Nationalization: final nail in the coffin for South African mining
The Karoo is the fifth largest gas field in the world. Local and international companies are interested in developing it. According to estimates, shale gas extraction from the Karoo will lead to 9% GDP growth for South Africa!
Imagine extracting cheap shale gas for power plants – no wet coal problems! If Sasol used the gas in its Gas-to-liquids process, South Africa would become liberated from international oil!
A new law that was been passed could ruin all that. That outrageous law makes mine nationalization a government policy and may stop the future of fracking!
Government gets 20% of all new developments FOR FREE!
The Mineral and Petroleum Resources Development Amendment Bill: This bill was passed by using ANC majority vote in government to erase all opposition.Some think this bill will destroy the SA mining industry.
It makes government a 20% shareholder in ALL new mining projects. They are especially keen to get a FREE 20% share in new FRACKING operations due to start up in the Karoo. That’s it! Government wants in on the action where companies spend billions to explore and create new fracking wells, but they don’t want to pay.
The argument is that shale gas belongs to South Africa therefore government should get a 20% share of all the projects. Getting royalties on the gas, as well as tax on all profits, just isn’t enough.
Consequences of this law
If companies has to hand over that kind of share, it will seriously obstruct investment. Companies will have a lack of capital to invest and profit margins will be eaten away. Most fracking companies only work on a profit margin of 20%, so giving away a 20% share to government for no payment and developing a project, WILL make viability questionable.
Making this law even more ridiculous, is the clause: “The government would also be able to buy an unspecified additional share at “an agreed price.”
Government will have the option to buy more shares and eventually become a controlling shareholder. Government should stick to what it does best: Thinking out new laws, sleeping during speeches and throwing parties. They SHOULD NOT be partners in mining or mineral extraction operations.
Companies where government is involved: Eskom, Telkom, South African Airlines and the SABC. Definitely not examples of companies with good corporate management or as profitable companies.