Energy

Karpowership’s new contract to cost South Africa R15 billion a year

Karpowership

Karpowership’s latest offer to shorten the contract of its powerships to 5 years from the original 20 will increase the cost of electricity from the floating gas power plants to an estimated R15 billion a year. 

MyBroadband reported that the company’s chief commercial officer Zeynep Harezi told e. tv’s My Guest Tonight with Annika Larsen that Karpowership is willing to shorten its original contract to five years. 

Karpowership plans to provide South Africa with 1,220 MW of much-needed electricity supply. However, its projects have been beset by delays due to legal challenges from environmental groups. 

Most recently, Environment Minister Barbara Creecy dismissed appeals from environmental groups seeking to block the company from applying for approval to moor powerships in Richards Bay and Saldanha Bay.

A 12- to 18-month delay is expected for approval at the Ngqura/Coega harbour, where Transnet had taken issue with the planned location of another 450 MW plant.

While the environmental concerns are among the hurdles Karpowership is close to clearing, the issue of its two-decade contract length has raised concerns over the costs of the electricity it will provide.

Powerships are typically used as an emergency short-term mechanism in times of crisis, including war, in countries with few other options.

Harezi is the first at the company to confirm that Karpowership was ready to reduce the contract timeframe to a quarter of its original length to help calm fears over its potential long-term costs.

“Whatever is the best proposal we can put forward for five years, we will. And if that is saving South Africa billions of rand [in diesel] costs, I think it is an offer to be considered,” she said.

“We are more economical than almost all land-based options as well. We’re just giving this five-year option to ease decision-making.”

“A five-year project is better than 20 years of nothing if that is the decision we will be subjected to.”

However, she did not rule out that the contract could remain open to extensions upon request.

Although the Council for Scientific and Industrial Research previously estimated the cost of the 20-year contract to be roughly R228 billion, the exact price tag is difficult to determine.

Neither the South African government nor Karpowership have been forthcoming about the exact cost of the contract.

However, Harezi told Larsen the cost would be less than R75 billion over five years, at R15 billion a year.

Screenshot from a segment of Annika Larsen’s interview with Karpowership’s Zeynep Harezi, aired on Wednesday, 9 August 2023. Credit: YouTube/E-tv

Professor at the University of Johannesburg’s Centre for Social Change Patrick Bond told Newzroom Afrika that the original 20-year contract was irrational.

“South Africa is desperate for electricity. But, it is still a huge amount of money that could be used more effectively,” Bond said. 

It may not be the original R228 billion over 20 years, but it will likely be around R15 billion per year over a five-year contract. 

Bond said this money could be more useful if spent on rapidly rolling out renewable energy generation, battery storage facilities, and demand-side management. 

Furthermore, the project is likely to cost far more than its stated R15 billion a year, with South Africa potentially losing its energy sovereignty and access to vital export markets as the country’s industrial base still heavily relies on fossil fuels for electricity. 

Karpowership does not have a good track record, said Bond. The company has been prone to engaging in corruption with African governments and exploiting them for foreign currency earnings. 

Numerous allegations of corruption have occurred from competitors to Karpowership during the tender bidding process. 

The company has also shown itself to be willing to switch off power from its floating gas power plants to strongarm countries into giving them what they want. 

“I would worry that energy sovereignty gets lost, and I think dealing with Karpowership is to be avoided if possible,” said Bond. 

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