Molefe puts plant closures on hold

ESKOM chief executive Brian Molefe wasted little time in living up to his newly penned nickname “Papa Action” when he promised to put on hold the utility’s plans to close four power stations.

Molefe yesterday told staffers at Eskom’s Megawatt headquarters in Johannesburg that he would review the decision announced by Eskom in March that it would shut down the Friel, Komati, Hendrina and Camden power stations, all in Mpumalanga, to accommodate the renewable independent power producers (IPPs).

The energy department launched the renewable energy independent power producer procurement (Reippp) programme in 2011, which called for 3 725 megwatts of renewable energy technologies. Capacity under signed agreements is expected to be in commercial operation by the end of 2018.

The signing of further power purchase agreements (PPAs) between the renewable industry players and Eskom has been a bone of contention for the past two years as Eskom has said the agreements were costly and that the utility did not require additional power due to a surplus of supply.

Eskom spokesperson Khulu Phasiwe said the power utility would await the conclusion of the discussion between the Department of Energy, Treasury and Public Enterprises on the way forward for the IPP programme.

“There has been a perception created that Eskom does not want to fund these programmes, however, we have funded 64 of these projects so far. What must be borne in mind is that Eskom now has sufficient power supply and circumstances have changed since the programme was initially brought forward a few years ago,” Phasiwe said.

‘A mistake’

Finance Minister Malusi Gigaba last month said that Eskom had made “a mistake” by raising its corporate difficulties to signing the power purchase agreements with the renewable energy companies in a manner that contradicted the policy position of the government on both the energy mix and the renewable-energy programme.

The signing, which was expected to unlock billions of rands in funding for the construction of about 50 projects, was delayed last month.

Brenda Martin, chairperson of the SA Renewable Energy Council, said it was unfortunate that little had changed from Molefe’s tone towards the PPAs, and it appeared that he maintained his previous stance that the PPAs must not be signed. “It is crucial that Eskom sign outstanding PPAs in order to sustain the policy momentum of Reippp, as it will ensure that the declining price path and related value chain effects can be sustained in the national interest,” Martin said.

Tanya Engels, director of international and corporate tax at KPMG, said in addition to political hurdles, IPPs faced unique tax challenges in South Africa other than specific asset allowances – there was no tax legislation dealing with IPPs specifically. “It is important to establish which assets are owned by the IPP, and which are owned by Eskom. Where Eskom has ownership of the grid connection assets, there are usually no capital allowances available to the IPPs, despite the fact that the IPP incurred the costs to construct such asset,” Engels said.