Page 27 - Energize April 2021

VIEWS AND OPINION

Understanding decisions behind SA’s

“emergency” power programme

by Chris Yelland, managing director, EE Business Intelligence

This is a summary of three interviews which explore the rationale, outcomes, and some of the details of the
recently announced Risk Mitigation Independent Power Producer Procurement (RMIPPP) programme.

Here, Chris Yelland seeks to clarify some of the contractual Furthermore, there are entities who did not bid because they felt they
arrangements applicable to all the RMIPPP projects, with would not be able to meet the tight timelines.
Department of Mineral Resources and Energy Deputy Director So, the justifiable interests of South Africa, the procurer, off-
General, Mr Jacob Mbele, and IPP Office Acting Chief Operating taker, customers, and end-users must be balanced with those of
Officer, Mr Maduna Ngobeni. the preferred bidders, and one cannot simply give unwarranted
additional time to reach financial closure or commercial operation.
Chris Yelland: These things get considered looking at the project but most of the
Minister Mantashe stated that preferred bidders are required to reach risk lies with the bidder.
financial close by no later than the end of July 2021, that this date is
non-negotiable, and it is for the preferred bidder to manage all the Chris Yelland:
risks to reach financial close. He further indicated that the projects Before reaching financial closure, what other hurdles are required
are expected to be connected to the grid from August 2022. What to be crossed by preferred bidders? For example, do the preferred
will be the consequences to preferred bidders, electricity customers bidders have exemption by the DTIC from the local content
and the public if the preferred bidders fail to achieve financial closure requirements of the RMIPPP procurement process yet? Do they
by 31 July 2021, and power to the grid by August 2022? Are there have final environmental impact assessments and climate change
any penalties applicable? studies that are not subject to appeal? Do the powership projects
have all the required permissions from the Port Authorities to moor
Yes, there are consequences for a preferred bidder failing to achieve the powerships and associated fuel storage and re-gasification
financial closure and commercial operation by the target dates. If the plants for 20 years?
dates for financial closure or commercial operation are not met, the
bid bond can be pulled, or the power purchase agreement (PPA) can Yes, there are certainly several things that need to be attended to.
be terminated. But obviously, for most of these, it is the preferred bidders’ risk and
Obviously, one must always look at the reasons for not meeting responsibility. We know of and are involved in a few issues. But there
the contractually required dates. For example, is it a force majeure is a whole lot more that the bidders need to do, in which we do not
situation or not? Did the Covid-19 pandemic delay things? Was get involved. The preferred bidders should manage these to make
everything ready on our side? Was Eskom ready with the grid sure they bring their projects to fruition.
infrastructure and lines to evacuate the power? You mentioned environmental authorisations and climate change
Depending on the reasons for delays, the contractual timelines impact studies, and whether there may be any appeals in respect of
may need to be adjusted. The preferred bidder must meet the these. What we required from a bidding point of view was a scoping
contractual timelines, and if not met, there are consequences. There report, and that is what we received. Regarding applications for
are many provisions in the contract to remediate a breach situation actual environmental authorisation, I would assume that the preferred
before it leads to termination. However, at the end of the day, the bidders have already started and are busy with these things,
bottom line is that the PPA may be terminated. because it is their responsibility to make sure these are sorted out.
There are financial penalties in the sense that if the preferred Other requirements include authorisation from the Port
bidder cannot achieve financial closure or commercial operation, Authorities, as you mention, as well as generation licences from
and the PPA is either not signed or is terminated, the bidder would Nersa. It is the responsibility of the preferred bidders to sort out
already have lost a lot of money. In addition, we do hold guaranteed these things. There are risks, and the preferred bidders need to
bid bonds from the preferred bidders amounting to some R200 manage them. We told them what is needed for them to be eligible
000 per MW of capacity bid. If a preferred bidder does not meet its for the licensing of their works for the duration of the PPA. They
obligations for financial closure or commercial operation, we would know this, and I presume they are working on it.
pull the bid bond. We don’t necessarily really get involved in worrying about
Of course, the economy and electricity customers will suffer if appeals and things that are the responsibility and within the control
the power is not delivered on time, and this needs to be appreciated. of the preferred bidders at this point.

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