LUNGILE MASHELE: What delays the use of land for infrastructure projects

Land is a contentious topic in SA. For some it is passionate discourse, while for others it is an emotional journey.

Land evokes a multitude of feelings because it affects identity, gives people a sense of belonging and has economic value. Land is the foundation of family, it is where our umbilical cords are buried. It provides the indigenous food we eat and the traditional medicines that heal us.

Land is also required for infrastructure projects, and in most instances it is privately or state owned. Governments and developers then spend millions negotiating land purchases and leases with landowners so infrastructure projects can proceed. This is often a time-consuming process that causes detrimental delays to capital projects and their derived benefit to the economy.

In the energy sector, land is required for distribution and transmission. These can traverse hundreds of kilometres, with numerous landowners seeking individual compensation. These servitude agreements are characterised by protracted legal battles, though recently there has been intervention from the state, with land being expropriated for the benefit of communities and to enable energy access.

While some landowners cite legitimate concerns such as safety and theft, some wilfully delay progress because they want more money than the land valuation. These delays impede development and mean people in need of electricity in a village in Tzaneen, for example, can go for years without electricity because wealthy landowners cannot agree on a servitude agreement and fair compensation. This naturally affects the inhabitants of that village, their livelihoods and their quality of life.

In the generation business one of the key components of the project is the siting. A hydro project needs to be at a water source, and a gas plant is ideally situated where there is access to gas or a pipeline, and likewise for solar and wind plants. They are ideally situated where the resource has the highest yield. The proximity of the power plant to the resource is directly linked to the economics and profitability of the project. It is for this reason that Eskom coal plants were sited next to coal mines, so the cost of transportation is minimised.   

Since 2010 independent power producers have been engaged in land lease agreements with land owners, particularly in the Northern, Eastern and Western Cape. The compensation mechanism is based on energy sales or a percentage of annual revenue. These payments are typically 1% of energy sales or annual revenue, which would be R20m for a plant that generates R2bn revenue per annum. These are guaranteed lease agreements with CPI escalation for the 20-year power purchase agreement period, excluding the construction period. These land lease agreements are substantial and do have tariff implications.

As grid capacity has been depleted in the Cape regions there has been a call to procure capacity from areas such as Limpopo, Mpumalanga and KwaZulu-Natal. I can imagine that the Cape “land prospectors” would not be pleased with this move to dismantle the energy hegemony and would lobby for more projects to be built in those areas to satisfy their return on investment. In their defence, that’s where the best energy yield is found.

Land that has laid barren for decades has tremendous value as it harnesses the sun and wind and makes millionaires of landowners. Some farmers have diversified their income by subdividing their land and leasing a portion for energy generation while continuing to farm sheep and cattle.

Equitable land redistribution post-1994 would have ensured that the local community provided equity to these projects through land, while earning a monthly rental and annual project dividend. A hundred households earning a collective R20m a year would have provided a sustainable income, facilitating local economic development, jobs and micro enterprises.

Former Burkina Faso president Thomas Sankara once said: “We have to recognise that the land cannot be subdued for reasons of mere personal gain if we want a just and sovereign society.”

• Mashele, an energy economist, is a member of the board of the National Transmission Company of SA.