HILTON TROLLIP: Breaking the system for profit — and how Karpowership stands to gain

Eskom is not to blame for load-shedding. The root cause is years of subversion of comprehensive legislation and institutional capacity in the department of mineral resources & energy — legislation that exists to ensure procurement of adequate power onto the grid. This subversion is all too apparent in the opaque processes we have seen over the past three years to get the Karpowership power purchase agreement (PPA) over the line.

Evidence has been mounting for some time that pressures of the power crisis emergency are being used to attempt to force the Karpowership PPA, which makes no financial sense for SA, through the system. As we approach yet another deadline for the Karpowership PPA on December 31, we’re seeing a flurry of activity to do just this.

How we got here

Unless directed to by the energy minister, by law Eskom cannot procure new electricity. Section 34 of the Electricity Regulation Act states explicitly that it is the minister’s responsibility to “determine that new generation capacity is needed to ensure the continued uninterrupted supply of electricity”.

The independent power producer (IPP) office, also under the minister, is responsible for procuring all new generation for the national grid via PPAs. Eskom’s only role in this is to connect the new power stations to the grid. This planning and procurement system worked excellently from 2010 to 2015. If it had continued working there would be no load-shedding today.

This is worth repeating: there would be no load-shedding if the energy ministry had been fulfilling its mandated responsibility to procure new generation in good time. 

In 2015, under conditions extensively documented in state capture records, the IPP office procurement system ground to a halt. One of the first actions of the Ramaphosa administration in early 2018 was to partially resuscitate this system, allowing 27 PPAs that had been halted in 2015 to go ahead. However, that was only a brief spurt of progress, and since 2018 the IPP office procurement system has all but failed.

In October 2019 the energy minister’s Integrated Resource Plan (IRP) officially acknowledged a short-term electricity supply gap of 2,000MW-3,000MW. The IRP directed that a power purchase programme be conducted to close the gap, and the Risk Mitigation IPP Procurement Programme (RMI4P) was hatched.

In 2021 the IPP office awarded preferred bidder status to Karpowership to supply 1,220MW as part of the RMI4P. Under the severely limited known terms of the PPA (most of it is secret), SA would be obliged to buy power from Karpowership for 20 years.

Using Karpowership while we have load-shedding might be good value (though publicly accessible details of the PPA could not even certify that), but it would be ridiculous to continue to be forced to buy this expensive energy for such a long time after the supply gap is closed, probably for about 15 years of the 20-year PPA.

Value for money

A high court application has presented an analysis that challenges the National Energy Regulator of SA (Nersa) licence granted to Karpowership. The analysis finds that the National Electricity Regulation Act requires Nersa to assure that SA gets value for money from public contracts such as the Karpowership PPAs; and that available information on the PPA strongly suggests it would be extremely bad value, costing tens of unnecessary billions when better solutions are available.

Instead of countering the legal challenge with an analysis proving value for money, Nersa has resorted to denying access to details of the record of decision that would provide such proof. This creates the suspicion that details in the record would not provide this proof. It further creates a situation where, if Karpowership can surmount the pile of other legal challenges it is facing, it will have to attempt to close the PPA contract with a pending court action challenging the Nersa licence.

There are cheaper and better solutions than Karpowership, as illustrated by other IPPs that won PPAs under the same RMI4P bidding round. If the Karpowership PPAs are forced through the system they will not only unnecessarily extract tens of billions of rand from our economy to pay for gas imports, but also break governance systems further on their way in. Then they will sail away, taking their power stations with them. 

Failure to offer value for money is not the only serious problem with Karpowerships, but I will limit my comment to it because this aspect alone should be enough to put the entire deal in question. Value for money is, after all, required by SA law in this case. 

Who benefits? 

Huge interests are at stake. Most of the cost of Karpowerships’ power is imported gas. The opaque PPA information suggests government insiders will have undue influence over secret international gas supply contracts. So, apart from Karpowership’s owners, the major beneficiaries will be people involved in secret gas contracts.

SA has a highly unfortunate recent history of large fossil fuel-for-power contracts costing billions in losses. These were central to state capture. Like the state capture deals, the Karpowership deal has more features of a deal meant to enrich insiders than a rational solution to supply power to the country. 

Possibly worse, while the energy ministry has been bending over backwards to force Karpowership in, the ministry’s IPP office has fallen far short of what department of mineral resources & energy plans admit is required to close the gap and meet growing demand. This will continue to cause immense damage for years to come and, with the government shifting all blame for load-shedding to Eskom, it will continue to deny the root cause of the electricity shortage and so continue to avoid addressing it. 

• Trollip is a research fellow in energy at the University of Cape Town​’s Global Risk Governance Programme.