Exxon Mobil
headquarters in
Irving, Texas
Cape Town, South Africa — 12 September 2013 – Exxon Mobil Corporation, Royal Dutch Shell plc and other energy companies operating in South Africa have said that planned changes to mineral and energy laws lack clarity and will deter investment in the continent’s largest economy.

Changes to the 2002 Mineral and Petroleum Resources Development Act, currently being processed by parliament, would give the state an unspecified free stake in all new oil and gas ventures, and the right to name two directors to their boards, reports Bloomberg News. The state would be able to force mine operators to process some output locally and declare some minerals strategic to secure supplies.

The changes “may significantly impact on the ability of investors to continue exploration in South Africa,” Russ Berkoben, president of Exxon’s local unit, told lawmakers here. The government “is sending a message to investors that their high-risk investment will have a much lower reward. A lot of work has to be done.”

South Africa, closed to foreign investment until apartheid ended in 1994, is seeking to develop its oil resources to boost and diversify an economy with a 25.6% unemployment rate. While Irving, Texas-based Exxon and Shell have stakes in offshore blocks, extraction is yet to take off. The country imports 70% of its oil needs, processing the remainder of its fuels from coal and gas.

Parliament’s mineral resources committee has started four days of public hearings on the draft bill. On July 30, officials from the Department of Mineral Resources told lawmakers they were winning over business to the new laws and they didn’t expect the regulations to hurt investment.

Shell said the proposed bill gave the mineral resources minister excessive regulatory discretion and didn’t clarify the size of stake the state intended to take in new energy ventures.

“For a country to attract investment in the exploration of oil and gas, the financial risks need to be balanced with stable and transparent legislation that provides benefits to investors and meets the country’s aspirations,” The Hague-based Shell said in its submission. The bill’s deficiencies “could lead to significant delays in planned investment.”

Marek Ranoszek, managing director of Anadarko Petroleum Corporation’s South African unit, told lawmakers the draft law failed to protect the rights and expectations of mineral permit holders and might lead investors to reconsider plans for oil and gas exploration.

 “The potential costs to the country in terms of job creation, energy security, energy diversification and revenue to the fiscus will be in the order of billions of rands,” Ranoszek said. Johannesburg-based Sasol Limited, the world’s largest producer of motor fuel from coal, and several other energy companies and business lobby groups also rejected the bill on the grounds that it was unclear and would hamper investment.

South Africa relies on foreign capital to fund its current-account deficit, which widened to 6.5% of gross domestic product last quarter as a weaker rand failed to dampen imports and boost exports.

The draft law has also drawn objections from mining companies.

Anglo American plc, the largest investor in South African mining, and Impala Platinum Holdings Limited, the world’s second-largest platinum producer, said in written submissions that the bill introduced legislative uncertainty and would fail to achieve its aims of encouraging local processing.

The measures may also flout South Africa’s international legal obligations, said London-based Anglo American.

Fund-management companies Allan Gray Limited and Sanlam Investment Management, both based in Cape Town, said many of the law’s provisions would discourage investment in mining and energy at a time when resources companies were struggling worldwide.

Stagnating economies have eroded demand for commodities from metals to fuels, sending the Standard & Poor’s GSCI Spot Index of 24 raw materials down 4.8% in the past 12 months.

Eskom Holdings SOC Ltd., the state power company, said coal should be declared a strategic mineral and exports of some grades should only be permitted after being offered to domestic energy producers at a cost that provided for “fair returns.”

Eskom also urged lawmakers to ensure it and other domestic utilities were consulted prior to the awarding, granting and renewal of coal exploration and mining licenses, and they had first right of refusal on forfeited exploration rights.

Source: Bloomberg News. For more information, click here.