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State-owned utility Eskom says the rejection, by the Energy Regulator, of its latest allowable-revenue application has created a regulatory vacuum for the electricity supply industry.

“Eskom is accordingly considering how to proceed, and is taking advice on its position following the National Energy Regulator of South Africa (Nersa) decision,” the utility said in a statement on Friday.

On September 30, the Energy Regulator rejected Eskom’s fifth multiyear price determination (MYPD5) submission for the three financial years from 2022/23 to 2024/25.

Nersa, which launched a consultation process on September 24 to review the price determination methodology, argued that the application was based on the MYPD4 methodology, “whose applicable control period is ending on 31 March 2022”.

“After due consideration of the rationality and legality of applying an expired MYPD4 methodology and whether this was in the public interest, the Energy Regulator rejected Eskom’s MYPD5 application.”

The Energy Regulator will request Eskom to submit a one-year interim application for the 2022/23 financial year, “preferably based on the principles of a new approach that is under consideration”.

Nersa has published a consultation paper on a new price determination methodology and set October 22 as the closing date for written submissions, with public hearings to follow from October 25 to 29.

Eskom, which submitted its MYPD5 application on June 2, argues that the prevailing methodology remains valid, until replaced.

It argues further that, even if a new methodology were to be developed in time, Eskom would not be able to make a new price application for implementation by April 1, 2022, until full statutory compliance, due process and legislative consultation have been complied with.

“The required timelines for approving a new methodology, and for Eskom submitting a new application in accordance with the new methodology, are exceptionally short, and create the real risk that a new tariff will not be in place by 1 April 2022.

“Eskom also cannot, as suggested in the Nersa communication, submit an application on a methodology which is as yet unknown.

“A noncompliant application and subsequent determination will leave the resulting tariff decision open to legal challenge, thereby creating substantial risk not only for Eskom, but also for municipalities and other buyers of electricity,” the utility said in a statement.

“Nersa’s rejection of Eskom’s MYPD5 application has created a regulatory vacuum for the electricity supply industry in South Africa,” it warned.

US Deputy Special Envoy for Climate Dr Jonathan Pershing has described South Africa’s latest climate pledge as “extraordinary” and says the US and other donor countries will seek to support South Africa’s ambition to transition to a decarbonised economy “by the middle of this century” with concessional finance.

Pershing visited South Africa this week as part of a broader delegation of climate envoys from the UK, France, Germany and the European Union during which meetings were held with government Ministers and officials, trade unions, business and civil society.

The tour followed on South Africa’s announcement that it had deposited an updated Nationally Determined Contribution (NDC) range of 420 – 350 million tons of carbon dioxide equivalent (Mt CO2-eq) for 2030 with the United Nations Framework Convention on Climate Change, which represented a marked improvement on its 2015 NDC pledge of 614 – 398 Mt CO2-eq.

“That’s exactly where we need to go and that kind of a decision, [as well as] the process that South Africa has taken, is extraordinary,” Pershing said during a virtual briefing on Friday, noting that the country’s updated NDC had been widely consulted domestically.

He described the discussions held between the envoys and South African stakeholders as “excellent” and said that he was optimistic that the conversations on how best to support South Africa’s “just transition” would continue ahead of the COP26 conference, which is scheduled for Glasgow, Scotland, in November.

Both grant and concessional loan finance would be needed and “we will talk to our South African colleagues and partners about both”.

He noted that as a middle-income country, South Africa was not always able to secure concessional loans from the World Bank and other multilateral institutions.

“But that does not mean there is not a need here [and] it doesn’t mean that there is not a demand for capacity building that isn’t really accessible on commercial terms.

“And so, yes, we believe that part of what the donors will be seeking to do is to help raise concessional finance for the South African transition.”

The Energy Regulator has rejected Eskom’s latest revenue application for the three-year tariff cycle starting in 2022 and has proposed that it be submitted again under a new methodology. Engineering News editor Terence Creamer unpacks the development and its implications.

