Africa's Public Procurement & Entrepreneurship Research Initiative – APPERI


Mail & Guardian

South Africa: Rush for renewable energy

Mail&Guardian Online

By Lynley Donnelly

April 20th, 2012

Billions of rands of investment are flowing into South Africa as a result of the government’s plans to move towards renewable energy. The rush is a boon to South Africa’s nascent renewables market and major companies from across the globe are partnering in the first round of the independent power producer procurement programme for renewable energy. 

But the test, according to experts, will be in how the market develops once projects begin delivering power in an environment in which complicated ownership structures are becoming a key feature of the companies emerging as the forerunners.

In December, the 28 preferred bidders in the state’s independent power producer procurement programme were announced and the second round of bidding closed in March. The first 1 451 megawatts allocated out of a total 3 725MW were divided across wind, solar photovoltaic and concentrated solar power. By June 19 the first-round bidders will be expected to complete financial closure on their projects and begin construction (see “The Players”).

Gareth Blanckenberg, energy and power systems research analyst at consultancy Frost & Sullivan, said although the ownership of the bidding companies was complicated because of the structure of the various consortiums, many large international renewables players linked to these projects were becoming active in South Africa.

The ownership structures were complicated for two reasons, he said. Firstly, the local-content requirements had resulted in many larger international companies partnering with local companies and communities. Secondly, the cost of investing in renewables was expensive and required a lot of equity.

Considering that renewable energy is a fledgling industry, the scale of investment, at this stage estimated to be at least R50-billion, is highly significant, according to Greg Nott, director at Werksmans Attorneys. “We are seeing immediate growth in a very short period of time,” he said, and the entire scope of the country’s economy would be affected by this development, from grassroots and community levels upwards.

The procurement process had attracted the interest of international groups, finance houses, manufacturers and development finance institutions. Renewables development had “many moving parts” across a range of sectors in the economy and as such invited careful scrutiny, Nott said. A test of our emerging renewables sector would be to see how these new companies operated, given the complex nature of their structures.

“The fundamentals of good business practice, such as creating good cash flows and maintaining good governance and operating performance will have to remain a focus.”

Nott said there was a great deal of interest in establishing manufacturing capacity in South Africa, particularly from China in terms of solar photovoltaic power. This was in addition to interest from companies in Scandinavian countries and the European Union, which had a longer history in renewable energy and manufacturing.

But there was substantially bigger interest from more traditional partners in the realm of engineering, procurement and construction, Nott said. In addition, companies were seeking to “root themselves here” ahead of expected future growth and to take advantage of opportunities in the rest of Africa. The potential for local manufacturing was in large part thanks to government requirements for local procurement and economic development.

Among the challenges to maintaining the growth of the renewables sector locally was to ensure that the market was not treated in isolation from economic developments around the globe, said Nott. “We can’t see ourselves as an island.”

Because a number of investors hailed from Europe, which is beset by a sovereign debt crisis, threats of ratings downgrades for countries in the EU would have an impact on any investors from these countries, said Nott. Another key challenge was the government’s capacity to regulate the industry and develop and adapt policy to ensure it could function.

This assertion was echoed by Michael Bean of professional services firm Step Strategic Venturing. He said the industry was still highly regulated, which made it difficult for smaller companies to enter the market as more than merely service providers to larger firms. It was critical that regulatory practices and processes were managed properly and operated smoothly, particularly because more independent power producers were expected to come on stream.

Just as important was how the country’s grid coped with a more diverse set of power suppliers, which were expected to increase dramatically in the coming years to meet South Africa’s energy shortage. The entrance of independent power producers into the market meant improved technologies were needed both to allow and account for the power that would be flowing back into the grid from a more widely distributed set of power generators, Bean said.

Money still guesswork
The amount of money that will be spent to establish green power in South Africa has been estimated at a possible R120-billion, as reported by the Mail & Guardian in February.

The Integrated Resource Plan 2010 allocates about 17 800MW to renewable energy in the next 20 years.

Frost & Sullivan’s Gareth Blanckenberg said it was difficult to quantify just how much money would be invested in renewables. The plan was still subject to review and the prices of renewable technologies would decrease in coming years. Simultaneously, fossil fuels such as coal might become subject to carbon taxes in a bid to mitigate climate change.

Blanckenberg cited research done by consultancy firm Black & Veatch for the United States-based National Renewable Energy Laboratory, which priced the installation of utility-scale onshore wind at $1 980/kW and at $2 830/kW for photovoltaic power solar for installations of more than 10MW. The numbers did allow for a 25% uncertainty rate.

But, based on these numbers, a very rough estimate brought the allocations for wind and solar photovoltaic power alone to investments of $133-billion and $190-billion respectively.

However, the manufacturing and installation costs of these technologies are declining all the time. According to Jochen Magerfleisch, chief operating officer of Juwi Renewable Energies, the cost of solar installations has dropped by 50% over the past year. “In the last three years we have seen a dramatic decrease in the cost of renewables.”

