1 Describe, in general terms, the key commercial aspects of the oil sector in your country.
The history of South Africa’s oil industry dates to 1884, when the first oil company was established in Cape Town to import refined products. The first organised search for hydrocarbons was undertaken by the Geological Survey of South Africa during the 1940s. In 1965, Soekor (Pty) Ltd was established by government with the strategic imperative of finding domestic oil and gas. Oil exploration has been conducted primarily offshore. The Bredasdorp Basin, which contains South Africa’s only oil and gas production facilities, has been the focus area for oil and gas exploration in South Africa. By comparison with more developed oil and gas regions, South Africa is relatively underexplored. Since 1965 approximately 300 wells have been drilled with approximately 233,000km of 2D seismic data and 10,200km2 of 3D seismic data being acquired. While the past 10 years has seen a growing interest shown by international oil companies, much of South Africa’s offshore blocks remain available for licensing. South Africa has four conventional refineries and three synfuel plants with a total refining capacity of approximately 700,000 barrels per day. Of the refined product, 513,000 barrels per day is produced from crude oil, 150,000 barrels per day from coal to liquids and 45,000 barrels per day from gas to liquids. At present, PetroSA, South Africa’s national oil company and successor to Soekor (Pty) Ltd, is engaged in an initiative to enhance South Africa’s refining capacity by building a new oil refinery.
2 What percentage of your country’s energy needs is covered, directly or indirectly, by oil as opposed to gas, electricity, nuclear or nonconventional sources? What percentage of the petroleum product needs of your country is supplied with domestic production? What are your country’s energy demand and supply trends, especially as they affect crude oil usage?
The 2009/2010 figures presented by the Department of Energy confirm that South Africa’s primary energy source is coal. Coal constitutes 65.7 per cent of the energy supply followed by crude oil at 21.6 per cent with renewables and waste at 7.6 per cent and gas at 2.8 per cent. Nuclear, hydro and geothermal solar constitute the smallest portion at 0.4 per cent, 0.1 per cent and 0.1 per cent respectively. Furthermore, 38 per cent of the liquid fuel demand is met by synfuels, which are produced locally from coal and natural gas, with the remaining 62 per cent from products refined from imported crude oil.
3 Does your country have an overarching policy regarding oil-related activities or a general energy policy?
The 1998 White Paper on the Energy Policy of the Republic of South Africa provides the foundation for the country’s national policy framework in respect of the energy resources sector. After intensive discussions and negotiations, the Charter for the South African Petroleum and Liquid Fuels Industry on empowering Historically Disadvantaged South Africans in the Petroleum and Liquid Fuels Industry (Petroleum and Liquid Fuels Charter) was concluded in November 2000. The Petroleum and Liquid Fuels Charter set empowerment and ownership objectives to be achieved in favour of historically disadvantaged South Africans (HDSA) within a specified time period. The Petroleum and Liquid Fuels Charter acknowledges the activity of oil and gas exploration and production as a high-risk activity that provides limited opportunities for new entrants. It allows thegovernment to condition exploration rights and production rights by reserving not less than 9 per cent for HDSA buy-in and also requiring the right holder to make contributions toward the Upstream Training Trust to fund skills development at various levels. In practice, the government reserves a state option of 10 per cent which is exercised at production and a further 10 per cent participating interest is to be reserved for HDSA partners. In 2003, a Renewable Energy White Paper Policy was approved by the Cabinet to meet the long-term goal of a sustainable renewable energy industry. This White Paper sets a 10-year target for renewable energy comprising of 10,000GWh (0.8Mtoe) renewable energy contribution to final energy consumption by 2013 to be produced mainly from biomass, wind, solar and small-scale hydro.