A protracted strike in the metals and engineering sector would severely undermine the nascent recovery under way in the industry following what was a deep Covid-linked slump in 2020, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) warned on Thursday.

Speaking at the launch of a report on the sector’s performance during the first half of 2021, CEO Lucio Trentini said the industry was on a “precipice”, after the National Union of Metalworkers of South Africa (Numsa) served formal notice on Wednesday afternoon that a strike would begin at 05:00 on October 5.

The union has announced that over 430 000 workers across 9 000 steel and engineering companies will down tools, after failing to secure an 8% wage increase, a demand that was moderated from an initial level of 15%.

Seifsa has offered a 4.4% increase for the current year, 0.5% plus inflation in the second year and 1% plus inflation for the third year.

“The strike is set to start on Tuesday next week with a mass march to our offices in the Johannesburg CBD and similar marches are planned for Cape Town and Durban,” Trentini said.

“We are working around the clock and as hard as we can to mitigate the effect of that industry stoppage and to try and limit it as much as possible to one or two or three days at worst.”

Seifsa would meet with Numsa on Thursday afternoon to seek “common ground”, with Trentini describing the prospect of a protracted strike as “the last thing this industry needs” as it seeks to recover from the disruptions caused by the Covid lockdowns.

“We cannot, and I repeat, we cannot allow this industry to go through what it went through in 2014 when, for all intents and purposes, the industry ground to a halt for four weeks.

“The damage that was inflicted on the economy and our sector in particular in 2014 was enormous and there are many, many employers out there that are still struggling to recover.”

Seifsa calculates that the 2014 strike cost the industry R300-million directly and estimates the overall economic cost at R6-billion, owing to the sector’s strategic links with so many other industries, ranging from mining and construction to automotive.

Seifsa is preparing a formal notice of lock-out in response to the strike, while its negotiating team explores “all possible settlement possibilities”.

Seifsa economist Palesa Molise listed the strike as a key threat to the ongoing recovery, which was otherwise showing “green shoots”.

The metals and engineering sector contracted by 13.7% in 2020 when compared with 2019, with capacity utilisation slumping to below 65%, owing to the restrictions imposed as a result of the Covid lockdowns.

The South African Purchasing Managers Index re-entered positive territory for the first time in 18 months in the fourth quarter of 2020, reflecting a recovery in industrial activity generally, including in the metals and engineering sector.

Molise says capacity utilisation in the sector improved to 77.1% in the second quarter of 2021, from 52.9% in the same period of 2020.

Sales had also recovered, with metals and engineering sales rising to R80.1-billion in June this year, having dropped to a low of only R24-billion in April 2020.

Molise says the sector is currently on track for production sales of R457-billion in 2021, which would reflect a marked turnaround from the R319-billion recorded in 2020 and an improvement on the R404-billion of 2019.

Besides industrial peace, future growth, she argued, would depend heavily on the South African government speeding up the implementation of its infrastructure investment plans, as well as the ongoing reform of its State-owned companies.

“Production has to continue improving and capacity utilisation levels above 80% are required to ensure a sustained recovery of the sector,” she said.

The Energy Regulator has voted to reject Eskom’s fifth multiyear price determination (MYPD5) application for the three financial years from 2022/23 to 2024/25 and will now request the utility to make a new submission under a new methodology, which is yet to be finalised.

The State-owned utility told Engineering News & Mining Weekly that it was “considering the options available to it in terms of the law” following the decision and stressed that it was committed to ensuring that the required legal and consultation processes were followed.

The rejection was made during the Energy Regulator’s September 30 meeting, where it was decided that the MYPD5 application had been made under a methodology that was no longer valid or relevant given the changes under way in the electricity sector, including Eskom’s unbundling.

Eskom submitted the three-year MYPD5 application on June 2 and, until Thursday’s decision, it was anticipated that the National Energy Regulator of South Africa (Nersa) would initiate the normal public participation processes to have it adjudicated in time for implementation on April 1.

The contents of the submission have not been published, but Eskom is likely to be seeking allowable revenue of about R300-billion over the period.

