Eskom’s controversial Karpowership deal hangs in the balance

The decision from Eskom and the government to proceed with the Karpowership deal is irrational as it is far from done and will not reach financial close before the extended deadline, potentially losing grid access rights. 

This is feedback from energy analyst Chris Yelland, who told Newzroom Afrika that questions have to be asked about why Karpowership has received preferential treatment. 

Last week, Eskom asked the National Treasury for permission to sign an electricity purchase agreement with Karpowership. 

This has brought the Turkish company closer to fulfilling a contract it won to supply South Africa’s national grid more than two years ago.

The national power utility said it submitted a Section 54 application to the Treasury, which it has to do to comply with the Public Finance Management Act. 

Environmental activists have staunchly opposed Karpowership’s plan to supply 1,220 MW from gas-fired plants mounted on ships.

The company has seen its attempts to fulfil the agreement to supply power for 20 years delayed by a slew of court cases brought by the activists and a rival bidder.

The company also has until 31 December to complete its financial arrangements, or it may lose its right to access the national grid, a deadline imposed on all bidders who have yet to do so and won supply rights from the government in March 2021. 

Karpowership has won approval from the environment department to proceed with two of its three projects so far, meaning it could supply 770 MW. One of those approvals has been appealed against by the activists. 

Yelland said despite Eskom and the government’s willingness to proceed with this deal, it is far from done and may never be completed.

For the deal to be done, it has to reach financial close, which would require any outstanding legal challenges to be concluded. 

“Financial closure is when the banks hand over the money,” Yelland explained. “They do not want to hand over the money while there is litigation in progress that may overturn these contracts.”

“I’ve spoken to some of the banks, and they have indicated that there is no chance of financial closure while litigation is in progress.”

Yelland said that Karpowership will not be able to meet the Department of Mineral Resources and Energy’s (DMRE) extended deadline of the end of the year. 

However, it seems as though negotiations are ongoing to extend the deadline yet again, raising questions as to why Karpowership continues to get preferential treatment. 

“One really has to ask why they are getting such preferential treatment and how long this can actually go on,” Yelland said. 

“In my view, the decision to proceed with Karpowership is irrational.”

In a previous interview, he said, ““This is an ongoing signal that things are far from right with this Karpowership arrangement.” 

“Karpowership appears to be in a very privileged position. The DMRE are falling over backwards to accommodate them in a way that is outrageous,” Yelland said.