You are currently viewing our desktop site, do you want to download our app instead?
Moneyweb Android App Moneyweb iOS App Moneyweb Mobile Web App

NEW SENS search and JSE share prices

More about the app

Part 2: Are powerships right for SA?

Yes, says the DMRE and its Independent Power Producer office …
A barge stationed alongside a powership used for fuel storage. Image: Supplied

This is the second in a series of three interviews that explore the rationale, outcomes and some of the details around the recently announced Risk Mitigation Independent Power Producer Procurement (RMIPPP) programme.

The first interview can be read here.

In this second interview, Chris Yelland seeks to clarify some of the particular issues around the projects awarded to Turkish company Karpowership with Department of Mineral Resources and Energy Deputy Director-General, Jacob Mbele and Independent Power Producer (IPP) Office acting chief operating officer Maduna Ngobeni.

Chris Yelland: Government has been adamant that power projects should contribute to local manufacturing, localisation and jobs. 1 220MW (megawatts) of the 1 845MW of the RMIPPP programme to date (i.e. about two thirds) is from a single company, Karpowership. Where are these powerships manufactured and constructed? What is the local content of this major portion of the RMIPPP programme? Are these powerships and floating storage and regasification units (FSRUs) simply rented from foreign owners?

Maduna Ngobeni: We do not have information at our disposal as to where the powerships and FSRUs are manufactured. Indeed, we don’t actually consider where they are manufactured. What we look at is the local content.

In terms of the law, a ship is an item designated by the Department of Trade, Industry and Competition (dtic) for local manufacture in South Africa. However, the dtic has considered whether the powerships and FSRUs can be manufactured here, and has granted them exemption from compliance with South Africa’s local content requirements.

Furthermore, the powerships and FSRUs that form part of the Karpowership bid are leased, and such lease costs are not considered in calculating local content – we look at other elements that can be done locally, and we use these to calculate the local content.

So, based on what can be done locally – which excludes the powerships, FSRUs and imported LNG fuel – something like 63% of the remaining costs spent on preparing the ports, berths, connections to the grid and maintenance of the powerships and associated equipment will be the local content.

Jacob Mbele: It should be noted that the local content exemption granted by the dtic for the powerships and FSRUs was on condition that the maintenance, repair and overhaul of the ships is done in South Africa. Over the period of this project, substantial economic benefits arise from this.

Yes, the significant majority portions of the Karpowership projects are imported, but they do comply with the requirement that 49% of the local IPP operating entities are South African owned, and that 30% of this local ownership is in Black hands. We must look at ownership holistically. The Karpowership projects are not simply what one may call ‘Turkish owned’.

Chris Yelland: How does the leasing of 1 220MW of imported gas-to-power capacity from Karpowership, and the imported LNG required to operate this at a capacity factor of about 60 to 70% for 20 years, align with a just energy transition towards a low carbon future, that contributes to local industrialisation, manufacturing, localisation, jobs, skills development, reskilling and social development of workers, their families and their communities in the depressed coal mining areas of Mpumalanga and KwaZulu-Natal?

Maduna Ngobeni: With the introduction of renewables and battery energy storage, which are not necessarily the cheapest options, we still need to balance the system, and, at the moment, gas comes up as the one of the cheaper options.

Once we have FSRUs at the ports, we will have the opportunity to bring in LNG, and we can then start an engagement on how we can utilise these facilities, and the gas, in other sectors of the economy. So I think this is a good start, with infrastructure that can be used as a stepping stone for the country.

There is talk of running out of gas through the existing pipeline from Mozambique. Perhaps this new infrastructure could be used to feed gas into the pipeline. This was not part of the bid, but it’s something that can be looked at, should the need arise.

The new gas supply infrastructure also opens discussions on the possibility of repurposing old Eskom coal-fired power stations to operate on gas, in the areas where there are concerns about the decommissioning of the old coal-fired power plants.

From a maintenance perspective, there is also a commitment from Karpowership that all the maintenance of will be done in South Africa, meaning that there will be local job opportunities created during operation.

Jacob Mbele: Chris, we also need to compare apples with apples. If we move back a few years, when we started with renewables, there was no local manufacturing industry to speak of.

If we are about to start a gas industry in South Africa, we have to appreciate that we’re not going to manufacture everything locally from day one. We’re going to have to start from scratch, and initially obviously rely on international suppliers.

Similarly, on the fuel side. Yes, we currently don’t have gas in South Africa. But there are explorations that are happening, and there are findings. It is likely that, in the future, the gas for these powerships will come from local fields.

When local gas becomes available, I can see a situation where this local gas will become the cheapest option, because it will be sourced closest to where it will be required and used. So, we should not look at this with a static frame, but in a broader sense.

Chris Yelland: How does the procurement of energy from 1 220MW of gas-to-power from Karpowership, operating at a capacity factor of about 60 to 70% for 20 years, align with South Africa’s climate change commitments in terms of the Paris Agreement, and South Africa’s nationally determined contribution in respect of carbon emissions? Is the DMRE tying the hands of the Minister of Environment, Forestry and Fisheries at COP 26, and prejudicing other carbon emitting industries in South Africa?

