DA condemns ‘kleptocratic’ Sta

DA condemns ‘kleptocratic’ State grab of 20% of new fracking ventures

Minister Shabangu’s announcement raises the bar for companies looking to invest in shale gas in a bid to balance the State’s long-term responsibility towards the Karoo with its short-term responsibility for job creation and prosperity

DA condemns ‘kleptocratic’ Sta
Pristine, but poor. Fracking opposes poor residents of the Karoo, who have much to gain and little to lose from the jobs that fracking brings, with privileged local farmers and tourism operators, who warn that slow, but sustainable growth is the only real future for the region.
Pristine, but poor: Fracking opposes poor residents of the Karoo, who have much to gain and little to lose from the jobs that fracking brings, with privileged local farmers and tourism operators, who warn that slow but sustainable growth offers the only real future.

Mineral Resources Minister Susan Shabangu this week announced Cabinet approval of the technical details of shale gas hydraulic fracturing (fracking) in South Africa. The announcement has ended many months of speculation and contention for shale gas prospectors, who will now move on to evaluating the viability of fracking concessions. The announcement is just as likely to invigorate opponents of fracking, who have stated their intent to pursue the matter legally, while the Democratic Alliance (DA) condemned the regulations as an invitation to further ruling party cronyism and corruption likely to frighten investors.

The DA’s James Lorimer, shadow minister for Mineral Resources, had recently condemned the new Mineral and Petroleum Resources Development Act (MPRDA), to which new shale gas ventures will be subject, as a “job-killer”. The party was no more positive about the latest regulations, particularly the free carry.

“For the first time ever all of South Africa’s exploration blocks in our 200km exclusive economic zone have been allocated to major oil companies — people like Total, Shell and Exxon,” Lorimer said in an August interview with mining publication MiningMx. The regulatory climate in which these firms had invested changed with the introduction of the MPRDA, and worsened again with the announcement of this week’s announcement, which Lorimer termed another lurch towards ‘kleptocracy’.

This is because Shabangu’s announcement contained a surprise clause that reserves 20 per cent of all new ventures for the State, without payment (known as a ‘free carry’). This is double the international norm, according to industry insiders. In addition, the State will reserve the right to buy another 30 per cent of all future fracking ventures at market-related rates, giving them easy access to an equal share of any successful shale gas company. This will allow the South African government, whose track record in the minerals sector is decidedly mixed, to influence the future decisions of shale gas concessionaires.

The fracking guidelines, which are to be gazetted next week to allow for 30 days of public comment, may or may not include the free carry and 30 per cent later purchase option, but the prospect of handing over a fifth of future production to the State for mahala will surely cause investors to consider their options very carefully before sinking money into the Karoo. In an already uncertain field – for energy prospecting, despite technological advances, remains very much a lottery economy – the necessity of proving profitability over and above the State’s 20 per cent share may deter all but the deepest-pocketed investors.

That fact will be cold comfort indeed to the broad church of environmentalists, tourism operators, farmers and locals who have protested fracking from the first. The most prominent of these, the Treasure the Karoo Action Group (TKAG, treasurethekaroo.co.za) insist the the fight is only beginning, as South Africa cannot be allowed to sacrifice the unique ecological value of the Karoo, which has developed over aeons, to short-term gain and the resultant despoliation. TKAG CEO Jonathan Deal told Business Day yesterday that fracking would be the new e-tolling, with an enthusiastic central state investing millions in an unviable project ahead of, and in spite of, public opinion.

“The fact of the matter is that government has not heard the total story about fracking and is only listening to one side. It is not just about the ecology, but also that fracking is not a sustainable option,” he was quoted as saying.

The position of oil and gas giants such as Royal Dutch Shell, Sasol and ExxonMobil is different. These multinationals had previously exhorted the Minister to provide clarity on the size of the free carry, and, while reserving further comment until the gazetting of the new draft regulations, they lauded the Ministry’s momentum on the issue after months of confusion.

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