GWEDE MANTASHE, the mineral resources and energy minister and the man in charge of power generation, is widely known for his open support of power ships, but a few new voices have recently joined his chorus.
Last weekend, Deputy President Paul Mashatile told an audience in East London that people “should not be surprised if you see some ship not far from here. We have to do it to keep the lights on."
This echoes President Cyril Ramaphosa's remarks in parliament on May 12 that power ships could immediately alleviate the electricity crisis but non-governmental organisations have prevented that happening through court cases. He elaborated on how other African countries have deployed the ships for immediate power supply and emphasised that he believes it is the right thing to “add megawatts now".
On Tuesday afternoon, Rudi Dicks, head of project management in the Presidency and secretary of the National Energy Crisis Committee (Necom) — the presidential committee tasked with ending the energy crisis — said Necom is discussing the duration of the power ships' deployment. Electricity minister Kgosientsho Ramokgopa is in talks with Karpowership about it, Dicks said.
Ramokgopa himself created the impression on Tuesday morning that the power ships are a done deal. In an interview on Radio 702, he said the contract would be for between three and five years, not the 20 years that Mantashe advocates.
According to Ramokgopa, the government is willing to renegotiate and even expedite the Karpowership process. “If you can renegotiate affordability within the specified timeframes, there is no reason why we can't do it … The contract duration and what we pay for it will be made public," he said.
But why is the government now willing to be open about the costs when so far it has been an uphill battle to obtain this information? On April 26 last year, the Organisation Undoing Tax Abuse (Outa) brought a court application to compel the National Energy Regulator (Nersa) to set aside the three Karpowership generation licences. On January 23 this year, it had to ask the court to compel Karpowership and Nersa to disclose records relating to the licences, including the costs. (The court has not yet decided on this.)
Stefanie Fick from Outa says the organisation would welcome transparency about the costs. “Transparency is the key to accountability, and it is in the public interest to know." However, Fick warns that it is not just for the purpose of renegotiation. “The government must realise it is not that simple. The entire bidding process will likely have to start from scratch."
It's not only Outa and other South African critics who think it is irrational to invest billions in ships that can simply raise anchor and sail away with bags full of money. In research funded by the World Bank in 2020, the duration of the “emergency power" contract in Lebanon (eight years) and the high rates paid to Karpowership also came under scrutiny.
The conclusion was that it probably would have been cheaper for Lebanon to invest in permanent infrastructure than continuing to pay high use-or-pay fees which meant it had to pay for the power whether it used it or not. Given its international history, we can assume Karpowership is trying to push the same terms in South Africa.
Fick says Outa will have to reconsider its stance if the contract is shortened. “If it makes sense for South Africa, we won't object. But South Africans are already paying sky-high electricity rates, and increasing them further just because the government is determined about the ships is unfair and irrational. If the contract is still irrational, in our view, we will continue to fight for the rights of all South Africans."
And if the energy being invested in promoting power ships could be directed to stop corruption and sabotage at Eskom, Fick believes we would see a reduction in load-shedding within six months or a year in any case.
How much will it cost?
The decision to turn to the courts was not taken lightly, says Fick. “We know the country has an energy crisis, but a 20-year contract and this expensive technology are not the best solution. Karpowership purchases its gas in US dollars. Not only has the price skyrocketed due to the Russian invasion in Ukraine, but we have all seen what has happened to the rand in the past few weeks. It is naive to think the price will remain the same over the next two decades."
There is limited information in the public domain about the Karpowership contracts. We know the bid prices at which they were awarded: R1.36/kWh in Coega, R1.39/kWh in Richards Bay, and R1.62/kWh in Saldanha. However, Mantashe has said at least three times since January that the price will be R1.34/kWh over the next 20 years. (He makes no mention of it increasing due to exchange rates or gas prices, which will inevitably happen.)
The entire procurement process has attracted a lot of criticism, not only due to allegations of irregularities but also because of the speed at which it was conducted (only 13 months from ministerial determination to the announcement of the eight preferred projects).
Karpowership secured three contracts for the supply of 1,220MW of the total 2,000MW “emergency power". Nersa granted generation licences for 20 years for a ship at Saldanha (where 320MW will be generated), Coega (450MW), and Richards Bay (another 450MW). It may sound like a lot, but it's actually just enough to save the country from approximately one stage of load-shedding.
Initially, energy experts estimated that the ships would conservatively cost the country R218-billion, but the AmaBhungane Centre for Investigative Journalism warned in July 2021 that they would cost much more. The local subsidiary, KarpowershipSA (which owns a 49% stake), would, according to AmaBhungane's calculations, make a guaranteed minimum of R7.9-billion and a maximum of R11.3-billion per year from the contract. This includes delivery to Eskom and fuel. Karpowership International would receive an estimated R95-billion from rental income alone. However, AmaBhungane's Susan Comrie tweeted on May 19 that their latest calculations show the ships will cost the country at least R595-billion over 20 years. Karpowership did not respond to this calculation.
Impact on the environment
Outa has other objections as well. These include Nersa granting the licences without the ships obtaining environmental approval, the absence of fuel supply agreements and licences for gas pipelines, and Eskom not having entered into an agreement to purchase power from the ships.
Furthermore, the ships did not have permission to dock in any of the three ports — conditional approval was granted only on February 26 this year. This is despite documented objections from Transnet's National Port Authority about the long-term berthing of power ships in Coega due to long-planned harbour expansions. This decision also leaves critics of the power ships wondering why the government is so determined to give the Turkish ships the green light?