Jacob Mbele: South Africa is a signatory to the Paris Agreement, and has submitted its national contributions to the reduction of carbon emissions. Insofar as the energy sector is concerned, South Africa had adopted a peak-plateau-decline commitment.

Emissions will peak as we complete Medupi and Kusile [power stations], plateau for a while, and then decline from about 2025 as we decommission some of the old coal-fired power plants, and replace them with cleaner energy forms. There will, of course, still be emissions, but we’re going to curb them, and cannot necessarily eliminate them.

Even as we include gas-to-power going forward, as well as the much criticised 1 500MW of new coal-fired power in terms of the IRP [Integrated Resource Plan], our projections show that emissions will remain well below the peak-plateau-decline commitments South Africa has made in terms of the Paris Agreement.

The gas-to-power we are now procuring in terms of the RMIPPP programme will actually displace coal-fired power that is not necessarily being decommissioned right now. So emissions will reduce as less coal is burned, because the burning of gas is cleaner and has lower emissions than that of coal.

So, it’s not correct that this is tying the hands of the Minister of Environment, Forestry and Fisheries. In the longer term, it is actually facilitating higher penetration of renewables into the grid, and the replacement of the coal-fired power that is creating much of the problems in respect of emissions.

© Copyright 2021 – EE Business Intelligence (Pty) Ltd.

Chris Yelland is managing director of EE Business Intelligence.

COMMENTS   14

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

No, unequivocally no. For 20 years?

“Maduna Ngobeni: We do not have information at our disposal as to where the powerships and FSRUs are manufactured.” What! have you not heard of “due diligence”?

So the incentive for locking us up in a 20 year contract is that it will create jobs in the servicing and maintenance of the plants? Why couldn’t you create jobs elsewhere? Oh wait! Because you are useless.And considering that you, the ANC, have not been able to do this efficiently with the coal-fired plants, what guarantee is there that you will do any better here?

This would put SA in the same bracket as other failed sates that cannot generate their own energy like: Ghana, Senegal, Gambia …

Could there be an incentive in the comment …”30% of this local ownership is in Black hands”?

Sigh …

The brown envelopes were very heavy with this contract !! Follow the maaney !!

Precisely!

Considering the track record of Luthuli / Chancellor House with Hitachi and no doubt others, will there be assurances and proof that no “commissions and consultancies” were paid? Who made the first contact with Karpower? What terms were discussed?

In my previous life in business, these are the first questions asked.

Can MW please indicate who the local legislated 30% BEE partner is (that group of companies)? That may make the picture much clearer why we are using emergency generation ships over a 20 year period at a cost of R 218 bil.

Must be some weird arrangement.
Two things come to mind…
1) Why does Eskom want to export money?
2)I am sure SA has the capability to do this themselves? Turbines/ Generators on a floating ship/ barge.

Why does South Africa not invest in South Africa????

No backhanders to Luthuli House? I can think of no other explanation. Hopefully this comment is not “moderated” .. MW doesn’t seem to like me mentioning Chancellor/Luthuli House.

I think that the 49% local ownership is much more important than any brown envelopes. I would really like to know how the 49% ownership affects the electricity pricing. Hopeful it is not going to be as blatant as dentists selling diesel to Eskom. Any middlemen result in profits to people for no real service being rendered and the cost of the product increasing significantly.

I note that you are holding back my valid, considered comments this article “for moderation” yet again. And I’ve just renewed my subscription. Why should I bother?

If you are a paying subscriber and MW hold back you comments and they are not racist then they should not hold back your comments or they should at least return your subscription. I don’t know why MW sanitise comments

HERE’S THE COMMENT- LET’S SEE IF THEY POST IT:

No, unequivocally no. For 20 years?
“Maduna Ngobeni: We do not have information at our disposal as to where the powerships and FSRUs are manufactured.” What! have you not heard of “due diligence”?
So the incentive for locking us up in a 20 year contract is that it will create jobs in the servicing and maintenance of the plants? Why couldn’t you create jobs elsewhere? Oh wait! Because you are useless.And considering that you, the ANC, have not been able to do this efficiently with the coal-fired plants, what guarantee is there that you will do any better here?
This would put SA in the same bracket as other failed sates that cannot generate their own energy like: Ghana, Senegal, Gambia …
Could there be an incentive in the comment …”30% of this local ownership is in Black hands”?
Sigh …

Why are we worried about local jobs when we talk about IPP’S . Without a reliable electricity there will be No Jobs at all !!

I agree wholeheartedly I have always thought that the the electricity IPP process did not place enough emphasis on what is important i.e. the supply of reasonably priced electricity. Instead there were always all sorts of nonsense like localization. They should have got the power systems in 2010 to stabilize the grid and prevent load shedding. If they had done this SA’s growth would have been a lot better.

Yet another government scam in the offing. I wonder what part the Guptas will play in this fraud/money laundering scheme behind the scenes? I wonder how thick the brown envelops are?
We simply cannot trust the Gangster ANC, accompanied by Escam, to make any decisions for S.A.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Podcasts

INSIDER SUBSCRIPTIONS APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING PORTFOLIO TOOL CPD HUB

Follow us:

Search Articles: Advanced Search
Click a Company: