Finance Minister Enoch Godongwana insists South Africa’s fiscal sustainability tide is turning but also signalled on Wednesday that government is considering the introduction of a new “fiscal anchor” to consolidate the modest improvements made to date and to restore fiscal sustainability over the medium term.

Godongwana’s maiden Budget address was buoyed by higher‐than‐anticipated tax revenues on the back of the commodity boom, a portion of which would be used to narrow the deficit, with much of the balance to be directed the way of sustaining the Covid-19 social relief of distress grant (about R44-billion) to 2023 and to support employment initiatives (about R18-billion).

As anticipated, the Minister did not announce a new Basic Income Grant and said that any large permanent increases in spending could not be accommodated without matching permanent increases in revenue.

“Government is working on a sustainable long‐term approach to social protection consistent with government’s broad development mandate and the need to ensure affordability.”

The revenue estimate was revised upwards by R182-billion to R1.55-trillion for 2021/22 relative to the figure outlined in the 2021 Budget, and by R61.7-billion when compared with the revision made in the Medium-Term Budget Policy Statement (MTBPS).

The revenue forecasts for 2022/23, 2023/24 and 2024/25 were also increased to R1.6-trillion, R1.7-trillion and R1.8-trillion respectively.

Expenditure of R2.15-trillion is projected for 2022/23, leaving a R386-billion deficit for the year.

The revenue improvement allowed the Minister to propose tax-relief measures of R5.2-billion, which he said would help support the economic recovery and provide some respite from fuel price increases.

Most of the relief would be provided through an adjustment in personal income tax brackets and rebates and, with inland fuel prices having breached the R20/l level, there would also be no increase in either the general fuel levy or the Road Accident Fund levy.

Nevertheless, Godongwana argued that restoring fiscal sustainability would require continued expenditure restraint and reforms to raise growth over the medium term, while announcing that government intended realising a primary surplus by 2023/24, a year earlier than projected in the 2021 MTBPS.

No date has been set for the implementation of the new fiscal anchor, with the National Treasury confirming only that a review of possible anchor variables was under way and still had to be concluded.

As a result of ongoing fiscal consolidation, the deficit is expected to improve to 5.5% of GDP in 2021/22 before narrowing to 4.5% by 2024/25, while gross loan debt is projected to stabilise at 75.1% of GDP in 2024/25, a year earlier and at a lower level than projected in the 2021 MTBPS, which indicated a peak of 78.1% in 2025/26.

“To ensure that these benefits are secured in the future and that the debt burden does not return to an unsustainable trajectory, the National Treasury is assessing the potential for a more robust fiscal anchor.

“Over the next year, options will be considered for introduction in the 2023 Medium-Term Expenditure Framework period,” the Budget Review states.

Various variables were being considered, including setting debt-to-gross domestic product (GDP) or expenditure-to-GDP limits.

Despite the consolidation, gross loan debt is still expected to increase to R4.69-trillion, or 72.8% of GDP, in 2022/23, before stabilising at R5.43-trillion, or 75.1% of GDP, in 2024/25.

Over the medium term, debt-service costs are expected to average R333.4-billion a year and at R1-trillion over the period will be equal to what government spends on social development and only modestly less than the R1.3-trillion that will be directed towards learning and culture expenditure.

The fiscal outlook was subject to significant risks, Godongwana warned, pointing in particular to the possibility of higher public‐service wage costs, as well as the risk posed by State-owned c...

Public Works and Infrastructure Minister Patricia de Lille has unveiled a strategy for attracting government departments back to abandoned public buildings by entering into long-term lease agreements with private property companies, which will refurbish, repurpose and operate buildings over a 15- to 20-year lease period.

In a wide-ranging briefing hosted as a follow-up to President Cyril Ramaphosa’s recent State of the Nation Address, De Lille announced that the Department of Public Works and Infrastructure (DPWI) would pursue the project under its recently approved ‘Refurbish, Operate and Transfer Strategy’.

The strategy is premised on the private sector providing the upfront capital and resources to refurbish and repair the buildings and, where necessary, repurposing them for office use.

In return DPWI will secure the government tenants and will enter into long-term lease agreements with private property firms, which will return the asset to the State at the end of the agreement period.

Through the strategy, the DPWI aims to lure government departments, which are currently spending about R5-billion a year with private landlords, back to public buildings.

She acknowledged that many of the buildings in DPWI’s portfolio were in a poor state of repair and were racking up ongoing security costs without generating any revenue.

“In order to reduce the cost of letting in buildings from the private sector for use by government departments, we are now going to use more government buildings for government departments,” she said.

