Government is not renegotiating IPP contracts – Radebe

Energy minister Jeff Radebe stated clearly on Sunday morning that the South African government is not planning to renegotiate the power purchase agreements (PPAs) with independent power producers (IPPs) in the first two bid rounds of the department of energy’s Renewable Energy Independent Power Producers (REIPP) programme.

This comes after his cabinet colleague public enterprises minister Pravin Gordhan earlier in the week indicated that government might seek to renegotiate the high tariffs agreed upon with the successful bidders in Bid Window 1 and 2.

As the programme progressed the tariffs dropped by an average of 50%, the South African Wind Energy Association (SAWEA) said in a statement.

On Sunday Gordhan’s spokesperson Adrian Lackay confirmed Gordhan’s statement to Moneyweb, adding that the lengthening of the contract terms might be a mechanism employed to reduce the tariffs.

SAWEA responded strongly to Gordhan’s earlier statement saying a renegotiation of the PPA terms “would be a clear breach of contract and damaging to investor confidence”.

Brenda Martin, CEO of SAWEA, said investor confidence in any public-private programme such as REIPP is contingent on government’s consistent, assured application of procurement law.

Investor confidence shaken

While the REIPP programme has been recognised as among the best of its kind in the world, investor confidence was shaken when Eskom caused a multi-year delay by refusing to sign the required power purchase agreements for 27 outstanding projects.

Radebe signed them in April after being appointed to his current portfolio, in line with President Cyril Ramaphosa’s drive to ensure policy certainty and increase investment in the local economy.

Radebe said on Sunday that the REIPP projects were procured in a fair, competitive and transparent manner and there is no need for government to renegotiate the agreements, even thought the first two rounds were “fairly expensive”.

He said the government is however open to requests from successful bidders for refinancing, which could include lengthening the terms of agreements.

Head of the department of energy’s IPP unit Karén Breytenbach added that government is carefully considering lengthening the contract terms because it would mean taking on a higher debt burden. She said the unit has received a few such requests and they are being considered on a case-by-case basis to see what is best for the country and the bidders.

Radebe said government’s long-term energy plan, known as the Integrated Resource Plan (IRP), is going to Nedlac (the National Economic Development and Labour Council) on March 5, and from there it will go to cabinet for approval. He previously said it would be finalised during March, and confirmed on Sunday that he does not expect any further delays. Once this is done, ministerial determinations would be made and REIPP procurement will proceed to the next round.

Breytenbach said her office has never stopped working and is ready to proceed with the stalled bid process for small-scale renewable IPPs as soon as the IRP and ministerial determinations have been finalised.

Deputy director-general Ompi Aphane said the rollout will include the gas-to-power programme and further renewable energy projects, as well as new coal anticipated in the IRP.

‘No conflict’

Radebe denied any conflict of interest regarding his signing of the 27 contracts with IPPs in April. This follows accusations related to investments in renewable energy made by his brother-in-law, businessman Dr Patrice Motsepe, through his company African Rainbow Energy and Power (Arep). He said the agreements were negotiated by an earlier energy minister, Tina Joemat-Pettersson, in 2015/16.

Breytenbach confirmed this, saying Arep never participated in the bidding and only came on board after successful bidder SunEdison went into business rescue. Its six projects were sold to Old Mutual, and Arep bought a stake in the projects from Old Mutual following an extensive competitive programme. She added that accusations of conflict of interest against Radebe and Ramaphosa, who is also related to Motsepe through marriage, are unfair.

Radebe defended the REIPP programme and denied the criticism that it is the cause of Eskom’s financial problems. He said it is a pass-through in the tariff determination, meaning Eskom is allowed to recover the tariffs it pays to IPPs from customers.

He also stated that after the deduction of Eskom’s energy purchases from IPPs, the Ebitda (profit before interest, tax, depreciation and amortisation) margin is positive.

“This points to one thing – [that] Eskom’s financial problems are mostly related to the cost increases, including the increased interest during construction, associated with the delay of the new-build projects Medupi, Kusile and Ingula,” he said.

Radebe said Eskom is not borrowing money to buy the electricity generated by IPPs or to fund the construction of IPPs.

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