South Africa’s Treasury is Considering Reducing or Eliminating Guarantee’s for REIPPPP Projects

  • The South African government is exploring alternative support for the country’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).
  • The country’s Treasury currently provides debt guarantees to independent power producers (IPP’S) who are successful with projects under the programme should the off-taker, the national energy utility, Eskom, default on the power purchase agreement.
  • The national treasury announced this surprise move in the 2022 Budget Review released earlier today.

While the Treasury expressed that contingent liability risks for independent power producers represent a low risk to the fiscus, a government study is exploring alternative support for the REIPPPP. This is expected  to result  in  a  reduction  or  elimination  of  guarantee  requirements  for  the programme, reducing the stock of contingent liabilities.

The report further communicates:

‘After signing additional projects in 2021, government has committed to procure up to R208.5 billion in renewable energy from the Renewable  Energy  Independent  Power  Producer  Procurement  (REIPPP) Programme. The value of signed projects, which represents government’s exposure,  is  expected  to  amount  to  R177  billion  by 31  March  2022. Exposure  is  expected  to  decrease  to  R156.6  billion  in  2022/23, R137.8 billion  in 2023/24  and  R120.8  billion  in  2024/25.’

The move will mean that it will become more difficult for IPP’s to obtain finance for their projects. If implemented, debt cover will have to be sought in the private sector which will come at a premium.

Link to 2022 Budget Review (page 89) HERE

Author: Bryan Groenendaal

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