Mineral and Petroleum Act extends State rights…
New MPRDA starts with 20% free carry, maybe more….
The Mineral and Petroleum Resources Development Amendment Bill, the legislation that will give the state a right to a 20% free carried interest in all new exploration and production rights in the energy field, has been passed by Parliament before it closed and sent to President Zuma for assent. According to press reports, new minister of mineral resources, Ngoako Ramatlhodi, may have halted the process by request, however, in the light of public sentiment and opposition moves to challenge the Bill’s legality.
Section 3(4) of the Mineral and Petroleum Resources Development Act (MPRDA) currently states that the amount of royalty payable to the State must be determined and levied by the Minister of Finance in terms of an Act of Parliament. This Act, in force, is the Mineral and Petroleum Resources Royalty Act 28 of 2008 but considerable uncertainty always surrounded how this would work and what was actually meant.
Any uncertainty has now been removed and the MPRDA amendments now passed have brought to an end a process which started when the draft Bill was first published for comment in December 2012.
Beneficiation of minerals included
The legislation seeks to “regulate the exploitation of associated minerals” and make provision for the implementation of an approved beneficiation strategy through which strategic minerals can be processed locally for a higher value – the exact definition of the word “beneficiation” yet having to be defined.
Importantly, the new Act will give clear definitions of designated minerals; free carried interest; historic residue stockpiles; a mine gate price; production sharing agreements; security of supply and state participation generally.
Stockpiles and residues affected
The new Act also states that regulations will apply to all historic residue stockpiles both inside and outside their mining areas and residue deposits currently not regulated belong to the owners. Ownership status will remain for two years after the promulgation of the bill.
In addition to the right to a 20% free carried interest on all new projects, ownership by the state can be expanded via an agreed price or production sharing agreements.
The NCOP concurred with Bill on its passage through Parliament and made no changes.
Legal commentators note that the Royalty Act, at present in force, triggers payment in terms of the MPRDA upon “transfer”, this being defined as the consumption, theft, destruction or loss of a mineral resource other than by way of flaring or other liberation into the atmosphere during exploration or production.
The Royalty Act differentiates between refined and unrefined mineral resources as “beneficiation”, this being seen as being important to the economy; incentives being that refined minerals are subject to a slightly lower royalty rate.
Coal and gas targeted maybe
Nevertheless it appears, commentators note, that in terms of mineral resources coal is being targeted and also zeroed in on is state participation in petroleum licences. Others have pointed to the possible wish of government to have a state owned petroleum entity such as PetroSA to be involved fracking exploration.
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 Parliament approved 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, law firm Bowman Gilfillan explained in a media release earlier this month.
Democratic Alliance (DA) Shadow Minister of Mineral Resources, James Lorimer said in a statement that the Act, “would leave the South African economy in a shambles”, adding that this would lead to people losing their jobs.
The DA has said it has now begun a process to petition President Zuma, in terms of Section 79 of the Constitution, to send this Bill back to the National Assembly for reconsideration,” he said.
Chamber opinion differs
Surprisingly, the Chamber of Mines stated that it “generally welcomed and supported” the approval of the MPRDA Amendment Bill, adding that it believed significant progress had been made in addressing the mining industry’s concerns with the first draft of the Bill, published back in December 2012.
Clearly the mining and petroleum industries particularly gas exploration industries, both of whom have separate equity BEE charters, are still very much at odds on the effects of the promulgation of such an Act, as is DA and the ANC.
Other articles in this category or as background