Challenging Secrecy: OUTA Demands Full Record of South Africa’s Karpowership Decision

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  • The Organisation Undoing Tax Abuse (OUTA) is a registered non-profit civil action organisation that focuses on exposing government corruption and the abuse of taxes and public funds through investigation, research, communication, empowerment and litigation. 
  • OUTA has brought an application challenging the National Energy Regulator’s (NERSA) secrecy over the decisions to award generation licences to Karpowership. 

The secrecy hides the financial implications of the deal, estimated to be more than R200 billion for the proposed 20-year contract.

OUTA’s application says that “transparency is key to accountability in respect of the conferral of long-term state contracts. It is accordingly also in the public interest that the full record be made available.”

OUTA’s application – an application to compel – was filed on 23 January 2023 in the Pretoria High Court, asking the court to order NERSA to provide OUTA with “a complete, unredacted record” of the NERSA decisions to award generation licences to Karpowership companies to operate powerships in the ports of Saldanha Bay, Coega and Richards Bay.

NERSA and Karpowership are opposing the application.

This action is part of OUTA’s main application filed on 26 April 2022 (see below) which calls on the court to review and set aside NERSA’s decisions to award the generation licences. The notice of motion in the main application called for NERSA to provide within 15 days copies of documents relating to the decisions, including the reasons for decisions. This is in line with the rules of court, which envisage that a complete record be provided to an applicant in review proceedings. In June, NERSA provided a heavily redacted record, without having made any agreement with OUTA about this and without having asked the court for condonation to deviate from the rules on the provision of documents.

In December, OUTA filed a notice calling for NERSA to produce the full record in terms of the court rules but it failed to comply, so OUTA brought the application to compel.

What are NERSA and Karpowership hiding?

Both NERSA and Karpowership have unequivocally indicated that they will not provide an unredacted record to OUTA, or even identify the information being withheld. There is also no explanation for how providing the information would prejudice Karpowership.

The record provided is voluminous, with neither an index nor a list of the sections which were redacted.

However, the financial information from the Karpowership application is missing from the documents provided.

OUTA’s main application revolves around the cost implications of the anticipated 20-year contract, and includes an opinion from an expert on the costs, which disputes NERSA’s public statement that Karpowership power would cost R2.80/kWh (already 90% up from the bid two years earlier) and instead estimates that it will be closer to R5/kW, roughly two to three times the cost of alternative generation solutions. OUTA’s application thus questions whether and how NERSA assessed the costs in Karpowership’s application.

The redacted record does not include information on the impact of the rand/dollar exchange rate, any licence conditions, charge rates or tariffs.

Although OUTA has proposed using any restricted documents only for the purposes of the litigation, Karpowership (which is not the party from whom the record is requested) proposed a “very restrictive confidentiality agreement” which OUTA opposes.

“OUTA did not and does not agree to the proposed confidentiality regime and to the resultant limitation of these procedural rights. It holds the view that a confidentiality regime, especially a restrictive one such as has been proposed by Karpowership, where OUTA’s legal representatives would not even be able to take instructions from their own client on aspects relating to the record, has never been properly motivated by Karpowership. It is in any event not warranted in the circumstances where there is every reason to insist on transparency and accountability in the public interest,” says Andri Jennings, OUTA’s attorney in this case, in the founding affidavit in the new application.

Jennings says the obligation to make the record available rests with NERSA not Karpowership but “NERSA seems to act in accordance with the dictates of Karpowership instead of acting independently as is required from the regulator”.

“It is submitted that this is a matter of public interest and that both OUTA and the South African public at large are entitled to this information in order for NERSA to be held accountable for its decisions to grant the generation licences to Karpowership. Information cannot merely be regarded as confidential because one of the parties says it is,” says Jennings.

The background: OUTA’s main case challenging the Karpowership licences

On 26 April 2022, OUTA filed an application for the review and setting aside of the decisions by NERSA to grant the three Karpowership independent power producer (IPP) generation licences.

OUTA is acting in the public interest, to protect the public from costly and controversial projects like this.

OUTA’s application was filed in the Pretoria High Court. The respondents are NERSA, four Karpowership companies, the Minister of Mineral Resources and Energy, the Minister of Forestry, Fisheries and the Environment, and Eskom. OUTA’s action is directed against NERSA, while the other parties are cited due to their interest in the matter.

NERSA and the Karpowerships are opposing OUTA’s application while Eskom has told the court it will abide by the court’s decision.

Also in April 2022, the civil society organisation The Green Connection brought a review application against NERSA and Karpowership, calling for essentially the same relief on different grounds.

The OUTA and Green Connection cases are now due to be heard together, although they are still separate applications.

The broader context

OUTA’s demand for the hidden information comes while government is pushing to make a deal with Karpowership despite the costs and its failure to meet bid requirements, which raises questions about NERSA’s involvement in cooperating with Karpowership to hide information on the licences.

South Africa is undergoing the worst electricity crisis ever experienced while government ignores advice from energy experts in favour of promoting Karpowership.

Karpowership was initially refused environmental authorisations and its resubmitted applications have softened the environmental risks (see here), Minister of Mineral Resources and Energy Gwede Mantashe’s department has refused Eskom a diesel wholesale licence to enable discounted diesel purchases thus blocking emergency diesel generation (see here), 23 wind generation projects were refused bidder status in the recent bungled renewable energy bid process (see here), and Minister Mantashe is promoting the Karpowership deal again (see here) although now warning that halving the contract length could cost more per unit of power (see here).

OUTA strongly opposes any contracts with Karpowership, due to the enormous costs, the 20-year length of the “emergency” contract and the inadequate information about the environmental impact. OUTA also opposes short-term contracts with Karpowership, noting that in other countries such contracts with the parent company were repeatedly extended at enormous cost (see here), which is a significant risk in corruption-ridden South Africa. The costs, the length of the contracts proposed, the manipulation of the tender deadlines to the apparent benefit of the Karpowership, the authorities’ prioritisation of fossil-fuel gas in preference to cheaper, faster and environmentally safer renewables, and the secrecy around the deal leave a strong whiff of corruption.

Confused about the Karpowership deal: what’s in it?

OUTA has compiled a quick guide to the Karpowership deal, explaining some of the concerns and why this is not a quick fix. See here (the section “What are Karpowerships?”).

Author: Bryan Groenendaal

Source: OUTA 


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