Deliberations on submissions received on Upstream Petroleum Resources Development Bill and negotiating mandate

Meeting report

The Department of Mineral Resources and Energy (DMRE) submitted its response to stakeholder submissions regarding the Upstream Petroleum Resources and Development Bill [B 13B – 2021]

DMRE: Responses to Upstream Petroleum Resources and Development Bill (2021)

Dr Nkhesani Olga Masekoa, Chief Director: Mining and Mineral Policy, DMRE, said the Upstream Petroleum Resource Development Bill of 2021 garnered a host of comments and interest in a short time frame.

There was a suggestion to include a clause on the importance of sustainable petroleum exploration and production to protect the environment but Dr Masekoa said the current preamble already covers sustainable development by highlighting the orderly development of petroleum resources and its contribution to South African social and economic development.

Definitions

Members asked if the term ‘development’ includes upstream petroleum infrastructure. Dr Masekoa said the Bill covers infrastructure related to upstream petroleum evident from the definition of ‘petroleum infrastructure’. The development of such infrastructure is inherent in the Bill's scope.

Concerns were raised about the Minister's power to determine beneficiaries of the 10% economic empowerment provision. The Minister's decisions are not unilateral but based on recommendations from the Petroleum Agency of South Africa and subject to rigorous processes and regulations. The definition of "black persons" in the Bill includes Coloureds, Blacks, Indians, and Africans, which encompasses all citizens.

Regarding the state's custodianship responsibilities towards the environment, she assured the Committee the Bill covers environmental protection extensively and the state, as the custodian, ensures resources are developed ecologically while promoting social and economic development as mandated by the Constitution.

Clause 5

It deals with water consumption and should be read together with other sections, ensuring compliance with water licensing requirements to prevent environmental risks.

Clause 5(3)(d) says right holders are expected to comply with the National Water Act for wastewater treatment but the Bill does not specify treatment methods to avoid redundancy and ensure alignment with existing legislation.

Clause 6

Deals with environmental authorisations, water usage licenses, and compliance with relevant legislation such as the Environmental Impact Assessment Act and National Water Act.

Clause 10

This includes the 10% provision and ministerial powers. The Minister's decisions are not arbitrary but instead are guided by regulations. There was a recommendation to amend Clause 10(d) to include references to ecological sustainability, emphasising the dual responsibility of sustainability and development in petroleum resource management but Dr Masekoa said while it is crucial to consider environmental sustainability, it is not practical to address it in every clause of the Bill. The Bill's primary objectives focus on advancing economic development and fulfilling constitutional mandates, ensuring orderly and economical petroleum resource development while promoting social and economic development. These overarching goals encompass environmental protection to prevent negative impact from resource exploitation.

Clause 10 mandates the Petroleum Agency to verify petroleum product measurements for royalty assessment. This verification aligns with the Agency's monitoring functions outlined in Clause 90. The Bill also requires applicants to include measurement protocols in production work programmes.

She addressed concerns about Clause 10(f) which involves the Agency's role in evaluating applications.

Criteria for decision-making are specified in Section 17 of the Bill with further details to be provided in subordinate legislation, including regulations.

Clause 10 (n) outlines the Agency's functions, raising questions about how determinations will be made. Dr Masekoa explained that ministerial determinations will align with national plans for oil and gas exploitation, ensuring security of supply through a consultative process similar to energy sector practices.

Clause 11

Clauses 11(1)(c) and (d) discuss agency fees and income from geotechnical data sales. These funds support the Agency's operational costs but budgeting follows established procedures under the Public Finance Management Act (PFMA) with oversight from the Minister of Finance and parliamentary approval.

Clause 17

It addresses financial and technical requirements for applicants and while some recommend amending it, existing provisions adequately address financial and technical capabilities for exploration and production operations. Environmental obligations are covered under the National Environmental Management Act (NEMA), requiring financial provision for rehabilitation and closure.

Clause 19 and 20

These refer to affected and interested parties and sets out that while there is a distinction between the two, the roles and engagement processes remain consistent across the Bill.

Dr Masekoa elaborated on several points raised concerning the Bill and specifically addressed the distinction between interested parties and affected parties, expressing the need for clarity regarding the criteria for differentiation. It was strongly recommended the Bill consistently refer to interested and affected parties throughout.

