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Industry concerned about portfolio committee's MPRDA approval

Industry concerned about portfolio committee's MPRDA approval

Photo by Duane Daws

7th March 2014

By: Leandi Kolver

Creamer Media Deputy Editor

  

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JOHANNESBURG (miningweekly.com) – The National Assembly’s (NA's) Portfolio Committee on Mineral Resources on Thursday approved the Mineral and Petroleum Resources Development (MPRDA) Amendment Bill creating concerns that it was being rushed through Parliament ahead of the general election on May 7.

Corporate law firm Bowman Gilfillan head and oil and gas director Lizel Oberholzer said that should the Bill be passed in its current form it would severely impact the South African petroleum industry, stating that some of the most significant changes to the Bill were “rushed through” this week.

Last month, Webber Wentzel mining head Peter Leon warned against rushing the passing of the Bill, stating that while a delay in the implementation of the MPRDA Amendment Bill could create some regulatory uncertainty, this was far better than the regulatory uncertainty that would be created by inadequately considered legislation.

One of the changes to the Bill approved this week pertained to State participation in petroleum licences, Bowman Gilfillan said.

Earlier versions of the Bill entitled the State to a free carried interest of 20% and a further participation interest of 30%, with the total State interest capped at 50%, however, the version that was approved on Thursday removed the reference to a 30% participation interest as well as the limit of 50%, effectively giving the State the right to take over an existing petroleum operation, the law firm explained. 

Further, while the State was previously obligated to pay “fair market value” for any participation interest that it acquired, it now only needed to pay “an agreed price”.

“This would present major problems in the future as the Bill does not make any provision for a situation where price cannot be agreed upon,” Oberholzer said.

She also noted that the Amendment Bill now introduced the notion of “production sharing agreements”, a system employed in other countries with mature upstream industries.

“However, South Africa currently implements a tax royalty system in the minerals and petroleum sector and it is unclear how this system will be combined with a production sharing regime,” she added.

Meanwhile, investment banking firm Liberium Capital said the most important amendment approved this week was that which gave power to the Minister of Mineral Resources to declare certain minerals strategic.

“Government will be able to enforce the volume and the price [at which] strategic minerals have to be sold domestically. . . to encourage local downstream industry. The main targets are likely to be iron-ore and coal, for steel and power, but [perhaps] also platinum for autocatalysts,” Liberum stated.

The banking firm said this would impact severely on mining major Anglo American, which it had earlier this week downgraded to “sell” from its previous “hold” grading.

“Given Anglo American currently sells export thermal coal for $74/t versus domestic at $17/t, and iron-ore at $115/t versus $62/t, the impact could be severe. The impact is unlikely to be immediate but presents a further tailwind risk for investors in South Africa.

“Given over half Anglo American's profits come from South Africa, and the stock trades at a premium to that of BHP Billiton, [which] was already looking to unload its coal assets, we feel the risks are not being appropriately discounted and maintain the 'sell' rating,” Liberum said.

Meanwhile, the Democratic Alliance (DA) also said in a statement on Thursday that it was likely that the Bill would be challenged by the industry for being unconstitutional, as it would contravene international trade agreements, adding that it would continue to oppose the Bill.

“The DA has fought this Bill [at] committee [level] and will continue to do so when it comes before [Parliament], which is expected to happen next week,” DA shadow Minister of Mineral Resources James Lorimer said.

Further, Leon told Mining Weekly Online in February that irrespective of whether the MPRDA Amendment Bill was passed by the NA there would not be time, before Parliament’s scheduled adjournment, for the Bill to be passed by the National Council of Provinces (NCOP).

He explained that although the latest version of the Bill was tagged as a Bill falling under Section 75 of the Constitution, the committee, on the advice of Parliamentary law adviser, Desiree Swart, had identified the Bill as one falling under Section 76 of the Constitution.

As such, the Bill would need to be tabled in and adopted by the NCOP, which would have to call for submissions and hold public hearings on the Bill once tabled, enabling further study of the Bill.

Leon explained that the NCOP would be obliged to call for further consultation and public comment on the Bill once it was introduced after the election.

“This gives the industry more opportunity to interact with Parliament and the DMR on the Bill.  Importantly, it also gives more time for Parliament to consider the outstanding issues with the Bill,” he said.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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