Sakeliga opposes new upstream petroleum bill: additional energy sector regulation is detrimental

29 July 2022

Sakeliga has registered its objection to the new Upstream Petroleum Resources Development Bill. The bill introduces and exacerbates bureaucratism, harmful racial priorities, and burdensome regulation of petroleum and petrochemicals – the lifeblood of a modern economy.

Sakeliga has submitted its comment on the proposal to Parliament’s portfolio committee on energy.

The bill is the latest manifestation of what Sakeliga regards as the second phase of BEE, where BEE’s supposedly voluntary character is being replaced by compulsion within sectors. This is fatal to entrepreneurial independence and economic growth.

Combined with existing mining codes and the high cost and red tape associated with exploration and production, as well as the value-destructive Mineral and Petroleum Resources Development Act, the bill stands to make the upstream petroleum sector not only unattractive for domestic and international investment, but a risk to the broader economic system.

The government proposes to compel racial considerations alongside a substantial new “carried interest”, which, when combined, will add significant production costs, which would limit and constrain production potential. This will lead to higher prices for petroleum products than could otherwise be achieved for downstream businesses and customers.

The carried-interest provisions are nothing more than a misnamed tax, entitling the State to a disproportionate 20% of benefits accruing from petroleum rights.

In our submission, we argue that the bill will make the upstream petroleum sector even less attractive for investment and, more importantly, diminish productivity and innovation in the sector, harming the many downstream sectors that rely heavily on petroleum products. These counterproductive policies will ultimately disadvantage consumers and businesses.

Sakeliga is of the view that the bill is designed not to lay the regulatory groundwork for a flourishing sector, but to ensnare the upstream petroleum sector in a web of political patronage and special interests.

As part of its proposed carried-interest regime, the bill provides that South Africa’s petroleum resources belong to the State. In so doing, the State reinterprets the institution of so-called “custodianship” as akin to nationalisation, in contravention of the original intention behind that institution. Sakeliga regards this as an escalation of anti-property rights policy.

This bill confirms warnings from the early 2000s that custodianship was simply nationalisation and therefore unconstitutional.

Petroleum, broadly speaking, remains the most important source of energy for our economic systems, making it economically critical that petroleum products and by-products are produced abundantly and distributed in the most efficient way possible.

It is in the interest of economic growth and commercial prosperity for the bill to be withdrawn.

Issued by Martin van Staden, Legal Fellow, Sakeliga, 29 July 2022