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Engineering News editor Terence Creamer discusses the OECD's findings on electricity reform in South Africa, as published in its latest survey of the South Africa economy.

A new Organisation for Economic Cooperation and Development (OECD) report recommends allowing South African municipalities to enter into concession agreements with independent electricity distribution companies to help address the maintenance and investment backlogs that are undermining security of supply.

The recommendation is made in the latest OECD Economic Survey of South Africa, which includes a chapter on the country's electricity sector, which has been central to the country's economic underperformance for nearly two decades and where risks persist despite a recent reduction in extreme loadshedding.

Releasing the report in Johannesburg, director of country studies Luiz de Mello highlighted the difficulties many municipalities faced in maintaining and expanding their electricity distribution networks.

Therefore, the OECD recommended that government consider transferring operations of struggling municipalities to third parties in the medium to long term.

"A concession agreement with an independent company could ensure the necessary investments that municipalities are currently unable to finance, while generating stable revenue through concession fees," the report stated.

However, it also stresses that clear provisions for service quality delivery, access and affordability would be essential.

The OECD notes that Portugal had adopted a model of transferring operations to private operators while municipalities retained ownership of the distribution grid and that, by 2020, the European country had 13 such distribution system operators.

However, the report acknowledges that opening distribution to private participants could amplify the financial distress of some municipalities and, thus, suggests that other reforms be considered in parallel, including a potential reviving of the regional energy distributors (REDs) initiative of the 1990s.

The report states that the REDs model could help raise financing, optimise investment and improve governance, but would require a Constitutional amendment and could, thus, not be pursued immediately.

"In the interim, the government could incentivise informal case-by-case pooling, such as financial rewards for large, well-functioning municipalities mentoring smaller ones or tie the debt moratorium framework for distressed municipalities to capacity-building efforts with well-functioning municipalities."

In addition, the report proposes that consideration be given to municipal partnerships or shifting responsibilities to provinces, which it says could help address managerial capacity issues in the near term.

De Mello also noted with concern the fact that many South African municipalities still relied heavily on revenues from electricity sales, which currently contributed between 25% and 30% of total municipal government income.

By applying a mark-up to electricity purchased from Eskom, municipalities earned about R23-billion yearly which was meant to help fund infrastructure.

"Amidst tight fiscal constraints and high indebtedness, municipalities often use electricity revenues to cross-subsidise debt and fund other initiatives, paring back spending on the electricity network under their responsibility," he noted.

In addition, as bulk tariff increases placed pressure on margins, municipalities were now exploring surcharges to sustain revenue.

Speaking at the launch of the report, Deputy Finance Minister Ashor Sarupen noted the OECD's recommendations to revise municipal funding models, as well as to align electricity revenues with infrastructure investment.

"Government is already taking steps in this direction.

"As part of Operation Vulindlela Phase II, we are working to shift both water and electricity services to a utility model.

"This will help ensure that municipal services are financially sustainable and better managed.

"A broader review of the local government funding model is also underway to strengthen how infrastructure is funded and delivered at the local level," Sarupen said.

De Mell...

Industrial Gas Users Association South Africa (IGUA-SA) CEO Jaco Human has called for the urgent finalisation of a fiscal guarantees framework to help progress, to a "transactional level", the infrastructure required to mitigate an impending gas supply crisis.

In a presentation to the Portfolio Committee on Electricity and Energy, Human welcomed recent shifts in government thinking regarding the future role of gas, including using gas-to-power (GtP) projects to anchor demand for the importation of liquefied natural gas (LNG).

He warned, however, that the strategy was not yet pragmatic enough to support immediate investment, adding that the pathway for implementing near-term mitigation measures remained "vague".

"Industrial users require a roadmap with defined actions, timelines, policy commitments, and we certainly do not require rounds of further consultation or vision statements," Human said during a committee meeting attended by Mineral and Petroleum Resources Minister Gwede Mantashe.

IGUA-SA calculates that South Africa has a nine-month window to finalise a fiscal framework, develop a gas-aggregation platform, and conclude the transactions needed to facilitate the investment decisions needed for the construction of LNG importation infrastructure by mid-2030.

Its assessment of project readiness also indicates that only LNG import-terminal projects in Mozambique, which would link directly into the existing Rompco pipeline from Maputo to Gauteng, could be built in the timeframe available.

An import terminal proposed for Richards Bay was also advancing, but Human argued that it would not be developed in time, and would also mostly service a regional industrial market in KwaZulu-Natal rather than hinterland demand.

