OUR BURNING PLANET

Business urges speedy ‘Plan B’ for SA electricity crisis as Mbalula drawn into Turkish powership controversy

By Tony Carnie 2 June 2021

Transport minister Fikile Mbalula. (Photo: Gallo Images / Daily Sun / Morapedi Mashashe)

Organised business called on the government to come up with an urgent ‘Plan B’ power crisis solution amid new indications that the controversial Turkish powerships plan may unravel due to legal challenges involving alleged irregularities.

Tony Carnie

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

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All Comments 12

  • Notice how no 9ne has said a word about any illegalities around the other bidders? Are there any?

    Is it possible to disqualify Karpowerships on the basis they cant reach Financial Close in time and simply continue with the others?

    Alternately just look at Eskom generation profile and see if wind plus solar plus the current pumped storage and diesel turbines operated from Eskom control would solve the problem.

    When Eskom says they have run out of water. They really mean that they ran out of electricity to pump water up the Drakensberg. Solar can do that during the day. Coal in the middle of the night. Then we have power for morning and evening peaks.

  • “Ministerial Declaration”; nice move chaps! Maybe when Bra Ficks has sorted the Emergency Power problem for us he can move on to Vaccinations. Like his mate Gweezie, looks like Zweli’s managing to botch another emergency crisis that affects our Nation!!!

  • More state capture fall out, and possibly the most devastating. If the Gupta fuelled push for nuclear hadn’t parachuted Mahlobo into the job and then pushed pause on renewables in 2016 we’d be in a lot better place right now. Tenders for wind and solar were in the 50c/kWh range. They would now be in the 35c/kWh band, instead the investors largely took their skills, experience and funding elsewhere. Instead we are going to court over tenders at over three times that price. The worst part of this ordeal is that it would have cost the fiscus absolutely nothing to do this. Maybe the biggest “problem” with the REI4P program has been the lack of large scale corruption. Depressing.

  • Don’t hold your breath with Fikile based on his performance on sorting out e -tolls. Go back to the article heading – We need a Plan B for the power crisis solution.

  • Well, if mbalula takes as long to make this decision as he has been with e-Toll, we won’t have the ships mooring in the next decade. So nothing to worry about?

  • Very short sighted of Busa not to care where power comes from as long as it comes quickly. The country is in this predicament with our energy supply precisely because of such myopic thinking.

  • In all this the biggest concern is not mentioned: is Minister Mantashe actually capable of handling his huge, sensitive and important portfolio? I see the youth alliance wants over 60’s out. What about dinosaurs? Does anyone dispute that Mineral and Energy affairs is a huge mess.?

  • So, the Burger King deal is scrapped because there is a foreign investor but this deal is allowed to go through. The whole issue stinks of corruption.

  • A 20 year contract for “EMERGENCY” power is ridiculous – are they planning to stay in a state of emergency for 20 years? What a farce!

  • Nowhere does BUSA mention the REAL problem facing this country: The insistence of the DMRE and its dinosaur minister to protect the failed SOE, Eskom, at all costs.

    Why are we, as private citizens, expected to register our rooftop solar PV with NERSA? To what end? No other reasons than to make it harder for us to self-provide, and to protect Eskom.

    The self-generation “limit” has been raised from 1 MW to 10 MW recently, after many years of battles. Why does it exist at all? Large industrial users may need many 100’s of MW. Why should they have to jump through hoops to provide their own power when an incompetent and corrupt Eskom can’t?

    The old canard of “grid connected is special” is well past its sell by date. Contrary to NERSA and the DMRE’s opinion, we do actually have plenty of competent electrical engineers in South Africa. It’s not exactly rocket science, and is a problem that has been dealt with, and solved, all over the world.

    Finally, non-grid connected supplies for commercial use remain banned. Why? If I have a need for power out in the boondocks and you can supply me directly, why should we be banned from doing business?

    It’s these short-sighted, central planning-centric viewpoints that are well over 40 years out of date, that are doing immense harm to our economy and our society. Economic growth means jobs, money and food on the table for all. Barriers to growth simply create opportunities for the corrupt.

    • My views exactly. Set technical specs for the various types of solar generation setups. Give some tax relief on imported equipment, register the finished private “power station” and let it fly! Brew all the home-brew during blackouts that you want!

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