MPs question powerships deal

Officials from the Department of Mineral Resources and Energy (DMRE), without Minister Gwede Mantashe, appeared before parliament’s portfolio committee on mineral resources and energy on Tuesday to brief it on the Karpowership contract to supply power from vessels to South Africa.

The meeting followed calls by various civil society organisations and energy experts questioning the viability of the powerships in South Africa considering the massive cost to the environment and the operating costs associated with them.

Ahead of Tuesday’s meeting, 15 civil society organisations including environmental group the Centre for Environmental Rights and shareholder activists JustShare wrote to committee chair Sahlulele Luzipo calling for public hearings to be held over the decision to award Karpowership three of the eight winning power bids.

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Rules bent

Their letter, which was read out at the start of the meeting, said the public hearings should investigate how a foreign-based company was able to circumvent local content rules and how its application process was not subject to the public participation process.

DMRE Deputy Director-General Jacob Mbhele said although Karpowership was chosen as one of the government’s preferred energy bidders, no work has begun.

He added that the announced bidders are required to reach financial close by no later than the end of July, and are expected to accept “preferred bidder status” by paying a non-refundable fee of R25 000 per megawatt and submit a preferred bidder guarantee of R200 000 per megawatt.

Prior to financial close, accepted bidders are also expected to obtain the necessary final environmental authorisations as well as the required authorisations from the National Ports Authority, the South African Maritime Safety Authority and the National Energy Regulator of SA (Nersa).

Karpowership exemption

Last year, Karpowership was given an exemption from mandatory environmental impact assessment (EIA) procedures by the Department of Forestry, Fisheries and the Environment.

The exemption allows companies to circumvent some EIA requirements in the event of emergency situations such as the Covid-19 pandemic.

The Section 30A exemption from the National Environment Management Act was however revoked by the department following pressure from environmental groups.

Speaking during a separate webinar on Tuesday shortly after the portfolio committee meeting, Karpowership SA shareholder and managing partner at law firm Bodasing and Company, Ravin Rajoo, said the negative impact on the environment as a result of the powership is a “necessity”.

He stressed however that the impact of liquified natural gas, which the ships use, is far below that of coal.

Kapowership SA’s winning bid represents the lion’s share of the 1 995 megawatt (MW) of power that is being procured as part of the government’s emergency electricity procurement programme.

Karpowership was announced by Mantashe in March as one of eight preferred bidders that are expected to meet the country’s short-term electricity supply gap. The Turkish company’s South African operation, Karpowership SA (Coega, Richards Bay, Saldanha) is set to supply 1 220 megawatts (MW) of power using liquefied natural gas.

Two-decade deal

The company’s fleet of floating powerships is set to be docked across three harbours in the country for a period of 20 years at an estimated cost of R218 billion.

Committee members questioned the need for the duration of the contract considering that in other countries powerships have only been used in emergency situations.

ANC MP Sibusiso Kula used the example of the use of powerships in Lebanon, which has a population of approximately six million people. Powerships in the middle-eastern country were initially envisaged to be used to generate emergency power for six years in 2012 but the project was later extended by three years to supply the country with 415MW of power.

“Why would the programme in our instance with almost the equivalent of power take a period of 20 years?” Kula asked.

‘Price’

The DMRE’s Mbhele defended the awarding of the two-decade contract to Karpowership and other preferred bidders saying that it is aimed at keeping the price of the power procured from independent power producers (IPPs) low.

“The tenure of the [programme] enables projects to recover deployed capital as well as operating costs at a rate and pace that does not make it unaffordable to [the] buyer and therefore the end user,” he said.

Mbhele said the IPPs would likely come in at a price “four or five times” higher should the contracts be less than 20 years.

“Unfortunately the only way to manage that is to have a sense of who is going to bid then you can tailor-make the RFP [request for proposals] to be able to manage the bids … The RFP that was put together was put together on the basis the bids would be measured on the same basis [of 20 years],” he said.

This story first appeared on Moneyweb and has been republished with permission.