"Right now, it is important to focus on the short-term enablers, which are demand aggregation, and a public-private partnership for the guarantee structure that is required to underpin these investments.

"There are many options and schemes available but it is important that these parties get around the table and talk at a transactional level," Human said, urging that policy be developed in parallel to address the country's medium-term gas strategy.

IGUA-SA, which has 600 members that collectively employ 75 000 people and contribute about R600-billion yearly to South Africa's GDP, was also moving ahead with its Gas Hub demand aggregation initiative.

The not-for-profit platform would be open to gas offtakers, traders, State-owned enterprises and small companies and could compete with Sasol, which has hitherto dominated gas supply and which has a stated goal of becoming a gas aggregator itself.

Sasol also made a presentation to the committee, in which it confirmed that the gas supply plateau from its depleting Pande and Temane gas fields in southern Mozambique had been extended to 2028 from 2026.

SUPPLEMENTAL SUPPLY

In addition, it confirmed again that it was working to supplement supply to 2030, and possibly beyond, by supplying synthetic methane rich gas (MRG), produced from coal, to industrial customers.

The MRG would cost more than the gas being imported from Mozambique, partly because of higher production costs and partly because Sasol would face the opportunity cost of diverting gas it would have used to produce fuels and chemicals to industrial customers.

The sale and pricing of MRG would require the approval of the National Energy Regulator of South Africa and an application was being prepared.

However, Sasol along with other industry stakeholders, including IGUA-SA, viewed it as a "bridging solution" ahead of the importation of LNG.

Such importation, while far more expensive, was regarded as the only realistic option for meeting demand in the short- to medium-term, because South Africa had not yet developed any commercial domestic projects, despite making discoveries, mostly off its West Coast.

Mantashe lamented that the current discussion on gas supply was dominated by LNG and again argued for the developme...

While defending the controversial launch of a R100-billion Transformation Fund, Trade, Industry and Competition Deputy Minister Zuko Godlimpi has also urged lawmakers not to view the proposed instrument as a "silver bullet" for all the prevailing problems associated with the implemention of broad-based black economic empowerment (BBBEE) policies.

Much of the criticism of the fund has hitherto centred on the potential for creating a new avenue for corruption by establishing a State-led fund, as well as whether an aggregated fund would prove more effective than the individual efforts of private companies seeking BBBEE credit for their enterprise supplier development (ESD) investments.

However, several members of the Parliamentary Portfolio Committee on Trade, Industry and Competition also voiced concern during a meeting on June 3 over whether the fund had the necessary scale to support meaningful transformation of the business landscape, where ownership and control continued to be racially skewed.

Godlimpi argued that the fund could not address ongoing structural constraints to the development and sustenance of black-, women- and youth-owned companies and was being proposed, instead, to address weaknesses related mainly to the effectiveness of ESD investments.

Under the Department of Trade, Industry and Competition's (dtic's) generic BBBEE scorecard, as well as several sector-specific scorecards, companies can earn some 40 BBBEE points out of 100 for investing 3% of their after-tax profits yearly on ESD activities.

DTIC deputy director-general Susan Mangole told lawmakers that about R20-billion was being directed towards ESD investment yearly.

However, she said these investments were currently failing to have the desired impact, quoting a 2022 BBBEE Commission report indicating that only 61% of ESD targets were being achieved.

Mangole attributed these failures largely to evidence showing that companies were supporting activities outside of their own value-chains, which was limiting the beneficiary firm's access to markets and undermining their long-term sustainability.

VOLUNTARY FUND

The dtic was, thus, proposing to establish, in phases, a voluntary fund that sought to aggregate ESD funding into a single Transformation Fund, but without adding new financial burdens or compliance criteria.

These aggregated funds - alongside resources that could also be raised by way of Equity Equivalent Investment Programmes by multinationals, public-interest-related investments arising from mergers and acquisitions approved by the Competition Commission, and potential other government funding - would be invested into small and medium-sized enterprises by way of a new special purpose vehicle (SPV) housed under the National Empowerment Fund.

The SPV would be established in partnership with the private sector and would be governed by a nine-member oversight committee and a board appointed by the Minister, with appointees drawn from the public and private sectors.

Mangole indicated that the bulk of the disbursements would be in the form of concessional loans, but that equity investments and grant funding could also be pursued.

She gave no indication as to how concessional the interest rates would be, but indicated that comments received ahead of the May 28 deadline for public input on the department's draft Transformation Fund document called for the fund to be "developmental in nature, with a high-risk appetite".

