Introduction

On 12 March 2014, the National Assembly (NA) passed the Mineral and Petroleum Resources Development Amendment Bill, 2013 (Bill) which amends a number of key provisions of the Mineral and Petroleum Resources Development Act, 2002 (MPRDA). It represents the most significant and far reaching changes to the MPRDA since its promulgation in May, 2004 both from a mining and an upstream petroleum industry perspective.

The Bill itself has been the subject of much public debate and a plethora of written and oral submissions were made to the NA's Portfolio Committee on Mineral Resources. The Bill was amended four times during the legislative process, with the most recent amendments containing an important and last-minute change to provisions concerning the State's participation in the upstream petroleum industry. 

The effect of key clauses, as they relate to the upstream petroleum industry is highlighted below. These key clauses only apply to "new exploration and production rights" and do not affect the terms of exploration and production rights which have been applied for or granted prior to the effective date of the Bill. 

Free carried interest

Section 86A(2) of the Bill grants the State an automatic right to acquire a 20 per cent free carried interest in all new exploration and production rights (including production rights derived from existing exploration rights). The Bill also provides that the State, upon acquiring the free carried interest, shall enter into a joint operating agreement with the right holder and may appoint two representatives to the joint project committee of the exploration or production operation to represent the interests of the State.

The clause further states that the State is also "entitled to a further participation interest at an agreed price; or [in the form of] production sharing agreements". This clause has the effect of granting the state an unlimited participation interest in the right/s.

It is not clear what "an agreed price" means or how a deadlock will be broken where the State is "entitled" to an interest, but cannot agree with the exploration company in question on a price for that interest. It is also not clear if the right holder would also be liable for royalties under the Mineral and Petroleum Resources Development Royalty Act, 2008. 

Strategic minerals

The provisions relating to strategic minerals now also relate to "petroleum and petroleum products". This means that petroleum and petroleum products may be declared "strategic minerals". Under Section 49 of the MPRDA, the Minister may prohibit or restrict the granting of exploration and production rights for strategic minerals at any time.

Application of the Amendment of the Broad-Based Socio-Economic Empowerment Charter for the South African Mining and Minerals Industry (Mining Charter) to the upstream petroleum industry

The Bill grants the Minister discretion to require that an applicant for an exploration or production right comply with the historically disadvantaged South Africans (HDSAs) ownership requirements of the Mining Charter. Transformation in the up- and downstream petroleum industry is currently governed by the Charter for the South African Petroleum and Liquid Fuels Industry on Empowering HDSAs in the Petroleum and Liquid Fuels Industry (Liquid Fuels Charter). If the Minister of Mineral Resources exercises her discretion to apply the Mining Charter to a particular application for a new exploration or production right, the participating interest of HDSAs will increase from 9 per cent (the threshold required under the Liquid Fuels Charter) to 26 per cent for all new offshore exploration and production rights.

Current exploration and production rights protected

As noted above, the free carried interest, State option and HDSA participation provisions are only applicable to "new exploration and production rights" and do not affect the terms of exploration and production rights which have been applied for or granted prior to the effective date of the Bill. Production rights granted prior to the effective date of the Bill will continue to be governed by the terms and conditions upon which they were granted for the full term of the right and in respect of the entire area covered by the production right. Similarly, exploration activities carried out by current production right holders on undeveloped portions of the production area would not be captured by the provisions of the Bill discussed above. It should be noted, however, that the exploration and production rights issued to date usually contain an option, in favour of the State, to acquire a 10 per cent participating interest in a production right (the current State option). Under the current State option, the State is required to contribute to all costs and expenses related to an approved production work programme in proportion to its participating interest. 

Further legislative processes

A meeting of the Select Committee on Economic Development (the "Select Committee") in the National Council of Provinces, South Africa's second chamber of Parliament, to deliberate on the Bill is scheduled for 25 March 2014. The Select Committee is expected to conclude its deliberations on the Bill swiftly so that the Bill may be tabled in the NCOP before it rises on Thursday, 27 March 2014.