The revised tariffs must be submitted to Parliament by March 15, 2022, to allow Eskom to implement these revised tariffs for municipal customers.

On September 24, Nersa published a consultation paper on a new price determination methodology and set October 22 as the closing date for written submissions, with public hearings to follow from October 25 to 29.

In the paper, Nersa argued that the current revenue-based methodology had fallen short in providing stable prices, noting that electricity tariffs had surged by 175% over the past decade, despite consumer inflation having remained within a 3% to 7% band.

Nersa suggested a shift to a “cost-to-serve approach”, based on the principles of activity-based costing, type-of-service costing, and marginal pricing to set tariffs.

When the paper was published, Eskom indicated a willingness to engage on a new methodology.

However, it also said it was not in a position to make an application on the basis of a methodology that had not been subjected to stakeholder consultations and suggested that any determination made on a methodology that had not been finalised would likely be reviewed by the public.

The utility also indicated that it would require between nine and 12 months to prepare a new submission and that it would, thus, not be feasible for the regulator to make a revenue determination in time for implementation on April 1, 2022.

The hype around hydrogen is being driven by agendas and not facts in South Africa, says biomass-focused energy company UHURU Energy, which is urging the country to consider biohydrogen options.

UHURU biohydrogen lead Philip Riekert says the company believes that hydrogen is being promoted as a viable form of energy storage, to store wind and solar generated electricity, that can compete with electrochemical batteries in size and efficiency.

Riekert states that hydrogen requires more energy to produce than can be gained from its consumption.

For example, electrolysers require 50 kWh to produce 1 kg of hydrogen, from which only 33.6 kWh of electrical energy can be produced.

Further energy losses of between 5% and 25% occur during the compression or liquefication process of hydrogen.

UHURU CEO Mark Kaplan states that if that hydrogen is used in a fuel cell to power an electric motor, it loses a further 50% as heat, resulting in an overall efficiency rate of only 30%.

He elaborates that it could have been more viable if hydrogen was produced from solar or wind energy that was going to waste, or was in excess, but South Africa does not, at this stage, have enough energy from fossil fuel sources nor an excess of renewable energy.

Overall, UHURU director David Sonnenberg notes that green hydrogen production in South Africa uses valuable resources of water and energy, which South Africa does not have to spare, and still produces greenhouse-gas emissions in the transportation thereof.

Besides, looking at hydrogen-fuelled vehicles, refuelling stations are not easily accessible and Sonnenberg does not foresee the South African government subsidising this infrastructure any time soon.

Additionally, a $2/kg price for hydrogen is achievable in areas where excess renewable energy is generated, but for hydrogen to compete with current fuels, it needs to be as low as $1/kg.

Sonnenberg says the longer society buys into the hype around hydrogen, the longer it will avoid developing viable green energy policy that accurately provides decarbonisation opportunities.

Currently, hydrogen production from around the world predominantly comes from natural gas, coal or heavy fuel oils and produces dangerously high levels of nitrogen oxide when used in boilers or gas turbines.

There is, however, a promising opportunity for zero-emission hydrogen that requires less water and absorbs carbon.

UHURU is a manufacturer of Indigo and Amber biohydrogen, bioammonia for fuel cells and biomethanol for fuel cells.

The company grows crassulacean acid metabolism (CAM) plants, such as Spekboom, cactus pear and a C4 Grass, Vetiver, for dry areas as a biomass feedstock for various energy sources, including diesel.

The plants double as carbon sequestrators, further adding to climate change mitigation.

UHURU’s Indigo biohydrogen and Liquefied Biomethane is produced from fermentable biomass, while the Amber biohydrogen is produced from nonfermentable biomass.

Indigo biohydrogen uses large-scale anaerobic digestors to process biomass for hydrogen. Amber biohydrogen uses a thermal and mechanical process to decompose nonfermentable biomass.

Riekert says the company’s smaller biohydrogen modules can deliver 650 t/y of 99.91% hydrogen, while the largest module can deliver 3 200 t/y of hydrogen. The smaller biohydrogen modules require 250 ha of marginal land to provide the equivalent of 1 MW of power.

