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Rushed through parliament, the MPRD Amendment Bill will severely impact petroleum industry

Rushed through parliament, the MPRD Amendment Bill will severely impact petroleum industry

10th March 2014

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The Mineral and Petroleum Resources Development (MPRD) Amendment Bill was approved yesterday by the Portfolio Committee on Mineral Resources in a form which differs dramatically from the Bill that was proposed by the Department of Mineral Resources in December 2012.

Lizel Oberholzer, director and head of oil and gas at pan-African corporate law firm Bowman Gilfillan, commented: “It is our view that this Bill will severely impact the South African petroleum industry if passed in its current form.

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“In addition, we believe that if the Bill is passed it could face legal challenge on both substantive and procedural grounds.”

Some of the most significant changes to the Bill were rushed through this week, including provisions for state participation in petroleum licences.

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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 (including free carried interest) capped at 50%

The version that was approved yesterday 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.

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

Oberholzer said “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.

“The Bill also introduces 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.

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