The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) “will continue and expand”, the Medium-Term Budget Policy Statement (MTBPS) asserts, describing it as “an example of the kind of partnerships needed for national development”.

The competitive auctions associated with the REIPPPP have attracted investments of R194-billion in mostly wind and solar plants, with a combined capacity of over 6 000 MW.

However, doubt has been cast over the future of the programme, owing to resistance from State-owned electricity producer Eskom to the signing of new power purchase agreements (PPAs). This resistance continues despite backing for the REIPPPP from the Department of Energy (DoE), the National Treasury and even The Presidency.

In his address to Parliament, Finance Minister Pravin Gordhan weighed in saying that, "contrary to the views of some, these are sound and sensible long-term investments".

He reported that a total of 64 projects were already in production and that Energy Minister Tina Joemat-Pettersson and the National Energy Regulator of South Africa had approved another 37 independent power projects (IPPs).

"Once Eskom has signed the offtake agreements, a further R58-billion in investment and some 4 800 construction jobs will commence, bringing 2 354 MW of capacity to the electricity grid," Gordhan said.

Deputy Finance Minister Mcebisi Jonas insisted during an earlier MTBPS briefing that the policy on IPPs had not changed and that all existing PPAs remained valid. He also stressed that energy policy remained the responsibility of government and not State-owned companies.

However, Jonas indicated that “conversations” were taking place between the Ministers of Finance, Public Enterprises and Energy to clarify the issues surrounding IPPs and Eskom.

National Treasury director-general Lungisa Fuzile also indicated that payment for the IPPs remained the contractual responsibility of Eskom as the single buyer, and that he did not foresee that R200-billion contingent liability guaranteeing Eskom’s purchases of electricity from renewable energy becoming an actual liability to government.

Fuzile said that all future contracts were guided by the Integrated Resource Plan (IRP) and that until the 2010 IRP was revised, it would guide the procurement programmes involving IPPs, as well as Eskom’s build programme. However, he stressed that the process to update the IRP was “quite advanced”.

“It is only when the IRP gets revised and resets the targets on the different technologies that there will be a new policy in place,” he added.

The MTBPS, which flags the need for the building of a “coalition for faster growth”, also highlights the finalisation of a regulatory framework for private-sector participation in other infrastructure projects, including initiatives in partnership with State-owned companies.

Such efforts would help “restoring domestic confidence”, the absence of which is being reflected in South Africa’s weak economic performance. The National Treasury again lowered its growth forecast for 2016 to just 0.5%, from 0.9% in February.

“Public investment remains relatively buoyant, but private investment has fallen across all sectors and capital formation is expected to contract in 2016 for the first time since 2010.”

The statement also highlights efforts government is making with business and labour to build a “foundation for faster growth”.

“This work is directed at encouraging investment in network infrastructure, streamlining investment approvals and improving policy certainty,” the MTBPS states in the same paragraph that reaffirms support for the REIPPPP.

NUCLEAR TRANSPARENCY
No mention was made in the statement about South Africa’s plan to build new nuclear capacity, but in his speech, Gordhan confirmed that Eskom would now take the lead in the nuclear power initiative, rather than the DoE.

"The Treasury will work with Minister Lynne Brown’s department and Eskom to ensure that the scale and phasing of the programme are in South Africa’s best interests and that the procurement arrangements are transparent and compliant with the law."

Eskom indicated prior to the address that its balance sheet should be sufficient, in the coming ten years, to support the funding of the nuclear build. In addition, the DoE indicated that it would cede responsibility for the procurement of the power component to Eskom and the multipurpose-reactor component to the South African Nuclear Energy Corporation.

Asked whether the National Treasury would still be expected to offer guarantees to Eskom to support the programme, Jonas indicated that the approach taken by the National Treasury would be to ensure that the procurement did not undermine the country and its “fiscal integrity”.

“So it will be important that we continue to play a critical role [in nuclear] for the sake of fiscal management and to ensure that we don’t mess up our targets in the manner and the pace and scale at which the project is delivered.”

Gordhan added that a collaborative approach would be taken on the matter, while stressing that “we are one government, operating under one Constitution, operating under one Public Finance Management Act”.

Gordhan said that, as with any other project where public money was involved, the National Treasury would adopt a solution-finding approach to eliminate “unnecessary contradictions”.

The Minister stressed, too, that projects needed to be pursued within the law. “You can’t say you believe in the rule of law and that we are law-abiding citizens, but when it suits us, we go outside of it.”

Also highlighted in the MTBPS and Gordhan’s speech was the need for government, business and labour to work together to improve the growth outlook.

The MTBPS made specific reference to efforts by the Presidential Business Working Group and the CEO Initiative to create a fund to support small business and to offer internships to one-million young work seekers.

Besides the REIPPPP and the plan to complete the regulatory framework for private-sector participation in infrastructure projects, the statement outlines three other priority actions being taken to reignite growth, including:
• Addressing legislative and regulatory uncertainties that hold back investment in mining, agriculture and key technology sectors.
• Rationalising, closing or selling off public assets that are no longer relevant to government’s development agenda, and strengthening those that are central to achieving NDP objectives.
• And, concluding labour-market reforms.

Apart from efforts to hold the fiscal-consolidation line, the rating agencies, which are due to pronounce on South Africa’s credit rating in December, have indicated that the country needs to take credible steps to place the country on a new growth footing. South Africa narrowly escaped a downgrade to junk in June.

The MTBPS also notes the receding of several factors that have limited growth in recent years, including the additional sources of electricity supply that are being connected to the grid.

“Agriculture is expected to recover as the drought comes to an end. Exports and tourist receipts are once again growing. A real, sustained depreciation in the exchange rate has created opportunities for export growth. Inflation has moderated. Working days lost to strikes have fallen. The green shoots of an economic recovery are reflected in new investment plans,” the statement adds.

However, Gordhan stressed that these “green shoots” needed to be nurtured by government and civil society making and backing the “right choices” over the coming two years.