Clause 20 outlines consultation processes and Dr Masekoa said Clauses 19 and 20 address separate consultation processes with the latter focusing specifically on affected parties in the vicinity of the proposed petroleum activities.

She responded to concerns about timelines for consultation and environmental processes emphasising the Bill’s provisions align with existing environmental legislation. According to Dr Masekoa the Bill's consultation requirements complement those of the National Environmental Management Act (NEMA), ensuring a thorough and transparent process.

Clause 29

Regarding Clause 29 which deals with transfers of rights, she said any transfers would adhere to environmental authorisation requirements. There was an emphasis on accountability and compliance throughout the transfer process.

Clause 31

Dr Masekoa discussed Clause 3 which mandates a minimum 10% black ownership in petroleum rights. This minimum requirement does not limit participation but rather serves as an entry point for black participants and the provision aligns with efforts to promote transformation in the petroleum sector.

Clause 34

Speaking on Clause 34 which allows for a two-year extension to meet black ownership requirements, Dr Masekoa said the extension period must be prescribed to ensure transparency and prevent abuse of the process. She defended the requirement for a 20% State interest in petroleum rights, highlighting its importance for national transformation and economic development. This provision aims to ensure meaningful participation by the state in petroleum activities.

Concerns about environmental, social, and public health considerations were addressed, with Dr Masekoa discussing the Bill's commitment to compliance with relevant legislation and the development of regulations to address health and safety issues.

Using the term ‘prescribed’ in the Bill shows certain requirements would be determined by regulation and ensures flexibility and clarity in implementing the Bill's provisions.

Dr Masekoa noted support for considering social and environmental compliance in issuing permits. The Petroleum Agency of SA (PASA) has already conducted annual assessments and required reports from applicants, ensuring that all authorisations underwent assessment and that necessary changes were made in consultation. Dr Masekoa believed these issues were adequately covered under PASA's functions.

Clause 49

Dr Masekoa said it lacked clarity on removing, using, and disposing of petroleum resources during exploration and appraisal phases. He said the Department would develop regulations to ensure appropriate use and disposal in line with Section 17 and while minimum provisions existed, detailed regulations would be outlined.

Clause 50

Clause 50 should include provisions for regular publication of drilling additives, waste material analysis, and environmental measurements on a publicly accessible platform to ensure transparency and fair administration of justice.

Clause 51

The Committee expressed approval for Clause 51, emphasising the importance of record-keeping for additives, waste volumes, emissions, and chemical analysis, ensuring compliance with environmental regulations.

Clause 52

Clause 52 should require environmental authorisation before issuing drilling permits, ensuring environmental considerations are paramount.

Clause 53

Clause 53 set out progression from exploration to production required environmental authorisation and public consultation, aligning with environmental regulations.

Clause 54

Regarding Clause 54, there needed to be clarification on the management and disposal of Petroleum Resources during the appraisal process, which would be addressed in the regulations.

Clause 59

Clause 59(1)(c) should be amended to include the adequacy of financial and technical resources for rehabilitation and closure, ensuring compliance with financial provision regulations.

Clause 65

Clause 65 should reference ecologically sustainable long-term recovery of Petroleum Resources, aligning with environmental objectives.

Clause 76

Clause 76 highlighted the need for environmental authorisation during any extension period, ensuring environmental compliance.

Clauses 78 and 80

Clauses 78 and 80 highlighted the need for transparency and access to information (Clauses 78 and 80). Dr Masekoa said current provisions allowed public access to relevant information.

Clause 83

Clause 83 was intended for transitional arrangements, ensuring continuity in permits and rights, including environmental authorisation requirements.

Clause 84

Clause 84 proposed a fixed percentage for financial provision, but Dr Masekoa believed this percentage should be flexible to align with actual environmental liabilities.

Clause 88

Clause 88 ensured that cancelling or suspending permits did not affect the financial allocation for rehabilitation.

Clause 89

Clause 89 questioned if the subsurface environment (below land) was included in the restrictions; Dr Masekoa believed it should be.

Clause 92

Clause 92 dealt with expropriation and fitted constitutional and legislative imperatives.

Clause 102

Clause 102's penalty provisions were considered to be right, aligning with environmental indicators to ensure an environment of compliance.