4 Describe the key laws and regulations that make up the general legal framework regulating oil activities?
South Africa has a network of key laws and regulations which provides the general legal framework for oil activities. The Constitution of the Republic of South Africa (Constitution) requires the government of South Africa to implement legislative measures to ensure the ecologically sustainable development and use of South Africa’s natural resources. In 2002, the Mineral and Petroleum Resources Development Act 28 of 2002 (the MPRDA) repealed the 1991 Minerals Act to give legislative effect to the constitutional imperatives. The MPRDA declares petroleum resources (which include oil) the common heritage of the people of South Africa and the state the custodian thereof. In the context of petroleum, the MPRDA makes provision for a party to acquire permits for reconnaissance and technical cooperation and rights for exploration and production may also be acquired from the state. A reconnaissance permit is a personal right which allows the holder to carry out any operation for or in connection with the search for a mineral or petroleum by geological, geophysical and photogeological surveys and includes any remotesensing techniques, but does not include exploration operations. An exception to the rule is that offshore seismic surveys may be conducted under reconnaissance permit. A technical cooperation permit is a unique limited real right. It is non-transferable and allows the holder to conduct desktop studies and acquire seismic data held by the state, but does not include any rights of access to the surface of the area and thereby excludes any exploration activities. An exploration right is a limited real right which allows the holder to re-process existing seismic data, acquire and process new seismic data or any other related activity to define a trap to be tested by drilling, logging and testing, including extended well testing with the intention of locating a discovery. A production right is also a limited real right and it allows the holder to conduct any operation, activity or matter that relates to the exploration, appraisal, development and production of petroleum. Exploration and production rights are capable of transfer subject to ministerial approval. The MPRDA is fundamentally based on principles of ensuring optimal exploration and exploitation of petroleum resources. The Mining Titles Registration Act 16 of 1967 (MTRA) has been amended extensively in order to give effect to the new concepts introduced by the MPRDA. Registration of an exploration right and production right is achieved in terms of the MTRA. Such registration fortifies the status of these rights as limited real rights binding on third parties. Reconnaissance permits and technical cooperation permits do not require registration; these permits are merely recorded and filed. The Petroleum Products Act 120 of 1997 (PPA) and regulations thereto provide a licensing and regulating framework for the manufacture, wholesale and retail of petroleum products in South Africa. The types of licences issued in terms of the PPA include a manufacturing, wholesale, retail and corresponding site licences. In addition to the aforegoing, the PPA also aims to provide for the saving of petroleum products, an economy in the cost of distribution thereof, the maintenance and control of a price therefor and all other matters incidental thereto. The Petroleum Pipelines Act 60 of 2003 establishes a national regulatory framework for petroleum pipelines. The Act specifies that the construction, conversion or operation of a petroleum pipeline, loading facility or storage facility is an activity requiring a licence. The Petroleum Pipeline Levies Act 28 of 2004 makes provision for the imposing of levies based on the amount of petroleum, measured in litres, delivered by importers, refiners and producers to inlet flanges of petroleum pipelines and paid by the person holding the title to the petroleum immediately after it has entered the inlet flange. The government of South Africa has expressly stated that its policy is that the import and export of petroleum products be controlled as an integral part of the South African liquid fuels sector so as to advance the objective of licensing under the PPA. The acquisition of import and export permits for petroleum products and crude oil is governed primarily by the International Trade Administration Act 71 of 2002.
5 Identify and describe the government regulatory and oversight bodies principally responsible for regulating oil activities.
As custodian of South Africa’s petroleum resources, the state acting through the minister of mineral resources (minister) is responsible for promoting and regulating mineral and petroleum development in South Africa. The minister is empowered to grant issue or refuse applications for reconnaissance permits, technical cooperation permits, exploration rights and production rights. In addition, the minister is empowered to initiate ‘licensing rounds’. The Petroleum Agency of South Africa (Pty) Ltd (Petroleum Agency) is the agency designated to represent the minister and is accordingly responsible for receiving and processing applications for the aforementioned permits and rights as well as receiving and processing competitive bids in the event of licensing rounds. The Agency’s powers are prescribed by the MPRDA and its discretionary powers are limited. The Mineral and Petroleum Titles Registration Office is the registry office responsible for registration of the petroleum titles acquired pursuant to the granting of an exploration right or production right. The registry office is also responsible for recording and filing of reconnaissance permits and technical cooperation permits. The National Energy Regulator of South Africa (NERSA) is the authority designated to regulate the electricity, piped gas and the petroleum pipelines industry. It is regarded as the custodian and enforcer of the national regulatory framework in respect of the aforementioned. The Controller of Petroleum Products is responsible for the issuing of manufacture, wholesale, retail and site licences in respect of petroleum products. The Controller of Petroleum Products is also responsible for gathering information and investigating offences relating to the Petroleum Products Act. The import and export of petroleum products in South Africa, requires authorisation from the Department of Energy accompanied by an import or export permit issued by the International Trade Administration Commission of South Africa.
