- The South African government recently released the Renewable Energy Masterplan commissioned by Department of Trade, Industry and Competition (DTIC) with the help of GreenCape and other stakeholders.
- The plan does not mention stage consignment concessions issued to independent power producers (IPPs) and engineering procurement and construction companies (EPCs) by the DTIC, which effectively allows them to fully import equipment duty free for solar, wind and energy storage projects.
- It is believed staged consignment concessions has been granted to most REIPPPP projects dating back to 2018 and possibly before this time.
South Africa’s Renewable Energy Masterplan (SAREM) falls under the reimagined Industrial Strategy of the DTIC. It attempts to build upon the approach taken by the automotive sector and the sector plan process developed between private- and public sectors, led by the Public-Private Growth Initiative (PPGI) in conjunction with the Presidency. The idea is to create new opportunities and give preference to the development of local industries in the renewable industry supply chain.
SAREM boasts a master plan that has been developed in collaboration between industry, labour and government. GreenCape was the secretariat of the development process, managing the project, the research and consultation and formulating the Masterplan.
SAREM Social compact partners
Sponsors of SAREM development
While the cost is unknown, the research and drafting of SAREM has been made possible with the financial support of:
- The South African Department of Science and Innovation via the Energy Secretariat at The South African National Energy Development Institute.
- The department for Business, Energy and Industrial Strategy (BEIS) in the context of the UK PACT (Partnering for Accelerated Climate Transitions) flagship programme under the International Climate Finance (ICF) portfolio.
- The UNDP via the South African Wind Energy Programme (SAWEP) secretariat.
- The New Zealand High Commission.
- The Aspen Global Change Institute (AGCI) via the Smart Energy for Europe Platform (SEFEP) GbmH in the context of CRUX Policy Centre Power.
According to the SAREM document, there were engagements with stakeholders through the industry working group (IWG) in cycles of scheduled sessions throughout the planning process. The project team also drew on a pool of expertise – an industry reference group (IRG) – for sense-checking and input as it formulates the plan. But nowhere in the document does it highlight the threat of staged consignment concessions to the local supply chain.
Staged consignments
Staged consignments are an internationally recognised trade facilitation measure that is commonly used across global supply chains. It enables importers, particularly those involved in capital-intensive projects such as renewable energy installations, to import goods in phases and to align deliveries with project timelines. Stage consignments are limited to specific requirements and are determined according to the essential character of the finished plant, machinery, or factory. It only relates to the components required for the assembly of the plant / machinery as stipulated in Additional Note 1 to Section XVI of Schedule 1 Part 1 to the Customs and Excise Act, No.91 of 1964, as amended.
Staged consignments are permitted under current customs legislation and policy to support large-scale, long-term projects that involve a phased delivery of components. This approach prevents unnecessary logistical bottlenecks and reduces costs for importers by avoiding repeated customs clearance processes for each shipment. Each application is assessed and approved based on strict criteria to ensure that only qualifying projects benefit from this mechanism. Staged consignments only apply to machines or equipment classified in Chapters 84 or 85 of the Harmonised System (HS). A physical inspection must also be conducted at the importer’s premises of the finished plant, factory, or machinery to verify its completion.
While the approval of staged consignments applied for by traders is a function strictly within the purview of the Commissioner, where the existing customs legislation and policy frameworks to regulate these transactions apply, SARS does not set industrial policy or decide on trade incentives. That function lies with the DTIC, the same department who commissioned SAREM.
According to SARS, sensitive goods like steel structures are not covered by the staged consignment provisions.
Challenges renewable energy IPPs and EPCs face
Once a solar or wind project reaches financial close, IPPs and their appointed EPCs need to procure and construct their projects in a set period of time or face penalties and loss of income. Procurement of components is critical in meeting specific plant performance criteria and warranties. It cannot be done piecemeal. In the case of a solar project, you want a single supplier of each component like solar panels, cabling, combiner boxes, inverters, and mounting structures.
Equally important is logistics considering the sheer volume of component delivery over a relatively short period of time. A 200MW solar project will typically involve delivery of over 500 forty-foot containers during the construction period. It must be done with military precision to ensure construction delays are kept to a minimum.
IPPS and EPCs are also able to procure imported components at a discount. For example, the Chinese government offers a 9% export tax rebates on solar panels.
In most cases, the applicable local industries do not have the capacity to meet these challenges and are therefore not considered.
By exercising the staged consignment concession, IPPs and EPCs are able to save on subsidised goods, streamline procurement and logistics plus save on import duties.
Local industry
Local industry argue that stage consignment concessions remove the incentive for local production and job creation by allowing subsidised duty-free imports.
The consequences of the ‘staged consignment’ concession are far-reaching and damaging to the country’s economy and development goals:
- Massive Revenue Losses for SARS: An estimated a loss of nearly R20 billion in tax collection from renewable energy project imports, which should have been subject to appropriate duties. Over the last year alone, revenue loss is estimated at around R17 billion, with a direct tax collection loss of around R4.2 billion.
- Job losses.
- Loss of critical manufacturing expertise and investment.
- Circumvention of Trade Protections: This loophole allows for the duty-free import of even basic materials like steel, undermining local industries and review processes such as the Renewable Review, Steel Review, Fastener Review, Steel Wire Review, and Copper Cable Review.
Staged consignments often come with foreign labour
The core problem is that if SARS approves a staged consignment as a blanket approval for a full project, it creates a significant loophole for labour, as special expertise accompanying these consignments often leads to the employment of non-South African workers to do the installation. As a result, South Africa is increasingly seeing foreign EPCs managing our local projects at rates domestic companies cannot compete with, and foreign OEMs are increasingly using imported labour to do this specialised work.
No compliance oversight
The IPP Office under the Ministry of Electricity and Energy does not verify local content and labour specified by winning bidders in the REIPPPP, during and after construction.
It is unknown which REIPPPP and other renewable projects have been granted staged consignment concessions.
The Minister of Electricity and Energy and the Minister of Trade, Industry and Competition did not respond to a request for comment on the matter.
Link to SARS Staged Consignment – External Policy document HERE
Link to the South African Renewable Energy Masterplan (SAREM) HERE
Author: Bryan Groenendaal