Regarding international recommendations for net-zero emissions by 2050, Dr Masekoa said while it is important, for South Africa's economic development to have a balanced approach, there are factors which are important with oil and gas as crucial transition fuels:

• Extensive public consultations, including with rural and historically disadvantaged communities, were conducted.
• The expanded functions of PASA were carefully managed to avoid conflicts of interest, ensuring fair oversight.
• Consultation processes (Clause 19 and Clause 20) were designed to address concerns raised and reflected a dual-phase approach.
• The importance of local economic development, including opportunities for women was recognised, emphasising the need for skills development and technology transfer.
• The removal of specific environmental authorisation provisions from the Bill was to avoid duplication of regulatory processes.
• Alignment between National Environmental Management Act (NEMA), the National Water Act, and the Bill was ensured with further clarity on regulatory timeframes also applicable.
• Lastly, compliance with the Socioeconomic Impact Assessment Study (SEIAS) was mandatory for Bill acceptance ensuring transparency and accountability.

Dr Masekoa said the concerns raised were addressed to the best of the Department’s ability, and further discussion on any outstanding issues was welcomed.

See annexure for full details

Discussion

The Chairperson acknowledged the immense pressure the Department was under because of the short turnaround time for the legislation. Despite these challenges, she praised the Department for the feedback and asked Members to raise questions for the Department.

Mr I Sileku (DA) asked for details on the determination of percentages outlined in the Bill, particularly with reference to the 20% state involvement and the 10% mentioned. He sought clarification on the process leading to these specific percentages.

The Chairperson raised a question regarding the SEIAS report and advised the Department that only a draft report dated December 2019 was sent, with the subsequent mention of a final report that was not provided. She inquired about the fate of the draft report if it was presented to Cabinet, circulated to the public, or included alongside the legislation. She highlighted procedural concerns and emphasised the importance of the SEIAS report as far as understanding the costs and implications of the legislation on various stakeholders.

Responses

Dr Masekoa gave insight into the determination of the 10% and 20% participation set out in the legislation. Research and benchmarking studies were conducted to gauge similar jurisdictions' approaches and feasibility within the South African context. The aim was to ensure meaningful participation by black persons while not deterring investment in the sector. Dr Masekoa emphasised the reasonableness of the percentages in light of the significant capital requirements involved.

Regarding the SEIAS report, Dr Masekoa outlined the process pointing out a draft report was circulated and it would retrieve further information from the archives and provide clarification. She detailed the rigorous process involving the Department of Planning, Monitoring and Evaluation (DPME) and the necessity of its approval before proceeding to subsequent stages, including Cabinet. Dr Masekoa highlighted the consultation and consent processes under the DPME's guidance and invited her colleague to provide additional insights into the legislative process.

Another DMRE official outlined the extensive process followed in developing the legislation. It began with research into countries that are advanced in oil and gas development, such as Nigeria and Norway. This research informed the initial SEIAS report which was part of legislative development. A drafting team including departmental members and stakeholders such as PASA worked on drafting the legislation. Cluster consultations sought approval for Bill publication leading to a 30-day public comment period. One-on-one consultations with stakeholders followed and internal consolidation of comments led to Bill amendments. The Bill returned to the cluster for approval and onward transmission to Parliament and was tabled in the National Assembly and the National Council of Provinces (NCOP) with further processes expected in the National Assembly including gazetting, stakeholder consultations, and deliberations. This comprehensive process ensured thorough engagement and consideration throughout the legislative development.

The Chairperson requested a final copy of the SEIAS report to provide reassurance regarding the explained steps and to aid in the Committee's final mandate. With questions concluded the Committee proceeded to discuss the negotiating mandate.

Further discussion

Mr Sileku expressed concern about the adequacy of public participation particularly in rural areas, despite the Department's assertion of extensive consultation. He said many rural residents feel they are not given sufficient time to comment on bills, and consultations often do not address residents' real concerns. He highlighted the issue of language barriers where documents and presentations were primarily in English despite attendees predominantly speaking Afrikaans or isiXhosa. He asked the Department what it believed could have been done differently to ensure more meaningful input and participation from rural residents, considering the unique challenges and language preferences.