The department did not provide feedback on all the comments received, indicating that it was still processing the submissions. However, it promised to provide the committee with feedback once it had fully categorised the various inputs.

Mangole did reveal, however, that transparency and good governance emerged as an important theme, alongside calls for effective monitoring and evaluation.

Despite its developmental character, the department was still aiming for the fund to be self-sustaining, as well as to be in a position to recycle rep...

Engineering News editor Terence Creamer discusses the tense exchange in Parliament this week over a draft policy direction Gazetted on May 23 relating to the use of Equity Equivalent Investment Programmes by licenced broadband providers that have hitherto had to sell 30% of their

Electricity trader Discovery Green has signed a power purchase agreement with Red Rocket that unlocks the second phase of the independent power producer's (IPP's) 150 MW Overberg Wind Farm, located 12 km west of Swellendam in the Western Cape.

The offtake agreement is the first to be concluded by Discovery Green, which is part of the larger JSE-listed Discovery Group.

The Overberg Wind Farm Phase 2 will deliver over 489 GWh yearly, which will be wheeled to Discovery Green clients, including Impala Platinum, Fortress Real Estate Investments, Balwin Properties, KP Lime, and The Capital Hotels and Apartments.

The project will begin full commercial operation in 2027, and together with Phase 1 represents a total investment of over R13-billion, which has been financed by a group involving Absa Bank, Standard Bank, and the Development Bank of Southern Africa.

Red Rocket CEO Matteo Brambilla said in a statement that the Overberg Wind Farm represented the future of private-sector-driven renewable energy, describing the multi-offtaker approach being facilitated through Discovery Green as a "landmark" deal.

Discovery Green head Andre Nepgen argued the agreement set a strong precedent for "enabling a new renewable energy model that meets the needs of a diverse range of businesses".

"The renewable energy market is still in its infancy, and delivering a project of this scale and complexity required us to chart new ground," Nepgen added.

Discovery Green recently entered into a partnership with Sasol to launch Ampli Energy, which aims to provide renewable electricity to small- and medium-sized firms that are unable to enter into long-term power purchase agreements of their own.

"With the Overberg Wind Farm project, Discovery Green is scaling its impact across sectors, from heavy energy users to fast-moving consumer brands," Nepgen said.

Brambilla also underlined the importance of the project to Red Rocket, a Cape Town-based IPP that was founded in 2012.

"Our energy portfolio now boasts almost 4 GW of projects in operation, under construction, awarded preferred bidder status, moving towards financial close, and commencing construction.

"We've achieved phenomenal success in the Renewable Energy Independent Power Producer Procurement Programme with two recent achievements, including Bid Window Five projects, Brandvalley and Rietkloof wind farms, reaching commercial operations earlier this year.

"Overberg Wind Farm also joins our growing portfolio in the commercial and industrial market, with Witberg Wind Farm, in partnership with Sibanye-Stillwater, currently under construction."

Independent power producers (IPPs) Mulilo and Scatec have been named as preferred bidders to develop 616 MW/2 464 MWh of new battery storage capacity at a cost of R9.5-billion across five substation sites in the Free State province.

Electricity and Energy Minister Dr Kgosientsho Ramokgopa made the announcement following the conclusion of the third bid window of South Africa's Battery Energy Storage Independent Power Producer Procurement Programme (BESIPPPP), which was launched on March 28 last year.

A total of 33 bid responses were received by the November 28 bid submission date and Ramokgopa announced that South African IPP Mulilo had emerged as the preferred bidder across four of the sites, with the following projects:

The 124 MW Bloemhoek BESS project at the Theseus substation, which had an evaluation price of R1 801.24/MWh;

The 123 MW Erfdeel BESS project at the Everest substation, with an evaluation price of R2 157.29/MWh;

The 123 MW Vanilla BESS project at the Harvard substation, with an evaluation price of R2 169.80/MWh; and

The 123 MW Retreat BESS project at the Merapi substation, with an evaluation price of R2 477.86/MWh.

Meanwhile, Scatec, of Norway, which has a large South African presence, prevailed with its 123 MW Haru BESS project at the Leander substation, with a R2 037.10/MWh evaluation price.

All the projects would use lithium-ion battery technology, and the Minister indicated that the projects were expected to reach commercial close in the coming eight months and enter into commercial operation by January 2028.

Interim IPP Office head Elsa Strydom said there had been a 40% decrease in the average evaluation prices during the third bid window when compared with the first bid window of 2023. That round involved five projects in the Northern Cape, four of which were currently under construction, with one aiming to reach commercial close in June.