6 How does your country manage appeals of government regulatory decisions?
Internal appeal processes allow any person whose rights or legitimate expectations have been materially and adversely affected or who is aggrieved by an administrative decision (collectively referred to as ‘aggrieved party’) to appeal such decision internally. These processes are usually contained in the underlying legislation. The MPRDA and regulations thereto, for example, make provision for an internal appeal process which must be exhausted before an application for review of an administrative decision may be lodged with a court. The MPRDA internal appeal process allows an aggrieved party to appeal an adverse administrative decision to the director general if it is an administrative decision by a regional manager, or officer, in the alternative the minister if it is an administrative decision by the director general. An aggrieved party must lodge an appeal against an adverse administrative decision within 30 days of becoming aware of such decision. It is important to note that an appeal does not suspend an administrative decision, unless suspended by the minister. Therefore a separate application to suspend the administrative decision must be lodged. In the event an aggrieved party requires urgent interim relief, the applicant may make an application to a court having jurisdiction for such interim relief. Once the court has decided on an application for interim relief, the matter will be referred back to the internal appeal process if applicable. In the event an internal appeal is unsuccessful, the aggrieved party may, in accordance with the provisions of the Promotion of Administrative Justice Act 3 of 2000 (PAJA), apply to a court having jurisdiction for judicial review of the administrative decision. Potential grounds for review of an administrative decision are contained in PAJA. Guidelines for accessing information held by the state are contained in the Promotion of Access to Information Act 2 of 2000 (PAIA). PAIA gives effect to the constitutional right of any person to access information held by the state and any information held by another person that is required for the exercise or protection of any rights.
7 What standards are employed for oil measurement and oil facility equipment? Are these voluntary or involuntary? Are they established by a government body?
8 What government body maintains oil production, export and import statistics?
Information and data on oil production is maintained by the Petroleum Agency. The Department of Energy is responsible for the authorisation of export and import permits for oil. It is unclear who bears responsibility for maintaining statistics with regard to the import and export of oil.
9 Who holds title over oil reservoirs? To what extent are mineral rights on private and public lands involved? Is there a legal distinction between surface rights and subsurface mineral rights?
The 1991 Mineral Act allowed petroleum rights to be held privately by the landowner and in some instances by the state. The MPRDA changed this approach by declaring petroleum resources the common heritage of the people of South Africa and the state the custodian thereof. A legal distinction is therefore made between subsurface rights, being those rights now vesting in the people of South Africa, and surface rights, being those rights vesting in the landowner. To facilitate accord between subsurface and surface rights the MPRDA provides that the holder of an exploration or production right may enter the land to which the right relates and may bring onto the land any plant machinery or equipment and may build or construct any surface or underground infrastructure for purposes of exploration or production. However, the holder must notify and consult with the landowner or lawful occupier of the land in question prior to commencement of such activities. The Act provides for a mediation and arbitration process where a landowner refuses to allow the holder to enter the land or makes unreasonable demands in return for access to the land. Holders of exploration or production rights may be required to pay compensation in situations where the landowner has suffered or is likely to suffer damages as a result of the exploration or production operations. If the parties fail to reach an agreement on the payment of compensation the amount may ultimately be determined by the arbitration process prescribed in the Arbitration Act 42 of 1965.
10 What is the general character of oil exploration and production activity conducted in your country? Are areas off-limits to exploration and production?
There is a larger number of onshore exploration activities conducted in South Africa, while production activities are predominately conducted offshore. The areas off limits to exploration and production activities are identified in National Environmental Management: Protected Areas Act 57 of 2003 as including special nature reserves, world heritage sites, marine protected areas, specially protected forest areas, forest nature reserves and forest wilderness areas declared in terms of the National Forests Act 84 of 1998 and mountain catchment areas declared in terms of the Mountain Catchment Areas Act 63 of 1970. Applicants for exploration rights are required to submit an environmental management plan and applicants for production rights must conduct an environmental impact assessment and submit an environmental management programme which examines the impact on the environment on the proposed activities. Applicants are furthermore required to make financial provision for the remediation of potentially negative environmental impacts. The quantum of the financial provision is determined in accordance with guidelines published by the Department of Mineral Resources, from time to time, which includes a detailed itemisation of all costs as specified in the Regulations. Holders of exploration rights and production rights must annually asses their environmental liability and amend the financial provision as required. The financial provision must remain in force until the minister issues a closure certificate. When a closure certificate is issued the minister will retain such portion of the financial provision as is deemed appropriate for any future latent or residual environmental impacts.
