The Mineral and Petroleum Resources Development Amendment Bill ("MPRDA") passed on 27 March 2014 and yet to be assented to by the president, provides many uncertainties for mineral resource investors.
While the MPRDA does not deal directly with the development of unconventional oil and gas it does pave the way for a regulatory regime for shale gas. Unfortunately, the MPRDA creates many uncertainties specifically in regard to the extent and role of state involvement and the powers of investors.
Of particular importance is the free-carried interest provision which guarantees the state a 20% stake in any new exploration or production operations, at no cost. The state has a further right to negotiate additional interests in these operations. Additional interests held by the state may result in various issues coming to light. These include:
- further acquisitions by the state will take place through payment of an "agreed price", which is not defined, or through production sharing agreements, of which no details, framework or mechanism for negotiation are provided.
- there is no cap on the maximum percentage of interest which the state may acquire. This provides much uncertainty for investors and opens energy projects up to risk of potential abuse by state institutions.
- there are no rights of recourse or arbitration/negotiation mechanisms provided for in the case of disputes arising between investors and the state.
There is a desperate need for detailed regulations to be made available to the public, with meaningful public involvement and consultation. Failing which, the MPRDA as it stands may push investors away from an economy with an abundance of opportunity.