Responses

Dr Masekoa acknowledged the valid concerns raised by Mr Sileku regarding the need for greater outreach to rural areas during consultations. She emphasised the challenges faced when addressing various community needs, especially when government departments were expected to provide services beyond the scope of legislation. Dr Masekoa noted that while efforts were made to accommodate different languages during departmental consultations, there were limitations in the parliamentary process. She assured the Committee that improvements would be made in future rounds of consultation, including addressing language barriers and ensuring broader outreach to rural communities.

The Chairperson thanked officials for the hard work and dedication throughout the process, acknowledging the strain endured while travelling and providing deliberations across the country. She appreciated the efforts in working alongside the Committee.

The Committee’s next steps presented two options:

• reviewing the draft final mandate, or
• discussing comments and addressing concerns.

The Chairperson proposed reviewing the comments before finalising the negotiating mandate. She emphasised the importance of following the procedural steps and suggested first identifying any pertinent or important aspects to include in the mandate. She asked the procedural officer to present the document containing responses to the clauses and the Department.

The Chairperson highlighted several key points from the document and suggested incorporating them into the negotiating mandate. These points included:

• Clarifying the status of the SEIAS report and ensuring the right socioeconomic impact assessment was conducted.
• Re-evaluating the 10% petroleum rights to address concerns about inclusivity and its impact on investors.
• Incorporating provisions in the Bill to address the petroleum industry's contribution to climate change mitigation and adaptation goals.
• Ensuring clarity on the management and commercial use of resources produced during appraisal, possibly through concurrent drafting of regulations.
• Ensuring legislative coherence with NEMA and addressing reflections on definitions in the Bill.

The Chairperson welcomed input from Members on additional areas they believed should be included in the negotiating mandate.

Mr Sileku reiterated his concerns about public participation and flagged the issue for further consideration while expressing discomfort with the comments about State participation, particularly regarding the 20% involvement mentioned. Mr Sileku emphasised the need for clarity on how this percentage was determined and if a study was conducted to assess its implications. He urged the Committee to address these concerns before proceeding.

The Chairperson suggested two options regarding Clause 31 which deals with the requirement of 10% participation by black persons in petroleum rights. Firstly, she proposed the removal of Clause 31 due to its complexity and the challenges associated with defining "black" and ensuring accessibility for diverse groups. Alternatively, she suggested adopting the Western Cape government's proposal to amend the clause to provide flexibility in compliance timeframes if it were to be retained. She asked other Members for input before proceeding.

Mr A van der Westhuizen (DA) referred to Clause 31 which highlights investments in ventures which involved for example pension funds or companies instead of individual investors and recommended deleting it. He said it was difficult to ensure compliance with the requirements outlined in the clause if one looks at the diverse membership of pension funds.

Mr Sileku agreed.

The Chairperson suggested amendments and considerations for the negotiating mandate:

• On Clause 3, the Chairperson spoke of the importance of ensuring alignment with sustainable development goals and the custodianship of petroleum resources and wanted to be sure it would be noted in the negotiating mandate.
• Regarding Clause 21 she recommended revising the exclusion of environmental aspects, to avoid overlapping with existing frameworks, and clarifying its distinct function.
• She proposed redrafting Clause 44 which deals with petroleum rights being granted on the basis of meeting financial requirements and on technical capacity with the aim being to make the stipulations related to finance transparent, inclusive, and not to grant excessive discretion to the Minister which could lead to uncertainty or arbitrary decision-making, and also to ensure clarity and consistency.
• Regarding Clause 46, she discussed the response to concerns raised by the Treasure Karoo Action Group (TKAG), suggesting amendments to require revaluation of environmental risks and impacts for each new applicant or renewal. The proposed amendments aim to mitigate potential environmental damage and ensure changes in operations do not escalate risk.
• She proposed amending Clause 50 to require details about drilling waste material volumes and environmental measurements to be published on government-sanctioned platforms which would enhance accountability and public engagement.
• She suggested revising Clause 52 to clearly say environmental authorisation was a prerequisite for drilling permits which would create clarification and enhance the environmental compliance aspect of petroleum activities.
• In Clause 84 there was a recommendation to establish a specialised workforce within parts of the oil industry for continuous monitoring of well casing and groundwater conditions. The Chairperson sought input on the suggestion and asked if it should be included in the Bill or addressed through regulations. Mr Sileku proposed Clause 84 to be part of the regulations.
• Clause 88 pertains to the suspension or cancellation of permits and the Chairperson suggested establishing clear criteria to protect investment while ensuring compliance with rehabilitation provisions and environmental commitments. The proposed amendment aims to prevent cancellation from undermining financial security or environmental obligations.
• In Clause 91 there was a suggestion to revise the language to obligate petroleum rights holders to provide fair and timely compensation to landowners and occupiers affected by extraction activities, aligning with constitutional property rights.