11 What government body regulates oil exploration and production in your country? What is the character of that regulation?
South Africa is a tax royalty system and the state, acting through the minister of mineral resources, is empowered to grant issue or refuse applications for petroleum rights. The Petroleum Agency is the agency to designated to represent the minister of mineral resources and is accordingly responsible for receiving and processing applications for permits and rights as well as receiving and processing competitive bids in the event of licensing rounds. The Agency’s powers are prescribed by the MPRDA and its discretionary powers are limited. The granting instruments take the form of reconnaissance permits, technical cooperation permits, exploration rights and production rights.
12 If royalties are paid, what are the royalty rates? Are they fixed? Do they differ between onshore and offshore production?
The Mineral and Petroleum Resources Royalty Act 28 of 2008 (Royalty Act) and the Mineral and Petroleum Resources Royalty (Administration) Act 29 of 2008 (Royalty Administration Act) came into operation on 1 March 2010. Both govern the administration and payment of royalties to the state in respect of the transfer of mineral resources extracted from within the Republic. The Royalty Administration Act provides that a person who holds an exploration right would need to register with the commissioner for revenue services for the payment of royalties. The Royalty Act provides further that a person who wins or recovers a mineral resource extracted from within the Republic of South Africa is also required to register for the payment of royalties in terms of the Royalty Act. Holders of exploration rights are required to register in terms of the Administration Act, although they only become liable to pay royalties if they extract and transfer mineral resources. Royalties are payable when mineral resources extracted from within the Republic of South Africa are transferred. The transfer of the mineral resources is the trigger for the imposition of the royalty. The Royalty Act uses two variables to calculate royalty liability: the value of the minerals (the tax base) and the royalty percentage rate that is applied to the base. There is, furthermore, a distinction made between refined and unrefined mineral resources. In respect of refined minerals the formula is currently 0.5 + [earnings before interest and taxes ÷ (annual gross sales in respect of refined mineral resources × 12.5)] × 100. In respect of unrefined minerals the same formula applies except annual gross sales are multiplied by an amount of 9. The maximum royalty percentage is capped at 5 per cent for refined mineral resources and seven 7 per cent for unrefined mineral resources. The Royalty Act authorises the minister of finance to conclude binding fiscal stability agreements with an extractor in respect of an existing petroleum right or in anticipation of the extractor acquiring a petroleum right. These agreements offer long-term stability and thus ensure that extractors will not be affected by changes in the formulae. The Royalty Act exempts an extractor from the royalty in respect of mineral resources won or recovered by the extractor for testing, identification, analysis and sampling, provided that the gross sales in respect of the mineral resources do not exceed 100,000 rand during a year of assessment.
13 What is the customary duration of oil leases, concessions or licences?
Reconnaissance permits are valid for two years and are not renewable and non-exclusive. Technical cooperation permits are valid for a period not exceeding one year and are not renewable. The holderof a technical cooperation permit has the exclusive right to apply for and be granted an exploration right in respect of the area to which the permit relates. If the holder of a technical cooperation permit has lodged an application for an exploration right, the technical cooperation permit remains in force notwithstanding its expiry date, until such time as the exploration right application is granted or refused. Exploration rights are granted for a period of three years. These rights may be renewed for a maximum of three periods not exceeding two years. In the event of renewal of an exploration right, relinquishment of a percentage of the exploration area is required. The relinquishment percentage is not prescribed by legislation. It is, however, common practice for the relinquishment requirement to take the form of a 20 per cent relinquishment of the exploration area on completion of the initial renewal period, thereafter not less than a 15 per cent relinquishment of the exploration area on completion of the first renewal period and not less than 15 per cent relinquishment of the exploration area on completion of the second renewal period. Where the holder of an exploration has lodged an application for renewal, such right shall remain in force until such time as the application for renewal has been granted or refused. Production rights are granted for an initial period of 30 years and can be renewed for further periods of 30 years. The number of periods for renewal is not prescribed by the MPRDA or the regulations thereto and must therefore be discussed with the minister. A production right is transferable and creates an exclusive right to apply for a renewal thereof.
