Here comes the transmission IPP office

Minister of Electricity Kgosientsho Ramokgopa on Tuesday indicated that government will create a dedicated office for the procurement of private sector participation in expanding Eskom’s transmission network.

The anticipated model for such participation is a build-operate-transfer (BOT) contract, which will see private sector companies build new transmission lines and operate them for a specified period, after which the asset is transferred to the relevant organ of state.

Read: Next big thing: Private investment in SA electricity transmission

It is a model used to finance large projects, typically infrastructure projects developed through public-private partnerships.

The Gautrain is one example of such a contract; it was awarded to the Bombela consortium and comes to an end in 2026 when the train system will revert to government.

Best of both worlds

Ramokgopa said the establishment of the office is aimed at ensuring the procurement occurs with speed and innovation without relinquishing state ownership through the National Transmission Company (NTCSA), which is being unbundled as a subsidiary of the Eskom group.

In establishing the transmission IPP office – which he referred to as the Transmission Project Office – Ramokgopa will follow the example of the IPP office in the Department of Mineral Resources and Energy (DMRE) which has been running the procurement of generation capacity from the private sector since 2011.

The DMRE’s IPP programme was lauded as one of the best in the world, but later rounds were slow to be rolled out and fraught with problems.

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Following the recent conclusion of a memorandum of understanding with Minister of Public Enterprises Pravin Gordhan, Ramokgopa has the powers to lead procurement in the area of transmission – and he is clearly working full steam to get the programme off the ground.

Ramokgopa emphasised that procuring more generation capacity without expanding the grid leads to stranded assets.

Grid constraints mean there is already 2 000MW of “unallocated capacity” sourced in terms of the Renewable Energy Independent Power Producer Procurement (Reippp) programme, and Bid Window 7 – which was opened late last year – will also face huge challenges in terms of grid connection, he said.

The grid is severely constricted in especially the Eastern, Western and Norther Cape regions, where renewable energy resources are best.

Ramokgopa described the transmission crisis as equal to the generation crisis and said it will be catastrophic if not attended to.

“We are not waiting for the crisis to confront us,” he said.

He said the transmission IPP programme will supplement Eskom’s Transmission Development Plan, a rolling 10-year plan that is updated annually.

Eskom’s current plan provides for 14 000km of new transmission lines in the next decade, compared with 4 000km in the previous decade.

The utility has a fully funded plan for the construction of 1 400km over the next three years, but Ramokgopa says it is not enough. The private sector must get involved to increase this to 6 000km.

Funding

He says there is “insatiable” appetite among investors to participate in the transmission IPP programme. This was confirmed at the World Economic Forum in Davos, where one global bank declared its willingness to underwrite the investments. He did not name the bank.

He indicated that either the Industrial Development Corporation (IDC) or the Development Bank of Southern Africa (DBSA) will be central to the financing of the programme.

Read/listen: National Transmission Company’s board will be independent from Eskom’s

He submitted his plan for the funding of the transmission expansion to cabinet late last year, but it was remitted for some adjustment. He indicated on Tuesday that issues around “the legal configuration” of the procurement still have to be finalised, including the funding of the envisaged transmission IPP office.

It must be noted that Ramokgopa’s own portfolio is situated in the presidency and no provision has been made in the country’s budget for his position, which was created by President Cyril Ramaphosa in March last year. His office has so far been funded by the private sector.

At his first briefing for the year about two weeks ago, he said to journalists he may announce the plan “within the next week or two”.

In the meantime, the long-awaited appointment of the board of the NTCSA has been finalised and Ramokgopa indicated that he must engage with the board first to ensure their plans are aligned. It is not clear how long this will take.

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