Draft South Africa National Petroleum Company Bill (SANPC): 2023: Proposed Governance

Energy Law

In this article, we do a review on the strengths and shortcomings of the Draft South Africa National Petroleum Company Bill, 2023 (“the Bill”) focusing on its proposed governance framework. 

The proposed state-owned petroleum company is established as a national public entity, which can be fully or substantially funded from the SA National Revenue Funds, or by way of a tax, levy or other money imposed in terms of the national legislation. Its governance is regulated by the Companies Act No.71 of 2008 as amended by the Companies Act, 2011 (“Companies Act”) and Public Finance Management Act, No.1 of 1999 (“PFMA”). The Companies Act and the PFMA share many principles of good governance, desirable in the spirit of the overarching governance principles of accountability, fairness, transparency, and responsibility. However, as a broad statement, it can be argued that the major differences between these legislations lie in the fact that the PFMA focuses primarily on aspects of financial management within public entities, while the Companies Act regulates matters in relation to companies that are wider in scope than simply financial management. 

The Bill outlines various aspects that will ensure the proper functioning of the company, which include but not limited to the appointment of the Minister as the sole shareholder, funding of the company, governing regulations, and its Board.

The proposed state-owned company will play crucial role in the development of oil & gas and energy transition in South Africa. The effective management of national petroleum company can contribute heavily to successful efforts to harness benefits from the energy sector and drive broader national development, with a major impact that translates potential wealth into sustainable development that benefits citizens, generate strong financial returns to the state, and flourish national technical capacity. 

Mismanagement by contrast, can exacerbate waste and corruption and deprive the country of valuable resources.  Therefore, governance of the proposed national petroleum company is of importance as its funding will depend fully or partially on the public coffers, which demands greater accountability to the government and society.

Transparency and accountability will be critical elements in the governance of this national company as they permit the efficient and prudent management of oil and gas and their revenues throughout the value chain. Transparency can limit the opportunities for misuse of power, corruption and enhance public trust in the management of state resources, while accountability can ensure that those entrusted with the management of public resources are held responsible for their actions or inaction. 

The most prominent and convincing source of criticism of the Bill is the lack of a well-defined, meritocratic process in the appointment of the Board of Directors. The Bill entrusts the Minister with the powers of appointment of the board unilaterally. Such system is open to manipulation, which can result to political appointments and the board without an appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively. The Bill dismally fails to provide the process of appointment of the Chairperson, which is truly independent and transparent, free from political manipulation, so that the ultimate appointment made by the Minister is genuinely the result of merit-based selection process. Clear appointment of the Board and its Chairperson and accountability of the Board must be central strategic thrust of the governance, and mechanism should be built in this process to ensure transparency to the public.

Unfortunately, the Bill does not meaningfully address the challenges that come with autocratic leadership. The Bill authorises the Minister to determine the company’s rights over the petroleum value chain for the purpose of ensuring security of energy supply for the state, it however does not make provisions of how such rights are to be implemented or the transparency of the decision-making process involved in the determination of these rights. The lack of proper checks and balances in the Minister’s intervention in the company and industry at large, could lead to corruption and inefficiency.

Generally, in the energy sector, it has been proven that professional, independent management and boards, and not politicians, make key business decisions. This allows for predictable planning, supports the exercise of sound business judgment, and reduces the risk of capture by narrow political interests. However, all national companies in the energy sector, even successful ones, are subject to some political interference. What ultimately seems to separate the high performers is greater autonomy in making commercial decisions and formulating operational strategy. 

The accountability of the Board of the proposed company is regulated in terms of the PFMA, granting the Parliament a role of oversight over financial management. This notion is welcomed, as it ensures transparency and adequate oversight mechanisms. The important factor in terms of regulating a national petroleum company is ensuring that the entity is subject to adequate oversight mechanisms, which includes subjecting its budget to independent and external auditing. Improvements in accountability and transparency are likely to follow if its revenue and expenditure are reviewed. Audited financial statements, which include reporting on mismanagement and corruption, assist the legislature and executive in the performance of their oversight responsibilities.

In sum, the elements of good governance as covered above require getting the rules right and getting the implementation rights by means of a process with legitimacy. Ensuring that the governance of the proposed national petroleum company is carried out in a transparent and accountable manner, with the necessary degree of professionalism and accountability is crucial, so that its intended need to maximise the nation’s economic benefit from exploration of petroleum and renewable energy resources can be appreciated.

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