14 For offshore production, how far seaward does the regulatory regime extend?
South Africa’s regulatory regime extends to its territorial waters, the exclusive economic zone and continental shelf. The territorial waters are 12 nautical miles from the baselines. The exclusive economic zone is the sea beyond the territorial waters but within a distance of 200 nautical miles. The continental shelf of the Republic of South Africa covers some 200,000km² and the country has a coastline approximately 3,000km in length and in some circumstances extends beyond this area. In respect of the areas extending beyond the aforementioned, South Africa submitted extended continental shelf claims around the South African mainland and a joint application with France in respect of Prince Edward and Crozet Islands areas. The claims were submitted on 5 and 6 May 2009, presentations were subsequently made on 19 and 23 August 2010 and a decision on these claims is expected before 2016.
15 Who may perform exploration and production activities? What criteria and procedures apply in selecting such entities?
Only holders of exploration and production rights may perform exploration and production activities. Exploration and production rights are generally acquired pursuant to an application process on a first come first served basis. The MPRDA, however, also makes provision for ‘licensing rounds’ by allowing the minister of mineral resources to invite applications for exploration and production rights by way of notice in the Government Gazette. Applications must be submitted at the office of the Agency, in the prescribed form together with the prescribed application fee. The application must be accepted by the Petroleum Agency if the aforementioned requirements are met and no other person holds a technical cooperation permit, exploration right or production right for petroleum over any part of the area. If the requirements are not met the Petroleum Agency must notify the applicant in writing of that fact within 14 days of receipt of the application. Once an application is accepted an applicant for an exploration right must prepare an environmental management programme for approval within 120 days of the acceptance letter. Guidelines for the preparation of the environmental management plan are provided by the Agency. An applicant for a production right must conduct an environmental impact assessment and prepare an environmental management programme for approval within 180 days of the acceptance letter. Once the environmental impact assessment and environmental management plan (as the case may be) has been conducted and is submitted to the Agency, the Petroleum Agency will make its recommendation to the minister. The applicant for an exploration right must demonstrate that it has access to financial resources and the technical ability to conduct the proposed exploration operation optimally and in accordance with the work programme and that the estimated expenditure is compatible with the intended operation and duration of the work programme. The application must specify the mechanisms which will be implemented to substantially and meaningfully expand opportunities for historically disadvantaged South African persons to enter the mineral and petroleum industry and to benefit from the exploitation of the nations mineral and petroleum resources. The applicant must confirm that it has the ability to comply with the relevant provisions of the Mine Health and Safety Act 29 of 1996 (MHSA) and that it is not in contravention of any of the relevant provisions of the MPRDA. The minister must grant the application if the applicant has demonstrated the aforementioned. Similarly, the minister must grant an application for a production right if the applicant demonstrates that it has access to financial resources and the technical ability to conduct the proposed production operation optimally and in accordance with the work programme and that the estimated expenditure is compatible with the intended operation and duration of the work programme. The applicant must also show that the production will not result in unacceptable pollution or damage to the environment, that it has the ability to comply with the provisions of MHSA, that it is not in contravention of any of the relevant provisions of the MPRDA and, if applicable, that it has complied with the terms and conditions of an exploration right. The application must be accompanied by a social and labour plan and specify the manner in which ownership of historically disadvantaged South Africans will be facilitated as anticipated in the Petroleum and Liquid Fuels Charter. The applicant must also demonstrate, inter alia, that it has provided, financially or otherwise, for a social and labour plan. In the absence of any of the aforementioned, the minister must in accordance with the provisions of the MPRDA refuse an application for a production right.
