Exploration for oil or minerals is a very risky activity. And when a significant find is made there is the further risk that the terms allowed to the finder may turn out to be unexpectedly adverse. Indeed the larger the resource proved, the more adverse these terms are likely to be.
Any original successful risk taker is hostage to the government where the discovery was made. With any potentially valuable discovery under the ground or water, what was essentially unknown will have become much more of a valuable known. Accordingly the share of the value added allowed to the discoverer can easily become a matter of ex-post negotiation rather than a rule of previously agreed laws.
Exploring for oil or gas in deep turbulent South African waters is surely a particularly risky endeavour. Rules applying to exploration for oil or gas are still to be re-drafted and voted upon. Yet despite all this inherent uncertainty – all the known unknowns – Total and its partners went ahead and explored off our coast. And have discovered what is clearly a significant quantity of hydro-carbons in their concession area. They will be drilling further wells to determine the fuller potential of the gas and oil available for exploitation.
How then should South Africa respond to this fait accompli this new economic opportunity of great potential significance? Surely to maximise the output of oil and gas? Upon which taxes or royalties can and will be levied. But would have to be of an internationally comparable and competitive scale to fully encourage production and further exploration activity.
Given a natural concern for safety and the environment, the business of bring the oil and gas to market should best be governed by no other consideration than that of maximising output at minimal cost. What is in prospect, if all goes well, is construction activity on a very large scale undertaken over many years. Drills will be sunk from platforms to be built, served by helicopters and launches with bases and workers onshore. Pipelines will be laid to bring the oil and gas onshore and to extend the net-work to new refineries and their customers in the urban areas. Much further capital expenditure in oil and gas intensive industry for export and the local market will become feasible off the newly established grids. The economy could take off.
To make the best of what has become possible, minimal consideration should be given to any other potential interests in the resource, other than the general interest in faster economic growth. Interests that might impose themselves on the project managers and the capital providers should be actively disallowed.
It is the case for letting construction companies and those that are free to hire them, to bid competitively for work. Work that they would be free to organise as best they saw fit. Meaning they would be subject to minimal interference in the form of patronage, crony capitalism, corruption and extortion that has been so expensively and damagingly characteristic of construction activity in South Africa recently. Think of the huge overruns at Kusile and Medupi and the perils of constructing pipelines and roads in Kwa-Zulu where extortion has become commonplace. Or ask any construction company (a declining number) for details of how they have now to do business in SA
The genuine public interest in redistributing the benefits of the project would then be satisfied by the extra revenue generated for government- not by opportunistic rent seeking. And the extra revenue could be well spent for the benefit of the poor in better funded schools and hospitals or cash grants- maybe even lower tax rates. A case of growth and then redistribution- rather than erratic redistribution at the expense of growth. It would represent a true game changer for the SA economy.