Karpowership R225bn deal hangs on Green Scorpions enviro investigation
If the Turkish company does not get its permits, it risks losing its R183m bid bond.
The Green Scorpions are investigating whether Karpowership SA or its environmental consultants provided misleading information to secure an emergency exemption from stringent provisions of the National Environmental Management Act (Nema). The Environmental Management Inspectorate – known as the Green Scorpions – is tasked with investigating environmental crimes.
The investigation could result in criminal charges, but could also torpedo Karpowership’s environmental authorisations, which it needs for its mammoth R225-billion deal with Eskom to go ahead.
In March, the Turkish-led consortium was selected as a preferred bidder to provide 1,220MW of emergency power under the Risk Mitigation Independent Power Producer Procurement Programme (RMI4P). The electricity will come from gas-fired powerships that are intended to be moored in the ports of Richards Bay, Coega and Saldanha.
The investigation stems from an extraordinary authorisation in June 2020 – just before the tender was announced – by a top official in the Department of Forestry, Fisheries and the Environment (DFFE).
The official exempted Karpowership under an emergency provision of Nema from doing environmental impact assessments (EIAs), supposedly because it would provide emergency power to help combat Covid-19.
The department revoked the exemption after an outcry, claiming it had been misled. This forced Karpowership to reapply, this time with complete EIAs for all three sites. But the DFFE has confirmed that these new applications could be denied if the investigation confirms that Karpowership and its consultants intentionally misled officials.
“The Department is currently investigating the conduct of the [environmental consultants] and [Karpowership] in relation to the Nema … exemption application,” spokesperson Albi Modise said in a written response.
Modise confirmed that the investigation was being led by the “Environmental Management Inspectors within the Department” who have been tasked with establishing “whether or not prima facie evidence exists of the commissioning of an offence”.
“If the outcome of the investigation reveals that there was something untoward about their conduct, then that would have a material effect on the current EIA applications that [are] under review by the Department,” he told us.
The DFFE has also commissioned an external legal review to establish whether Karpowership’s current EIA applications should have been rejected because the proposed projects lacked consent from Transnet National Ports Authority (TNPA), as the owner of the land.
Karpowership is hoping to secure the TNPA’s consent as a “sole source provider” or through an eleventh hour special directive issued by Transport Minister Fikile Mbalula. But a legal opinion delivered to Business Unity South Africa last week warned that any permit handed to Karpowership faced a barrage of legal challenges.
The stakes are high: Karpowership desperately needs its environmental permits and landowner consent before the end of July, the deadline for all preferred bidders selected for the RMI4P tender.
If the Turkish-led consortium fails to secure these permits it risks losing the R183-million bid bond it has put up as collateral. If found guilty of intentionally misleading government officials, Karpowership and its environmental consultants could receive fines of up to R10-million or 10 years in jail.
On the other hand, if the government greenlights Karpowership’s projects, five gas-fired powerships could arrive in South African ports next year. This is intended to kickstart a new energy future for SA, one fuelled by liquified natural gas (LNG) but also fraught with environmental problems.
Karpowership declined to respond to our 46 questions covering a wide range of environmental issues. Instead, spokesperson Kay Sexwale said: “We are confident the unfounded claims about the environmental assessments of our projects will be dealt with swiftly. We are continuing to work to the deadlines … and look forward to getting to work helping to alleviate SA’s energy challenges and supporting the wider economy.
“Powerships fuelled by LNG are the cleanest, most sustainable way of providing reliable power while supporting South Africa’s transition to renewables. Our projects were awarded preferred bidder status because we provided the best combined package of affordability, cleaner energy, proven technology and economic development initiatives.”
But to understand how we got to the brink of this multibillion-rand deal, we need to go back to 2015. What our research suggests is that the company has a history of trying to leverage emergencies to get its way.
2015: Dear Mr Tsotsi
In February 2015, Eskom was facing the uncomfortable prospect of severe load shedding in summer. Eskom board chair Zola Tsotsi had a plan though. On 10 February 2015, he wrote to the then energy minister, Tina Joemat-Pettersson, requesting the go-ahead for three power-generation solutions – “measures which we believe need to be taken immediately in our quest to [relieve] the constraint in the electricity supply system”. One of the solutions came from Karadeniz, the parent company of Karpowership: “Their proposal includes the berthing of 500MW ship-plants at our ports,” he wrote.