16 What is the legal regime for joint ventures?
Companies generally engage in oil activities through unincorporated joint venture associations. Unincorporated joint venture partners can apply for permits and rights jointly and if the application is successful the permit or right will be granted to the parties jointly and severally. A partial or complete transfer of a participating interest in an existing technical cooperation permit, exploration right or production right is acquired by section 11 application prepared in accordance with the MPRDA. In this instance the incoming joint venture partner will be required to demonstrate its technical and financial ability in relation to the work programme and budget. By contrast, reconnaissance permits may not be transferred, ceded, let or sublet. Parties to a joint venture application for a right or permit usually enter into a joint operating agreement (JOA). The JOA governs, inter alia, the contractual relationship between the parties to the joint venture, the appointment and functions of the operator and joint operating committee as well as the day to day operational activities carried out by the operator.
17 How does reservoir unitisation apply to domestic and cross-border reservoirs?
In the event that the rights held by holders under two or more exploration rights and/or mining leases and/or production rights and/or prospecting leases or sub-leases extend over different areas whichgeologically form part of the same petroleum-bearing area within the Republic of South Africa, the state may by notice in writing require the holders of such rights to prepare a proposal for the production of that petroleum-bearing area as a unit. Where such petroleum-bearing area extends over an area over which the state’s rights have not been alienated then the state shall be deemed to be the holder of the rights over such area and be entitled to a proportionate share of benefits. South Africa and Namibia are currently engaged in discussions regarding a clearly defined maritime boundary acceptable to both parties. This maritime boundary straddles known mineral deposits and is also important to fishing rights. Its definition is therefore crucial to both countries. There are no prescribed guidelines for reservoir unitisation in respect of cross-border reservoirs; however, it is anticipated that such guidelines will emerge during these discussions. In addition to the aforegoing, the maritime boundary between South Africa and Mozambique also requires clear definition; however, this definition is not regarded as crucial because there are no known resources straddling the area.
18 How is transportation of crude oil and crude oil products regulated within the country and across national boundaries? Do different government bodies and authorities regulate pipeline, marine vessel and tanker truck transportation?
The Petroleum Pipelines Act 60 of 2003 (Petroleum Pipelines Act) establishes a national regulatory framework for petroleum pipelines. Pipelines are regulated by and require the approval of the National Energy Regulator of South Africa acting on behalf of the Department of Energy. The Merchant Shipping Act 57 of 1951 provides for marine vessel and tanker transportation of crude oil and crude oil products. These activities are regulated by Department of Transport with the designated authority being the South African Maritime Safety Authority (SAMSA). The Marine Pollution (Control and Civil Liability) Act 6 of 1981 read together with Regulations relating to the Prevention and Combating of Pollution of the Sea by Oil is also relevant to the regulation of the transportation of crude oil and crude oil products by marine vessel. The National Road Traffic Act and its National Road Traffic Regulations on the transportation of dangerous goods, regulate road transportation and is regulated by the Department of Transport. South Africa is a member of the Southern African Development Community (SADC) along with its neighbours Angola, Botswana, Democratic Republic of the Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, Swaziland, Tanzania, Zambia and Zimbabwe. SADC’s Protocol on Transport, Communication and Meteorology requires member states to promote and develop an economically-viable integrated transport service. South Africa has given effect to the SADC Protocol by enactment of the Cross-Border Road Transport Act 4 of 1998, which authorises the minister of transport to conclude road transportation agreements based on the principles of reciprocity, similar treatment and non-discrimination and, where appropriate, extraterritorial jurisdiction in respect of crossborder road transport.
19 What are the requisites for obtaining a permit or licence for transporting crude oil and crude oil products?
The approval of NERSA must be obtained to operate a petroleum pipeline. Transportation of crude oil and crude oil products by marine vessel must comply with various domestic health, safety and environmental legislation as discussed below. The Department of Transport is responsible for issuing domestic road permits while the Cross Border Road Transport Agency is responsible for the issuing of road permits across national boundaries.
Health, safety and environment
20 What health, safety and environment requirements apply to oil-related facility operations? What government body is responsible for this regulation; what enforcement authority does it wield? Are permits or other approvals required? What kind of record-keeping is required? What are the penalties for non-compliance?
