Ramaphosa Misses the Boat Spectacularly in his Sweeping Energy Reforms

Open-Ed

• Last night, South Africa’s president, Mr Cyril Ramaphosa, addressed the nation in his usual monotone, reading from a script, as he always does.
• Much like his other national addresses’, he announced sweeping measures to reform and change a broken country, this time his focus was on the energy sector.
• South Africa is in a spiralling energy crisis, rotational load shedding is getting worst and the cost to the economy is a massive R950 million a day.
• Ramaphosa’s  ‘sweeping measures’ presented nothing new and mean nothing unless they are implemented properley – link to his full speech here. 

Ramaphosa and his fractured government plus Eskom say the two primary reasons for the energy crisis are the unreliability and unpredictability of Eskom’s generation fleet and a lack of generation capacity in the country. This is not true, rather, it is a consequence of a deeper reason. The underlying problem is a lack of political will, a lack of capacity, incompetence and possibly corruption on the part of the DMRE and Independent Power Procurement Office (IPPO) to procure new generation capacity.

Since the Independent Power Procurement Office (IPPO) was seconded to the Central Energy Fund in 2017 and then purged in 2019 to fall under the Department of Mineral Resources and Energy (DMRE), the ability of the country to procure new generation capacity has declined dramatically.

The Department of Mineral Resources and Energy (DMRE) along with the Independent Power Producer Office (IPPO) is responsible for energy procurement in the country.

Mr Gwede Mantashe was appointed Minister of Mineral and Energy Resources in May 2019. That same year Mantashe was credited for promulgating the country’s Integrated Resource Plan (IRP) which seeks to procure 35348MW of a mix of generation technologies by 2030. The following year he gazetted a Sector 34 determination to procure 11813MW of power by 2022.

Since Mantashe’s appointment, three energy procurement programmes have been implemented namely; the Risk Mitigation Independent Power Producer Programme (RMIPPPP) which seeks to procure 2000MW of new generation capacity (launched in September 2020), and the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) Bid Window 5 which seeks to procure 2500MW of new generation wind and solar capacity (launched in April 2021). A third procurement programme, REIPPPP Bid Window 6 which seeks to procure 2600MW of solar and wind capacity, was launched in April this year.

In total, 7100MW is to be procured under the three programmes yet to date only 150MW ( 3 x 50MW projects) has reached financial close and is expected to feed electrons into the grid at the end of Q4 2023.

The IPPO adrift within the DMRE?

To understand why the DMRE and the IPPO have been unable to implement their procurement programmes successfully, we first need to understand the history of the Independent Power Producers Office (IPPO).

The IPPO was established in 2010 through a three-party Memorandum of Agreement (MoA) between the Department of Energy, National Treasury, and the Development Bank of Southern Africa. Clause 10 of the MoA established a Joint Implementation Committee (JIC) and mandated it to oversee governance matters relating to the Office. Each party is represented in the JIC.

The IPPO was respected internationally for running four internationally recognised and highly professional Bid Window Auctions from 2011 to 2015. The office came unstuck when Brian Molefe, the CEO of Eskom at the time and very much aligned with Jacob Zuma’s agenda to pursue a nuclear energy agenda with Russia, refused to sign power purchase agreements with 37 Bid Window 4 winners in 2016 effectively bringing the country’s renewable energy programme to a halt that would last 5 years. Read more

In May 2017, the then Energy Minister, Mmamoloko Kubayi, announced that the IPPO would be moved to the Central Energy Fund.

In the middle of 2019, the IPP Office staff were purged including its high rated head, Karin Breytenbach, who was dismissed nine months ahead of her contract term end. Read more

In April 2020 Development Bank of Southern Africa (DBSA) announced the appointment of former Eskom executive Tshifhiwa Bernard Magoro as the new head of IPPO. The appointment came at a time when the IPPO is gearing up to resume procurement programmes.

Magoro is highly educated. He holds a BSc in Maths, Physics & Statistics from the University of Venda; a BSc in Electrical Engineering from the University of Cape Town; a BCom from Unisa; an MBA from Wits Business School; and an LLB from Unisa.

Magoro appears to lead an office that is adrift somewhere within the DMRE. I have written to the Central Energy Fund, which does not list the IPP office on their website, requesting information on the compliment of staff at IPPO and their qualifications. I have done the same with the IPPO and the DMRE directly and received no reply.

Unbalance, delayed energy procurement outcomes with glaring red alerts 

REIPPPP Bid Windows 1 to 4 had largely uncontested and very balanced outcomes. The projects that were awarded preferred bidders status in these rounds achieved financial close within three to four months largely because projects were chosen that were shovel ready or close to shovel ready (shovel ready meaning ready to be constructed).

