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The Development Bank of Southern Africa (DBSA) is working to develop and implement a National Water Programme that will include a water partnership office that could replicate some of the successes seen in the energy sector.

The programme is aimed at establishing a “programmatic approach” to address South Africa’s water challenges in a comprehensive and prioritised manner to mobilise available resources in the best way possible.

The DBSA, working as fund manager and secretariat to the Infrastructure Investment Programme, seeks to attract public and private sector investment while providing tangible solutions for different stakeholders, such as municipalities and other roleplayers in the water sector, said DBSA water sector innovation specialist Johann Lübbe.

Speaking during a webinar hosted by the DBSA, National Treasury and the European Union to unpack potential successful solutions to South Africa’s water infrastructure challenges, he said that DBSA, along with various partners, was establishing the programme approach to tackle the various systemic issues that are hindering progress within the water sector.

Reviewing the success of other sectors, specifically South Africa’s successful renewable energy programme, within the energy sector, the DBSA narrowed in on two key success factors.

In the Renewable Energy Independent Power Producer Procurement Programme, an Independent Power Producer Office was created, which became the “one-stop shop” for everything renewable energy project related, emerging as a “centre of excellence”, he said.

Further, he highlighted that there were also specific funding solutions that paved the way for its success.

“Those are the two key elements that I think stood out for us and we said how can we replicate that in the water sector?”

DBSA, together with government and the Department of Water and Sanitation (DWS), is now developing the National Water Programme, which will be owned by the DWS, to bring in some of those elements.

Discussions are underway for the establishment of the water sectors’ own centre of excellence or one-stop stop in the form of the Water Partnerships Office, to deliver capacity and provide support, including in preparation, feasibility, financing, bankability and implementation, to project owners, such as water boards, municipalities and government, to take projects forward.

It aims to create an enabling environment to support projects through standardised approaches.

Further, the National Water Programme will specifically address water reuse and non-revenue water supply, off-grid sanitation and rural water supply through sub-programmes, and is part of the water capital expenditure programme for South Africa, with capital deployed using programmatic and blended finance strategies.

“The water sector is probably the most difficult sector to finance. It is much more difficult than, for example, energy, where there are clear revenue streams,” Lübbe commented.

An element currently being worked on, he said, is to develop innovative and alternative funding solutions amid the various systemic, bankability and project pipeline challenges that need to be dealt with to access sufficient funding for water supply and sanitation infrastructure projects.

Currently, there are two major options when it comes to financing water infrastructure: municipal balance sheets for municipalities to raise funding on the balance sheet to invest in infrastructure, and public-private partnerships (PPPs).

PPPs are not suitable for all projects and the balance sheets of municipalities do not allow them to raise sufficient funding to meet all the needs.

“The DBSA is reviewing blended finance, bringing in the private sector more, reducing the reliance on government funding and to see how we can then put those specific funding options available, together, to become part of a suite of options that can be used to finance specific projects.”

The National Water Programme aims to facilitate private sector particip...

President Cyril Ramaphosa says government will use all of the levers at its disposal to cushion South Africans from the effects of rising fuel and food prices, including by speedily implementing possible changes arising from a review of the Basic Fuel Price (BFP) formula.

In an oral reply to a question posed by the Democratic Alliance leader John Steenhuisen in Parliament regarding government’s proposed response to increasing inflation, which is set to rise even more sharply following Russia’s invasion of Ukraine in late February, Ramaphosa acknowledged it to be a “major concern for us”.

The National Treasury has already warned that the inflation outlook for 2022 will be between 5% and 5.5%, rather than the 4.8% forecast in February, with the outcome dependent largely on the price of oil.

Secondary effects are anticipated to spill over into other parts of the economy, with a particular upside risk to food inflation, which is also likely to be impacted by increasing wheat prices given the important role that both Ukraine and Russia play in the international wheat market.

A Cabinet committee was deliberating on the options available to mitigate food and fuel price increases and consultations had also been initiated with labour, business, communities and traditional leaders.

Ramaphosa said that various mitigation options were being proposed and told Steenhuisen the recommendations he made during a supplementary question would also be considered.