The biomass feedstock plants do not compete with traditional food crops or arable farmland, nor does it threaten biodiversity. UHURU focuses on landscapes that are not suitable for traditional agriculture and areas that have become marginalised owing to climate change.

UHURU uses a specialised farming model that is developmental, empowering and provides local farmers the opportunity to receive a semi-passive income from perennial crops planted on land that previously had little value.

Commenting on the plans that the mining industry has regarding decarbonisation, Sonnenberg says lo...

The first Ineos Grenadier vehicles destined for customers will arrive in South Africa in October next year, says Ineos Automotive South Africa and sub-Saharan Africa head Tim Abbott.

If the name sounds familiar, it is because Abbott is the former boss of the BMW group in South Africa and sub-Saharan Africa.

The Grenadier, which has been called the spiritual successor of the former Land Rover Defender, will be sold in South Africa using a direct sales model, such as the one Abbott pioneered for BMW South Africa.

For customers who prefer not to do almost everything online, the 4 x 4 will be available at three full sales and service points in South Africa, with one each in Johannesburg, Durban and Cape Town.

Ineos Automotive has signed agreements with two partners to run these three retail and service sites, namely Southern Motor Holdings, which will cover Gauteng, and the Sean McCarthy Group, which will be responsible for Cape Town and Durban.

Additional hand-picked service-only sites will provide further aftersales coverage, says Abbott.

A so-called ‘flying spanner’ has also already been appointed, standing ready to salvage any stranded Grenadier in sub-Saharan Africa.

Ineos Automotive is also in discussion with auto retailers to establish sites in Namibia and Botswana for a 2022 launch, providing full sales and aftersales operations.

Further retail partners will be appointed in Nigeria, Tanzania, Ghana and Ivory Coast. Ineos Automotive will launch in Angola, Kenya and Senegal with distributor partners.

Abbott says Ineos Automotive South Africa is exploring opportunities with BMW South Africa to also make use of the German car maker’s service network, as the Grenadier utilises BMW’s six-cylinder petrol and diesel engines.

Pricing for the Grenadier will start from R1.4-million, with a three-year, unlimited mileage warranty in the works.

Abbott says he is targeting the sale of 100 vehicles in 2022, and 1 000 vehicles at peak volume in 2026, with similar volumes across sub-Saharan Africa, which presents the company with “a viable business model”.

The company is also looking closely at an accessorisation programme, involving a number of local companies.

The Grenadier is assembled at the former Mercedes-Benz plant in Hambach, France, now the property of Ineos.

Ineos Automotive is also developing a double-cab bakkie version of the Grenadier.

Ineos Automotive was founded by Sir Jim Ratcliffe, billionaire chairperson of the multinational chemicals company Ineos.

“I have joined a new brand with a brand-new vehicle,” says Abbott.

“I got a chance to help shape the company, which is very innovative in the way it is going to market, in the way it wants to look after its customers.

“It also gives me a chance to stay in South Africa, my chosen country to live in, so I am delighted to be part of this team.”

There are a number of issues concerning the country that Business Unity South Africa (Busa) is currently tacking, CEO Cas Coovadia said during the Consulting Engineers South Africa (Cesa) Infrastructure Indaba 2021, on September 28.

Firstly, there is the issue of economic recovery. Coovadia said Busa was clear on the need for repositioning the economy, so that it is inclusive and that the majority have a stake in it.

He noted that Busa was pushing for more bilateral meetings with the Presidency with the aim of finding solutions to the economic challenges facing the country.

Secondly, there is issue of enhancing localisation, which is being promoted considerably by the Department of Trade, Industry and Competition, said Coovadia.

He said Busa and Business Leadership South Africa had commissioned a study, which was undertaken by Intellidex, which showed that there are certain areas of the economy, and some specific product areas, where it is possible to increase manufacturing and bolster localisation.

