An extract from The Oil and Gas Law Review, 8th Edition

Legal and regulatory framework

i Domestic oil and gas legislation

The main legislation governing the exploration and production of oil and natural gas is the Mineral and Petroleum Resources Development Act, 2002 (MPRDA) and the Mining Titles Registration Act, 1967. This legislation must be read with the Constitution of South Africa, 1996 (Constitution), the National Environmental Management Act 1998 (NEMA), the Income Tax Act 1962 (ITA), the Value Added Tax Act, 1991 and the Mineral and Petroleum Resources Royalty Act, 2008.

The object of the MPRDA is to (1) give effect to the principle that the state is the custodian of petroleum resources in South Africa; (2) promote equitable access to the national mineral and petroleum resources; (3) meaningfully expand the opportunities for historically disadvantaged persons (HDPs); (4) promote economic growth, development and employment; and (5) provide security of tenure.

The MPRDA provides that licences, permits and the relevant environmental authorisation is required to conduct technical cooperation operations, reconnaissance operations, exploration and production operations.

The key provisions of the MPRDA prescribes the application procedure to be followed to obtain the prescribed licences and permits. It also sets out the rights and obligations of the holders, the powers of the Minister of Mineral Resources and Energy (Minister) to suspend or cancel rights and permits, the transferability of rights and permits, the requirements to obtain a closure certificate, the powers of the Minister to expropriate land for purposes of exploration and production, acts that qualifies as an offence and the corresponding penalty.

Until recently, the MPRDA prescribed the environmental obligations of right and permit holders. However, the relevant provisions have been repealed and the holders' environmental obligations are now fully covered under NEMA.

ii Regulation

The principal regulatory bodies overseeing upstream oil and gas operations are the national Department of Minerals and Energy (formerly known as the Department of Mineral Resources) (DMRE), the Petroleum Agency of South Africa (SOC) Limited (Petroleum Agency) and the Mineral and Petroleum Titles Registration Office.

The regulator's powers

The Department of Mineral Resources and Energy is responsible for the administration of the MPRDA. However, the MPRDA established the Petroleum Agency as the designated Agency and prescribed its functions. The Petroleum Agency has a dual role. On the one hand, it must perform the function of a regulator and on the other hand it must promote onshore and offshore exploration and production of oil and gas. The Petroleum Agency performs an advisory and administrative role that includes receiving applications for oil and gas permits and rights, evaluating and processing such application and making recommendations to the Minister whether to grant the right or permit applied for. They also monitor compliance with the terms and conditions of rights and permits and collect the prescribed licencing fees. In practice, the Petroleum Agency reports to the DMRE and the Minister.

The Mineral and Petroleum Titles Registration office is responsible for the registration of exploration and production rights and the recording of reconnaissance and technical cooperation permits.

iii Treaties

South Africa is a party to the New York Convention, which has been enacted into domestic legislation by way of the Recognition and Enforcement of Foreign Arbitral Awards Act 40 of 1977. South Africa is not a party to the International Centre for Settlement of Investment Disputes (ICSID).

In terms of the Institute of Legal Proceedings Against Certain Organs of State Act 40 of 2002, a notice of intention to institute legal proceedings must be served on an organ of state within six months from the date on which a cause of action arose. Any court process by which legal proceedings are instituted may not be served on the state before the expiry of 30 days after the notice of intention to institute legal proceedings was served on the organ of the state.

For parties to commercial disputes, arbitration is the preferred dispute resolution mechanism; however, disputes may be brought before local courts. Dispute resolution clauses in upstream-related rights, as well as dispute resolution clauses in downstream contractual arrangements, usually provide for disputes to be settled by way of arbitration in accordance with the rules of the Arbitration Foundation of Southern Africa.

To date, there have been no judgments or awards obtained by foreign corporations against government authorities or state organs in the oil and natural gas sector. Foreign corporations are, however, not precluded from doing so. Local subsidiaries of foreign corporations have obtained judgments against the state in mining and other sectors.

Bilateral investment

South Africa is a signatory to a number of bilateral investment treaties (BITs) protecting investments by nationals of countries such as the United Kingdom, the Netherlands, Switzerland and South Korea, to name but a few.

However, South Africa has begun terminating its BITs with the intention to replace them with South African domestic legislation in the form of the Promotion and Protection of Investment Act 22 of 2015 (the Act). This was as a result of the South African government reviewing the investment laws and regulations following the case of Piero Foresti, Laura de Carli & Others v. The Republic of South Africa, ICSID Case No. ARB(AF)/07/01.

The Act came into effect on 13 July 2018 and the aim of the act is to protect foreign investors in South Africa. Since 1994, the government has bound the Republic of South Africa in a large number of bilateral investment treaties for the protection of foreign investments.

Essentially, South Africa substituted the treaty protections with that of domestic legislation in the form of the Act. However, the protections offered in the Act are substantially diminished when compared to the substantive standards contained in international treaties.

The Act will have no direct effect on any protections that foreign investors enjoy under international treaties; those protections are still governed by the international instruments from which they arise.