Re­new­able en­ergy is bear­ing fruit

REIPPP has im­proved the lives of ru­ral South Africans in a big way

Financial Mail - Investors Monthly - - Special Report Infrastruc­ture - Judy Kobus Kobus is se­nior trans­ac­tor at Rand Mer­chant Bank

One of the most im­por­tant achieve­ments of the highly suc­cess­ful Re­new­able En­ergy In­de­pen­dent Power Pro­ducer (REIPPP) Pro­gramme is of­ten un­der­re­ported and un­der­val­ued.

The pro­gramme, which has been praised both lo­cally and in­ter­na­tion­ally, has done far more than just add 3,079 MW to the SA elec­tric­ity grid at in­creas­ingly com­pet­i­tive tar­iffs. It has had a tan­gi­ble, pos­i­tive im­pact on the lives of the peo­ple in the com­mu­ni­ties in which the projects are lo­cated.

The ma­jor­ity of the REIPPP projects are lo­cated in re­mote ru­ral com­mu­ni­ties which are hard­est hit by poverty and ex­tremely high un­em­ploy­ment lev­els. The pro­gramme is struc­tured to sup­port lo­cal com­mu­nity uplift­ment and pro­vides for lo­cal own­er­ship and job cre­ation and con­trib­utes to so­cial and en­ter­prise de­vel­op­ment.

The min­i­mum thresh­old for lo­cal com­mu­nity own­er­ship was set at 2.5% as a pro­cure­ment con­di­tion. To date, the share­hold­ing of lo­cal com­mu­ni­ties has been struc­tured through the es­tab­lish­ment of var­i­ous lo­cal com­mu­nity trusts which are fore­cast to re­ceive over R29bn of in­come af­ter debt costs over the life of the projects (20 years). The pro­gramme has cre­ated more than 31,000 jobs, 18,000 of which are for in­di­vid­u­als from the lo­cal com­mu­nity and the re­quire­ment is that the projects con­trib­ute a per­cent­age of their rev­enues through­out the 20-year power pur­chase agree­ment term to so­cioe­co­nomic de­vel­op­ment (SED) and en­ter­prise de­vel­op­ment (ED) ini­tia­tives.

These con­tri­bu­tions are to be used to­wards ini­tia­tives that pro­mote the so­cial and eco­nomic ad­vance­ment of peo­ple in un­der­de­vel­oped com­mu­ni­ties in­clud­ing ini­tia­tives fo­cus­ing on ed­u­ca­tion, health care, and in­fra­struc­ture de­vel­op­ment.

A to­tal of R20.6bn and R6.4bn (to­tal R27bn) has been com­mit­ted over the 20-year power pur­chase agree­ment term for SED and ED ini­tia­tives re­spec­tively with R21.4bn tar­geted for ini­tia­tives in lo­cal com­mu­ni­ties where the projects are lo­cated. So far, the 56 op­er­a­tional IPPs have con­trib­uted a to­tal of R472m to­wards SED and ED spend. Some of the ini­tia­tives in­clude:

R145m has been spent on ed­u­ca­tion and skills de­vel­op­ment;

Class­rooms to the value of R5.1m have been built; and

261 bur­saries have been awarded to the value of R11.9m.

Not­with­stand­ing the sig­nif­i­cant con­tri­bu­tion the IPPs have made and are yet to make to lo­cal com­mu­ni­ties, the pro­gramme still faces a num­ber of chal­lenges. One of the con­cerns is that the im­me­di­ate needs in the lo­cal com­mu­ni­ties are sig­nif­i­cant and though R27bn in SED and ED con­tri­bu­tions and R29bn in eq­uity in­come is im­pres­sive, these amounts are re­ceived over 20 years, with dis­tri­bu­tions to com­mu­nity trusts only ex­pected once the debt raised to fi­nance the eq­uity has been re­paid.

The other con­cern is that the cur­rent pro­gramme frame­work is not struc­tured for and does not en­cour­age col­lab­o­ra­tion be­tween projects, re­sult­ing in each project set­ting up its own ini­tia­tives, some within the same com­mu­ni­ties. The third con­cern is that the IPPs spe­cialise in en­ergy gen­er­a­tion and, as such, so­cial de­vel­op­ment and en­ter­prise sup­port is not their core func­tion and area of com­pe­tence.

The IPPs, there­fore, un­der­take SED and ED ini­tia­tives to achieve their bid com­mit­ments but choose rel­a­tively eas­ier wel­fare-based ini­tia­tives rather than tack­ling more com­plex ini­tia­tives that would have the great­est im­pact on the com­mu­ni­ties such as pro­duc­tive spend that pro­motes job cre­ation and that stim­u­lates the ru­ral economies.

The pro­gramme there­fore finds it­self at a point where it should ex­plore al­ter­na­tive, more im­pact­ful ways to pro­mote lo­cal com­mu­nity par­tic­i­pa­tion and ben­e­fi­ci­a­tion from IPPs. This will re­quire amend­ments to the IPP frame­work to:

Pro­mote col­lab­o­ra­tion and the pool­ing of funds be­tween the IPPs;

Al­low for the fast track­ing of so­cial de­vel­op­ment and en­ter­prise sup­port ini­tia­tives through the lev­er­ag­ing of SED and ED spend; and

Fa­cil­i­tate the de­liv­ery of sus­tain­able and more im­pact­ful ini­tia­tives to com­mu­ni­ties

The REIPPP pro­gramme is a suc­cess story in SA, which has con­trib­uted to­wards the coun­try’s de­vel­op­ment agenda and has a great op­por­tu­nity to for­ever change the lives of in­di­vid­u­als in the most ru­ral of com­mu­ni­ties.

How­ever, to do so, it must first ad­dress the chal­lenges it faces that threaten to limit the pro­gramme’s long-term sus­tain­able pos­i­tive im­pact on com­mu­ni­ties.

REIPP has con­trib­uted to­wards SA’s de­vel­op­ment agenda and has a great op­por­tu­nity to change the lives of peo­ple in the ru­ral com­mu­ni­ties

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