Transport Minister Fikile Mbalula was on Wednesday drawn into the multibillion-rand powerships controversy when it emerged that the Department of Mineral Resources and Energy (DMRE), Transnet and the Istanbul-controlled Karpowership SA group are apparently attempting to dodge yet another regulatory requirement by getting Mbalula’s office to approve a shortcut to the normal application procedures.

Mbalula’s office confirmed that his department had been asked to approve a special “Ministerial Declaration” for Karpowership that could effectively speed up or circumvent the normal approval process from Transnet on the grounds that the project is needed to “promote the national, strategic or economic interests of the Republic”.

The Fatmagul Sultan floating power plant moored offshore at the Lebanese town of Zouk Mosbeh. (Photo: EPA-EFE / Nabil Mounzer)

Mbalula’s office insisted that he would consult with the Cabinet and other relevant stakeholders before deciding whether to issue a special directive.   

However, Business Unity South Africa (Busa) has voiced serious concerns and asked the government to clarify whether it is now taking “mitigation actions” to procure alternative power supplies in case the Turkish plan collapses or is not finalised timeously.

This came to light on Wednesday after a legal opinion prepared for Busa was leaked to Daily Maverick by independent sources, cautioning that approval by Mbalula would most almost certainly be illegal and therefore be vulnerable to a strong legal attack by several parties — including rival power companies who were not granted preferred bidder status by Minister Gwede Mantashe’s DMRE this year.

One of the losing bidders, Aldworth Mbalati, has already lodged a Pretoria High Court appeal in which he alleged major irregularities in the Karpowership contract award.

Karpowership has previously tried to dodge a mandatory Environmental Impact Assessment process, by persuading the national environment department that its project should be exempted because of the Covid-19 crisis. This exemption was quashed by Environment Minister Barbara Creecy after it was exposed by Daily Maverick. The Turkish company was also granted an exemption from local content requirements that may have prejudiced certain bidders.

Should the 20-year R200-billion “emergency power” preferred bidder award granted to Karpowership now collapse or get bogged down with fresh legal delays, Busa is concerned that its members — and the public — will be saddled with prolonged power blackouts that the emergency procurement process was intended to solve.

Busa has stressed that its critical concern was to ensure adequate power supplies, rather than commenting on the merits of actions by Karpowership and other preferred bidders.

According to top Bowmans maritime law expert Andrew Pike, Karpowership requires formal permission to establish power supply fixed infrastructure in the ports of Richards Bay, Ngqura and Saldanha Bay in terms of the National Ports Act.

Business Unity South Africa

This is partly because the company plans to berth five floating power ships and associated vessels in the three harbours for 20 years, potentially creating a shortage of berthing space, manoeuvrability problems and gas explosion risks for other marine traffic and harbour users.

In a leaked legal document that has now circulated widely in business circles, the Bowmans law expert said Karpowership was required to obtain formal approval from Transnet in terms of Section 56 of the National Ports Act.

This procedure also required Transnet National Ports Authority (TNPA) to follow a mandatory procedure that is “fair, equitable, transparent, equitable and cost-effective” — in other words, a full and transparent public tender process.

“We are instructed, however, that TNPA proposes to pursue a so-called section 79 procedure (‘Ministerial Directive’)…” in terms of which the minister of transport could direct TNPA to perform a “specified act” in order to promote the national, strategic, or economic interests of South Africa.

However, Mbalula was required to consult with Transnet and the shareholding minister (Public Enterprises Minister Pravin Gordhan) before granting a directive.

Significantly, however, the legal opinion from Bowmans suggests that notwithstanding national, strategic or economic interests, Mbalula would still be legally obliged to follow the more onerous public tender requirements set out under section 56.

“Accordingly, even if Karpowership, TNPA or anyone else was to make an application to the Minister pursuant to section 79 and ask the Minister to direct TNPA to enter into a section 56 Agreement with Karpowership… in order to establish and operate a port terminal, that direction by the Minister would be ultra vires because the Minister would then be directing TNPA to perform a specified act which falls outside of TNPA’s legislated powers.

“To the best of our knowledge the Minister has no power to change the effect of the provisions of the Ports Act,” suggests attorney Pike.

