OUTA files legal challenge to overturn NERSA’s Karpowership licences
NERSA failed to act in the interests of South Africa, failed to provide adequate reasons and failed to consider that the Karpowership 20-year “emergency” contracts will not resolve loadshedding but will instead tie South Africa to an expensive long-term contract.
OUTA files legal challenge to overturn NERSA’s Karpowership licences
The Organisation Undoing Tax Abuse (OUTA) has filed an application for the review and setting aside of the decisions by the National Energy Regulator of South Africa (NERSA) to grant the three Karpowership independent power producer (IPP) generation licences.
OUTA’s application was filed in the Pretoria High Court on Tuesday 26 April. The respondents are NERSA, four Karpowership companies, the Minister of Mineral Resources and Energy, the Minister of Forestry, Fisheries and the Environment, and Eskom. The Karpowership companies are Karpowership SA (the holding company) and its wholly owned subsidiaries Karpowership SA Coega, Karpowership SA Saldanha Bay and Karpowership SA Richards Bay. OUTA’s action is directed against NERSA, while the other parties are cited due to their interest in the matter.
This is an application in terms of the Promotion of Administrative Justice Act.
The application is supported by an affidavit by OUTA Executive Director Advocate Stefanie Fick and a confirmatory affidavit from a specialist consultant supporting the views on the negative economic impact and lack of consideration of far more viable alternatives.
“It is submitted that NERSA has displayed a cavalier attitude towards statutory compliance and public concerns throughout its decision-making process to award generation licences to Karpowership. By doing so, it has failed to properly exercise its mandate in terms of the ERA [Electricity Regulation Act] and fulfil its oversight functions of regulator without the necessary independent checks and balances to ensure that the interests of electricity suppliers are balanced with the interests of customers, the public and the South African economy,” says Advocate Fick in the affidavit supporting the application.
“The decisions to award the licences to Karpowership for generation at Coega, Saldanha Bay and Richard’s Bay respectively were irrational, unreasonable, and taken without regard to relevant considerations or with regard to irrelevant circumstances.”
OUTA believes that the normal public procurement processes for new generation capacity and private procurements by electricity customers themselves are now overtaking the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP), the so-called “emergency” process.
What OUTA is asking the court
OUTA is asking the high court to review and set aside NERSA’s decisions to award generation licences to the three Karpowership IPPs, and order NERSA to reconsider these decisions.
Fick’s affidavit supporting OUTA’s application includes these points:
· NERSA’s decision-making was procedurally unfair. The process was premature and lacking in transparency, with significant portions of the licence applications redacted.
· The law requires that NERSA acts in the best interests of the country, but OUTA believes that NERSA has failed to do so. The Electricity Regulation Act, which empowers NERSA to issue the licences, requires a fair balance between the interests of customers and end-users, licensees, investors and the public. The National Energy Regulator Act requires that every decision by NERSA be “in the public interest” and “based on reason, facts and evidence”. This Act also provides for the judicial review of NERSA decisions in terms of the Promotion of Administrative Justice Act.
· NERSA granted the generation licences for the Karpowership IPPs prematurely, without the relevant facts before it, and conducted the public participation process without providing the public with the necessary facts on which to comment, including pricing aspects. “The lack of transparency points to a decision that was procedurally unfair as the public was not informed of and able to comment on and submit relevant facts and evidence to NERSA on the costs involved over the next 20 years,” says Fick.
· In its reasons for the decisions, NERSA failed to provide a meaningful response to the public concerns and objections, effectively undermining the public participation process. Instead, NERSA “simply brushed aside” the public objections, says Fick.
· In August 2021, OUTA made a formal submission to NERSA objecting to the granting of generation licences to the Karpowerships. Many of these objections still stand and have not been addressed.
· At the time when the applications for generation licences by the Karpowership IPPs were considered by NERSA, the regulator did not take into account that the Karpowership IPPs failed to meet certain legal and regulatory requirements, including NERSA’s own prescribed requirements for generation licence applications to be considered. These include failure to obtain environmental authorisations, port authorisations, water licences, emissions licences, waste management licences, various gas infrastructure construction, operating and trading licences, fuel supply agreements and power purchase agreements.
· NERSA’s lack of transparency on the financial information raises concern about the effect on the public. “It failed to deal with the issue of price variation in circumstances where prices over the next 20 years will be dependent on the US dollar price. This causes uncertainty and may come at tremendous costs for the South African public,” says Fick.
· NERSA appeared to prioritise the interests of the Karpowership IPPs over the public. Fick says that “it is of great concern that NERSA, a South Africa public body using public funding, expresses concern about the financial affairs of a private Turkish majority-owned company, thereby creating the distinct impression that the financial well-being of Karpowership should enjoy preference above that of the South African public.”
· Eskom has not signed power purchase agreements with the Karpowership IPPs and there is no certainty that it will do so, which is an important factor when considering the granting of generation licences.
· Despite the DMRE having repeatedly extended the deadline for RMIPPPP preferred bidders to obtain the requisite regulatory approvals and authorisations necessary for financial closure, the Karpowership IPPs have still failed to provide these.
· NERSA accepted the “plans” by the Karpowership IPPs to comply with environmental legislation as actual compliance.
· NERSA failed to take value-for-money considerations into account, including consideration of more cost-effective options.
Fick’s affidavit refers to input from OUTA’s independent consultant:
A soundclip with comment by OUTA's Advocate Stefanie Fick is here.
A podcast with an interview with OUTA’s Adv Fick and OUTA Legal Project Manager Brendan Slade by OUTA’s Ilse Salzwedel is here.
OUTA's media briefing on 28 April on this action is online here.
Background on OUTA's objections to the Karpowerships deal is here.
The court papers