The Occupational Health and Safety Act 85 of 1993 (OHSA) and Mines Health and Safety Act 29 of 1996 (MHSA) provide a foundation for health, safety and environment regulation in South Africa. With regard to offshore installations, compliance with the terms and conditions of the MHSA and regulations thereto is required. The Maritime Occupational Safety Regulations, Marine Traffic Act and Maritime Zones Act may also find application. The Chief Inspector of Mines is the authority designated to ensure compliance with the MHSA and the regulations thereto. Offshore installations require an offshore installations permit issued by the Chief Inspector of Mines and a certificate of fitness issued by a certifying authority such as the SAMSA. Compliance with the Marine Pollution (Control and Civil Liability) Act 6 of 1981 read together with Regulations relating to the Prevention and Combating of Pollution of the Sea by Oil Compliance and Good International Petroleum Industry Practices are also required. In this regard, a pollution safety certificate must also be obtained. Records pertaining to training, significant hazards identified and risks assessed, hazardous works, occupational hygiene measurements, medical surveillance for each employee exposed to a health hazard must be retained. Penalties for non-compliance are prescribed and vary in relation to the nature of the transgression and the identity of the transgressor. Fines can be imposed, documents and machinery seized and, in the event of a serious transgression, withdrawal or suspension of the permit and a fine of 3 million South Africa rand or a period of imprisonment not exceeding five years, or both such fine and imprisonment. In respect of the operation of pipelines, licences must be acquired from NERSA, the designated authority. NERSA may require a licensee to submit financial security, or make such other arrangements as may be acceptable to NERSA, to ensure compliance with any licence condition relating to health, safety, security or the environment, prior to, during or after the period of validity of the licence. If a licensee contravenes or fails to comply with a condition of a licence or law, NERSA may serve a notice on such licensee in terms of which the licensee is directed to comply with the condition or the provision of the Petroleum Pipelines Act within a reasonable period specified in the notice. If a licensee fails to comply with such notice, NERSA may sit as a tribunal in order to decide on the matter and may ultimately impose a penalty or a fine not exceeding 2 million rand per day for each day on which the contravention or failure to comply continues. In addition, NERSA may by way of application on notice of motion apply to the High Court for an order suspending or revoking a licence if there is any ground justifying such suspension or revocation, such as failure of the licensee to carry out the construction and operation activities for which the licence was granted.
21 What health, safety and environmental requirements apply to oil and oil product composition? What government body is responsible for this regulation; what enforcement authority does it wield? Is certification or other approval required? What kind of record-keeping is required? What are the penalties for non-compliance?
The OHSA and regulations thereto are applicable. The Act is administered by the Department of Labour and it aims to provide for, inter alia, the health and safety of persons at work and for the health and safety of persons in connection with the use of plant and machinery; and to establish an advisory council for occupational health and safety. Health and safety inspectors are appointed by the Department of Labour and there is a duty to report hazards to health andsafety and incidents to such inspectors. Inspectors are permitted to, inter alia, enter the workplace without previous notice, question persons at the workplace, request, seize, and inspect any document and investigate the circumstances of any incident which has occurred at or originated from a workplace. Penalties for non-compliance with OHSA and the regulations thereto are dependent upon the nature of the transgression but can include a fine not exceeding 100,000 South Africa rand or imprisonment for a period not exceeding two years, or both. A court order compelling compliance within a specified time period may also be enforced.
22 What government standards apply to oil industry labour? How is foreign labour regulated? Are there anti-discrimination requirements? What are the penalties for non-compliance?
South Africa has a comprehensive labour legislation. There are no specific government standards for oil industry labour. The Labour Court has held that South African employment laws apply to foreign nationals working in South Africa. Foreign employees must obtain a work permit, however provision is made for rare and exceptionally circumstances. The Labour Relations Act 66 of 1995 (LRA) which regulates the employer-employee relationship in South Africa and the Basic Conditions of Employment Act 75 of 1997 which sets out standard conditions of employment in respect of the private sector are the foundation for South African labour law. The LRA gives effect to fair labour practices referred to in section 23(1) of the Constitution of the Republic of South Africa and thereby seeks to ensure compliance with the obligations of the country as a member of the International Labour Organisation. South African labour law imposes a duty on employers to provide employment equality and to refrain from discriminating against employees on a number of grounds, including but not limited to ethnic or social origin, political opinion or race; gender, sex or sexual orientation; pregnancy or marital status; and membership of a minority group. There are further obligations created by the Unemployment Insurance Act as well as the Compensation for Occupational Injuries and Diseases Act. Labour legislation is administered by the Department of Labour and penalties for non-compliance are dependent on the nature of the transgression.