She indicated the evaluation prices were also 8% better than those achieved during the second bidding round for eight projects in the North West province, which were bid only months prior. Those projects are expected to achieve commercial close by March next year.

Strydom attributed the decline in costs to a combination of technology learning and the fact that South African financial institutions had become more comfortable with battery storage.

As with the previous two bidding rounds, the projects had been procured under a 15-year power purchase agreement framework and had been evaluated primarily on price, but were also scored using socioeconomic and transformation criteria.

Across the three rounds, projects with a combined investment value of R30-billion and 1 744 MW, with four hours storage, had been procured in line with a Ministerial determination published under the 2019 edition of the Integrated Resource Plan (IRP).

Ramokgopa said any additional battery procurement would be based on the 2025 edition of the IRP, which was currently being discussed at the National Economic Development and Labour Council (Nedlac).

He indicated that the Nedlac process should be concluded during June and that he was optimistic that Cabinet would approve the update before the end of July, making no reference to ongoing disquiet both over the content of the draft and unhappiness with the lack of consultation.

Besides storing mostly solar-generated electricity for use during the morning and evening peaks, the Minister said the projects would also provide ancillary services to the National Transmission Company South Africa, which had selected the five sites, as had been the case in the previous rounds.

The ancillary requirements include instantaneous reserves, regulating reserves, ten-minute reserves, and supplemental reserves.

He also announced that the IPP project companies would have a minimum 40% shareholding by black-empowerment entities, while there would be a minimum 30% black shareholding by construction contractors, and up to 42% in operations contractors.

However, he expresse...

DP World has unveiled what it calls an integrated logistics and market-entry product aimed at solving the challenges automotive original equipment manufacturers (OEMs, or vehicle manufacturers) face in sub-Saharan Africa.

DP World says the solution, initially developed for and piloted with China's Foton Motor, "sets a new model for overcoming entry barriers in one of the world's fastest growing automotive markets".

According to the Dubai-based logistics group, vehicle demand in the region is expected to increase by 28.5% by 2030. Africa currently accounts for only 1% of global vehicle sales, whilst being home to 18% of the world's population.

"For global OEMs, a lack of dependable logistics infrastructure, complex regulatory requirements and unreliable parts distribution have hindered efforts to expand in the region," notes DP World in a statement.

The company says its new turnkey solution blends contract logistics, tailored market-entry and expansion services into a unified platform.

The new offering includes nationwide distribution to most dealerships within 24 to 48 hours, a digital dealer portal that allows for stock-keeping-unit-level inventory visibility, real-time tracking, automated ordering, as well as integrated payments.

"By leveraging DP World's end-to-end support platform, Foton rapidly established aftermarket operations in South Africa for their heavy commercial vehicles, including warehousing, nationwide distribution, regulatory compliance and digital dealer enablement," says DP World.

"This rapid entry positioned Foton South Africa as a first mover with integrated service networks, creating an early advantage to build customer trust and engagement."

DP World believes its new hybrid model will allow OEMs to build first-mover advantage in a region where aftermarket parts are often dominated by informal players and grey imports.

"By offering a reliable service network, OEMs like Foton can establish trust, secure long-term customer loyalty and reduce the risk of counterfeit parts, with a single point of contact and accountability within the market."

"The demand for vehicles is booming in Africa, but the difficulty is ensuring vehicles and parts can reach where they are needed, when needed," notes DP World automotive vertical lead David D'Annunzio.

"Our turnkey solution will change the game for OEMs, removing the traditional friction points and allowing them to scale their operations. This is the new blueprint for OEM expansion in Africa."

"Growing our presence in South Africa is a priority for Foton, and our work with DP World has played an important role in making that possible," adds Foton International president Fu Jun.

The Independent Power Producer (IPP) Office has confirmed that a request for qualification will be issued in July in preparation for the first phase of the procurement of independent transmission projects (ITPs), a tender for which is scheduled to be launched in November.

The IPP Office has been given the responsibility to oversee the initial procurement and a Ministerial determination for the first phase of the programme was Gazetted on March 28 for the procurement of 1 164 km of 400 kV transmission lines across seven projects in three provinces, together with 2 630 MVA of transformers.

Successful ITP bidders would be required to develop, design, finance, build, operate, and/or maintain designated transmission facilities for the duration of a concession period, and subsequently transfer ownership to the National Transmission Company South Africa (NTCSA).

Draft regulations for ITPs are also currently out for public comment and a credit guarantee vehicle designed to mobilise private-sector capital for ITPs without adding to government's contingent liabilities is scheduled to be launched in 2026.