Armed with various consumer products, including cooking oil and a tin of pilchards, the leader of the opposition said that government should consider “bringing down the fuel price to R16/litre by cutting out your levies, scrapping your sugar tax and immediately lifting value added tax on meat and chicken”.

Steenhuisen warned that South Africans face the prospect of a “tough winter” in light of approved electricity tariff increases, ongoing fuel price hikes and above-inflation rises in sugar, meat and vegetables.

The President said that the National Treasury and the Department of Mineral Resources and Energy (DMRE) were reviewing the BFP methodology, as well as other regulated components, to identify changes that could reduce the cost of fuel.

In a presentation made earlier in the week, it was reported that, in addition to the BFP review, the DMRE would undertake a review of the regulated margins determined through the regulatory accounting system (RAS).

Initial research has shown that changes to the RAS methodology components could reduce the petrol price by 85.82c/litre, while changes to the BFP methodology could add a further 18c/litre.

DMRE has also indicated that changes to the reference markets and the premium on the freight rate could reduce the price by about 3c/litre.

“This is work that's under way.

“These changes will be implemented as soon and as quickly as possible,” Ramaphosa pledged, while highlighting the decision made in the February Budget not to increase the general fuel levy on petrol and diesel for 2022/23.

Regulated levies make up more than 30% of the pump price and have been increasing at a pace higher than inflation since 2014.

SOUTH AFRICA’S UKRAINE STANCE

The National Treasury has warned that the severity of the impact of higher fuel prices on domestic inflation will ultimately be determined by the duration of the conflict in Ukraine and its impact on global supply chains and financial markets.

Ramaphosa attempted to use the platform created by the questions posed to him in the National Assembly to clarify South Africa’s stance on the conflict; a stance that has been heavily criticised largely for it lacking an outright condemnation of Russia’s attack on its democratic neighbour.

The President defended the decision to call for “dialogue, mediation and negotiation” based on South Africa’s own experience of using dialogue to overcome conflict, as well as government’s commitment to the United Nations Charter principle that states that members should settle internat...

The Standard Bank Group has become the latest South African bank to confirm that it will no longer finance new coal-fired power plants or support the expansion of existing coal-fired power plants as part of its newly unveiled commitment to achieve net-zero carbon emissions from its portfolio of financed emissions by 2050.

The group has also pledged, in a climate policy released by CEO Sim Tshabalala on March 16, to achieving net-zero carbon emissions from its own operations by 2040.

While there is no consistency among South African banks in the way climate policies are drafted, the release of a policy statement by Standard Bank means that only Absa is yet to publish a formal climate change statement, with Nedbank, First Rand and Investec all having adopted positions.

Corporate and Investment Banking CEO Kenny Fihla tells Engineering News that the bank’s halt on new coal investments extends to so-called clean-coal technology plants, which he describes as a “misnomer”.

The bank will, however, support any refurbishment of existing coal-fired power stations that has the specific purpose of improving efficiency and reducing carbon emissions using carbon capture, usage and storage. Such refurbishment should form part of a clearly defined decarbonisation plan, aligned to net zero by 2050.

The policy, Fihla highlights, also significantly narrows the bank’s financing focus for new coal mines, which will be funded only when there is an overall positive environmental impact.

Citing coal supply to Kusile as an example, he explains that the bank will still finance a new mine located next to an existing coal-fired power station if it can be proved that its development will reduce transport-related emissions. Finance could also be provided for mines that provide a superior quality of coal that could help reduce an existing power station’s emissions.

Overall, Standard Bank has committed to reducing its thermal coal exposures to 0.50% by 2030 from 0.70%, while its financing of clients generating power predominantly from coal will be reduced from 0.18% of total group advances in 2021 to 0.12% from 2030.

The decision to support so-called ‘brown’ energy and mining projects in Africa, Fihla says, is based on the bank’s broad-ranging analysis of the energy needs of the continent in a context were 43% of the citizens of sub-Saharan Africa lack access to electricity.

It also follows intensive internal and external engagements to define a “pragmatic” response by the bank to the aspiration for a just transition towards a low-carbon economy in Africa.

