Clear Regulations are Vital

AOP talks to Lizel Oberholzer, Director of Norton Rose Fulbright South Africa Inc. about how legislation can move projects forward, and the importance of implementing competitive fiscal and regulatory regimes.

How can legislation and regulation help move projects faster from discovery to development?

Legislation in the oil and gas industry should be efficient (reduction of red tape and consolidation of approval processes), flexible and clear. Streamlined processes for environmental studies/authorisations and community engagement requirements are vital in order to prevent legislation obstructing development. Specific solutions will depend on the legislative regime regulating the industry, however making provision for work to be done while amendments, renewals and conversions of rights are pending and allowing for efficient farm ins and transfer of rights would, in our experience, lead to faster development.

Are Africa’s fiscal regimes competitive? From a legal perspective, what can be done to bring investment to Africa through policy changes?

Fiscal regimes in Africa vary. Should the fiscal terms of a country not be competitive it may deter investment. The provisions of a fiscal regime must be balanced with the geological risk. It is acceptable for mature petroleum jurisdictions to have less favourable fiscal terms.

A good example of an uncompetitive fiscal regime that would discourage or prevent investment is the South African Mineral and Petroleum Resources Development Bill (MPRD Bill), which provides that the Government is entitled to 20% free carried interest and the right to acquire any further amount of interest at an agreed price. Furthermore 26% must be reserved for previously disadvantaged South African’s. Since South Africa has insignificant discovered resources these fiscal terms will be too onerous.

South Africa is a good example of what can be done to reverse policy and legislation that would deter or prevent investment.  Government created a stakeholder engagement platform called Operation Phakisa where robust consultation processes was conducted. Industry and government shared their objectives and challenges and a win-win solution was reached. We trust corresponding amendments to the MPRD Bill will follow.

What is your advice to investors looking at bringing their business to Africa?

In order to be successful, Investors need to understand the local regularity and business environments they are looking to enter. A willingness to engage with government, to understand their goals, and to compromise when necessary is important in the African context, and can only be achieved with local knowledge and input. Investors should also be aware of differences in business culture in Africa. Business can be slower and more volatile. However, if these factors are accounted for in investment decisions, investment in Africa can pay dividends.