Karpowership headache in South Africa

The controversial Karpowership deal took a hit in early June 2024, with South Africa’s energy regulator settling to pay the Organisation Undoing Tax Abuse’s (Outa) costs minutes before the Pretoria High Court was set to hear Outa’s application.

Outa had applied to the High Court to force the National Energy Regulator of South Africa (Nersa) to supply the full, unredacted record of its decision to award Karpowership three generation licences.

Nersa’s settlement offering came after Karpowership withdrew its opposition in mid-May 2024.

“It was still unclear whether Nersa would persist in its opposition. Despite numerous requests for clarity from Outa, on 4 June, the matter was due to proceed,” said Outa.

However, just before the hearing was scheduled to commence, Nersa’s counsel said it had received instructions to present Outa with a settlement agreement.

Outa partially accepted the agreement but believes the record should be made publicly available.

“Nersa agreed to this additional proviso from Outa. The agreement was made an order of court,” it said.

“Outa believed that the costs tendered by Nersa were grossly insufficient and, as such, Outa, on 4 June 2024, proceeded with a cost argument, asking the court to award a punitive cost order against both Nersa and Karpowership due to their conduct in this matter.”

Outa’s executive director for its accountability and public governance division highlighted several concerns about Nersa’s sudden change of heart.

During the parties’ arguments, it was clear that Nersa was only willing to settle because Karpowership permitted it to conclude confidentiality agreements.

“It is despicable to think that Nersa, our independent national energy regulator, will keep information away from public scrutiny unless it is given permission to do so by third parties,” said Fick.

“Public entities act on behalf of society, they should not make deals if they are not willing to share the details.”

Advocate Stefanie Fick, executive director at Outa

In March 2021, the Department of Mineral Resources and Energy, under minister Gwede Mantashe, announced that Karpowership was one of the preferred bidders in the Risk Mitigation IPP Procurement Programme.

The programme aims to reduce demand on the electricity grid by bringing new power generation online.

Due to the urgency of the need for additional electricity supply, Mantashe stated that all preferred bidders were required to reach financial closure by the end of July 2021 to ensure they could connect to the grid by August 2022.

However, the department mysteriously granted a Karpowership a two-month extension on the deadline.

The department confirmed that Karpowership’s deadline to reach financial close — previously scheduled for the end of July — had been extended to 30 September.

Nersa granted Karpowership three generation licences in September 2021. However, the reasoning behind its decision was unclear.

The licences would have enabled Karpowership to moor three of its liquified natural gas ships — one each at the Coega, Richards Bay, and Saldanha harbours — to supply roughly 1,220MW of electricity.

A significant concern about the deal is that it would lock South Africa in a two-decade contract with Karpowership as the country transitions to greener energy sources.

Fick and Outa CEO Wayne Duvenage described signing a 20-year “emergency deal” with Karpowership as “shooting an ant with a shotgun.”

She also highlighted the fact that the cost of energy produced by Karpowership is double or triple the price South African consumers pay for electricity.

“They are talking about R2 per kWh. We have calculated it might cost us around R5 per kWh,” said Fick

“You’re talking about 1,200MW. That will maybe change a stage of load-shedding. Karpowership is not the solution to the big energy crisis we have in South Africa.”

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Karpowership headache in South Africa