FRAMEWORK FOR GAS FUNDING?

The policy also makes specific commitments in the areas of agriculture, oil and gas, with the bank’s approach to gas set to receive significant attention given its prominent role in several African projects, including those under way or stalled in Mozambique.

Standard Bank says it will continue to finance gas “over the medium to long term” but has committed itself to developing a ‘transition finance product framework’ to support the use of gas in its specific role as a “transition fuel”.

Fihla says gas-fired power plants that provide support services as part of an integrated renewable energy power solution will be prioritised, as will the conversion to gas of existing coal- or oil-fired power plants.

Finance for standalone gas-fired power plants will be capped at 0.75% of total group advances after 2026.

Standard Bank does not fund upstream gas exploration, but Fihla says it may still participate in future production activities.

The bank is also moving to limit its oil exposure, including by reducing group advances to upstream oil by 5% by 2030 and by halting financing for new oil-fired power plants, tar sands, tight oil resources and companies with unrestricted flaring for new assets.

While Fihla did not discount the prospect of supporting African refining activities, he cautions that most of these are likely to be disqualified on pure commercial grounds let alone their clima...

The first iteration of the updated National Infrastructure Plan 2050 (NIP 2050) points to a substantial finance gap of at least R2-trillion that will have to be closed if South Africa is to build the economic infrastructure required to deliver the growth and social objectives outlined in the National Development Plan (NDP).

Gazetted last week by Public Works and Infrastructure Minister Patricia de Lille, the document focuses exclusively on energy, water, freight transport and digital communications infrastructure, with a second iteration to follow focusing on distributed infrastructure and related municipal services.

The 80-page document states that meeting the infrastructure goals outlined in the NDP will cost R6.2-trillion between 2016 and 2040, with transport and energy accounting for over 72% of the investment required.

“As of 2021, the finance gap that needs to be closed is estimated at R2.15-trillion,” the document states.

In a briefing on the plan, Infrastructure South Africa head Dr Kgosientsho Ramokgopa said the capacity of government and State-owned companies to secure the required finance had been “significantly undermined” in recent years and that it would, thus, need to lean more heavily on alternative financing models to crowd in private finance.

The document states that the public sector will partner with the private sector and development finance agencies to secure about one-third of the amount that needs to be invested until 2050.

“Ultimately, infrastructure can be funded only by two sources: taxes and user payments.

“While finance can be raised from multiple sources, its availability and cost depend on the reliability of funding plans to service and ultimately repay any finance,” the document states.

The plan envisages the building of government-wide capacity to design and launch partnerships and alliances with the private sector, including public–private partnerships (PPPs), which are described as an “underutilised opportunity to raise private investment in public infrastructure”.

Besides continuing with the Renewable Energy Independent Power Producer Procurement Programme, the NIP 2050 envisages partnerships emerging across most, if not all, of the 62 Strategic Integrated Projects that have been Gazetted for expedited development in terms of the Infrastructure Development Act.

In addition, the infrastructure procurement framework will be revised “to require public institutions to consider partnering with private sector partners as an optimal procurement option”, while the PPP regulations will be revised to simplify approval processes, standardise models for certain types of infrastructure, and speed up the time from initiation to procurement.

The document also states that the approach, rules and regulations for partnerships and alliances will be widened with the intention of deepening and expanding the opportunity for finance, build and operation.

There is also an intention to apply lifecycle planning to all infrastructure, with full budgets determined upfront and measured against lifecycle benefits.

Meanwhile, it is envisaged that the R100-billion Infrastructure Fund will deliver a robust pipeline of projects through blended finance models with significant participation from the private sector.

Ramokgopa said it would be essential to build capacity at all levels of the public sector to design bankable projects and manage them through to completion.

Capacity should also be built at national and local government level to issue specialist green finance instruments such as green bonds.

De Lille said the NIP 2050 aimed to ensure that there was the necessary long-term view of infrastructure to drive economic and social transformation in line with the NDP.

“There is a pressing need for a shared long-term vision and a robust institutional platform to enable sustained and continuous improvement in public infrastructure delivery,” she added, arguing that the ISA was providing government and its partners with a bi...

