A study of the non-tax fiscal regime for shale gas development in South Africa

Abstract

South Africa is pursuing the exploration and exploitation of its possible petroleum resources particularly shale gas, following the estimation of just over 400 trillion cubic feet (tcf) of shale gas resources in the Karoo region. This, including the lodgement of five shale gas exploration right applications has necessitated the strengthening of the petroleum regulatory framework as well as the fiscal regime to ensure that South Africa remains an attractive destination for investors and for South Africa to extract maximum economic benefits. This paper has undertaken an examination of the current fiscal regime particularly the non-tax elements as stipulated in the current regulatory framework. Upon its face value the South African fiscal regime appears to be underdeveloped and not necessarily designed to cater for development of shale gas. Furthermore, it is not designed to address the specifics of shale gas development within the South African context. Some aspects of the South African fiscal regime may require to be strengthened while also remaining relevant and competitive internationally. A fiscal regime that is flexible and sensitive to shale gas development specific within a country context is required. Consideration for a differentiated tax construction may also be incorporated to make up for allowances provided at the beginning of the project. This will be in line with South Africa’s objectives for the creation of a sustainable and competitive petroleum industry that provides a win-win solution for both government and the industry.