A proof-of-concept pilot project, involving five buildings, would be implemented soon.

In parallel, the DPWI would package a further 200 buildings for released under the strategy and De Lille reported that these buildings would “go out to the market in the next financial year”.

Global supply chain disruptions, new-vehicle availability and pre-owned vehicle pricing are all only expected to settle at some form of “new normal” in 2023, says Motus CEO Osman Arbee.

Current global supply-chain disruptions, which were creating erratic supply of new vehicles and parts, while also stoking high shipping costs, were expected to run into 2023, he noted during the announcement of the company’s financial results for the six months ended December 31.

Vehicle manufacturers only expected new-vehicle stock shortages, owing to a short supply of computer chip and parts, to normalise from July and August this year, added Arbee.

However, “more realistically”, supply problems would probably only be a thing of the past in January next year, he said.

This would allow Motus to again sell consumers “what they want, and not what we have on the floor”.

“Artificially high” preowned vehicle pricing would also only start normalising in 2023, he noted.

Where Motus will normally buy a used vehicle at trade price and then sell it at retail price, the company is currently paying retail price, and, in some cases, retail-plus for a used vehicle, and then selling it on at an added margin to the consumer.

This model was set to continue this year as new cars were not expected to be “in abundant supply”, said Arbee, while rental companies were also not expected to “defleet abundantly” this year.

Car rental companies are normally a reliable source of second-hand vehicles, but Covid-19 has led to the deferment of new-vehicle acquisitions on the back of travel and tourism restrictions.

Car rental groups are only now starting to fleet up again following the global spread of the Omicron variant in November and December, which means they are unlikely to defleet this year.

Consumers were also holding on to their vehicles for longer periods, which was restricting supply to the preowned market, said Arbee.

Motus saw revenue increase by 1%, to R44.8-billion, for the six months under review compared with the similar six-month period in 2020.

Operating profit jumped by 23%, to R2.15-billion.

With continued healthy growth in market share, Motus now sells one in five new vehicles in South Africa, said Arbee.

The controllable market share of the group’s imported brands – Renault, Kia, Mitsubishi and Hyundai – grew to 19.2% in December 2021, up from 16% at the end of December 2020.

‘Controllable’ refers to the car, bakkie and van markets, and not the truck markets, where Motus does not yet compete in South Africa.

Looking ahead, Arbee said Motus planned to expand further through bolt-on acquisitions, and the acquisition of businesses related to the retail automotive and information technology industries.

JSE-listed infrastructure and contract mining group Aveng has reaffirmed its plans to seek an international listing and also confirmed on Tuesday that it had narrowed its offshore listing focuses to bourses in Singapore and Australia.

CEO Sean Flanagan justified the group’s foreign listing ambitions on the basis that a significant portion of the combined revenue of McConnell Dowell and Moolmans, its two remaining core businesses, were derived from outside of South Africa.

Excluding Trident Steel, which Aveng still intends selling despite having been obliged by accounting rules to reclassify the business as a continuing operation during the interim period, 85% of its revenue and 64% of its earnings before interest and taxation, are being derived from outside of South Africa.

That ratio, Flanagan said during a presentation, would rise further as Moolmans secured more work in the rest of Africa, where it was pursuing 13 tender opportunities with a combined value of R70-billion.

“We will, therefore, continue to develop the opportunity for an international listing to facilitate growth,” Flanagan said, noting that the growth prospects were strongest in Australia, as well as West and Southern Africa.

Aveng was at pains to stress that the group, which has undergone far-reaching restructuring since 2017, was moving from “recovery to growth”, despite its earnings for the interim period falling sharply to R53-million from R438-million in the comparable period of 2021.

The unanticipated slump is reflected in the Aveng share price, which has fallen significantly in recent weeks and continued to trade lower, at about R20.30 a share, after the results were formally released on Monday evening.

CFO Adrian Macartney provided a detailed exhibition of the impact that Trident’s reclassification had had on the results and presented a reconciliation of “normalised earnings”, which reflected earnings for the period of R82-million compared with R73-million in the prior period.

Macartney said that the foreign listing was unlikely to take place in the second half of the current financial year, owing to the regulatory and taxation issues that would need to be finalised before such a listing.

“We have been evaluating, over the last few months, two particular stock exchanges. We are looking at Singapore and the Australian Stock Exchange,” he said.

Flanagan argued that the international listing and attracting new capital would be required for the implementation of a growth strategy that would include both “organic and inorganic” growth.

He insisted that the foundations had been laid for the company to now pursue its aspiration of being an “international infrastructure, resources and contract mining group operating in selected markets”.

