- WHAT are KARPOWERSHIPs?
- ISSUES AND CONCERNS
- Karpowership timeline
- April 2022: OUTA's legal challenge
Powerships are barge- or ship-mounted floating power plants. They are supplied with gas from floating storage and regasification units (FSRUs), which in turn are supplied with imported liquified natural gas (LNG) from international suppliers on purpose-built LNG carriers. The powerships and FSRUs would anchor permanently in the three harbours – Coega, Saldanha Bay and Richards Bay – for the duration of the planned 20-year contract.
The LNG is subject to international prices. With the unfolding crisis in Eastern Europe, LPG and oil prices are even more volatile.
There is no fixed infrastructure offered by floating powerships, aside from shore-based terminals which then connect to the national electricity grid. Such terminals are usually owned by the host country, but this is not always the case.
The noise from the Karpowerships has an impact on marine life. There is also hot water issues as the cooling water from the power barge is discharged into the sea.
The regasification units also use water from the sea to heat up the liquid gas to gas, and so cold water will be discharged from that vessel, leading to patches of hot and cold water, which may also affect marine life.
The Karpowership independent power producers are private entities, owned 51% by the Turkish energy company Karadeniz Holdings and 49% by the South African company Powergroup SA.
The only means for Eskom to have access to the electricity generated by Karpowership (and then distribute it through the grid) is through power purchase agreements.
Karpowership is not the solution. If we proceed with that option, that will mean South Africa is tied to the agreement for 20 years. Karpowership buys gas (to generate electricity) in US dollars, and the dollar-rand exchange rate fluctuates. So South Africa will be tied financially to whatever the rate is.
If the agreement falls through, Karpowership can simply pack up and leave, leaving South Africa with no infrastructure to generate electricity (though we would have spent a lot of money by then). At the time when the preferred bidders were nominated, the reasoning was that the power ought to be procured as a matter of urgency. The emergency has since passed, yet Karpowership is STILL on the table.
NERSA's process of licencing the Karpowerships has been flawed by a lack of transparency.
OUTA finds it inexplicable that NERSA granted the Karpowership generation licences while there are so many questions over the process and the Karpowership projects.
On 13 August 2021, OUTA made a formal submission to NERSA, objecting to the Karpowership licences. Our submission is straight forward and sets out why NERSA ought not entertain the application(s) in the first place as many factors and processes are still pending and not yet finalised. We were assisted by energy expert, Chris Yelland. Read the summary and our full submission here.
The concerns we raised include:
• Environmental authorisations were been refused by the Department of Forestry, Fisheries and the Environment (DFFE);
• An internal appeal process by Karpowership is still underway challenging the decision by DFFE;
• The absence of fuel supply agreements;
• The absence of fuel pipeline licences;
• The absence of port authorisations;
• Eskom has not agreed to enter into power purchase agreements;
• There is a possibility of appeal proceedings in the DNG court case challenging the bid awards.
The Karpowerships are to be anchored in Richards Bay, Saldanha Bay and Coega, and are supposed to between them provide 1 220 MW using gas to power plants with additional vessels with floating storage and regasification plants. At prices when the deal was agreed, the 20-year deal could cost up to R218bn.
However, as the deal will be linked to the international gas price, this price is going to rise. As with all power plants, the loans need to be repaid and the costs will be passed on to the people of south Africa through our electricity tariffs. OUTA foresees that the only means for our government to finance such venture is for this load to be carried by the consumer – meaning that we will see even greater electricity tariffs in order to fund this.
18 February 2020: the Minister of Mineral Resources and Energy issues a Determination on the need to procure 2 000 MW of generation capacity from a range of energy technologies, through the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP).
25 May 2020: The National Energy Regulator of South Africa (NERSA) concurs with the Minister's Determination.
June 2020: Karpowership is awarded an exemption from having to undertake an environmental impact assessment, under an emergency provision, but in August this is revoked and the Green Scorpions start a criminal investigation into an attempt to bypass the law.
7 July 2020: The Determination is gazetted, with a deadline for connection to the grid of December 2021. The procurer of the new generation capacity is the Department of Mineral Resources and Energy, and the buyer is Eskom.
24 August 2020: DMRE issues a Request for Proposals for new generation capacity under the RMIPPPP, with commercial operation required by June 2022, and 28 bids are submitted. See here.
30 September 2021: DMRE’s extended deadline for RMIPPPP regulatory processes.
3 February 2022 : OUTA writes to NERSA and complains about the botched public participation process on the Karpowership gas licence applications, seeking clarity. OUTA's letter is here. No response was received from NERSA.
31 March 2022: DMRE’s further extended deadline for RMIPPP regulatory processes; an indefinite extension is now in place.
26 April 2022: OUTA files an application in the Pretoria High Court to review and overturn NERSA’s decision to award generation licences to the Karpowerships.
OUTA applies to the high court to overturn NERSA's decisions to licence the Karpowerships
On 26 April 2022, OUTA 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. 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.
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.
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.
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.
“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 OUTA’s Advocate Stefanie Fick in an 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.”
Fick’s affidavit supporting OUTA’s application includes these points:
On 28 April 2022, OUTA announced the legal action against NERSA over the Karpowerships licence decisions. A link to the media briefing on this is here.
The court papers
The notice of motion is here.
The founding affidavit by Adv Stefanie Fick is here.
The annexures are here: Annex FA1, Annex FA2-4, Annex 5, Annex 6, Annex 7-11, Annex 12-14, Annex 15-17, Annex 18.