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South Africa Wants 20% Of All New Oil, Gas Production

South Africa Wants 20% Of All New Oil, Gas Production

The South African government says a proposed bill making 20 percent of all new oil and gas exploration and production payable to the the country will stimulate economic development.

Critics and industry players say the bill, if signed into law, will have a chilling effect on foreign investment, allow the government to nationalize any exploration that ends in a find, and be used by the government to force out companies deemed unfavorable, according to a report in VenturesAfrica.

The bill passed in parliament Wednesday. President Jacob Zuma is expected to sign it into law, according to the report. It will give the government discretionary powers to decide which extracted resources will be processed locally.

The bill will also allow the government to buy a higher stake in new ventures “at a fair market price,” VenturesAfrica reports.

“We are on the path of changing the mining and petroleum industry in South Africa, whether you like it or not,” Mineral Resources Minister Susan Shabangu told lawmakers on
Wednesday, according to the report.

The Mineral and Petroleum Resources Development Amendment Bill (MPRDA) is needed to boost economic development in South African, Shabangu said.

The bill was passed too quickly with no opportunity for comment, the Offshore Petroleum Association of South Africa said in a statement.

“There have been significant changes in recent days which we have not been afforded an
opportunity to comment on and which we are certain will have a chilling effect on investment in a high-risk and capital-intensive industry such as ours,” the statement said.

Shabangu tried to address investors’ concerns, saying South Africa had visited Canada and “the MPRDA is accepted by international investors.”

The ruling ANC party’s main opposition, the Democratic Alliance (DA), said the bill gives the government power to nationalize any exploration that ends in a find. If it becomes law, it could be used by the government to force out companies that are out of favor with the government, VenturesAfrica reports.

“Drilling companies can be forced, after they have given away 20 percent free carried
interest, to give away the other 80 percent of the find at any low price the government is
prepared to pay,” said James Lorimer, the opposition party’s shadow minister of mineral resources.

“Change is painful,” Shabangu said. “Change is bitter, especially when you are stuck in the past. This act is about the people of South Africa.”

South Africa’s economy has been hard hit in recent years. The World Bank lowered its economic growth forecast for 2014 from 3.2 percent to 2.7 percent.

Unemployment is more than 20 percent, according to the African Development
Bank. The bill is being sold as a way to reduce unemployment.

Will it discourage foreign investments? That remains to be seen, according to VenturesAfrica.