However, further balance sheet optimisation was required, including through the eventual sale of Trident Steel and through further debt-reduction initiatives.

Aveng expected to further reduce its debt by R320-million during the second half of the year, having lowered its debt by R65-million to R814-million in the first half.

Gauteng has moved from a public health emergency to an economic and service delivery emergency, Gauteng Premier David Makhura said during his State of the Province Address, in Johannesburg, on February 21.

“As we steadily work our way out of the shadow of the Covid-19 pandemic, we should show urgency and act with the same speed and agility to tackle the crisis of unemployment, rebuild and protect our infrastructure for basic services and fight crime and corruption in an emergency mode,” he implored.

Makhura insisted that government departments should no longer work in silos, stressing that inter-departmental and inter-governmental cooperation was required to achieve change on the scale required.

“The collapse of infrastructure for basic services also requires an emergency response akin to the way we dealt with the Covid-19 public health emergency,” he said, adding that “all hands on deck” were required to turn the situation around.

Makhura revealed that the Gauteng provincial government had established a Provincial War Room, in which government and industry leaders had joined forces to drive economic recovery, unlock growth in every sector and create sustainable jobs, as well to support small-, medium-sized and microenterprise (SMME) development.

“Through the war room, we are working with the captains of industry on programmes that will unleash growth by matching public policy support and government action with consolidated commitments by sector leaders on investments and jobs,” he explained.

Makhura said the Gauteng provincial government was opening up value chains, building competitive local content production, while promoting commercially meaningful enterprises, suppliers, SMMEs and township enterprises.

“The war room has now initiated a programme of quarterly sector action labs with industry representatives focusing on problem-solving and social compacting platforms,” he explains.

In partnership with the Public-Private Growth Initiative, the Gauteng government would work with businesses, organised labour, State-owned enterprises and relevant national government departments to reignite the Gauteng economy, he added.

Tackling infrastructure development and upkeep was another major issue, Makhura noted.

“Our record on maintenance has been dismal. Delays and costing [of] projects are areas of big concern. Investing in infrastructure includes improving efficiencies, value for money and effecting the modernisation of the delivery of government services,” he said.

INFORMATION AND COMMUNICATION TECHNOLOGY

In terms of information and communication technology (ICT), Makhura said work was being done to draw in experts, policymakers and businesspersons from across the digital economy landscape to support the implementation of Gauteng’s Fourth Industrial Revolution strategy.

“Our eKasiLabs, Township Cloud Zones and Hot-Desking Hubs will be optimal sites for new data centres and big investments in communication technologies,” he stated.

Makhura said that, since last year, the Gauteng provincial government had upgraded six core network nodes, provided wide area network connectivity to 1 224 sites; local area network connectivity at 652 sites; enabled voice over Internet protocol at 287 sites; and provided 37 Wi-Fi breakout points.

He added that the government had implemented 45 different online applications platforms to allow citizens to access government services at their convenience.

Through the Gauteng Centre of Excellence and in response to the ICT skills shortage, the Gauteng provincial government had facilitated training for 6 976 of its staff, and was also working with technical vocational education and training

colleges to provide ICT training.

AGRICULTURE

In the food, beverage, agroprocessing and agribusiness sectors, the Gauteng government was working with industry players and organised farmers in partnership with the Agricultural Development Agency to ensure food security and promote urban agriculture as a key sector for em...

Energy and chemicals group Sasol has approved development funds for the first phase of a project that is designed to increase the Secunda complex’s ability to use gas instead of coal to produce fuel and chemicals.

The fuel switch is central to Sasol’s initial commitment to reducing its greenhouse gas emissions by 30% by 2030, even though the company acknowledges that gas can only be used as a “transition fuel” if it is to meet its longer-term target of being net-zero by 2050.

CEO Fleetwood Grobler tells Engineering News that the funds will be used to prepare the “first tranche of gas reforming capacity in Secunda by 2025” and comprise about 30% of a larger R20-billion to R23-billion initiative to transition the facility away from coal.

“I think this is a very important signal that we are now putting our money where our mouth is with respect to processing capacity and to prepare ourselves to be able to reduce our coal use in a phased manner.”

Gas reforming, Grobler explains, is required to ensure that the hydrogen and carbon-monoxide ratios are corrected before the gas is used in the Fischer-Tropsch process to produce fuels and chemicals.

The JSE-listed company has also signed a draft term sheet for the delivery, from 2026, of liquefied natural gas (LNG) to the Mpumalanga complex, but Grobler says it is premature to disclose the identity of the counterparty.

