If approved, the much debated Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill, currently before President Jacob Zuma for final endorsement, was likely to create ambiguity and uncertainty around the overarching legislation governing the oil and gas industry.

Describing South Africa’s legislation as unique, as the mining and petroleum industries were administered under the same legislation, law firm Dentons candidate attorney Danielle Hofmeyer on Wednesday said the oil and gas industry would need to ensure compliance not only with the changes rung in by the MPRDA Amendment Bill, but also with that of the existing Petroleum Pipelines Act, the Petroleum Act and the Gas Act.

“The current approach is relatively ‘piecemeal’; licences are required from various authorities and in terms of a number of different pieces of legislation.

“There are so many authorities and regulations [relevant to the governance of this sector], it is not clear [which] will trump [the others],” she told the Gas Africa conference, in Johannesburg.

While the mining provisions of the existing MPRDA were largely well understood, the petroleum licensing regime contained therein remained unclear.

THE CONSEQUENCES
Outlining the major implications of the MPRDA Amendment Bill on the oil and gas industry, Hofmeyer said the Bill proposed that the Mineral Resources Minister retained the right to periodically invite applications for petroleum rights by notice in the Government Gazette rather than the applicant initiating the process, as was currently the case.

Government would also be afforded an automatic 20% free-carried stake in the production and exploration process and may be entitled to a further participation interest through an acquisition at an agreed price or upon the conclusion of a production sharing agreement.

“This, in itself, is not too unusual, but there is no cap on any further participation by the State, which is a bit vague and [may be] a cause for concern,” she noted.

The State and the company would also be required to conclude a joint operating agreement; however, the terms and conditions of this agreement were not prescribed and were subject to negotiations between the parties.

Further legislative ambiguity had emerged around black economic-empowerment (BEE) requirements, Hofmeyer said.

“This is another part of the Bill that’s confusing. Applicants for exploration rights may be required to comply with the requirements of the Mining Charter and the Liquid Fuels Charter, each of which prescribe different minimum black ownership thresholds,” she pointed out.

The Mining Charter prescribed 26% ownership by historically disadvantaged persons, while the Liquid Fuels Charter prescribed 25% ownership by BEE participants, and a 9% buy-in for upstream participants.

PETROLEUM PIPELINES ACT
The oil and gas industry was, meanwhile, also bound by the Petroleum Pipelines Act (PPA), which required companies to secure licences for the construction and operation of petroleum pipelines, as well as loading and storage facilities.

Under this Act, licensees were required to allow interconnections with the facilities of other licensees, as long as the interconnection was technically feasible and the person requesting the interconnection bore the increased associated costs.

Moreover, the licencee must provide third parties access to loading facilities, with the capacity being shared among all users and prospective users in proportion to their needs, subject to an “appropriate” payment to reserve the required capacity as a condition of service.

However, Hofmeyer said there were risks associated with these licence conditions.

“Generally, these conditions are taken directly from the PPA, and do not take into account the particular project. While the purpose [of these provisions] is to promote competition in the gas market, they may impact the commercial viability of a project and [should] be applied on a case-by-case basis,” she suggested.

GAS OR PETROL?
Meanwhile, under South Africa’s Gas Act, activities that required a licence included the construction and operation of gas transmission, storage, distribution, liquefaction and regasification facilities, the conversion of infrastructure into such facilities and the trade of gas.

The Gas Act defined gas as all hydrocarbon gases transported by pipeline, including natural gas, artificial gas, hydrogen-rich gas, methane-rich gas, synthetic gas, coalbed methane gas, liquefied natural gas (LNG), compressed natural gas, regasified LNG, liquefied petroleum gas or any combination thereof, while the PPA defined petroleum as crude oil and petroleum products.

While the Gas Act required a licence for the construction of gas transmission, storage, distribution, liquefaction and regasification facilities, the PPA required a licence for the construction of bulk storage facilities, which Hofmeyer asserted created an overlap between the two pieces of legislation, as the definition of gas versus petroleum was unclear.

“The Gas Amendment Bill of 2013 aims to address this issue by including a qualification in the definition of gas under the Gas Act, which states that ‘provided that the liquefied petroleum gas is not stored for use as fuel within the ambit of the PPA or it is not used or stored in circumstances regulated under the PPA’, [it can be considered gas],” she said.

While this Bill had been approved by Cabinet, Hofmeyer advised prospective licencees to contact the National Energy Regulator of South Africa prior to any licence application as the Bill had yet to be addressed by Parliament.