In a presentation to the Portfolio Committee on Electricity and Energy on May 28 IPP Office interim head Elsa Strydom, who took up the position in May after Bernard Magoro's contract expired, reported that lessons learned from the initial projects would guide future procurement, as well as the contracting model to be used for government's broader ITP ambitions.

A report had been prepared following responses to a market-testing request for information, which was released in December and closed for submission at the end of February.

The expansion and strengthening of the grid by the ITPs, the presentation states, would unlock the roll-out of future IPP programmes, with the public IPP procurement programme that previously dominated the procurement landscape, which had been widened to private-to-private and wheeling-linked procurement, currently under review.

A total of 97 operational projects with a combined capacity of 7 615 MW had been procured through the IPP Office, while 14 projects with a combined capacity of 1 525 MW were under construction, and 21 projects with a capacity of 3 168 MW were said to be advancing towards financial close.

However, the public procurement programme was also facing headwinds, which Strydom listed in her presentation as including constraints in grid capacity and extended "process timelines" for securing cost estimate letters from Eskom of between 90 and 120 days, as well as the 180 days it was taking Eskom to process budget quotes for grid access.

"There's a need to streamline and align processes to aid in managing procurement timelines," Strydom indicated.

She also reported progress on several procurement processes, including the third battery storage bid window for 616 MW/2 464 MWh across five pre-selected substation sites where preferred bidders were due to be named on May 30.

It was also revealed that the two open-cycle gas turbine IPPs had applied for an extension of their 15-year power purchase agreements, which were due to expire in the 2030/31 financial year, as well as to convert the plants to operate on natural gas rather than diesel.

As government prepares to spend more than R1-trillion on infrastructure over the next three years, President Cyril Ramaphosa wants the private sector to quadruple that to R4-trillion.

"I want R4-trillion, and the other R3-trillion must come from you as the private sector.

"Armed with that, we then become a locomotive - unstoppable - because out of that R3-trillion you will invest, you will get a return, you will make money, and we will turn South Africa around."

Speaking at the Sustainable Infrastructure Development Symposium South Africa (SIDSSA) held in Cape Town this week, Ramaphosa emphasised that government did not have the financial resources to answer all of the country's infrastructure needs, and that it required international and domestic capital to fund "the beckoning infrastructure boom".

He noted that government had been able to come up "with much clearer, forward-looking funding methods" - especially through an agency such as Infrastructure South Africa (ISA) - to provide the credibility that was necessary for stakeholders to invest, so that South Africa could "mobilise the trillions of rands in long-term savings held by domestic and offshore institutions".

ISA's main goal is to select strategic infrastructure projects and to prepare and package these projects so that they are viable and bankable undertakings - attractive investments, in other words.

All ISA-selected projects must be valued at R1-billion and above, and must be able to leverage private-sector involvement, blended finance, or be commercially viable on their own.

One of ISA's products is the Construction Book.

Released last month, the second edition of the Construction Book lists around 250 construction projects with an estimated value of more than R238-billion.

"[This] is a credible and detailed list of fully-funded infrastructure projects," said Rampahosa.

"This year it includes social infrastructure projects that are overseen by National Treasury.

"By focusing on projects that are procurement-ready and financially secured, it also reduces uncertainty for contractors, consultants, manufacturers and material suppliers.

"We are showing that we have moved from great ideas on paper, to executable plans - to implementation," noted Ramaphosa.

"We want to move fast," he added. "We are implementing the reforms that are needed to make it easier for more construction to take place by reducing regulatory duplication and providing investors with long-term certainty.

"Some of the reforms we are focusing on will make it easier for public-private partnerships (PPPs) under the value of R2-billion to gain approval.

"This will significantly reduce the procedural complexity of implementing PPPs."

Ramaphosa also openly acknowledged the errors of the past in his opening address.

"For many years, major projects were announced without technical readiness, cost realism or stakeholder alignment.

"Some of us in government will own up to that.

"We have in the past not matched the great ambition we had with the reality of the availability of technical skills that can make the projects bankable.

"Beyond that, we were not matching the availability of financing to fund those projects. All of these things were completely disconnected.

"As politicians we would stand up and say we are going to build this and that and that and everyone would clap hands, but many years later we would find that not much had happened, because we were not connecting the dots properly," said Ramaphosa.

"We had many sod-turning ceremonies at the start of projects, but very few ribbon cutting ceremonies on completion.

"ISA was established to break this pattern."