This is in part thanks to the increase in production and economies of scale as demand for green energy increases.

Magerfleisch said South Africa’s local-content requirements were sensible, but the global supply for items such as solar modules was twice the demand — a factor the country had to bear in mind when making decisions about establishing manufacturing capacity locally. — Lynley Donnelly

The players
Licence hearings held by the National Energy Regulator of South Africa in March shed some light on South Africa’s green boomers and the trend towards a range of ownership consortiums was clearly evident.

The largest of the projects is the 135MW Cookhouse wind farm being developed by African Clean Energy Developments, 50% of which is held by African Infrastructure Investment Managers, a joint venture split equally between Macquarie Africa and Old Mutual Investment Group South Africa.

The other 50% is held by African Power Corporation, a Mauritius-registered company incorporated for the sole purpose of its investment in the consortium.

Apart from financing supplied by Nedbank, Standard Bank and the Industrial Development Corporation (IDC), key partners include Indian-based wind turbine manufacturer Suzlon, listed on the National Stock Exchange of India and the Bombay Stock Exchange.

But African Infrastructure Investment Managers is also a partner in the Hopefield wind farm being developed by Umoyo Energy in the Western Cape. The project is among the top 10 bidders in the first round and promises a R1.5-billion investment. According to its presentation, Umoyo’s shareholders consist of funds managed by African Infrastructure Investment Managers, including the Kagiso Infrastructure Empowerment Fund and the Infrastructural Developments Environmental Assets Fund, a Nedbank investment arm, as well as grassroots entities such as a company owned by the Hopefield wind farm local community.

The second-largest project is the Jeffreys Bay wind farm being developed by South African Mainstream Renewable Power. The company is a joint venture between the local arm of Mainstream Renewable Energy and home-grown Genesis Eco Energy.

Mainstream is a well-known Ireland-based renewable energy development company. Its South Africa arm is also involved in two of the other preferred bids, both for solar photovoltaic power installations in De Aar and Kimberley in the Northern Cape.

The third-largest of the bids is the 100MW concentrated solar plant being developed by the KaXu Solar One Consortium in Pofadder. Spain-based renewables company Abengoa Solar owns 51% of the company, according to its presentation, the IDC owns 29% and the remaining 20% is owned by a community trust.

Between the KaXu project and a second one — the 50MW Khi Solar One project in Upington — Abengoa will be committing R10-billion in investment.

Other preferred bidders include the 28MW Soutpan Solar Park being developed by Erika Energy in the Waterberg in Limpopo. The holding company’s shareholders are Astronergy Solar Korea, a subsidiary of China-based Chint, and the United States-listed Monsanto Electronic Materials Company.

South Africa: Transnet finds R6bn in irregular pipeline spending

Mail&Guardian Online

By Lynne Donnely

March 16, 2012

Irregular expenditure on contracts relating to Transnet’s new multi-product pipeline amounted to an estimated R6.2-billion, it was revealed in Parliament this week. 

At a hearing by Parliament’s standing committee on public accounts (Scopa) the parastatal revealed that two contracts for engineering, procurement and contract management services on the controversial pipeline contributed a major share of the total of R8.3-billion of irregular expenditure disclosed in the company’s 2011 annual report.
The pipeline has been fraught with controversy because of delays and cost escalations, which increased from the originally budgeted R9.5-billion in 2006 to R23.4-billion now.
Full completion was intended for the first quarter of 2011 but was delayed until 2013, although certain sections have since become operational.
Rising costs and time delays prompted Public Enterprises Minister Malusi Gigaba to launch an independent review of the project.
The review, which is expected to be released next week, included three independent reports on the governance, engineering and project management aspects of the pipeline, as well as an independent legal opinion.

Pipeline tariffs affect petrol prices
The increases have also had an impact on pipeline tariffs as costs for the infrastructure are recouped. This in turn has an impact on petrol prices for South African commuters.
On Thursday the National Energy Regulator of South Africa announced a 22% increase in the pipeline tariff, which is expected to cause a 4c per litre hike in the petrol price.
The company’s acting chief financial officer, Anoj Singh, told Scopa that three contracts for procurement and management services totalling R6.57-billion were deemed irregular.Of these, one contract for services valued at about R300-million was unrelated to the pipeline. The contracts had been concluded in 2004-2005 and 2006-2007.

He said, however, that in all three cases Transnet had received value for money on the contracts, even though procurement procedures had not been complied with.

For this reason, the contracts were not classified as fruitless or wasteful expenditure.

Contracts awarded without following procedure
The first contract for the pipeline was awarded after an individual without the delegated authority signed the agreement. The second was deemed irregular after it was found that internal policies and procedures had not been followed because internal controls in awarding the contract were not applied. But this was in the first stages of the pipeline project, said Singh, and contributed the smallest amount to the combined pipeline irregular-expenditure total of R6.57-billion. He could not tell the committee the individual worth of pipeline-related contracts…Read more.

