IPP deal stuck in limbo as officials cite Eskom 'hardships' | Fin24

IPP deal stuck in limbo as officials cite Eskom 'hardships'

Jun 20 2017 13:22
Paul Herman, News24

Cape Town - Eskom will approach energy regulator Nersa as well as National Treasury next month as part of efforts to end the stalemate holding up the independent power producers' (IPP) procurement programme.

A multi-departmental delegation, led by Deputy Energy Minister Thembisile Majola, told MPs on Tuesday that current "hardships", including oversupply, have made it difficult for the utility to sign the power purchase agreements required for the IPPs to start construction.

The delegation included the Departments of Energy, Public Enterprises, Planning and Evaluation as well as National Treasury and Nersa.

All entities agree that energy demand has changed amid low growth, said Department of Energy acting director general Tseliso Maqubela.

"We all agreed that the demand situation has changed. There is no doubt there is a surplus at the moment," Maqubela told the portfolio committee on energy.

"So we can't proceed (with) business as usual. We'll have to change pace going forward, so we can really respond to current realities."

They will meet with Treasury and Nersa again this week on the matter.

Eskom needs six steps

Eskom has set down a timeline through February 2018, highlighting six steps it will complete before it can sign the deal.

It will approach Nersa regarding its current hardships and low balance sheet, and will develop a case for "soft support" from National Treasury until the 2018 tariff adjustment.

In August, Eskom hopes to review the pace and scale of the IPP rollout under current circumstances up to 2021 and review the participation level of black industrialists, with a view to increasing it.

Thereafter, it will conclude the update of the Integrated Resource Plan in February 2018.

Public Enterprises Minister Lynne Browne said South Africa is currently heavily dependent on fossil fuel, and is aiming to move to cleaner energy.

Costs have been hampering the process and IPP power purchase agreements can only be signed after the above steps have taken place.

"Eskom has signed bid window 1 to 3. They now have to sign 4 and 4.5. Four is contracted, 4.5 still needs to be contracted," she said. "It's about signing the last two in the last two windows."

Deputy director general Ompi Aphane said that at the time of the drafting of the plan in the late 2000s, Eskom had not anticipated that there would be an energy surplus in 2017.

"What is certain is that you can never get that right. The whole idea is to bring flexibility into the plan to keep up."

'Misleading' talk of hardships

During a round of questions, Democratic Alliance MP Gordon McKay said it was nonsense that the IPP deal was causing Eskom's "hardships".

The policy proposals have been around since 1998, and he labelled the presentation "misleading".

"Eskom had plenty of time to catch up. The policy environment has been developing since 1998.

"It's not an excuse - they know the policy, it's been around."

He said there needs to be a proper report into Eskom itself over its "hardships", irrespective of the IPP deal, especially if it is still seeking a new energy programme.

The department and Eskom should stop playing games, said McKay, and just tell the committee when it will sign the deal. He anticipated potential court action.

Eskom has previously stated it was reluctant to proceed with the deal due to the increased costs requiring a 4.9% tariff hike, an oversupply of electricity and the shut-down of five coal plants. It also claimed the consumer would be footing the bill.

Chairperson Fikile Majola said the committee wants a definitive date at the next update.

The postponement came after President Jacob Zuma instructed Eskom to sign the power purchase agreements (PPAs) in his 2017 State of the Nation address.

"(The) IPPs have taken all necessary steps to ensure that they are ready for PPA signature," the SA Renewable Energy Council (Sarec) said in a statement in April.

“Affected IPPs have been working with Eskom officials to ensure that the necessary paperwork is up to date, so that financial closure can be achieved and construction can begin," it said.

It was reacting to news that new Energy Minister Mmamoloko Kubayi had postponed the signing of the PPAs in April.

In May, Nersa's electricity sub-committee launched a formal investigation into Eskom’s conduct, following a preliminary investigation.

"The industry believes that Eskom, which supplies about 95% of the country’s electricity and holds a near monopoly on bulk electricity, is simply seeking to resist government’s commitment to energy security underpinned by an expanded supply mix," Sarec said in a statement at the time.

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