South Africa’s Energy Regulator Taken to Court Over Karpowership Licenses

• The Organisation Undoing Tax Abuse (OUTA) has filed an application for the review and setting aside of the decisions by the National Energy Regulator of South Africa (NERSA) to grant the three Karpowership independent power producer (IPP) generation licences. 
• The regulator granted Turkish owned Karpowership SA three generation licenses in September 2021. Read more 

OUTA’s application was filed in the Pretoria High Court on Tuesday 26 April. The respondents are NERSA, four Karpowership companies, the Minister of Mineral Resources and Energy, the Minister of Forestry, Fisheries and the Environment, and Eskom. The Karpowership companies are Karpowership SA (the holding company) and its wholly owned subsidiaries Karpowership SA Coega, Karpowership SA Saldanha Bay and Karpowership SA Richards Bay. OUTA’s action is directed against NERSA, while the other parties are cited due to their interest in the matter.

This is an application in terms of the Promotion of Administrative Justice Act.

The application is supported by an affidavit by OUTA Executive Director Advocate Stefanie Fick and a confirmatory affidavit from a specialist consultant supporting the views on the negative economic impact and lack of consideration of far more viable alternatives.

“It is submitted that NERSA has displayed a cavalier attitude towards statutory compliance and public concerns throughout its decision-making process to award generation licences to Karpowership. By doing so, it has failed to properly exercise its mandate in terms of the ERA [Electricity Regulation Act] and fulfil its oversight functions of regulator without the necessary independent checks and balances to ensure that the interests of electricity suppliers are balanced with the interests of customers, the public and the South African economy,” says Advocate Fick in the affidavit supporting the application.

“The decisions to award the licences to Karpowership for generation at Coega, Saldanha Bay and Richard’s Bay respectively were irrational, unreasonable, and taken without regard to relevant considerations or with regard to irrelevant circumstances.”

OUTA believes that the normal public procurement processes for new generation capacity and private procurements by electricity customers themselves are now overtaking the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP), the so-called “emergency” process.

Background

In February 2020, Minister of Mineral Resources and Energy Gwede Mantashe made a determination that 2 000 MW of emergency generation capacity should be procured through the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP). NERSA concurred with this determination in May 2020.

The Department of Mineral Resources and Energy (DMRE) issued a request for proposals and, on 18 March 2021, the DMRE announced seven preferred bidders, including the three Karpowership SA companies. The three Karpowership projects would together provide 1 220 MW of gas-fired generation capacity.

The ships housing the gas-fired power generation capacity (powerships) are supplied with gas from floating storage and regasification units (FSRUs), which are in turn supplied with imported liquified natural gas (LNG) from international suppliers on purpose-built LNG carrier ships. The powerships and FSRUs would anchor permanently in the three harbours for the duration of the planned 20-year contract. Karpowership SA, the holding company, is owned by Karadeniz Holdings, a Turkish energy company.

On 21 September 2021, NERSA awarded generation licences to the three Karpowership IPPs and, on 29 October 2021, published its reasons for decision.

The projected costs of the Karpowership projects, including fuel supply, over a 20-year period are reported to be more than R200 billion.

A soundclip with comment by OUTA’s Advocate Stefanie Fick is here.
A podcast with an interview with OUTA’s Adv Fick and OUTA Legal Project Manager Brendan Slade by OUTA’s Ilse Salzwedel is here.

Author: Bryan Groenendaal