Projects and Energy Weekly Snippets

Africa's energy challenges continue to weigh down its growth
The lack of vital electricity infrastructure continued to bedevil Africa’s drive towards developing integrated regional markets, while energy usage in sub-Saharan Africa had increased by 45% in the past 15 years, said Eskom board member Zethembe Khoza at African Utility Week in Cape Town on 12 May. The International Energy Agency’s Africa Energy Outlook currently estimated that Africa's energy sector needed an additional $450 billion investment to reduce power outages by half and achieve universal electricity access in urban areas.

"There are cross-border opportunities in terms of gas and renewables and additional renewable independent power producer opportunities in South Africa that we are exploring,” said Khoza, reading a speech on behalf of Eskom’s acting CEO Brian Molefe. Khoza advised that Eskom was particularly excited about the potential benefits of the 40 000 MW Grand Inga Hydro Power Project in the Democratic Republic of Congo (DRC).

Power Africa coordinator Anthony Herscowitz said the President Barack Obama-driven initiative, aimed at linking investors and entrepreneurs to business opportunities in Africa in the power sector, had made valuable inroads in several countries. Power Africa, which worked with governments and more than 100 private-sector partners, was also exploring projects in Tanzania, Ghana, Rwanda and Nigeria, among other countries.

Engineering News, 12 May 2015

SA set to allow shale gas exploration to proceed despite 24-month risk assessment
The South African government has formally launched a ZAR12.5 million, 24-month strategic environmental assessment (SEA) of shale gas mining in the Karoo in an effort to understand the potential environmental risks of exploiting probable, but as yet unexplored, unconventional gas resources in the water-stressed territory. However, it has also indicated that it plans to allow energy companies to conduct parallel exploration activities, with the Department of Mineral Resources set to seek Cabinet approval imminently for supportive regulations. A project executive committee would be responsible for coordinating a multi-author drafting process, while a multi-stakeholder process custodian group would be established to oversee the governance of the process. 

Energy Deputy Minister Thembisile Majola argued that the discovery of shale gas could change South Africa’s energy landscape and create the basis for an entirely new industry. Current estimates suggest that the Karoo basin could hold between 380 trillion cubic feet (tcf) and 485 tcf, but the actual size of the resource could only be determined by active exploration. Environmental Affairs Minister Edna Molewa indicated that safeguards were already in place through South Africa’s existing environmental legislation to facilitate exploration while the SEA process continued. That said, the SEA outcomes would influence the future regulatory regime.

Engineering News, 12 May 2015

Eskom war room revives stake sale
The Treasury has been instructed by the government’s energy "war room" to probe and come up with proposals to secure greater private-sector participation in electricity generation, including, but not limited to, renewable energy. This will be in addition to the sale of state-owned assets to generate the ZAR23 billion needed by the utility to address its short-term cash shortfall.

The "war room" has asked the Treasury to investigate possible ways for the private sector to participate in Eskom’s business. Preliminary ideas, Treasury Director-General Lungisa Fuzile said in an interview after briefing Parliament’s standing committee on finance, involved the sale of power stations or an initial public offering of Eskom shares.  "The question as to whether portions of state-owned enterprises can be spun off to raise money is on the table," Mr Fuzile said. "The Treasury has been asked by a committee of Cabinet to look into how this could be done and whether, in the case of Eskom, it would be more feasible to do it in relation to power stations or the entirety of the balance sheet of the entity. The private sector is currently involved in the financing of Eskom but only through debt," he said.

Energy analyst Chris Yelland welcomed such an initiative by the government, saying Eskom’s monopoly over electricity generation needed to be dismantled. The recapitalisation of the over indebted Eskom and the introduction of international strategic equity partners, who could bring capital, technology, new management skills and a new vision, were essential. Democratic Alliance MP David Ross also supported the unbundling of Eskom’s supply monopoly adding that "it would take financial pressure off the state by getting private investors to help fund electricity generation".

Business Day, 13 May 2015

Nersa to make Eskom tariff call by 29 June
The National Energy Regulator of South Africa (Nersa) did not approve Eskom’s application for a 25.3% tariff hike for 2015/16 at its meeting on 13 May and instead instituted a fast-track public-consultation process, which would culminate in a determination by 29 June. Spokesperson Charles Hlebela stated that Nersa would entertain written comments on Eskom’s application until 15 June. It would also host public hearings in Gauteng on 23 and 24 June, and would announce its final decision on 29 June.

Eskom had applied for a selective reopening of the final three years of the third multi-year price determination (MYPD3) decision, which began on 1 April 2013 and will continue until 31 March 2018. Through the application, the utility was seeking approval to increase its 2015/16 tariffs to 25.3%, inclusive of the 12.69% already granted for the current financial year. An additional 10.1% was attributed to the extra costs associated with operating the open-cycle gas turbines (OCGTs) for extended periods, as well as the extension of the short-term power purchase programme (STPPP). The 2.51% balance, meanwhile, related to the 2c/kWh increase in the environmental levy announced by Finance Minister Nhlanhla Nene in February.

Engineering News, 13 May 2015

Sugar cane to branch out to bio-ethanol, electricity
The ZAR12 billion sugar industry is looking to diversification to increase its revenue and arrest the shrinking margins of growers and millers, MPs heard on 13 May. The diversification plans included using sugar cane to produce bio-ethanol and to generate renewable electricity.

Chairman of the South African Sugar Association Rolf Lütge in a briefing to Parliament’s trade and industry portfolio committee stressed though that before the industry could move ahead it needed government to lay down the regulatory environment for ethanol. He noted that there had been a significant decline in sugar cane production since 2000. Factors contributing to the decline include the number of farms abandoned, the climate, ineffective elements of land reform and rising input costs such as transport and fuel. Lack of access to affordable finance and infrastructural constraints were other factors.

The association’s natural resource manager Marilyn Govender said the 14 sugar mills currently produced renewable co-generated electricity for their own use with about six mills supplying about 11 MW to the national grid. With a minimum amount of investment this could be increased to about 78 MW over three to five years and with an investment of ZAR20 billion over 10 years about 712 MW could be supplied to the grid. This would only become possible, however, with the launch of the national co-generation programme.

Business Day, 13 May 2015

The above reflects a summary of certain news articles published during the preceding week. It is not an expression of opinion in respect of each matter, nor may it be considered as a disclosure of advice by any employee of Hogan Lovells.

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