South African Reserve Bank (SARB) governor Lesetja Kganyago has lamented the prevailing uncertainty around South Africa’s renewable-energy procurement programme, which he heralds as the type of “no-brainer” structural reform that should be continued and expanded.
Speaking at a briefing of editors in Johannesburg, Kganyago noted that the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), which had facilitated nearly R200-billion in private investment, was held in high regard globally.
“When I visited Washington DC there is a big showcase at the World Bank stating that, any country that wants to know how to do a renewables independent power producer (IPP) programme, should look at South Africa. And then what do we do, we come back home and we say: ‘These IPPs we don’t want them anymore, they are not reliable’.”
The governor was referring to the prevailing uncertainty in the sector, which arose earlier this year when it emerged that Eskom was reluctant to sign power purchase agreements for projects already adjudicated following the most recent bidding rounds of the REIPPPP.
The impasse has not yet lifted despite the recently released draft Integrated Resource Plan (IRP) stating that “all projects that are in bid window 4.5, expedited, smalls and the 900 MW of baseload coal are considered committed and will be included in the IRP update base case”.
Kganyago, who was the director-general at the National Treasury when the REIPPPP was first conceived, said the decision to include IPPs in South Africa’s electricity mix was conscious structural reform undertaken by government to deal with electricity shortages, which were constraining growth.
“So it was a no-brainer. Did government have to put money into those renewables? No. All we had to do was guarantee that we would buy the electricity.”
He argued that the National Development Plan (NDP) contained many other similar reforms that could help raise South Africa’s growth potential. However, these required “bold decisions” from the political class.
“The truth of the matter is that the NDP spells out a structural-reform programme. But because those things are painful to do, we would rather talk of the NDP as a living document that must continuously be adjusted.”
The SARB stated in late November that the domestic economic growth outlook remained subdued, despite the low point of the cycle having passed. The bank’s forecast is for growth of only 0.4% for 2016, rising to 1.2% and 1.6% for the subsequent two years.
SARB economic research and statistics department head Dr Rashad Cassim argued that the current focus on structural reforms was not unique to South Africa, with many countries assessing supply-side interventions in light of the constraints on demand-side stimulus programmes, which had, in many instances, reached their limits.
These reforms ranged from improved governance of public entities to ensure that such institutions were offering support, rather than undermining, private investment, through to labour market reforms that could improve prospects for small and micro enterprises.
“There is no magic bullet. There has to be a very serious discussion of what the factors are that will contribute to the increase of capital, the absorption of labour and rising productivity. Then you can talk about 4% to 5% growth potential,” Cassim said.
“I think the reason people are currently focusing on supply-side reforms is largely because there is a view that the world economy will probably move sideways at 3% for several years. It’s going to be hard to ride on world economic growth. Something else has to be done.”