Between 40 PJ and 60 PJ of LNG will be required yearly by 2030 to replace some nine-million tons of coal, with Sasol having already announced that it will make no further investments into new coal reserves.

Grobler says the LNG will initially be imported through Maputo, Mozambique, but reports that discussions are also under way regarding a second import terminal at Richards Bay, in KwaZulu-Natal.

The LNG will replace tapering natural gas supply from the Pande and Temane fields in southern Mozambique and increase the gas volumes available for Secunda’s switch from coal.

However, the immediate focus at Secunda is to stabilise coal supply, rebuild stockpiles and improve coal quality.

Although Sasol’s interim results to December 31, 2021, recovered strongly on the back of rebounding markets – with earnings before interest and tax increasing by 12% to R24.3-billion – the results were marred by materially lower production volumes at Secunda and five fatalities.

The slump in Secunda’s volumes has been attributed mainly to coal-related issues, including safety-related mine closures and a slower-than-planned transition to a full-calendar operating model at the mines.

Sasol has increased its coal purchases from third-party suppliers in an effort to recover its stocks, which fell to about 900 000 t, but have since recovered to 1.1-million and should be back to the 1.5-million target before the end of June.

A recovery plan is also being implemented, but Sasol has nevertheless lowered its full-year output forecast for Secunda to between 6.7-million and 6.8-million tonnes from an initial forecast of 7.5-million tonnes.

It will provide a new forecast for the 2022/23 financial year in August.

Grobler also announced that Riaan Rademan had been appointed executive vice president for mining, effective March 9.

Rademan worked for Sasol for 36 years before taking up the position of Foskor CEO in July 2019.

“Riaan’s mandate is to lead mining through its current challenges and position the business over the coming months for enhanced and sustainable productivity, prioritising safety in our operations,” Grobler says.

Green-hydrogen aspirant Sasol has set aside R350-million to repurpose an operational electrolyser at Sasolburg, in the Free State, to produce green hydrogen.

CEO Fleetwood Grobler tells Engineering News that the “proof-of-concept project” is likely to be fully operational within 18 to 24 months, producing up to five tonnes a day of green hydrogen and potentially green ammonia.

The long-lead items for the repurposing project were ordered in November last year and Sasol is also moving to procure 60 MW of additional renewable energy to provide electricity for the plant.

Green hydrogen is produced when renewable electricity is used, in an electrolyser, to split water into hydrogen and oxygen.

Grobler reports that Sasol is currently evaluating responses from independent power producers (IPPs) to a recent request for proposals for the additional 60 MW.

The 60 MW is being procured in addition to the 20 MW Sasol is procuring directly from IPPs and the 600 MW being procured jointly with Air Liquide, 200 MW of which is being prioritised for 2023.

In fact, Grobler reports that power purchase agreements are currently being negotiated with several preferred bidders, most of which intend wheeling electricity to Sasol through the Eskom network.

The 60 MW contract, by contrast, will be treated as an embedded generation plant and will be located at Sasolburg.

The company expects to procure a total of 1 200 MW of renewable energy by 2030 as part of its commitment to lower its greenhouse gas emissions by 30% by that date.

The Sasolburg green hydrogen project, meanwhile, is regarded as a modest precursor to a far larger green-hydrogen push by Sasol, which is also leading the prefeasibility study for green hydrogen developments at Boegoebaai, in the Northern Cape.

Sasol is also aiming to leverage the existing Fischer–Tropsch assets at its Secunda complex, in Mpumalanga, to produce sustainable aviation fuel (SAF), again with green hydrogen as a feedstock.

Sasol has partnered with Linde, Enertrag and Navitas to form the LEN Consortium, which aims to bid for the production of SAF under Germany’s H2Global platform. A feasibility study is likely to determine the availability of biomass for feedstock, its cultivation and integration into Secunda’s operation, and arrangements to meet the final H2Global mandatory requirements.

Separately, Sasol is pursuing ten other SAF opportunities and has already entered into two partnership agreements, where its FT technology will be deployed to produce the green fuel.

Grobler says it is premature to provide details but reveals that both projects are located in Europe.

The green hydrogen produced from the Sasolburg facility will not be used to produce SAF, however, as the volumes will be too small to make it economically viable.

Besides the possible production of green ammonia, Sasol is considering other possible markets, mostly related to the transportation sector.

The National Automobile Dealers’ Association (NADA) expects sales growth of between 10% and 15% in the South African new-vehicle market this year.

The estimate is based on buoyant sales in the first month of the year, together with positive trends seen last year.