The Green Connection, another non-governmental organisation, also filed a high court application against Nersa on April 28, 2022 (two days after Outa), asking for the licences to be set aside. It argues, among other things, that Nersa did not consider the environmental impact or the threat the ships pose to small-scale fishers. There are concerns that fishing resources may dry up due to pollution, noise and warm seawater from the power-generation process. Another objection is that critical information was not shared with communities during public participation processes but was edited out of important documents.
The battle over environmental approval continues unabated, especially after the fisheries department allowed Karpowership to revise and resubmit its environmental applications after initially rejecting them. Green Connection and organisations such as the South Durban Community Environmental Alliance, groundWork, Natural Justice, and the Centre for Environmental Rights question the government's “continued and unwavering support for Karpowerships". They also wonder why the government is willing to “bend over backwards" even though the company has missed so many crucial deadlines.
Furthermore, there is concern about the safety of harbour personnel in the event of fires or explosions in the vicinity of the gas-to-power ships and gas pipelines. (Safety reports are part of the environmental impact assessment and here, too, Karpowership was given the opportunity to revise and resubmit its initially rejected reports.)
Who owns Karpowership?
Karpowership SA is jointly owned by Powergroup SA (49%) and Malta-based Karadeniz Holdings (51%), a subsidiary of Karpowership International of the Netherlands, which in turn is owned by Turkey's Karadeniz family.
The establishment of Powergroup SA, a black empowerment company, raised eyebrows. It was founded three months after the ministerial determination for the acquisition of emergency power on February 18, 2020. Powergroup SA was registered on May 15 2020, with Durban attorney Ravin Rajoo, energy investor Sechaba Moletsane and former banker Sureshan Moodley as directors. Ten days later, all three resigned and they were replaced by new directors. Powergroup SA is owned by four companies. Only two, which together own 65%, have experience in the energy industry.
At least one shareholder with political connections is involved in the four companies. George Mokoena, whose Matlama Resources owns a 20% stake, previously served as an adviser to two ministers of state security: David Mahlobo (2014-2017) and Bongani Bongo (2018). When you look at the dates, names and distribution of shares, you can't help but wonder with the Mail & Guardian if Powergroup SA was specifically created to win the bid.
Adding fuel to the fire
And look who will supply the fuel! The contract for this has been awarded to Shell South Africa, and it's no surprise that one of the ANC's largest donors in 2022, the Batho Batho Trust, has a finger in this pie. Batho Batho, which donated R15-million in cash to the ANC and made a R15-million in-kind donation to help pay the party's income tax debt, owns a 51% stake in Thebe Investment Corporation. This corporation, in turn, owns a 28% stake in Shell Downstream. Read News24's analysis to better understand all these partnerships and Mantashe's advocacy for Shell's exploration on the South African coast.
Corruption and other alarming practices
Karpowership started small in 2011, initially focusing on short-term power supply in cases of urgent shortages, such as after a natural disaster. The fleet grew from five ships capable of generating 785MW, which were contracted to Iran and Pakistan in 2011, to 36 ships that, according to the company website, deliver 6,000MW. Interestingly, the Development Bank of South Africa helped finance one of the ships (deployed in Ghana) with a loan of R100-million.
Looking at the list of current and former clients (Gambia, Ghana, Guinea-Bissau, Indonesia, Iraq, Lebanon, Mozambique, Angola, Senegal, Sierra Leone, Zambia, and planned projects for Cuba and Haiti), there are a few clear commonalities: major power crises, corrupt governments and struggling economies. Large upfront payments and expensive government guarantees are required before power delivery begins, and Karpowership does not hesitate to cut off the power supply if payments are overdue or a dispute arises.
But it's not all sunshine and dollar bills for the Turks. In at least three countries — Lebanon, Pakistan and Brazil — the company has been openly accused of corruption.
In Lebanon, it allegedly paid a commission to a businessman with political ties. Lebanon's public prosecutor launched an investigation and eventually seized two Karpowerships as security for a $25-million fine. In response, the ships halted power generation for a month.
The cancellation of a contract in Pakistan led to a seven-year legal battle. Here, too, there were allegations of $5-million in bribes to businessmen with political ties.
Altar of money and power
My recent podcast interview with Nicole Figueiredo de Oliveira, an environmental activist from the organisation Arayara in Brazil, paints an even darker picture. There are similarities to what is happening in South Africa — such as the government bending over backwards to push the contract through — and valuable lessons about what may await us as citizens.
De Oliveira spoke of broken promises about job opportunities for local people (the company brings its own technicians to work on the ships), the destruction of marine life, and 30,000 people in a fishing village that was once self-sustaining now struggling to survive. And the power crisis was already over by the time the ships were finally connected to the grid.
The contract caused electricity prices to skyrocket, forcing ordinary people to choose between electricity and other necessities. After pressure, a court decision against the ships unexpectedly came up for review.
Equally shocking was the fact that during the recording, De Oliveira had to choose her words carefully because Karpowership and the Brazilian government do not tolerate criticism and don't hesitate to file criminal charges against critics. De Oliveira is facing criminal charges and could even be jailed for her outspokenness about the contracts.
Will we remain silent while allowing the government to sacrifice us on this altar?
♦ VWB ♦
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