SA’s new petroleum act faces criticism from environmentalists amid energy reforms

President Cyril Ramaphosa on 31 October assented to the Upstream Petroleum Resources Development Bill, which seeks to accelerate petroleum exploration and development with participation by black South Africans, as part of the nation’s social and economic advancement. Picture/GCIS

President Cyril Ramaphosa on 31 October assented to the Upstream Petroleum Resources Development Bill, which seeks to accelerate petroleum exploration and development with participation by black South Africans, as part of the nation’s social and economic advancement. Picture/GCIS

Published Nov 12, 2024

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The Upstream Petroleum Resources Development Act signed into law by President Cyril Ramaphosa on 31 October creates a robust energy sector framework for South Africa by promoting investment and diversification, said analysts yesterday.

However, environmental rights groups have raised alarms, expressing concerns that the law prioritises fossil fuel exploration and development at a time when climate change demands urgent action.

According to the government, this new act is designed to facilitate the “orderly development of petroleum resources” and ensure “equitable access to, and sustainable development” for previously disadvantaged groups and the state.

The legislation ambitiously merges exploration and production rights, aiming to address long-standing licensing challenges through a structured application system via controlled licensing rounds.

Law firm Cliffe Dekker Hofmeyr (CDH) said the signing of the new law “is part of a broader strategy to create a robust energy framework, promoting investment and diversifying” South Africa’s energy mix.

“The Act also gives the State Petroleum Company a 20% share in oil and gas projects and requires a minimum 10% ownership for Black South Africans in each project, plus sets aside certain blocks only for Black-owned businesses,” said Megan Rodgers, the head of oil and gas at CDH.

“Existing licence holders can switch to the new system smoothly while tax rules shift focus to royalties, with National Treasury handling overall tax policy.”

The expected speedy resolution of permit and licensing issues under the new law is expected to help “create an enabling environment for the acceleration of exploration and production” of petroleum and to speed up access into the upstream petroleum infrastructure by third party players.

Additionally, holders of petroleum rights will be allowed to sell a percentage of their produce to the state for strategic stock requirements, with the Petroleum Agency of South Africa designated as the regulatory authority for the upstream petroleum sector.

Yet, while the act is positioned as a step forward, it has not escaped scrutiny.

Environmental law activists from the Centre for Environmental Rights (CER) told Business Report yesterday that by merging exploration and production rights, the new legislation was “effectively creating a conflict with existing regulatory frameworks” such as the National Environmental Management Act (NEMA) and the One Environmental System.

The opposition expressed by CER is perceived as the lack of provisions by the act in addressing the climate emergency, which poses challenges for South Africa’s commitment to reducing greenhouse gas emissions under the Paris Agreement.

The Bill separates petroleum provisions from minerals provisions as currently provided for in the Mineral and Petroleum Resources Development Act.

The government said this separation was necessary from a policy and administrative perspective to ensure matters in the petroleum and minerals industries are addressed on the basis of their distinctive features, to bring about stability and security to investors, especially in the upstream petroleum sector.

“This is a shift from the Mineral and Petroleum Resources Development Act, which provided for separate licences and application processes for exploration and production rights,” said Paul Lado, attorney at the CER.

Lado criticised the Upstream Petroleum Resources Development Act for providing “for the acceleration of the exploration for and production of gas” in an era of climate change.

“This will have major ramifications for South Africa’s greenhouse gas reduction commitments under the Paris Agreement, to which the country is a signatory. The Act, unfortunately, remains silent on the climate emergency,” he explained.

With South African oil exploration companies having long faced resistance from community and environmental rights campaigners, Lado said the new law lacked a social and labour plan framework and did not contain any mechanisms aimed at addressing the negative socio-economic impacts of exploration and exploitation activities.

BUSINESS REPORT