The projection is, however, dependent on stock supply normalising swiftly.

“We expect sales to be back to pre-pandemic numbers in 2022,” says NADA vice-chairperson Alex Boavida.

“Last year proved to be a much better year than expected, with 22% growth thanks to local sales of 86 7673 more units than in 2020.

“We were, however, still not back to the market levels of 2019, and lagged by 14%, or 72 490 units, compared to results from two years ago.”

NADA says that the average growth of 16% across all vehicle categories in 2021 was heartening, with extra-heavy commercials the best performer with sales up 24%.

Passenger car sales followed closely with sales up 23% (57 177 more units sold).

“These were positive results in a year with a great deal of turmoil including the ongoing Covid-19 pandemic, civil riots and social unrest, as well as interest rate and fuel price hikes,” notes Boavida.

“The global shortage of semi-conductors, or microchips as they are better known, and other automotive components, has also impacted new-vehicle production for the past two years, but a normalised stream of stock entering South Africa will help to bolster sales numbers in 2022.”

The upward movement in interest rates and fuel prices will affect passenger car sales more than the sale of commercial vehicles, adds Boavida.

“The increase in interest rate is predicted to be as much as 1.5% in 2022, which is significant in a country where consumers have more debt exposure than in previous years and hikes put added strain on consumers’ disposable income.”

Government’s undertaking to improve the ease of doing business in South Africa will go a long way towards reducing the overhead compliance costs of motor retailers, which in turn, will translate into savings to the consumer in the long term, she notes.

“NADA eagerly awaits government’s engagement on this undertaking.”

Electric Vehicles

“One trend that we envisage growing apace in 2022 is the increased introduction of electric vehicles into the South African market,” says Boavida.

“We see more manufacturers launching several electric models in South Africa this year, putting additional focus and emphasis on this sales channel.

“We see intensified consumer education on the benefits of these vehicles, as well as an increase in the emphasis on technology, such as applications specifically developed for customers.”

The City of Cape Town has defended its decision not to accept bids for wheeled electricity as part of its first independent power producer (IPP) procurement round but says future tenders will cater for wheeling.

The city aims to enter into 20-year power purchase agreements (PPAs) with multiple tenderers but stipulates that every component power generation plant “must connect directly to the city’s network and no wheeled energy from generators connected to grids other than the city’s grid will be purchased”.

Energy and climate change executive director Kadri Nassiep tells Engineering News the decision to exclude wheeling was made primarily to ensure that the city could have full quality control over the initial IPP projects that would be introduced.

He acknowledged that this could increase bid prices, but highlighted that no bid above Eskom’s Megaflex tariff would be considered.

He also stressed that later tenders would cater for wheeling through the Eskom network and indicated that a second IPP procurement round could be launched within six months, depending on the city’s internal capacity to manage another tender.

The first IPP tender was published on February 18 and the city has set an official closing date of 10:00 on May 26.

Mayor Geordin Hill-Lewis will have an introductory briefing with interested parties later this month and an official tender clarification meeting is scheduled for 10:00 on March 11 for those IPPs interested in submitting a bid under the embedded generation procurement programme.

The tender document states that the combined total generation capacity for all technologies to be awarded will not exceed a total of 200 MW, which is below the 300 MW figure announced by Hill-Lewis.

However, Nassiep tells Engineering News that, subsequent to the drafting of the tender document, a decision had been made to increase the cap to 300 MW.

This would be confirmed both during the briefing that Hill-Lewis intended having with potential bidders, as well as during the tender clarification meeting.

All low-carbon generation technologies will be considered, including solar photovoltaic, wind and organic-waste to energy, as well as any low-carbon solution that is combined with storage.

The tender document outlines a 90/10 scoring framework, with 90 points allocated for cost and 10 points for preferential procurement.

The city will pursue a two-stage procurement process, whereby tenderers that meet the qualifying criteria will be invited to provide a financial offer in the second stage of the tender process.

“The City intends to award contracts to successful bidders on an incremental basis, starting with the highest scoring bid and continuing with progressively lower scoring bids, up until the full allocation has been reached.”

Winning bidders will be expected to design, construct and commission the plant within three years from date of signed PPA and the contract will be for a period of 20 years from date of commercial operation.

Creamer Media's Chanel de Bruyn speaks to Engineering News Editor Terence Creamer about the release of the Electricity Regulation Amendment Bill and the Electricity Pricing Policy for public comment; changes that are under way at Eskom to align it with the future structure of the electricity industry; and what these developments mean in terms of the future of South Africa's electricity industry.