It goes without saying that South Africa, its people, and its government, have become desperate for electricity from whatever quarter. Early in the crisis, a shining light on the hill suddenly appeared in the form of enormous ships that dock in your harbours and burn gas to produce electricity: Karpowership. Voilà!  (… so to speak).

But very quickly thereafter, a great debate emerged about Karpowership, even though the powerships seem like a great idea on the face of it, particularly for those who are running their laptops with gerbils on treadmills. But, objectively speaking, we must ask whether they are a saviour, or even a partial saviour, in the current crisis. Here are some of the arguments for and against, and a quick summary of what has happened so far.

In September 2021, the National Energy Regulator of South Africa (Nersa) granted generation licences to three Karpowership companies to operate out of Coega, Richards Bay, and Saldanha harbours, to produce 450MW at the first two, and 320MW at the third. The explanation for granting the licence includes an “evaluation price” in rands per MW. Those prices were R1,468.87 for Nelson Mandela Bay, R1,496.03 for Richards Bay, and R1,686.48 for Saldanha Bay. 

One presumes this is rands per kilowatt hour, so call it a little over R1.50/kWh, which is around the same price for hybrid solar, wind and diesel projects approved at the same time. This seems cheap: Eskom’s current production price is around R2.50/kWh, but everything depends on the escalations that will inevitably flow from the decline of the rand and the international gas prices.

The holding company’s shareholder in each case was (and is) Karadeniz Holdings, which is the Turkish company that builds and operates these ships. Powergroup SA is the associated black empowerment company and the split between them is 51/49%, respectively. The licence did note that approval was still to be obtained from the environmental affairs department, which had already turned down Karpowership’s application! But an appeal was in process. The company was granted a 20-year deal, and the estimated cost at the time was a rather frightening R218-billion.

Various groups then objected to the licences, and ultimately Outa, the Organisation Undoing Tax Abuse, brought a court application to review the decision. This was followed by a rather curious battle over the submissions made by Karpowership to Nersa. Ultimately, Outa was given a thoroughly redacted version of the submission, which it has appealed. It looks like one of those CIA documents you see in movies with page after page blacked out.

Outa’s objections are diverse; some are procedural, some are technical, and some policy issues are involved. Broadly, Outa and environmental organisations, including the Centre for Environmental Rights, are worried that Nersa, in its rush to get more power on the grid, really didn’t examine the issues here properly, especially how the cost of the electricity will fluctuate given the cost of gas and the performance of the rand in the future.

Environmental issues

There are also straight environmental issues involved, given that these ships burn gas to produce electricity. And there are also financing issues, because financial closure has not been reached, even after several extensions, according to Outa’s court submissions.

Outa says the price indication mentioned above is unrealistic, and it has presented evidence from a reputable consultant that the price will probably end up being around R5/kWh. This high price probably explains two things: First, Eskom has expressed reservations about buying the electricity. And second, it might explain the weird, redacted document which was ultimately given to Outa. The company claims the redacted nature of the agreement was because it has a right to commercial confidentiality. But its communication around what the actual cost will be has been suspiciously vague, which is why Outa is pressing for all the information.

The arguments from the company’s point of view — and I’m surmising a bit here because its communication has been just awful — are essentially threefold: First, it’s quick; the ships can start producing electricity within a few months. Second, it may be slightly more expensive than Eskom’s existing cost of production, but it’s much less than the diesel-powered plants Eskom is currently running. And third, there may be an environmental cost, but once again it’s less than Eskom’s diesel-powered peaking plants.

Outa and the environmental groups counter — and I’m extrapolating a bit here too — is that even if this is all true, there ought to be nothing to stop SA from building its own gas-powered electricity producers. In the time it’s taken to sort out the legalities, Eskom or somebody else could have built a dozen gas generation plants. And then the asset would be SA-owned, and not as likely to sail off into the sunset, which by the way it is designed to do. Powerships are essentially emergency producers of electricity, so it’s also a bit crazy, not to mention suspicious, that Nersa has granted Karpowership a 20-year licence. And there are, of course, a host of other issues.

Behind this all, there is a suspicion that the contract is dodgy — but as of now, there is no concrete proof. Such mistrust is going to be part of every contract into which the government enters, and without maximum transparency, I think court applications are going to be inevitable, and rightly so.

There is one other significant issue: the financing. Apparently, some heavy financing is required. Quite for what purpose, I’m not entirely sure. The asset is, after all, already extant. But the figures floating around are that each of the three companies will need about R3.4-billion. Already one bank, Absa, which was mentioned in one of the early Nersa applications, has decided against participating, presumably on reputational grounds.

I wonder whether this all isn’t an unnecessary sideshow. The ships don’t produce that much power, around 1.250GW. Compare that to Eskom’s theoretical capacity of around 60GW. It might bring load shedding down by perhaps one level — and there would be nothing wrong with that — but it’s hardly a long-term solution. DM