Volvo Car South Africa (SA) says its local range of vehicles is now almost entirely electrified as the Swedish premium brand moves a step closer to its global ambition of transforming into a fully electric car company by 2030.

The updated South African line-up now comprises predominantly all-electric, plug-in hybrid and mild-hybrid options.

Volvo Car SA MD Greg Maruszewski says the move is in line with the Gothenburg-based company’s global strategy, and affords South African motorists the opportunity to experience the various benefits of the three stages of vehicle electrification.

“Our mild-hybrid vehicles boast reduced tailpipe emissions, improved fuel economy and stronger on-road performance, making them ideal stepping stones to our plug-in hybrids, which add the major advantage of a pure-electric driving mode, and then, ultimately, our all-electric offering.

“In short, our completely renewed line-up covers all of the electrification bases.”

According to Maruszewski, Volvo Car SA’s decision to shift its primary focus to hybrid vehicles is based on the belief that this type of powertrain currently represents the ideal solution for the majority of the company’s local customers.

With the S90 and V90 Cross Country line-ups now also featuring exclusively mild-hybrid powertrains, the only purely petrol-powered options that remain in Volvo’s local range are the T-badged derivatives in the XC40 line-up.

In global terms, Volvo’s electrified line-up continues growing, with plug-in hybrids accounting for 28% of sales in the fourth quarter of last year, while fully electric cars made up 6% of total sales.

The Afrimat Construction Index (ACI) has staged a swift recovery from the Covid-19 induced slump that occurred during the second quarter of 2020, increasing by 74% within only two quarters.

Since then, however, progress has been muted, owing mainly to the sedate rollout of government’s infrastructure programme and a slowdown in commercial building.

A year-on-year improvement of 0.8% was, nevertheless, realised in the fourth quarter 2021 ACI, with the improvement over the fourth quarter of 2019 (pre-Covid-19) at 1.3%.

The ACI is a composite index of activity levels within the building and construction sectors, and is compiled by economist Dr Roelof Botha on behalf of Afrimat.

According to the ACI report, an encouraging feature of the latest index is the continued sterling performances of the values of hardware retail sales and wholesale sales of construction materials, which are 60% and 55% higher, respectively, than in the base year (2011).

“These two key indicators of construction sector activity have also recorded real growth rates of 8% and 10%, respectively, since the fourth quarter of 2019 (pre-Covid-19).

“Two other indicators that are at higher levels than two years ago, are building material sales and employment in the construction sector.”

The report notes that it is also encouraging that a majority of the indicators recorded positive growth rates on both a quarter-on-quarter and year-on-year basis.

“Unfortunately, Statistics South Africa (Stats SA) data on value added by the construction sector remains well below pre-Covid-19 levels, in sharp contrast to all of the other indicators.

“This discrepancy suggests that Stats SA may be underestimating the contribution to construction activity made by the informal sector.”

According to Botha, the receding fourth wave of Covid-19 infections may pave the way for significantly higher levels of construction sector activity during the year.

“Unfortunately, the war in Ukraine has caused a spike in the oil price, which will continue to put pressure on domestic inflation and probably lead to more interest rate hikes by the South African Reserve Bank.”

Botha notes that the economy is still plagued by an absence of demand, with private sector credit extension remaining on a downward trajectory.

“Hopefully, the Monetary Policy Committee will realise that the current pressure on inflation is driven purely by cost-push factors that cannot be controlled by monetary policy and not over-react by returning to a stringent policy approach.”

Another point of concern is the continued delays in finalising public sector contracts for construction tenders, adds Botha.

One example is the backlog in procurement being experienced by the South African Roads Agency Limited.

“Unless government acts swiftly to make good on its repeated promises to remove unnecessary bureaucratic obstacles facing the private sector, the repair and expansion of the country’s infrastructure will continue to be stalled,” he warns.

On a positive note, Botha lauds a number of key policy initiatives announced in this year’s State of the Nation Address and National Budget, especially the lowering of the corporate tax rate, the stabilisation of the public debt­–gross domestic product ratio and the promised new emphasis on public-private partnerships in infrastructure-related projects.