Texas oilman is at it again — now with Zuma

Mail&Guardian Online


February 17, 2012

A Nigerian-American oilman, who has become a major backer of President Jacob Zuma, paid R50-million to a wanted Congolese warlord in an illegal gold deal, according to the United Nations.

A UN expert group monitoring compliance with arms sanctions in the Democratic Republic of Congo has identified Kase Lawal, who heads the second-largest black-owned business in the United States, as the financier of the deal. Lawal persisted with the deal even after being told the warlord was the seller, the panel has claimed.

But the transaction imploded last February when security agents in the eastern DRC arrested Lawal’s half-brother and some associates, confiscating the gold they had just bought. Lawal and Camac, the oil and gas group he heads, tried to distance themselves from the events at the time, suggesting it was really one of the associates’ deals.

It was just seven months later, in September last year, that Lawal took pride of place next to Zuma in Houston when Lawal’s alma mater, the Texas Southern University, awarded Zuma an honorary doctorate. Lawal appears to hold some sway at the university — he became its largest alumnus donor in 2009 by pledging $1-million, after which he, too, received an honorary doctorate.

At Zuma’s award ceremony a partnership was announced between Camac and Zuma’s charitable foundation, the Jacob G Zuma RDP Education Trust, in terms of which the company would sponsor beneficiaries of the trust to study at Texas Southern and another Houston university. That, the trust confirmed to the Mail & Guardian, came on top of a five-year, R1-million-a-year Camac endowment to the trust, effective from 2010.

Zuma founded the trust in the 1990s when he was a KwaZulu-Natal MEC. The trust’s website says it is supporting 1 200 young people to get an education…Read more.

South Africa: Union says Prasa boss went off the rails


By Charles Molele

February 10, 2012

Lucky Montana, the group chief executive of the Passenger Rail Agency of South Africa (Prasa), has been accused of tender irregularities amounting to more than R1-billion and organising an unauthorised trip to Cape Town for his friends and associates. 

The damning allegations against Montana are contained in a dossier seen by the Mail & Guardian, which was compiled by the South African Trade and Allied Workers’ Union (Satawu).

Although it has not been proved that Montana has committed any wrongdoing, the union has demanded that he be suspended pending an independent forensic investigation because it believes he might interfere with an internal investigation.

According to the dossier, Montana allegedly went on a joyride to Cape Town with 10 female companions in September 2009 on a Premier Classe train and returned to Johannesburg by air. The trip is said to have cost R170 000.

Montana is also alleged to have awarded Siemens an R800-million tender in 2009 for passenger communication systems that was advertised only in Gauteng but awarded nationally. The dossier further alleges that he awarded another R800-million contract to Rainbow Construction for Doornfontein station in Johannesburg, but it was extended to other stations without following proper tender processes.

The union claims Montana also awarded celebrity consultant Ezra Ndwandwe R10-million as a change management consultant without following procurement policies. Ndwandwe said on Thursday there was nothing untoward in his remuneration and that he had delivered on his mandate…Read more.

South Africa: ‘No more cash-cow contracts for clueless comrades’

Mail&Guardian Online

September 22, 2011

The days of the department of public works being run like a “cash cow” are over, minister Gwen Mahlangu-Nkabinde said in Sandton on Thursday. 

Contracts are given to people who don’t even have a clue what they are supposed to do,” she told delegates at the Engineering Council of South Africa’s summit.

There were roads and bridges falling apart around the country, and of the 41 departmental contracts reviewed by the Special Investigating Unit, all were found to be non-compliant.

It’s a shame. I am paying for buildings that are falling apart. Many are not being used, or maintained. They are just empty.”

Mahlangu-Nkabinde took office on October 31 last year, succeeding Jeff Doidge.

She said: “When I got into public works, I discovered it was just a cash cow.”

In two separate reports this year, Public Protector Thuli Madonsela held her and national police commissioner Bheki Cele responsible for a R500-million and R1.1-billion lease agreement with businessman Roux Shabangu for police office space in Pretoria and Durban.

She found the leases were concluded in an unlawful and improper way. Madonsela criticised the department for going ahead with the deals, in spite of legal opinion to the contrary and an earlier agreement that this would not happen until the public protector had completed her investigation.

Without referring to the lease controversy, Mahlangu-Nkabinde said: “We have created a lot of millionaires who do not care what happens to this country.

“I am interfering in areas where previous people were comfortable, but I am not in it for myself, I am in it for the country and for the years to come.

I want to remain an unpopular minister, because I will not give a ‘comrade’, who has no clue what he is doing, government projects.”

In the past weeks, her department announced it had already found R3-billion worth of tender irregularities in response to recommendations made by the protector…Read more.

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