South Africa’s REIPPPP Bid Window 5 Outcome Likely Rigged – Expect Extended Delays

Open- Ed

All questions I have put to the DMRE and IPPO over the last two weeks have gone unanswered. They appear to be adopting a stance of ‘relaxed avoidance’ because of the embarrassment the outcome may reveal and the desperate need for the country to get Bid Window 5 projects past financial close at any cost.

South Africa is in a massive energy crisis. Rotational load shedding is getting worst and the cost to the economy is a massive R950 million a day. According to a report presented by the University of Capetown, if 5GW of renewable energy was rolled out before 2021, the country would not be experiencing load-shedding. Read more

In a special address to the nation on 25th July, South Africa’s president, Mr Cyril Ramaphosa announced sweeping energy reforms stating that 2600 MW of capacity has been procured through Bid Window 5, which will begin to add capacity from early 2024.

“The relevant government departments are working together to ensure that all projects from Bid Window 5 of the renewable energy programme can start construction on schedule. This includes taking a pragmatic approach to the local content requirements for these projects and prioritising the need to build new capacity as quickly as possible. The Department of Trade, Industry and Competition together with the Independent Power Producers Office will provide further details in this regard within the coming days,” said Ramaphosa. Read his full speech here

Bid Window 5 projects were awarded at the end of October 2021 and were given a deadline of 31st March 2022 to reach financial close. Not one of the 25 projects was able to reach financial close prompting the country’s energy minister to grant a six-month extension to the end of September 2022. Read more

Taking a closure look at the outcome of Bid Window 5 there are several standout red alerts as to why projects are not reaching financial close:

  • One international IPP, Mainstream Renewable Power, won 12 of the 25 projects
  • 21 of the 25 preferred bidders have the same BBBEE partner in H1 HoldingsMainstream RenewablePower (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.
  • 15 of the 25 projects were won by Norwegian IPP’s.
  • The tariffs bided were unsustainably low and not 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 and may be sponsored. 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
  • The increase in the cost of components like wind turbines, inverters and solar panels during the extended delay has found winning bidders with ‘stranded’ financial models that may not be bank presentable.

 Lack of capacity and/or competency in adjudicating projects at the IPPO?

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 (DMRE), the ability of the country to procure new generation capacity has declined dramatically. Read more

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.

Related news: The real reason for delays in South Africa’s energy procurement

Since Mantashe’s appointment, three energy procurement programmes have been implemented namely; the Risk Mitigation Independent Power Producer Procurement 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.

Do all roads lead to Norway?

It is alleged the rigging of Bid Window 5 may have involved the government of Norway through their funding arms Norfund and possibly NORAD.

Norfund appears to have exclusively concentrated its funding on H1 Holdings, a local black economic empowerment company (BBBEE) and did not engage or fund any other BBBEE company involved in Bid Window 5. H1 Holdings is the exclusive BBBEE partner for the 12 Mainstream/AKER Horizons projects plus the 3 ScatecASA Projects in Bid Window 5. Both companies are majority Norwegian-owned.

Norad recently bolstered the African Trade Insurance Agency with a grant of US$ 56 million aimed at renewable energy projects in Southern Africa but it is unknown where any of the funding has been distributed. Read more

Norfund refuse to answer any questions and NORAD has not responded to my questions to date. The same goes for Mainstream/AKER Horizons and 3 Scatec ASA.

Racist slurs 

It must also be noted that Mainstream/AKER Horizons were recently embroiled in a major racist incident where their CEO made derogatory statements about Africa. Eddie O’ Conner was forced to resign after saying that ‘Africa’s energy transition was held back by a lack of education in tribal societies‘. To many in South Africa, considering the legacy of the evil apartheid regime and what many fought and died for in the liberation movement,  it is incomprehensible that the DMRE/IPPO wants to still do business with Mainstream/AKER Horizons let alone award them 12 projects. Read more

Institutional Project Funding

Where the DMRE and the IPPO may lack in capacity and/or competence, the financial institutions that fund renewable energy projects in South Africa do not. The banks and institutional investors have highly qualified teams that carry out the most stringent due diligence when evaluating wind and solar projects.

Considering the Broad-Based Black Economic Empowerment (B-BBEE) programme provides a legislative framework for the transformation of South Africa’s economy and the Broad-based Black Economic Empowerment Act, [No. 53 of 2003], as amended, aims to advance economic transformation and enhance the economic participation of black people in the South African economy, I approach the big five banks in South Africa to find out if they are investing or funding any the 25 projects awarded in Bid Window 5.

Investec declined to respond and instead referred me to Brunswick, a leading ‘critical issues’ firm that represents them in ‘external matters’. Standard Bank, Nedbank and RMB failed to respond while ABSA responded by saying that their decisions in determining whether to finance renewable energy projects, as is the case with any other projects, follow established and rigorous processes in compliance with regulatory requirements. “It is not appropriate for ABSA, as a service provider to clients, bound by confidential contractual agreements, to disclose the identity or affairs of our clients,” they said.

I also sent a set of questions to Revego Africa Energy (Revego) who are a private equity fund manager investing in renewable energy projects in Sub Saharan-Africa set up by Investec Bank. Investec recently provided a R1.25 billion bridging facility to Revego. Read more

According to the Revego website, their CEO is none other than Mr Reyburn Hendriks. Reyburn is also a joint controlling shareholder and manager of H1 Holdings. H1 Holdings has a 16% stake in Revego Fund Managers. Revego recently invested in 360MW of Mainstream/Aker Horizons wind assets in South Africa. Read more

Revego repeatedly failed to reply to my set of questions.

2000MW Risk Mitigation IPP Procurement Programme

H1 Holdings and Scatec also pop up in the 2000MW Risk Mitigation IPP Procurement Programme (RMIPPPP) where there are key contractual issues, the majority of projects are not bankable and/or EIA approved. The only three projects totalling 150MW to reach financial close are jointly owned by Scatec ASA and H1 Holdings. Read more

The knee-jerk reaction by IPPO

REIPPPP Bid Window Round 6 tries to address the skewed outcome of Bid Window 5 with updated criteria but it is still flawed and too little too late. Read more

About Gwede Mantashe

South Africa’s Minister of Mineral Resources and Energy, Mr Gwede Mantashe. Image credit: SAgov

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 commissions 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.

Whichever way you look at South Africa’s energy procurement track record over the past three years, the outcomes do not lie. Apart from Bid Window 4 projects signed off by Jeff Radebe in  2018, not a single electron of new generation power has fed into South Africa’s grid since Mr Gwede Mantashe took office at the DMRE in 2019. Until the DMRE and IPPO manage energy procurement properly, the country’s energy crisis will get much darker and investors are going to go to greener pastures.

Food for thought

New research from Stanford University researcher Mark Jacobson outlines how 145 countries could meet 100% of their business-as-usual energy needs with wind, water, solar and energy storage. The study finds that in all the countries considered, lower-cost energy and other benefits mean the required investment for transition is paid off within six years. The study also estimates that worldwide, such a transition would create 28 million more jobs than it lost. Read more

Author: Bryan Groenendaal

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