignorance and ideology will continue to keep South Africans in poverty.
Issued by James Lorimer, DA Shadow Minister of Environmental Affairs, Forestry and Fisheries, 26 October 2023
