South African renewables development has land use and consenting pitfalls

The reality is that while obtaining ministerial consent is viewed as essential to completing financing arrangements for renewable energy projects, it does not safeguard those projects from legal challenge – and in some cases, where proper processes are not followed, can in fact expose developers to the risk of losing the consent they have been granted.

Developers should therefore ensure that they test the need for a so-called section 53 permit for their project by subjecting it to more nuanced legal and technical assessment.

What is a section 53 permit?

Section 53 of the Mineral and Petroleum Resources Development Act (MPRDA) in South Africa requires a user of land intent on using the surface of any land in any way, subject to exceptions, to apply for approval from the minister of the Department of Mineral Resources (DMR) to use that land, if their intended use may be contrary to any object of the MPRDA or which is likely to impede any such object. The stated objects of the Act include promoting equitable access to the nation’s mineral and petroleum resources and promoting mineral and petroleum resources development.

This permission, known as a section 53 permit, has become a standard and expected regulatory approval for developers to obtain as part of the suite of permits, required for the lawful development of large-scale energy infrastructure projects. Lenders often expect developers to have obtained a section 53 permit for purposes of reaching financial close.

Overlapping rights and other risks

There is a shift in the permitting of energy projects.

We are seeing an increase in novel challenges stemming from the grant of applications for section 53 permits, especially in instances where the land in question is encumbered by mineral and/or petroleum rights, resulting in an overlap of rights.

These challenges, especially those experienced by renewable electricity developers, require in-depth industry knowledge of both the renewable electricity and the mineral and petroleum sectors.

In our experience in advising clients faced with an overlap of their development's rights and mineral/petroleum rights, we have identified a variety of issues and challenges arising with section 53 permits that developers should be aware of.

For example, the practice that has developed over time for applications for section 53 permits to be filed almost by default has led to the situation in which no assessment is undertaken to determine whether the section 53 permit is in fact required. The presumption that all renewable energy developments inherently require a section 53 permit has resulted in project sponsors proceeding to apply for such a permit.

We have also seen cases where section 53 permit applications submitted have been deficient or where incorrect processes have been followed. Even if applications or application procedures are flawed, we have seen section 53 permits still being issued by the regional manager of the DMR delegated to grant these permits on behalf of the minister. This exposes the section 53 permit, and administrative decision to grant it, to risk of legal challenge.

In other examples, section 53 permits have been granted without assessment – either by developers or the DMR – as to the existence of mineral and petroleum rights that exist over the properties in question. This creates a real risk of not only the section 53 permit being deficient, but that developers take false comfort from the decision by the competent authority that the identified project sites are not the subject of competing or conflicting rights.

Gaps in application procedures and issued section 53 permits can also result in projects being challenged by mineral and petroleum rights holders whose rights to beneficiate minerals and petroleum resources are impacted by the development of a renewable facility on the surface.

There are other potential legal and commercial problems which could be faced by holders of section 53 permits too.

Actions for developers

Deficiencies in issued section 53 permits or associated application procedures are only now being realised several years after the permits have been granted.

Projects developed on land encumbered by mineral/petroleum rights or on which there are pending applications for such rights are not just at risk of their regulatory permits – such as section 53 permits – or environmental permits being legally challenged; there can also be impacts on leases, servitudes and other land documents.

It is evident that section 53 is a complex provision of the MPRDA which has not been subject to much legal interpretation, precedent or case law. The lack of case law and regulatory guidance has risks to developers of not being properly advised on the potential pitfalls associated with this permit, while it has become increasingly common for lawyers to have to close gaps and ensure correct legal processes are followed at the end stages of the section 53 permits application procedures.

It is becoming increasingly material for developers and lenders to navigate this area of law, to ensure a project is feasible to be developed lawfully and that real risks of challenges to the permit are mitigated from inception.

Stakeholders in all industries, including mining, need to understand and apply this consent where necessary. This will ensure that operational practices align with ethical standards and regulatory requirements.

Co-written by Sarah Burford of Pinsent Masons.