“Against the background of an improvement in the country’s fiscal metrics, balance-of-payments stability and the stated government objective of closer cooperation with the private sector, further recovery of the construction sector may realistically be expected,” he says.

Botha notes that during the current fiscal year, public sector infrastructure expenditure has increased by 22%, with an increase of more than 11% earmarked in the 2022/23 fiscal year.

“The country’s construction sector stands to expand from these increases, with further gains for the ACI on the cards in 2022.”

The National Energy Regulator of South Africa (Nersa) and the Department of Forestry, Fisheries and the Environment (DFFE) both insist that Transnet Pipelines remains compliant with its licence conditions and with environmental legislation in relation to its response to recent theft-induced fuel spillages on the Multiproduct Pipeline between Durban and Heidelberg.

Nersa spokesperson Charles Hlebela tells Engineering News that the regulator has received reports of three theft incidents over the past week, two of which resulted in spills, including a serious spill near Verkykerskop, about 50 km from Harrismith in the Free State.

A video of the incident has been widely shared across media and social media platforms.

It shows diesel gushing from the pipeline on to land close to the Meulriver, a tributary of the Wilge river, which is itself a tributary to the Vaal river.

Transnet has confirmed that the incident occurred during the early hours of the morning on March 9, but the video was taken in full daylight, indicating that there was still pressure in the line and that spill crews had not yet reached the site hours after the incident occurred.

Engineering News has also seen photographs and received reports about previous spill sites, which appear not to be fully rehabilitated many months after a spill incident.

DFFE chief director of communications Albi Modise tells Engineering News that Forestry, Fisheries and the Environment Minister Barbara Creecy met with Transnet CEO Portia Derby and Public Enterprises Minister Pravin Gordhan last week to receive a report on the containment measures being implemented to prevent the spill from entering the Wilge.

Transnet Pipelines reports that emergency response teams are still busy with the recovery and containment of diesel in the Meulriver, with preventative booms having been positioned downstream of the incident site and absorbent booms along the river.

Nevertheless, Nersa tells Engineering News that Transnet has complied with its licence conditions by reporting all incidents in line with an agreed process.

“We are still awaiting the full reports on the incidents on completion of Transnet investigations into these [three recent incidents], but these incidents are caused by people who are breaking the law, which is a law enforcement matter,” Hlebela says.

He adds that, at this point, there has been “no noncompliance by the licensee” and no action has, thus, been taken against the State-owned company.

“However, Nersa is monitoring the situation closely to assess if the interventions to curb these incidents are effective.”

Likewise, the DFFE tells Engineering News that its Environmental Management Inspectors were informed by Transnet of the diesel spills as soon as they occurred.

“Following the compliance inspections, the environmental inspectors assigned to these incidents reported that no non-compliances to the National Environmental Management Act (Nema) have been identified.

“Transnet is in compliance with the requirements of Section 30 of Nema which deals with such incidents and the duty of care provisions of Section 28 of Nema.

“The DFFE will continue to monitor compliance of Transnet’s environmental obligations closely.”

The department tells Engineering News that Transnet has commenced with the rehabilitation of the polluted areas and the containment and removal of the product from several sites.

“Transnet has appointed various specialists to determine the impact of the incidents on the environment.

“The specialist reports will include recommendations on any further rehabilitation measures to be implemented,” Modise tells Engineering News.

Transnet Pipelines also insists it is in full compliance with its operating licence and has confirmed that Nersa has been made “aware of the challenges we are experiencing with theft incidents”.

Transnet Pipelines CEO Michelle Phillips tells Engineering News that the pipeline is immediately shut down as and when an incident occurs to minimise th...

Canadian miner Ivanhoe Mines has invested R200.6-million ($13.3-million) in South African natural gas and helium producer Renergen by buying more than 5.6-million Renergen shares, at R35.625 a share.

The placement is within the company’s existing pre-approved placement capacity, and means that Ivanhoe will now acquire an initial strategic shareholding in Renergen and, subject to its evaluation of the company and the scalability of operations, may thereafter become a strategic partner and major shareholder in Renergen.

