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New Act swings energy balance in favour of Mantashe policy
1 Nov 2024
When President Cyril Ramaphosa signed the Upstream Petroleum Resources Development Act No. 23 of 2024 into law on 25 October 2024, he made the biggest departure from the assumed green nature of the just energy transition. This legislation looks to regulate and accelerate the development of the nation’s petroleum resources. With its emphasis on sustainable development, inclusivity, and equitable access, the Act swings the power balance of SA’s energy policy towards Gwede Mantashe, fulfilling the Minister of Minerals and Petroleum Resources’ prophecy of gas exploration, fossil fuel production, and alters the investment dynamics.
The new Act could see a proliferation of oil rigs along South African shores.
The Act is designed to provide a structured framework for developing South Africa’s petroleum resources.
It does this by reinforcing the state's commitment to regulatory stability, providing a predictable framework for exploration and production companies.
By consolidating the rights to explore and produce under a single "petroleum right," the Act simplifies the regulatory process, providing assurance to investors.
A standout feature of the legislation is its mandate to promote equitable access, particularly for historically disadvantaged South Africans – a drum Mantashe has been beating for a long time.
The Act envisions a more inclusive energy industry by increasing opportunities for black South Africans to participate in petroleum resource development through quotas for local participation, skills development, and procurement of goods and services from local suppliers.
An environmental edge
In keeping with previous Mantashe statements, the Act aligns with the country’s environmental goals, legislating responsible resource management that requires companies to comply with strict environmental and social standards.
Another unique aspect of the legislation is the provision for the state to take an active role in the petroleum sector – an about turn from the neoliberal path of privatisation many of Ramaphosa’s critics accuse his policies of pursuing.
This Act dovetails with previous legislation creating a state-owned energy company to manage the government’s carried interest in petroleum rights, allowing the state to benefit directly from the economic gains of the upstream petroleum sector.
SANPC will also be tasked with advancing national developmental goals through its activities in the sector.
Catalyst for investment
The Upstream Petroleum Resources Development Act is expected to attract more investment and stimulate exploration activities in South Africa.
By streamlining processes and offering greater legal certainty, the legislation could attract new international and domestic players to South Africa’s upstream petroleum sector.
Including a controlled licensing round mechanism should expedite the process of awarding of petroleum rights, adding more efficiency to exploration and production.
This emphasis on investment does not neglect the local content and national participation needs of the Ramaphosa administration’s economic transformation agenda.
Companies are obligated to engage local suppliers and talent to develop the industry and transfer skills to empower local communities and strengthen the industry’s social license to operate.
Expensive undertaking
There is a concern that these requirements for local participation and strategic stock obligations may increase operating costs.
Mandating partnerships with local entities may also scare away some foreign operations.
Additionally, compliance with strict environmental standards could require companies to adopt advanced, expensive technologies to meet regulatory expectations.
In the long run, the Act’s provisions could lead to a more robust and diversified petroleum sector that better reflects South Africa's socio-economic landscape.
Solid foundation
By prioritising inclusivity, environmental sustainability, and national participation, the legislation creates a robust platform to launch these contentious fossil fuel projects.
For investors, local businesses, and government, the Act finally delivers a clear framework to harness the nation's petroleum resources responsibly and equitably.
As the industry adapts, the coming years will reveal how effectively the legislation achieves its vision for a prosperous and sustainable South African energy future.
