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Ministers to get Molefe to sign

Nov 06 2016 06:00
Steve Kretzmann

Johannesburg - After 18 months of delays, the presidency has tasked two ministers to convince Eskom CEO Brian Molefe to sign off on the much-awaited power purchase agreements (PPAs) with independent power producers (IPPs), special energy adviser to the president, Silas Zimu, said this week.

The IPPs are preferred bidders selected under the country’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), which has already seen R194 billion worth of investment, with that figure expected to rise above R255 billion upon financial close of the projects in the current bid windows 4 and 4.5.

Speaking at the Windaba wind and energy conference in Cape Town, Zimu said if it were up to him, these PPAs would be signed “tomorrow”, but President Jacob Zuma “has appointed [Water and Environmental Affairs Minister Edna] Molewa and [Science and Technology Minister Naledi] Pandor to persuade Eskom to sign these things”.

His announcement offers hope for stability in the renewable energy sector after it emerged in July that Molefe had stated in a letter to Energy Minister Tina Joemat-Pettersson that Eskom was unwilling to sign further PPAs beyond those selected under the REIPPPP’s bid window 4.5.

He also publicly announced in May that the state-owned power utility would not sign any further PPAs without a government review of the process, as renewable energy had failed to provide energy when Eskom needed it most.

However, Eskom’s stance was rejected by Cabinet, which stated government, and not the utility, decided on policy.

Increasing frustration in the renewable energy sector led to the SA Wind Energy Association (Sawea) last month lodging an official complaint against Eskom with the National Energy Regulator of SA.

At the end of the Windaba conference, Sawea chairperson Mark Pickering stated that the SA Renewable Energy Council was securing legal opinion regarding Eskom’s refusal to sign the PPAs, after having “previously signed exactly the same agreements with 64 IPPs arising from the first three rounds of what has now become a routing process”.

“We have every confidence in the support of government, and urge Eskom to reconsider its position and comply with government’s policy and the law of the land,” stated Pickering.

Zimu said after leaving a meeting last Friday that he was confident Molefe would now sign the PPAs.

“The only reason I did not say he would, was because that job had been given to the ministers,” he announced in a breakaway session at Windaba.

Speaking to a small group of industry players after his presentation, he said Molewa and Pandor were chosen to put pressure on Molefe because “we know Molefe respects them, not just as ministers, but as mothers”.

Calls and an SMS to Eskom spokesperson Khulu Phasiwe went unanswered.

Signing the 20-year PPAs will allow the 26 preferred bidders, most of whose renewable energy projects are in rural areas, to add 2 205 megawatts to the grid.

They were “shovel-ready”, said Pickering, “the permits, financing, plans are all in place, sitting on Eskom’s desk.”

He said the projects represented an expected R45.2 billion in capital expenditure with 13 444 jobs for South Africans in the construction period and 1 909 jobs per year during the operations period.

While it was difficult to determine what the delays had cost investors in lost income, or the extent to which the manufacturing sector had been affected, Sawea CEO Johan van den Berg said it was the rural communities where the projects were situated that were hurt the most.

Energy Research Centre PhD candidate Holle Wlokas said stipulations that IPPs spend 1.5% of their total project revenue on socioeconomic development within a 50km radius of their projects, as well as provide a minimum 2.5% stake to local communities, meant environmental impact assessments, public engagements with communities and ownership structures had been set up as part of the bidding process.

Expectations had thus been created and an 18-month delay endangered relationships of trust that were sometimes difficult to achieve with communities.

Wlokas said there were resultant direct costs in terms of human resources, travel and time to prevent these relationships from deteriorating.

There was also the effect on timing of development initiatives and the delay in employment opportunities, which could result in conflict once the projects did go ahead.

She estimated the cost of managing relationships alone ran into millions of rands.

Sawea board member Methuli Mbanjwa said an
18-month delay also increased the risk of investors going elsewhere and affected investor confidence in the market.

Cormac Cullinan, director of law firm Cullinan and Associates, said there were “serious” governance issues in the sector and it was “almost certain” legal action would be required to remedy the situation.

Besides the administrative bottleneck created by Eskom, the policy framework, contained in the Integrated Resource Plan published in 2011 and yet to be updated, was “outdated and inappropriate”, said Cullinan.

Additionally, concerns over corruption within Eskom were heightened by the contents of former Public Protector Thuli Madonsela’s state capture report.

“The ground has shifted considerably,” he said.

Yet, while he and other delegates – such as former Greenpeace International executive director Kumi Naidoo – inferred Eskom’s resistance to the PPAs was owing to a desire for nuclear energy, which various delegates described as “irrational” and “corrupt”, even as Cabinet reportedly confirmed that Eskom would lead the country’s 9 600MW nuclear power procurement drive, Zimu defended the nuclear procurement build.

He said nuclear should be part of the energy mix and “we as South Africa learn from the best”, in reference to the UK having in September green-lighted an £18 billion (R305 billion) nuclear plant financed by France and China.

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