Given the possibility that a range of affected stakeholders could then contest the special directive, “a challenge could come very late in the day after parties have all committed to the LNG [liquefied natural gas] projects and prove to be a costly exercise for all concerned, to say nothing of the impact on the emergency electricity supply that is required”.

Responding to queries from Daily Maverick, Mbalula’s office said that he was “aware of the application by Karpowership to the Ministry of Transport”.

“However, no directive has yet been issued. The Minister must first run a consultation process, as is required by the National Ports Act. As per the Act, the Ministry will consult Transnet National Ports Authority, the Shareholding Ministry responsible for Transnet (Department of Public Enterprises) and SAMSA [South African Maritime Safety Authority] for compliance requirements. Thereafter, a Cabinet Memo will be prepared, advising Cabinet of the Minister’s post consultation decision (either for or against the issuing of the directive).”

However, in a second, leaked document (sent by Busa to senior DMRE officials) Busa chief executive Cas Coovadia said it was common knowledge that South Africa was facing an energy supply gap of around 5,000MW and that this situation was likely to persist until at least 2025. 

“Load shedding was estimated to cost the economy between R80-R160-billion in 2020 and continues to impede economic recovery. Security of supply to enable economic recovery is paramount and every and all avenues to secure additional supply in the short to medium term should be explored and leveraged. 

“In Busa’s view, next to the vaccine roll-out, investment and growth are the most critical imperatives to address our socioeconomic and fiscal crises. It is in this context that Busa would like to place on record some concerns in respect to the RMIPPP [Risk Mitigation Independent Power Producer Programme] gas-related projects:

“Busa notes the recent high court challenge from an unsuccessful bidder as well as additional media reports in respect of the process followed to select the preferred bidders. These allegations are specifically centred around the three Karpowership SA projects. 

“While Busa has no opinion on the veracity of these allegations, a court challenge, even if unsuccessful, is likely to delay the finalisation of these projects, preventing a significant 1,200MW of power from coming online.”

Coovadia said he was given to understand that there was legal risk in the approach of TNPA to allow infrastructure for LNG in its ports under the RMIPPP. 

“Busa understands that the process being adopted by TNPA to enter into agreements in terms of the National Ports Act with developers could be deemed unlawful with the risk of being legally challenged.” 

Coovadia said Busa acknowledges that intergovernmental engagements were under way to clarify this process and resolve any challenges. However, it remained concerned that this would again cause a delay in finalising these contracts and prevent much-needed power from coming online.

“In addition, if such a challenge does materialise and if government and/or TNPA are not seen to be acting in accordance with a procedure that is fair, equitable, transparent, competitive, and cost-effective, this will have dire consequences on the confidence levels of international investors and foreign direct investment with the concomitant impacts on South Africa’s already strained economy and development.”

Requesting clarity on what risk mitigation actions were being put in place, Coovadia said it was critical that the supply gap was not exacerbated and that all efforts were made to procure additional supply expeditiously.

In response to questions from Daily Maverick, Busa confirmed that it had received a formal legal opinion and also communicated its concerns in writing to the DMRE.

“Our primary concern is that the legal ramifications detailed in the opinion will cause significant delays in the procurement process to secure additional power sources. This is very concerning, given our power constraints. We are not commenting, in any way, on the companies tendering for the contract or on the different offerings. Our key concern is the potential delay to the process.”

While Busa was not advocating for any specific measures, “we have urged government to consider expediting transitionary measures for additional power generation if there are significant delays in completing the current procurement”.

In response to a call for comment, Transnet said: “Transnet National Ports Authority — through the DMRE’s IPP [independent power producers] Office — provided a briefing note to all bidders explaining the applicable port approval processes, pursuant to the National Ports Act, 2005. 

“Following the appointment of the preferred bidders, TNPA is undertaking a technical review of the applications, and continues to engage with the bidders and the relevant regulators to guide appropriate processes in accordance with the National Ports Act. 

“All TNPA approvals will be subject to the bidders receiving the necessary regulatory approvals and environmental authorisations. Approval processes have not yet been closed out.”

Karpowership sales director Patrick O’Driscoll said that as the matter involved processes by the government, “we recommend that this is a matter best addressed by them”. DM