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Court can force Eskom to sign wind, solar plans – IPP legal advice

Jan 18 2017 12:08
Matthew le Cordeur

Cape Town – Renewable energy independent power producers whose new build plans have been held up by Eskom can take the power utility to court to force its hand, according to legal opinion by Webber Wentzel.

MUST READ: Koko unpacks Eskom’s renewable costs, but experts disagree

The legal opinion, which was sought by the South African Renewable Energy Council (Sarec), follows Eskom’s refusal to issue final budget quotes to preferred bidders in Round 4 and the Round 4 extension of the Renewable Energy Independent Power Producer (IPP) Procurement Programme.

“The preferred bidders would be entitled to approach a court to enforce the signature of the power purchase agreements (PPAs),” Advocate David Unterhalter, senior counsel at Webber Wentzel, pointed out in his legal opinion letter dated November 24 2016.

Sarec publicly released the legal opinion on Wednesday, but said it is not its first choice to go the legal route.

Sarec chairperson Brenda Martin said the body will continue to engage through talking with Eskom and government stakeholders.

However, she said “it is reassuring to know that the legal opinion is very clear; were we to go to court, we would be likely to get an enforcement order that Eskom should sign all outstanding power purchase agreements”.

Eskom cannot sidestep binding determination

The legal opinion was sought for 37 affected IPPs that would bring over R50bn in investment into the country.

Eskom said it would not sign on more IPPs as there is a surplus of capacity and the added agreements would have a negative financial effect on the utility.

However, Eskom acting CEO Matshela Koko told Fin24 last week that he is finalising a plan with Treasury and the Department of Energy that will resolve the PPAs, and that he hoped to sign them soon.

READ: Koko seeks to resolve Eskom impasse with renewables

Unterhalter said “Eskom cannot sidestep the binding determination of the minister (of energy); they are bound by the ministerial determination, which includes signing the power purchase agreements”.

“As an origin of state, Eskom cannot raise the reservation of rights in the RFP (request for proposals) to defeat a claim for substitutionary relief. Nor can it refuse to conclude a power purchase agreement.”

IPPs gave Eskom reasonable time

Unterhalter said “Eskom cannot rely on another policy to avoid its obligations under the ministerial determination, which includes signing the power purchase agreements".

Unterhalter said the preferred bidders gave Eskom reasonable time within which to conclude the PPAs.

“They would therefore be entitled to approach the court now to enforce the signature of the power purchase agreements,” he said.

The statutory scheme says that the conclusion of the PPAs must entail no cost risk to Eskom, said Unterhalter. “Before Eskom concludes any power purchase agreements, it is entitled to ensure that it will be able to recover its costs under such agreements.”

He said it seems the preferred bidders had a statutory entitlement to negotiate the conclusion of PPAs with Eskom. “At most, the preferred bidders have an entitlement to conclude PPAs, provided, of course, they meet the requirements set out in the power purchase agreements.  

“On either basis, the preferred bidders would be entitled to approach a court to enforce their entitlement, whether that is an entitlement to negotiating a power purchase agreement or an entitlement to the signature of a power purchase agreement with Eskom.”

Eskom cannot delay process

Unterhalter questioned whether Eskom could use Section 50 of the Public Finance Management Act and Regulation 9 to delay the signature of the power purchase agreements.

“That regulation provides that the buyer (Eskom) or the procurer (the department) must first be satisfied of certain factors there listed before the buyer (Eskom) signs PPA.  

“We have been instructed that the procurer (the department) has conducted the investigation required in (the) regulation.

“In those circumstances, we consider that Eskom cannot use Regulation 9 to delay or prevent the signature of the power purchase agreements.”

Sarec wants to resolve matter with Eskom

Sarec director Mark Pickering told Fin24 that the legal option is not the council's “first choice”.

“We would prefer to resolve this through talking and that’s what we are doing. We are engaging with all the key stakeholders in government and with Eskom.

“We have some sense of progress, but it’s slow and there’s the sense that there’s some elephant in the room that’s rather difficult to talk about."

WATCH: Sarec speaks to Fin24 about PPAs

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