Coovadia said these low hanging fruits were there, and that, provided the regulatory environment was in place, local manufacturing could be enhanced, which would provide jobs.

He noted that, as an example, South Africa had imported the majority of personal protective equipment during the early part of the pandemic last year. Since then, local manufacturing capacity has been developed and there are now upwards of 20 small to medium-sized enterprises that manufacture about 90% of what is needed for the country.

Thirdly, there is the issue of relooking at the labour composition of boards of companies. Coovadia said Busa agreed with government that this was not the right time to tinker with this, as there are other, bigger considerable economic and social problems that require addressing first.

However, it was an issue that would have to be addressed in future.

Fourthly, there is the issue of the national health insurance. While this is in the health field, Coovadia said its impact would be felt across the economy.

While Busa is of the view that equitable healthcare for everybody is a priority, Coovadia emphasised that this must be done in way that includes both the private and public sector.

While the private sector does not serve the majority, it does work well in its own capacity, and this must not be destroyed, he stated.

Busa has made detailed submission to government and provided details on what part of the Bill must be amended to enable private public interaction to use the best capacity available across both of these to provide equitable healthcare, and allow choices for citizen, he said.

Busa would continue to engage with government on this, Coovadia indicated.

The fifth issue is that of climate change, with the country having made certain commitments to moving away from fossil fuels to greener forms of energy.

Coovadia emphasised that, in aiming to meet these, a just transition pathway must be pursued, to ensure that the communities and employees that are dependent on fossil fuels – which is the majority in South Africa – are not negatively impacted as greener forms of energy are phased in.

He also said Busa was very clear in that it wants developed countries that committed to assist with funding and capacity, to enable developing countries to broaden their mitigation efforts and transition to new forms of energy. “Funds need to flow,” Coovadia emphasised.

The sixth issue concerns the vaccine rollout, with Busa having mobilised about 40 professional to assist government with this, on a pro bono basis.

Coovadia said the vaccine supply problem had been solved, and now, there was a demand problem instead, with many South Africans wary to take the vaccine.

He said Busa was working with the government to encourage an uptake; and that the President was set to announce a vaccine weekend soon, where sites in key areas would be open for a weekend.

Lastly, there is the issue of infrastructure. Coovadia said Busa had been interacting...

The State-owned Industrial Development Corporation (IDC) is aiming to convert a significant portion of a R24-billion investment pipeline into commitments following a steep fall in both approvals and disbursements during its Covid-afflicted 2020/21 financial year.

The development finance institution reported that disbursements fell to R6.3-billion, from R8.4-billion in the prior year, while approvals slumped to only R5.4-billion from R9.5-billion.

CEO TP Nchocho said prior approvals of R9-billion were also cancelled as recipient firms pulled back from new investments in light of the uncertainty created by the pandemic, as well as weak business confidence.

The pipeline, he reported, was made up of 160 opportunities across a range of sectors from agriculture and manufacturing to non-coal mining, with energy-related prospects emerging particularly strongly, along with projects related to decarbonisation and the just energy transition.

The energy pipeline had been buoyed by the recent change to electricity regulations allowing for distributed generation projects of up 100 MW in size to proceed without a licence, as well as the resumption of government procurement through the launch of bid window five of the Renewable Energy Independent Power Producer Procurement Programme.

“We should approve, I believe, a substantial portion of the pipeline that is available to us and hopefully move fast towards financial close in order to disburse,” he said, reporting that the target for the current financial year was to make approvals of more than R10-billion.

The IDC had also received a mandate from its shareholder minister, Trade, Industry and Competition Minister Ebrahim Patel, to support the commercialisation of a green-hydrogen economy in South Africa.

A specialised team had been assembled to assess the full spectrum of opportunity, including the inputs and resources employed in the production of green hydrogen, as well as manufacturing spinoffs and distribution and logistics networks.

However, Nchocho said it would be premature to indicate when the first green-hydrogen-related commitments would be made, as many of the initiatives were at a “very early stage”.

