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Gordhan: Govt won't scrap costly renewables contracts, but will renegotiate them

Dec 03 2019 18:41
Lameez Omarjee

Government has no plans to scrap costly contracts with renewable energy independent power producers, but is trying to renegotiate the contracts down to more reasonable prices instead, Public Enterprises Minister Pravin Gordhan has said.

The minister made the remarks while giving replies to questions posed by members of Parliament on Tuesday.

Responding to a question posed by EFF MP Nazier Paulsen about whether government would exit costly contracts with independent power producers, Gordhan said that he and Mineral Resources and Energy Minister Gwede Mantashe "admit" that the first three rounds of renewable energy agreements were far more expensive than current prices.

But a process is underway by a technical team to renegotiate the contracts for a "win-win" situation. Gordhan said this is not unheard of, and similarly, Spain and Germany renegotiated contracts with renewable energy suppliers.

"It is more constructive to renegotiate contracts," he said, as simply cancelling the contracts would be far more "costly". He said it was important to "sit around a table" to make sure the independent power producers do not "lose out" and that the country gains.

Gordhan emphasised that renewable energy is part of the Integrated Resources Plan. Particularly, he noted, renewable independent power producers are part of the future of reducing the country's carbon footprint.

Reviewing coal contracts

Responding to a separate question from EFF MP Mbuyiseni Ndlozi about whether government is reviewing excessively priced coal contracts, Gordhan confirmed, as per the special paper on reforms at the power utility, that expensive coal contracts will be renegotiated.

"Eskom acknowledges that certain coal contracts are deemed to be excessively priced," Gordhan said.  Coal is the item responsible for most of the money spent by Eskom, he added.

The minister and Mantashe have also been meeting with the mining sector. The Department of Mineral Resources and Energy in particular has been in a process of indexing different qualities of coal – this is ensure coal contractors get a fair return and Eskom is not exploited in terms of costs incurred.

Gordhan said renegotiating the contracts will make a significant contribution to reducing Eskom's cost structure and help the power utility achieve financial sustainability.

According to data from Eskom, nine suppliers are estimated to earn margins between 30% and 49%, while four suppliers earn margins between 50% and 100%. Seven suppliers have been identified as earning 100% margins on their contracts. Gordhan said these are "excessive profits".

"We want a fair return for the private sector and fair price for Eskom, so we can all get the best price for electricity," he said.

Gordhan further commented that if there is improper, illegitimate and illegal contracting of coal suppliers, efforts must be made to recover funds from the relevant suppliers.

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