The conditional option provides for Ivanhoe to potentially invest up to $250-million in Renergen, with the funds to be used for up-scaling the Virginia gas project, in South Africa’s Free State province, following the imminent commissioning and start of Phase 1 commercial production.

The strategic investment in Renergen highlights the excellent growth of the company over the last two years and the potential of the Virginia gas project to become a globally significant liquefied natural gas (LNG) and helium operation.

Renergen chairperson Dr David King says: “Ivanhoe is an ideal partner to stand alongside Renergen in the development of its world-class helium reserves at Virginia. The strategic partnership with Ivanhoe is testament to the great progress that Renergen has made in its transition from explorer to developer of an internationally significant resources project.”

Renergen CEO Stefano Marani adds that the transaction “is a landmark deal for Renergen and one that recognises strong synergies with our new partners Ivanhoe. Robert Friedland is a leader in terms of finding and developing disruptive, world-class resources across a range of commodities and jurisdictions, and to secure his potential backing of the Virginia gas project is testament not only to the work done to date, but also to the incredible opportunity to establish a South Africa-based globally significant LNG and helium production operation”.

Friedland is co-chairperson of Ivanhoe, an Africa-focused natural resources development company. He has an “unparalleled” record in the discovery and development of major natural resource projects around the world, including the Platreef platinum group metals mine it is building in South Africa.

“In Ivanhoe Mines’ journey toward net-zero carbon emissions, liquefied natural gas (LNG) is a compelling transition fuel to provide baseload power for our Tier-One Platreef palladium, rhodium, nickel, platinum, copper and gold mine.

“Renergen’s Virginia gas project has the potential to provide clean, reliable electricity to augment our own solar-generated power for a 24-hour-a-day alternative to the coal-fired national electrical grid,” Friedland comments.

Ivanhoe believes Renergen’s development of the country’s first commercial LNG facility and proposed gas‑to‑power operations at the Virginia gas project through Phase 2 development will impact favourably on national energy security, as well as Ivanhoe having the ability to source the power it will need for its Platreef project.

Moreover, power production at the Virginia gas project will have significantly lower greenhouse-gas emissions than the country’s existing predominantly coal-generated power supplies.

While the primary driver for Renergen entering into this transaction is to secure funding for the further development of the Virginia gas project, not all the cash available from Ivanhoe is required immediately.

The parties have, therefore, agreed that as part of the strategic cooperation between them, Ivanhoe will have the option to settle the second subscription by issuing the investor shares, which further enhances the cooperation between the parties.

Following the announcement on Monday, Renergen’s share price rose by 9.1%.

Forestry, Fisheries and the Environment Minister Barbara Creecy has written to President Cyril Ramaphosa to request that the Presidential Climate Commission (PCC) be allowed to oversee public consultations on appeals that have arisen in relation to air-quality compliance by Eskom power stations.

Several appeals have been lodged against decisions taken by the Department’s National Air Quality Officer in relation to the requests for the suspension and/or postponement of compliance with the Minimum Emission Standards (MES) and the issuance of provisional atmospheric emission licences.

Appellants include nongovernmental organisations, some industries and Eskom, with the State-owned utility appealing the department’s recent refusal to grant it permission to postpone MES compliance at several stations.

The Department of Forestry, Fisheries and the Environment (DFFE) declined Eskom's request for MES postponements at Matla, Duvha, Matimba, Medupi and Lethabo, while partially granting postponements for Majuba, Tutuka, Kendal and Kriel.

Eskom received positive postponement decisions for Grootvlei, Arnot, Hendrina, Camden, Komati, Acacia and Port Rex.

The utility said the decisions, unless reviewed, would result in the shutting of 16 000 MW of coal capacity. It has also estimated the cost of full MES compliance at over R300-billion and that the implementation of compliance projects could add at least 10% to the existing electricity tariff.

Creecy has proposed that the appeal process be held in abeyance pending the outcome of the consultative process.

“Due to the complex and conflicting nature of the issues raised in the appeals received, the Minister is of the view that a consultative process will assist in ensuring that all issues arising from the appeals can be addressed in a meaningful and resolute manner,” DFFE spokesperson Albi Modise said.