Patel stressed the importance of the green economy, stating that there was an opportunity to build industrial capacity on the back of the roll-out of renewable infrastructure and to leverage the country’s renewable energy generation potential to become a global green-hydrogen leader.

“I have designated the IDC to lead the commercialisation of the hydrogen economy in South Africa and there's considerable work that is being done now and we hope to complete that work in the course of this year and to be able to put some of those ideas forward to investors,” Patel said.

The Minister also urged the IDC to “go green, go industrial and go bolder” as it sought to bounce back from a year where the focus had been on shoring up its balance sheet to “weather the storm”.

The IDC reported a R33-million loss for the year, which was largely attributable to Foskor’s R2.2-billion loss.

However, CFO Isaac Malevu said that group’s financials had strengthened materially during the year, supported by a strong rebound, R51.9-billion, in the value of its listed portfolio, from the R23.5-billion level reported in March 2020.

Impairments and write-offs had also reduced from R7.7-billion to R2.2-billion.

“The improved balance sheet means that IDC is well geared and positioned to take on more funding activities in support of both government and private sector led investment initiatives,” Malevu stated.

Businesses will now have to contend with the prospect of a major cut in bandwidth for those who connect through cellphone networks, as regulatory body Independent Communications Authority of South Africa (Icasa) is moving ahead with a plan to terminate access to emergency spectrum at the end of November.

“This will make it harder for workers to connect from home, leaving businesses with a difficult choice – either force workers back into the office, put them on leave or make them redundant.

“The move by Icasa has particularly hit the business process outsourcing sector, the one area of the economy that has managed to grow employment during the pandemic. It relies on good broadband to connect workers for tasks like call centre operations.

“Efficient mobile broadband is particularly important for township sectors which do not have high fixed line penetration and temporary workers who do not want the cost and long-term contracts of other forms of access,” Business Leadership South Africa (BLSA) CEO Busi Mavuso comments in her weekly newsletter.

She notes that the end-November deadline is imminent, but that there has been no comment from government about the decision.

“The emergency spectrum was allocated in terms of national disaster regulations as the pandemic was breaking last year. It was one of the most positive moves in the fight against the pandemic and included requirements to provide free educational platforms and material so learners could continue their education from home.

“It also has been important in the vaccine effort, with anyone able to book vaccines through the Department of Health websites from their phones for free. All that will go with the termination of the temporary licences,” Mavuso notes

She posits that the decision has also damaged confidence in an increasingly important part of the country’s economy, namely the call centre industry.

Mavuso points out that the country’s quality of English language skills and position relative to US, European and Asian time zones has enabled it to build a large business servicing sector to support global companies.

Overall, business process outsourcing in South Africa employs 270 000, but management consulting firm McKinsey estimates this could grow to 775 000 by 2030, with two-thirds of those servicing overseas markets, making it a considerable export revenue earner, Mavuso states, noting that it has been growing at a compound rate of over 24% for the last six years.

However, she emphasises that it is highly dependent on connectivity, both to the rest of the world and domestically.

“While workers can be brought back into offices, we remain at adjusted Level 2 lockdown in which employers are required to encourage workers to work from home.

“Given that there are still 700 000 fewer jobs than before the pandemic, the last thing we should be doing is damaging confidence in areas that have been creating jobs. Indeed, we should be doing everything possible to enable the economy to recover,” Mavuso asserts.

She notes that what the country actually requires is a long-term solution to the shortage of spectrum available in South Africa.

Mavuso points out that this is a process that has been under way for over a decade, but that it remains marred by policy sequencing problems and litigation. Therefore, emergency spectrum should remain in place until that process is resolved, she argues.

“The Icasa decision on emergency spectrum may add to the litigation that it is embroiled in. Icasa is legally required to consider the interests of end-users when it makes its decisions, but I cannot imagine any possible justification for this decision from an end-user’s perspective. It makes it harder for people to obtain information to fight the pandemic and harder for them to work safely.

“While Icasa is an independent regulator, I am also astounded there hasn’t been a stronger outcry from the political level, especially given the approaching local government elections. The prospect of digita...