Gigaba slams Eskom’s ‘mistake’ of contradicting government policy on renewables

19th April 2017 By: Terence Creamer - Creamer Media Editor

Gigaba slams Eskom’s ‘mistake’ of contradicting government policy on renewables

Finance Minister Malusi Gigaba

Finance Minister Malusi Gigaba says Eskom made a “mistake” by raising its corporate difficulties in relation to the signing of power purchase agreements (PPAs) with renewable-energy generators in a way that undermined the policy position of government on both the energy mix and the renewable-energy programme.

Speaking ahead of his departure for the Spring meetings of the International Monetary Fund and the World Bank in Washington DC, Gigaba stressed that government policy with regard to the integration of independent power producers (IPPs) into the country’s electricity network “remains unchanged” and that there should be no “uncertainty as to our commitment to the energy mix and the renewable-energy programme”.

“That is why, in view of the recent statements by some executive directors at Eskom . . . we’ve had Cabinet coming out to say: ‘We remain committed to renewable energy, to the renewable-energy targets that were outline in the Integrated Resource Plan (IRP) 2010 – we remain committed to all our plans as we have outlined’.”

Gigaba had also met with newly appointed Energy Minister Mmamoloko Kubayi to discuss the delayed signing of PPAs arising from the most recent bid windows of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

The 37 outstanding contracts were scheduled to be signed on April 11, but the signing was postponed to enable Kubayi to become fully informed on the progress made under the REIPPPP and to ensure “concurrence” between herself and Public Enterprises Minister Lynne Brown.

It had been agreed that Gigaba and Kubayi would meet with Brown to address both Eskom’s concerns and its public statements that conflicted with stated policy. The issue Eskom was raising would be looked at collectively by the three Ministers, or by the Inter-Ministerial Committee (IMC) on Energy.

“The mistake that Eskom would make is to deal with corporate issues in a manner that undermines the policy decision of government.”

Nevertheless, Gigaba expressed serious misgivings about the manner in which Eskom had dealt with the IPP issue.

“If there are any concerns which have to do with corporate agreements, the strength of their balance sheet, they have to follow the proper channels to raise these issue with government as the shareholders.

“The best for Eskom would have been to go to the Minister of Public Enterprises and say to her: ‘Minister, we have the following issues’. Then the Minister will have to come to me, or call a meeting of the IMC on Energy, which will then deal with the issue collectively. But there is no single entity of government that can just make policy pronouncements on behalf of government, otherwise they will turn us into a Mickey Mouse organisation.”

The South African Renewable Energy Council (Sarec) expressed concern about the missed April 11 deadline, pointing out that “financial closure of duly procured renewable power for 37 PPAs now stands at almost two years.

Sarec chairperson Brenda Martin said that, since President Jacob Zuma’s State of the Nation Address confirmation that all outstanding PPAs would be signed, Eskom and the affected IPPs have been working to ensure that the necessary paperwork was up to date, so that financial closure could be achieved and construction could begin.

Eskom has indicated that it is willing to sign, but that it wants certainty on the cost-recovery mechanism in light of legal uncertainty surrounding the application of the Regulatory Clearing Account (RCA). The use of the RCA has been thrown into question by a Gauteng High Court ruling, which determined the most recent RCA adjustment to be “irrational, unfair and unlawful”. The National Energy Regulator of South Africa is appealing the judgment, but will not process further RCA applications until legal certainty had been established. Therefore, it has only granted Eskom a 2.2% tariff increase for 2017/18.

In the absence of the RCA, Eskom argues that it does not have a clear mechanism to secure the revenue required to pay for the electricity arising from the renewables power stations. The utility has written to the signatories of the Government Support Framework Agreement (GFSA) – which guarantees support for the State-owned utility in meeting its obligation to buy electricity from renewable-energy IPPs – to discuss a possible triggering of government support in light of the RCA uncertainty. However, there has been no triggering of the GSFA.


The 37 renewables projects carry a combined investment value of R58-billion, as well as the potential to create 13 000 construction jobs. In addition, the REIPPPP has been held up as a model for public-private partnership in South Africa, with the previous bid windows having facilitated 102 projects, with a combined capacity of 6 370 MW and a combined investment value of R194-billion.

Gigaba indicated that he saw even greater scope for private-sector participation in South Africa’ infrastructure programmes and indicated that he planned to present short- and medium-term plans to Cabinet soon regarding ways to inject private capital into South Africa’s R1-trillion infrastructure programme.

The plans would reflect the fact that the balance sheets of many of South Africa’s State-owned companies (SoCs) were constrained, as well as the limitation government faced in extending further guarantees to enable those entities to raise the capital required to implement their infrastructure programmes. These constraints had been tightened as a result of the decisions of S&P Global Ratings and Fitch Ratings to downgrade South Africa’s foreign currency sovereign credit rating to junk.

“I have asked the department to work seriously on finalising the private-sector participation plan for the infrastructure programmes, because, quite clearly, we need to look at various sources of funding for our infrastructure build.”