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10th May 2022

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South Africa under fire over energy plan

South Africa has taken emergency steps to sort its crippling energy crisis, with a plan to lease mobile power stations or so-called powerships to dock at its ports.

But the prospective $15bn, 20-year deal with Turkey’s Karpowership — one of the longest of its kind — has been derided by critics as expensive and environmentally unfriendly and a rival energy provider has filed a lawsuit, arguing the tender was rigged in the company’s favour.

President Cyril Ramaphosa’s government announced last month that Karpowership was a preferred bidder for a contract to supply 1,200 megawatts or two-thirds of an emergency procurement with the LNG powerships.

Pretoria launched the emergency procurement in late 2019 after Eskom, the struggling state energy monopoly, was forced to impose its most intense rolling power cuts yet, a legacy of misrule dating back to former president Jacob Zuma and beyond.

“We believe that the process followed was flawed, unlawful and in some instances tainted,” said Aldworth Mbalati, chief executive of DNG Energy, a gas supplier.

Karpowership, which already supplies Lebanon, Indonesia and eight African countries including Sudan, Ghana and Mozambique, has strongly rejected the allegation of impropriety. “As a consortium of local and international investors we have every confidence that the South African courts will deal with this appropriately,” the company said.

South Africa’s department of mineral resources and energy did not respond to a request for comment. Tracey Davies, executive director of Just Share, a campaigner for environmentally responsible investment in South Africa, called the deal “unutterably depressing”. She added: “The inherent contradiction of an emergency contract for 20 years seems to have passed the government by.”

Karpowership will supply the power through a local company that is 49 per cent owned by South African investors. Karpowership’s vessels and other projects will provide power on demand at a price of 1.57 rand ($0.11) per kilowatt hour, while the country seeks other longer-term solutions. All of the projects will have 20-year power purchase agreements.

Prices for the ships’ power will ultimately be tied to global LNG prices in US dollars — a poor outcome for South Africans, according to the opposition Democratic Alliance. “There is little local benefit (such as jobs or capital investment) to leasing these powerships for a 20-year period, and [the local shareholding] appears to be little more than fronting in order to line the pockets of the connected few,” the party said.

The department of mineral resources and energy said the 20-year terms were needed to secure investment. “Without this longer-term certainty . . . prices of these projects could have as much as tripled,” it added.

The government’s argument was “nonsense”, said Liziwe McDaid, a member of Green Connection, a non-profit organisation. “If it’s a land-based power plant, you can argue the 20 years, because they have to build it.”

The ruling African National Congress has a chequered history with big power procurement deals. More than a decade ago it commissioned twin giant coal plants, the world’s third and fourth biggest, to solve the looming crisis but they are still not finished. Zuma later pursued a $70bn deal for Russian nuclear plants that threatened to bankrupt the public finances until a court struck it down in 2017. “We have a power emergency in South Africa, but it is an entirely self-created emergency,” Davies said.

Environmentalists say the contract locks Africa’s largest polluter into a fossil-reliant future. Karpowership says it wants to help South Africa move away from fossil fuels over time. LNG was “the cleanest way to immediately provide 24/7 electricity and support the transition to renewable energy sources”, said Zeynep Harezi, the group’s managing director.

But South African officials have signalled that they have wider ambitions to kickstart a local gas industry, such as switching the ships to run on gas supplied from discoveries off the country’s shores, even though these are yet to be tapped and global investors are increasingly wary of financing natural gas. 

“It’s like saying ‘why don’t we start a horse-drawn carriage industry’, two years after the first Model T Ford came off the production line,” said Clyde Mallinson, an energy expert.

2021-05-10 04:00:14

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