Turkish-owned Karpowership, one of the winning bidders of SA’s emergency power procurement programme, expects to sign power purchase agreements with Eskom within the coming weeks, despite it accusing the utility of stalling the programme.
The company, set to supply the bulk of the 2,000MW of power aimed at alleviating rolling blackouts, is yet to secure the required environmental approvals or the approvals to dock its three gas-fired ships at the country’s ports.
The department of forestry, fisheries & the environment rejected Karpowership’s application for environmental authorisation in 2021, saying the floating power ships failed to meet the minimum public participation requirements under the country’s environmental legislation. Karpowership has appealed against the ruling, which has also delayed its gas projects. A decision by the department can be expected by July 13, said department spokesperson Albie Modise.
This, with a legal challenge from a rival bidder, has stalled the projects, which were initially scheduled to be plugged into the grid by July after being awarded the tender in March 2021.
“We have two major outstanding permits, section 79 [of the National Ports Act] and the environmental approvals from the department of environment.
“If we get those, our aim is to reach financial close sometime in September,” Karpowership business development director Mehmet Katmer told Business Day.
Treasury requirement
In March, the Eskom board required that all 11 winning bidders of the Risk Mitigation Independent Power Producer Procurement Programme sign additional anticorruption indemnity agreements as a prerequisite to the signing of the power purchase agreements.
The additional indemnity agreements are a requirement from the Treasury and are in line with sections 66 and 70 of the Public Finance Management Act, which stipulates that government departments and entities are not financially bound by any unlawful contracts entered into by officials within the entity.
After Eskom board approval, Eskom is also required to request approval from the minister of public enterprises, Pravin Gordhan, to enable it to enter into the power purchase agreements with the preferred bidders. This approval was granted to Eskom by the department of public enterprises in May, said the independent power producer (IPP) office.
Karpowership was absent from a media briefing earlier this month at which Eskom signed power purchase agreements for three projects, all from the same bidder. These will add 150MW of dispatchable (baseload) solar energy to the Eskom grid when they come online within 14 to 20 months.
Katmer said the delay in signing the agreements with Eskom is due to the utility’s request for Karpowership to agree to an additional clause that would indemnify Eskom from damage, including corruption allegations. Eskom’s request stems from the legal bid by a losing bidder, DNG Energy, which claims that Karpowerships’ winning of the majority of the tenders in the RMIPPP process was marred by corruption.
Project unviable
“This year March, the IPP office asked us to sign the contracts and informed us that Eskom required an additional, broad indemnity, in addition to the non-negotiable clause within the PPA … When asked why, they stated that our three projects are too controversial, and this was also part of their fiduciary duty. They wanted to cover themselves with an additional layer of indemnity,” Katmer told Business Day.
“Eskom wanted assurance that if anything were to happen regarding these projects and Eskom suffers damage, they need to be covered. That makes the whole project unviable.”
“There is already an indemnity clause which is quite broad and covers everything.
“We wouldn’t go that far to sign a broad-based indemnity agreement [with Eskom] … that was the sticking point in front of our signature because the agreement is already there.”
Speaking at the signing of power purchase agreements for the three projects last week, Bernard Magoro, head of the IPP office, hinted that, given the government’s urgency to get new energy generation capacity online, time might be running out for concluding negotiations about the remaining projects that would enable them to reach financial close.
At the same briefing, Eskom CEO André de Ruyter said the signing of the anticorruption indemnity clause in the power purchase agreements is critical, given the country’s history of corruption and state capture.
Eskom had not responded to queries by the time of publication.
This article has been updated to reflect claims by Karpowership business development director Mehmet Katmer that Eskom requested a separate signed anti-corruption indemnity clause.
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