The Chairperson proposed imposing administrative penalties as a deterrent for actions in the industry that might cause damage and suggested that penalties be based on a percentage of the annual turnover of oil and gas operations. She pointed out the importance of allocating funds raised from administrative penalties toward environmental restoration and community development projects impacted by the industry's activities.

• In Clause 92, the Chairperson emphasised the need for it to be aligned with the Constitution, highlighting the balance between property rights and the public interest and recognising it aims to affirm the necessity of proportionality in property deprivation, ensuring property rights are protected while serving the public good.
• For Section 99, the Chairperson suggested including the unequivocal application of the Promotion of Administrative Justice Act in the Bill to guarantee fair, reasonable, and procedurally sound administrative actions.
• She noted the Bill should include state liability and stipulate state-owned entities (SOEs) are equally subject to the full force of the law.

The Chairperson summarised the key areas to be addressed in the negotiating mandate, including proposed amendments to definitions and constitutionality. Additionally, procedural concerns regarding the SEIAS report and reflections on public participation were highlighted along with considerations for climate change mitigation, state participation, black economic empowerment, environmental legislation, labour standards, mining regulation, consistency, and constitutional compliance.

The Chairperson asked the procedural officer to draft the negotiating mandate and how long it would take to complete which would allow for the Committee to reconvene once the draft was ready.

The Committee took a short break and allowed the Procedural Officer to draft the Negotiating Mandate.

Draft Negotiating Mandate Report

The Chairperson informed the Committee it would begin drafting the Committee report for the negotiating mandate stage. She referred to Rule 217 which grants the Western Cape delegation in the NCOP the authority to withhold support for the Bill and recommends its complete redrafting. Members expressed approval for this approach.

Adv Romeo Maasdorp, WCPP Legal Advisor, pointed out persistent procedural inadequacies and shortcomings in public participation over the past four months. He suggested including points addressing these issues in every bill under consideration while reserving instances where specific moderation was required. For example, he recommended keeping records of timelines and hearings conducted to provide context and justification for statements. Although he acknowledged the negotiating mandate might not be the appropriate place for such detailed information, he emphasised its importance for potential review processes or legal challenges in the future.

Adv Maasdorp addressed the importance of being supportive of public understanding of the Bill's objectives and timelines. He highlighted stakeholders' lack of support for the Bill's substance and stressed the need for corroborating information to effectively defend the Committee's positions.

The Chairperson said the Procedural Officer noted a comparison with the Public Procurement Bill saying time pressure faced with the current Bill was due to a backlog of work on other bills’ saying although it was a negotiating mandate, the forum was not suitable for delving into the intricacies of the argument. She suggested moving on to the next section.

Adv Maasdorp spoke of the critical importance of legislative alignment and underscored the necessity for aligning to existing frameworks and international agreements. He cited submissions from stakeholders and non-governmental organisations (NGOs). While referring to South Africa's commitments, he raised concerns regarding the current legislation and whether it aligns with these commitments, stressing the need for this to avoid legislative inconsistencies.

No objections were raised, and the report on the negotiating mandate was accepted and proposed for submission to the NCOP. The Chairperson said the previously discussed amendments had been incorporated and she confirmed the Committee's endorsement and adoption of the negotiating mandate, inviting Members to share recommendations, resolutions, or relevant information it wanted to include.

Mr van der Westhuizen proposed that the comments made by Adv Maasdorp be included in the minutes of the day's proceedings and spoke of their validity and significance despite not being suitable for a negotiating mandate.

The Chairperson noted approval of the proposal and requested the final SEIAS report from the Department as it had previously indicated it would send it but had not provided it.

There were no further resolutions.

The Chairperson thanked Members and supporting staff for the work and the meeting was adjourned.