South Africa’s state owned power utility, Eskom, will refuse to purchase power produced from “powerships” by the company that won most of the tenders from government’s Risk Mitigation IPP Procurement Programme (RMIPPPP), Bloomberg reported earlier today. South Africa’s government in March announced bid winners for the “emergency programme”, a procurement exercise meant to rapidly mitigate the energy supply gap which has caused recurrent power outages in Africa’s most industrialised nation.
Bloomberg sources say Eskom is concerned about the cost and length of the contract. The state utility’s financial position is in dire straits as it is currently R480 billion in debt.
Turkish company Karpowership, a unit of the Karadeniz Energy Group, won tenders to supply South Africa with 1 220 MW of electricity from gas-burning power plants stationed on boats moored offshore. The awarding of tenders to Karpowership faced fierce resistance from environmentalists and energy pundits who cited concerns on environmental impact of the systems as well costs compared to quickly deployable solar and wind energy systems.
Environmentalists argue that the powerships might derail South Africa from meeting its carbon emissions reduction targets in accordance with the Paris Agreement requirements.
About 1 845MW of electricity capacity was announced under the RMIPPP programme. Karpowership was awarded a contract that lasts for 20 years in a deal that is worth an estimated R218 billion.
Powerships Lawsuit
South African gas company, DNG Energy, which was one of the bidders in the RMIPPP programme is contesting the awarding of contracts to Karpowership in court. DNG Energy alleges that the procurement process was tainted by corruption.
In an affidavit to the High Court, DNG Energy CEO, Aldworth Mbalati, alleges that he was approached by a businessman with “close ties” to Energy Minister Gwede Mantashe and government officials who offered assistance to win a contract.
According to court papers lodged last week, an official from Gwede Mantashe’s mineral resources & energy department allegedly told DNG Energy CEO that “there is a system in this country, and if you don’t work in accordance with that system you will fail even if your project is the best.” The official allegedly uttered these words whilst at Kream restaurant in Pretoria on Monday 2 November 2020.
Mbalati cites his refusal to accept the offer of assistance to win the contract as the reason his bid was not granted the greenlight.
Karpowership will need a Power Purchase Agreement (PPA) from Eskom as well as acquire environmental and port approvals in order to go ahead with project implementation. Should Eskom refuse to grant them a PPA, the project might face challenges to implement. Eskom has in the past refused to sign PPAs with bid winners of the last round of the Renewable Energy Independent Power Producer Procurement Programme (REI4P). A ministerial directive from the then energy minister, Jeff Radebe, compelled Eskom to sign the PPAs.