Tsotsi did not specify how many ships Eskom would hire, but made it clear that this would not be done through a standard procurement process: “[W]e request the Honourable Minister to authorise Eskom to engage and conclude all required measures to enable speedy implementation of these projects.”
The Public Finance Management Act does make provision for emergency procurement, but state-owned entities such as Eskom must jump through numerous hoops to justify such contracts. And in this case, Tsotsi had gone straight to the minister despite Eskom management being lukewarm about the powerships solution.
Tsotsi resigned soon after, and Eskom told Karadeniz to apply to the independent power producer programme, which now falls under the Department of Mineral Resources and Energy. Tsotsi this week said he did not remember the circumstances of the offer. As far as he could recall, he did not receive an answer from the minister before he stepped down as chair at the end of March 2015.
2018: For the sake of the elections
Three years later, Karpowership was ready to have another go.
According to Karpowership’s local partner, Sechaba Moletsane, South Africa was once again facing load shedding and with elections coming up in 2019, he implored the Karadeniz family to intervene.
“We went up to Turkey in [February] 2018 … because the elections were coming up and there was major, major load shedding,” he recalled during a recent Mail & Guardian webinar sponsored by Karpowership.
Moletsane said they approached Eskom, the Department of Mineral Resources and Energy and the Department of Public Enterprises, but all declined Karpowership’s unsolicited bid. “[T]hey didn’t uptake our proposal, the elections went on and successfully, so they ended up using more of the peaker plants,” he said, referring to the diesel-fired peaker plants that are Eskom’s last resort to avoid load shedding.
2020: Dr Mabunda’s plan
By 25 June 2020, 118,000 South Africans had tested positive for Covid-19 and 2,335 had lost their lives.
Armed with this and other information about the rapidly escalating infection rate, Dr David Mabunda contacted the DFFE with a plan to tackle the pandemic.
Mabunda was not a medical doctor, but a doctor of tourism management. What South Africa needed, Mabunda told DFFE chief director of compliance Sonnyboy Bapela on 25 June, was a secure supply of electricity to ensure that hospitals did not go dark.
What Karpowership needed in return was an emergency permit – issued in terms of Section 30A of Nema – allowing it to bypass the costly and highly technical EIA process that normally takes months to complete. When a National State of Disaster was declared in March 2020, in response to the
Covid-19 pandemic, Karpowership had its emergency. The day after his conversation with Mabunda, Bapela gave Karpowership the go-ahead to bring in as many ships as it wanted into the ports of Coega, Richards Bay, Saldanha and Durban – no environmental permits required.
Powerships are more like power plants than cargo ships: critics have warned that the potential harm to fish, birds and Red List species could be severe.
‘We were misled’
On 24 August 2020, the Department of Mineral Resources and Energy released the RMI4P tender, the multibillion-rand procurement to supply Eskom with power for the next 20 years.
The next day, the DFFE sent out a press release saying that it had withdrawn Karpowership’s 30A exemption, essentially because the company did not disclose that it wanted the emergency permits for its proposed RMI4P projects, which would probably only start supplying power in 2022.
“When the company had initially submitted their request it had indicated that the country’s electricity supply was under threat because of the increased pressure on the healthcare system as a result of the Covid-19 outbreak … It has subsequently emerged that the company had applied for the verbal directive … in preparation for the possible implementation of the [RMI4P]. This information was not disclosed to the department [and] it has now emerged that there was in fact no emergency situation”, the release said.
“[I]t will be fair to say the department was misled,” Modise recently told amaBhungane.
“The Department already concluded that there was a reasonable belief that the circumstances pertaining to the emergency situation were materially different from what was indicated in the oral request/written confirmation of the oral request. Accordingly, the section 30A directive was revoked.”
What the Green Scorpions are now investigating is whether Karpowership, Mabunda or Triplo4 Sustainable Solutions, the firm of environmental assessment practitioners doing the consortium’s EIAs, intentionally deceived DFFE in order to secure these valuable exemptions.
Hantie Plomp, the sole director of Triplo4 and Karpowership’s lead EIA consultant, declined to answer our detailed questions: “[W]e deny any wrongdoing and advise that a full response cannot be provided as the matters are sub judice,” she said via email.
