After a recent panel discussion a delegate approached me and said: “Please do something about the community trusts.” I knew what they were talking about. It’s the bane of most people’s experience — and a ticking time bomb.
At the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) conceptualisation it was envisioned that local communities would benefit from the projects developed in their areas, through jobs and spending on socioeconomic and enterprise development. In addition, a mechanism was introduced that would give local people ownership of the assets.
Community trusts were formed to serve this purpose; they would take on debt and receive dividends. These trusts often carried a five- to 10-year debt repayment, creating a lag between the initial dividend trickle and the full equity upside. Other trusts decided to lock up the dividends until all the debt was repaid. After 10 years, locals were invited to be trustees and decide on the dividend distribution. Other trusts enjoyed a free carry from the project sponsor.
Problems stem from these trusts’ legal structure, administration and governance. Most of them are ownership trusts. Ownership trusts are structured to hold equity in a project or business on behalf of a defined group, often members of a local community. The trust becomes a shareholder, with equity participation and financial returns or losses.
However, a community development trust is a legal entity created to advance social, economic and developmental objectives in a specific community through social projects, infrastructure and training.
The REIPPPP ownership trusts cannot invest, acquire assets or increase their equity participation. As a result, the community’s ability to participate meaningfully is limited. Typically, the community has little say in trust set-up and feels marginalised. This leads to an acrimonious relationship with the project company, which results in political interference and a constant changing of the local community trustees, who are already outnumbered by representatives from the lenders and the project company.
The complexities around the dividend distribution and community expectations for direct benefit result in tensions over how funds are distributed. This often results in accusations of misappropriation among local trustees, followed by changes to the trustee representative, where the trustee who belongs to a particular political party is replaced by another trustee who happens to be the mayor’s son.
This administrative nightmare, which typically takes a year at the trust deed office, further frustrates dividend payouts. The municipality then usurps this fray, which demands to know why people have not been paid.
You see, because this is an ownership trust the trustees can decide that from the R10m they receive every year, they want to divide it among 10,000 community members in cash payments. Alternatively, they could build houses for a select few and pay for fees. They could also buy cars or groceries if they wish; this is particularly useful during election season.
These ownership trusts are conduits for funds from the project company to the local community. Without adequate governance, such as experienced local trustees or submission of financials, the money is often unaccounted for. The trusts are also administered from Johannesburg, while they are meant to serve rural and remote communities, creating costly logistical and communication challenges.
An overhaul of these community trusts is urgently needed. I’m often tempted to parrot the success of the Royal Bafokeng model as the blueprint for community ownership. Still, lacking the context of the immediate needs of people living in Kakamas or De Aar, this is when I’m told “It’s their money”. A pressing concern remains: what happens when these contracts conclude and the flow of millions ends?
• Mashele, an energy economist, is a member of the board of the National Transmission Company of SA.
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