He told Engineering News that no date had yet been set for the start of the consultations, as the Minister had only recently made the request to the President and was awaiting his response.

DFFE noted, however, that Section 3A of the National Environmental Management Act empowered the Minister to establish any forum or advisory committee to deal with issues relating to the environment.

The department said the consultative process would deal with matters which had a bearing on the environment, in particular air quality, the health of the country’s citizens, as well as issues relating to the security of energy supply and sustainable development.

The request for the PCC to oversee, facilitate and conduct the proposed consultative process had been made so as to allow the appellants and interested and affected parties to make representations.

“It should be noted that the consultative process would not in any way condone noncompliance with the MES and will not impact on any present or future criminal action against noncompliance,” the DFFE added.

PCC executive director Crispian Olver said he was aware of Creecy’s proposal, which had been canvassed with the commission.

He acknowledged that it was outside of the commission’s current mandate, but said that there were also obvious overlaps.

The PCC’s precise role still had to be clarified, but Olver was of the view that there was an opportunity to use the commission’s convening power and mediation capacity to facilitate “the finding of common ground” between stakeholders on the issue.

However, it would be crucial that the process did not distract from the PCC’s core mission of helping to define the country’s just transition framework as the energy system migrated from coal to renewables.

The Industrial Gas Users Association of Southern Africa (IGUA-SA) has cautiously welcomed moves by the energy regulator to introduce an interim pricing methodology for piped gas in light of the recent spike in international gas prices and ahead of what could otherwise be a debilitating July hike approaching 300%.

The National Energy Regulator of South Africa (Nersa) has published a consultation paper on an interim methodology for the setting of maximum piped-gas prices this year and has also launched a review of the prevailing methodology, which was approved only in 2021 but which is being challenged in the courts.

Nersa intends deciding on the interim methodology by the end of April and has called for written comments to be submitted by April 11, ahead of virtual public hearings.

It aims to finalise the permanent methodology by August.

IGUA-SA executive officer Jaco Human tells Engineering News that the timeframe outlined indicates that Nersa recognises the urgency of the matter.

However, he cautions that any failure to secure a legally enforceable solution for what Sasol Gas is allowed to charge from July onwards will have serious consequences for industrial gas consumers, traders, as well as manufacturing output and jobs.

Under the prevailing methodology, IGUA-SA calculates that piped-gas prices will rise from R68/GJ to R252/GJ in July. Prior to Russia’s invasion of Ukraine, it was anticipated the domestic maximum price would rise to about R217/GJ.

Human says IGUA-SA members have indicated they will not be in a position to absorb such an extreme increase, or pass these costs on to customers and that production cuts should, thus, be expected.

IGUA-SA’s members include companies that operate in the steel packaging, paper, ceramics, and chemicals sectors.

Nersa says it has initiated the consultation to facilitate a proactive engagement with stakeholders on the spike in international gas prices and on possible mitigation measures.

It acknowledges that developments in the international energy markets in recent months have led to a mismatch between Sasol Gas’ costs and those derived for the competitive benchmarks used to calculate the maximum price.

The formula uses a benchmark of international gas prices associated with the US Henry Hub, the Dutch Title Transfer Facility and the UK National Balancing Point.

Nersa is proposing the use of a five-year averaging period, rather than 12 months, to moderate the immediate increase, while the permanent methodology is reviewed.

IGUA-SA will, however, persist with its High Court complaint against the prevailing methodology, which it views to be even more irrational than the one declared to be unlawful by the Constitutional Court.

Human is concerned that Nersa is continuing to propose remedies, six in total, that fail to fully incorporate the principles stipulated by the Constitutional Court, including: that the outcome resemble a competitive market; that the supplier receives a price that covers its costs and provides a fair return; and that any economic surplus is fairly distributed.

“The best case scenario is that all stakeholders agree on an interim solution, as well as on a particular methodology that resembles the guidelines and the outcomes as provided by the Constitutional Court.

“The worst case is that this process is challenged by gas suppliers or other stakeholders and that this price shock is actually implemented.

“The impact would be an additional R11-billion cost to business, which will have a devastating effect on manufacturing production, investment and jobs,” Human concludes.