Mabunda offered a similarly coy response: “I’ve been advised by my Counsel ... not to respond to any of your questions at this stage as they constitute a greater part of the pending DFFE investigation. The matter is sub judice at the moment.”
Landowner consent
After the department yanked Karpowership’s 30A exemption in August 2020, the company had no choice but to follow the long, tedious process of applying for an environmental permit.
But it was running out of time to meet the November 2020 deadline to submit its RMI4P bid.
On 17 September, DFFE officials met with Karpowership and its consultants to outline the standard process it would now have to follow to get environmental authorisation for its proposed projects in the ports of Richards Bay, Coega and Saldanha.
The officials reminded the consultants that one of the documents it would need was written permission from the landowner – in this case the TNPA.
Faced with this roadblock, Karpowership tried a different tactic.
On 5 October 2020, Jason van der Poel, Karpowership’s attorney from law firm Webber Wentzel, produced a legal opinion arguing that the company did not need landowner consent because it was a “strategic integrated project”, and therefore exempt.
Section 39(1) of Nema says that anyone wanting an environmental permit must first get the landowner’s consent to carry out their proposed project. One of the few exceptions is if it is a strategic integrated project, a gazetted list of projects deemed to be in the national interest.
Because the RMI4P is such a project, Van der Poel argued that any project applying to the RMI4P should be deemed one too.
The department’s response was a firm “no”. Sabelo Malaza, the department’s chief director of integrated environmental authorisations, responded that he had “noted” Webber Wentzel’s legal opinion, but that Karpowership “must, as advised … submit signed landowner consent”.
The most Transnet was willing to provide was a letter giving Karpowership permission to carry out its environmental impact assessments.
Another golden loophole
What happened next is now the subject of a legal review.
There is a simple rule when applying for an environmental permit: first make sure you get permission from the owner of the land to carry out your project.
When Karpowership submitted its application on 8 October 2020, it did not have landowner consent. Instead of being turned away, it was simply warned to submit landowner consent when it came back with its final environmental scoping report.
Asked why the department had not rejected Karpowership’s application upfront, the department said that the regulations do not give any explicit instruction to reject an application that is incomplete.
“It is only after a detailed evaluation is done that the failure to submit critical documents will be assessed,” Modise noted.
But when Karpowership came back with its final scoping reports in mid-November, still without landowner consent, the department let it slide.
“Following a review … the findings were such that the Department can accept the final Scoping Reports with particular conditions,” the department told us.
One of those conditions was that Karpowership would now need to submit landowner consent with its final environmental impact assessment reports in April.
The ruling was a stroke of luck for Karpowership, which had just put up R183-million in bid guarantees. If it turned out that its bids were noncompliant it could be forced to forfeit that money to the Department of Mineral Resources and Energy.
But other bidders for the RMI4P were more risk-averse.
One rival bidder, who spoke to amaBhungane on condition of anonymity, said his firm had decided not to submit an RMI4P bid because they knew they could not obtain Transnet consent beforehand. A second company that did submit a bid said it opted for a more expensive fuel source because the same landowner consent issue would hamper its ability to import LNG.
The leeway from DFFE was just long enough for Karpowership: in March, it was selected as an RMI4P preferred bidder. Its projects were now undeniably strategic integrated projects, like the RMI4P itself.
This means that to get its EIA approval from the DFFE, Karpowership no longer needs landowner consent. It does, however, still need landowner consent from the TNPA as a separate requirement of the tender.
DFFE is emphatic that it did not give Karpowership special treatment, but has commissioned an external legal review: “In light of the numerous queries received on this issue the [department] … wanted to provide assurance that all relevant legislative provisions were correctly interpreted and implemented,” Modise said.
Now that it is deemed to be in the ‘national interest’ for Karpowership’s bid to succeed, is anyone going to stand in its
way?
The clock is ticking
Karpowership is now waiting to find out if the department will approve its final EIA reports for its projects in the ports of Richards Bay, Coega and Saldanha.
Karpowership has, via its bid bonds, placed a R183-million bet that it can clinch the environmental permits it needs before the end of July. The odds are stacked against it. But it appears serenely confident that it can clear any regulatory hurdle.
Based on the evidence, it has reason to be confident: government officials have made concessions at every stage. And now that it is deemed to be in the “national interest” for Karpowership’s bid to succeed, is anyone going to stand in its way?