23 What is the tax regime applicable to oil exploration, production, transportation, and marketing and distribution activities? What government body wields tax authority?
The Royalty Act read with the Royalty Administration Act specifies the royalties that are imposed for any mineral or petroleum resource recovered or won in South Africa. Further, taxes imposed in South Africa include income tax (corporate and individual) capital gains tax (CGT) and certain individual taxes such as value added tax (VAT) and transfer duty. From 1 January 2001, South Africa moved to a residence-based income tax system and South African residents are accordingly taxed on their worldwide income. The Income Tax Act 58 of 1962, as amended (ITA) defines a resident, in relation to juristic or legal entities, to mean any person that is incorporated, established or formed in South Africa or which has a place of effective management in South Africa. Branches of offshore companies will not fall within the definition of resident. Non-residents are taxed on income from a South African source, or from a source deemed to be South African, and also on capital gains arising from the disposal of immovable property situated in South Africa held by that nonresident or any interest or right in immovable property situated in South Africa as well as in respect of the disposal by the non-resident of any asset which is attributable to a permanent establishment of that non-resident in South Africa unless a Double Taxation Agreement exists and provides otherwise. The Tenth Schedule to the ITA grants a special dispensation with regard to the taxation of an oil and gas company holding an oil and gas right in respect of oil and gas income. The Tenth Schedule inter alia provides a cap the rate of taxation at 28 per cent in the case of residents and 31 per cent in the case of non-residents. It furthermore caps the rate on dividends at 5 per cent. The Tenth Schedule authorises the minister of finance to conclude binding fiscal stability agreements with an oil and gas company which, subject to the provisions of the ITA, are transferrable. The government body exercising tax authority in the Republic of South Africa is the South Africa Revenue Services.
Commodity price controls
24 Is there a mandatory price-setting regime for crude oil or crude oil products? If so, what are the requirements and penalties for noncompliance?
South Africa is dependent on imported crude oil and is accordingly exposed to increased input prices. Upward increases in international crude oil prices partly account for escalation in domestic inflation, with the impact of this depending on the strength of the South Africa Rand. The price-setting regime for crude oil products is mandated by the Petroleum Products Act and maximum retail prices are set out in the regulations thereto. Penalties for non-compliance range between a fine not exceeding 1 million rand or imprisonment for a period not exceeding ten years to both such fine and imprisonment.
Competition, trade and merger control
25 What government bodies have the authority to prevent or punish anticompetitive practices in connection with the extraction, transportation, refining or marketing of crude oil or crude oil products?
The Competition Act 89 of 1998 (Competition Act) establishes three independent bodies namely the Competition Commission (Commission), the Competition Tribunal (Tribunal) and the Competition Appeal Court. The Competition Commission has a range of functions which include investigating anti-competitive conduct in contravention of chapter 2 of the Act, and assessing the impact of mergers and acquisitions on competition and approving (conditionally or unconditionally) or prohibiting mergers. The Competition Commission is independent but its decisions may be appealed to the Tribunal and the Competition Appeal Court. The Tribunal adjudicates on any conduct prohibited in terms of the Act, to determine whether any prohibited conduct has occurred and if so, to impose any remedy provided for in the Act. The Competition Appeal Court may review any decision of the Tribunal.
26 What is the process for procuring a government determination that a proposed action does not violate any anti-competitive standards? How long does the process generally take?
The Competition Act sets out prohibited practices which constitute per se contraventions of the Act and those contraventions which are not per se unlawful but which are subject to a ‘rule of reason’ analysis. There is no approval procedure for proposed actions that may contravene the Competition Act. However, the Commission provides advisory opinions in relation to the application of the Competition Act. An advisory opinion is a written opinion of the Commission’s position in respect of a set of facts submitted by external parties. It is based entirely on the facts provided to the Commission, taking into account relevant case law, policies of the Commission and previous opinions issued. These opinions are not binding on the Commission and there is no prescribed timeframe for the Commission’s delivery of the advisory opinion. In practice, and depending on the nature of the request, the Commission has delivered its opinion within a period of three months.