Related news: SAWEA on REIPPPP: Delays, Inconsistencies and Halted Bidding Windows

The results of REIPPPP Bid Window 5 under the current IPPO reveals a very unbalance outcome and projects are struggling to reach financial close. Taking a closure look at the outcome of Bid Window 5 there are several standout red alerts:

• One international IPP, Mainstream Renewable Energy, won 12 of the 25 projects
• 21 of the 25 preferred bidders have the same BBBEE partner in H1 Holdings – Mainstream Renewable Power (12 projects) , Scatec (3 projects) and EDF (3 projects) and local IPP Red Rocket (3 projects). The underlying principle of B-BBEE is to spread wealth sustainably and as far as possible, to the previously disadvantaged.
• 21 of the 25 projects were won by foreign-owned IPP’s
• The tariffs bided were unsustainably low and not bankable. The average weighted price bid for solar comes in at (R) 42.9c kW/h while the average bid for wind is (R) 49.5c kW/h. Industry experts claim that the winning tariffs are too low to be realistic. Read more 
• The majority of the projects who won preferred bidder status were not shovel-ready and had outstanding development works activities including CEL, EIA and other permitting.
• The criteria set for local content are unrealistic and cannot be implemented.

Related news: REIPPPP Bid Window 5 fails in the just transition from coal to renewables – expect delays

When one considers that over 100 projects participated in Bid Window 5 (a lot of them shovel-ready) and the country desperately needs new generation capacity, why did the IPPO choose the 25 projects they chose? Did they understand the financial models, ownership status, stage of development and local content criteria? It appears not.

Unbalance outcomes extend to RMIPPPP

The lack of capacity at the DMRE extends to the Risk Mitigation IPP Procurement Programme (RMIPPPP) where there are key contractual issues, the majority of projects are not bankable and/or EIA approved. Simply put the tender programme was badly managed from the outset. There is also no coincidence then that the only three projects totalling 150MW that achieved financial close in the 2000MW RMIPPPP have the same BBBEE partner that won 21 projects in REIPPPP Bid window 5.

In REIPPPP Bid Window 6, released in April this year, the DMRE/IPPO doubles down and tries to address the poor performance in the two previous and incomplete procurement programmes with updated criteria but it is still flawed and too little too late. Read more

Related news: Has South Africa’s REIPPPP Bid Window 6 been delayed by Bid Window 5 outcome controversy?

About Gwede Mantashe 

Samson Gwede Mantashe, popularly known as Gwede Mantashe is a communist, South African politician, and trade unionist, who as of 18 December 2017, serves as the National Chairperson of the African National Congress. He is also a former chairperson of the South African Communist Party and Secretary General of the ANC.

He studied at the University of South Africa in 1997, and completed a B.Com Honours degree in 2002. He also acquired a master’s degree from the University of Witwatersrand in 2008. He completed his MBA through MANCOSA in 2021

He joined the migratory labour force to eke out a living in the mining industry. Beginning his mining experience at Western Deep Levels mine in 1975 as a Recreation Officer and, in the same year, moved to Prieska Copper Mines where he was Welfare Officer until 1982.

Related news: It’s not ‘foreign forces’, it is people in South Africa that are fed up with Gwede Mantashe

In 1982, Mantashe moved to Matla Colliery where he co-founded and became the Witbank branch chairperson of the National Union of Mineworkers (NUM), a position he held until 1984. He was then elected NUM Regional Secretary in 1985. In recognition of his skills, Mantashe became the NUM’s National Organiser from 1988 to 1993 and its Regional Coordinator between 1993 and 1994. He was elected Secretary-General of the African National Congress at the party’s 52nd national conference in 2007.

Mantashe and his family are implicated in a string of corruption scandals. Mantashe’s daughter received R1 million in illicit Eskom money. His wife’s business received a R639 million catering contract for the still incomplete Kusile coal power plant project that has been riddled with corruption and cost overruns. His foundation is also embroiled in corruption scandals over millions in irregular payments.

In the country’s Commission of Inquiry into Allegations of State Capture, it was revealed that Mantashe received security upgrades to his three homes from the now-defunct company, Bosasa. The commission’s chair, Justice Raymond Zondo, said there was no evidence of contracts being awarded due to Mantashe’s direct interference, but there were “reasonable grounds for suspecting that Mr Mantashe accepted or agreed to accept gratification” from a company (Bosasa)  that wanted business from the state and that further investigations had a reasonable prospect of making prima facie findings of corruption against Mantashe. Mantashe of course denies all charges. Read more

It is also important to recall that during Zuma’s ten-year presidency, Mantashe was a key figure in the project to shield him from accountability. As secretary-general of the ANC, he instructed members of Parliament to always side with Zuma or face discipline. As such, he was a key enabler of corruption during the Zuma years.

Listening to Ramaphosa last night, I could not help feeling that he is a tired man that does not get the underlying cause of South Africa’s energy crisis. If he does not acknowledge and address the lack of political will, capacity, incompetence and possible corruption inside the DMRE and IPPO who manage energy procurement, South Africa’s energy crisis is going to get much worst.

Author: Bryan Groenendaal

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