The oil and gas regulatory arena has undergone significant changes since 2020, and these changes should be applauded and welcomed. They promote transparency and meaningful engagement, which is needed as South Africa strives to mitigate climate change impacts and promote the sustainable development of its oil and gas resources. The changes came from two important judgments and amendments to key regulations and legislation.
South Africa’s legal framework requires notifying and consulting with interested and affected parties before the Department of Mineral Resources and Energy (DMRE) awards exploration and production rights to oil and gas companies. However, before 2020, the framework had significant gaps about who must be consulted, what the consultation process entails, what information the applicant must share with interested and affected parties, and what oversight role the Petroleum Agency SA (Pasa) will play.
The lack of regulatory clarity around the consultation requirements enabled companies to do the bare minimum and approach consultations as a box-ticking exercise. Unsurprisingly, this also became the Achilles heel for exploration and production rights holders, leaving them open to legal challenges based on not having adequately consulted interested and affected parties.
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Before 2020, the Mineral and Petroleum Resources Development Act’s (MPRDA) regulations provided little guidance to an applicant for an exploration or production right on how to consult with interested and affected parties. The DMRE had published guidelines for consultation with communities and interested and affected parties, but these were not legally binding and rarely followed by companies.
Requirements
In 2020, the DMRE embarked on a process of clarifying what is required of an applicant when consulting with interested and affected parties. This process culminated in an amendment to Regulation 3 of the MPRDA Regulations, which deals with consultations with interested and affected parties.
The new Regulation 3 included a definition of meaningful consultation. It defined meaningful consultation as involving good faith facilitated participation in a manner that provides a reasonable opportunity for interested and affected parties to provide their comments. The interested and affected parties must also be given relevant information about the proposed activities that will enable them to make an informed decision about the impact of the proposed activities. This definition clarified what information must be shared in the consultation process.
The amended Regulation 3 also stated that the public participation process must be conducted in accordance with the 2014 Environmental Impact Assessment (EIA) Regulations, thus clarifying the consultation process. The EIA Regulations provide for a thorough and robust public participation process. Regulation 3 also allows the (Pasa) to observe consultations to ensure they are meaningful.
Sufficient consultation
What remained to be answered was who must be consulted. Both the judgments in Minister of Mineral Resources and Energy v Sustaining the Wild Coast NPC (Shell SCA Appeal case) and the Sustaining the Wild Coast NPC and v Minister of Mineral Resources and Energy (Shell Makhanda case) affirmed that a company’s failure to consult meaningfully with customary communities is a thing of the past. Because Impact Africa did not attempt to engage with the applicant communities (such as Dwesa-Cwebe, Xolobeni, and the Pondoland area communities), the Makhanda High Court set aside its exploration rights.
Before the 2022 Shell Makhanda case and the subsequent 2024 Shell SCA Appeal case, it was unclear whether the principles set out in 2010 by the Constitutional Court (ConCourt) in Bengwenyama Minerals (Pty) Ltd v Genorah Resources (Bengwenyama) applied to applicants applying for exploration and production rights. Both the High Court and SCA decisions confirmed that the principles set out in Bengwenyama apply to exploration and petroleum rights applications.
In summary, the principles set out by the Bengwenyama judgment would require oil and gas companies to provide sufficient detail of their proposed activities to interested and affected persons when consulting with them. An applicant must consult in an accessible way and in a language that the interested and affected persons understand. Moreover, the Bengwenyama judgment outlined the purpose of the consultation, saying that consultation does not entail agreement but involves good faith engagement to attempt to reach an accommodation between the parties.
UPRD Bill
The South African upstream petroleum industry is nascent, and the legal framework will likely continue to evolve. Currently, the MPRDA governs the exploration and exploitation of our country’s petroleum and mineral resources. The Upstream Petroleum Resources Development (UPRD) Bill, which is awaiting President Ramaphosa’s signature, seeks to separate the regulation of petroleum resources from mineral resources by removing the former from the MPRDA.
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The UPRD Bill will introduce some significant departures from the current consultation requirements. For example, according to the Bill, Pasa can augment the consultation process undertaken by the applicant with public hearings. This is a new and welcomed development. The Bill explicitly lists the landowner, lawful occupier, and any affected party as categories of persons to be consulted by the applicant. This development is vital, considering that the mining industry has had instances of consulting other affected persons to the exclusion of lawful occupiers and landowners.
Interestingly, the UPRD Bill places the obligation to consult with interested parties on Pasa and not the applicant. The applicant’s primary focus will be consulting affected parties. Unlike the 2020 Regulation 3, which says that Pasa “may participate” in the applicant’s consultation processes as an observer, the Bill states that Pasa “must” attend the applicant's consultation processes to ensure that the process is “transparent, fair and meaningful”. This is an important step in strengthening accountability.
While it is important that there is clarity about what is legally required, companies should endeavour to go above and beyond the regulatory requirements and ensure affected parties are given sufficient opportunity to have a say in any pending oil and gas development. This initial consultation creates rapport, leaves little room for disinformation, and enables the building of a sense of common purpose. DM