The Energy Regulation and Markets Review: South Africa
The year 2019 brought with it immediate change and a positive turnaround in the South African energy sector. One of the major stand-out developments was the updated Integrated Resource Plan (IRP) (as discussed in Section IV.iv), which was released in October 2019. This plan provides for a dynamic energy mix that outlines South Africa's national energy road map and is a great improvement on the former IRP, which was approved by Parliament in December 2017 and sent back for processing for reasons not disclosed. During 2018, announcements were made by the Minister of Energy to the effect that South Africa would launch a fifth Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) that would include a further 1800MW to the grid during November 2018. However, this has yet to come to fruition as many believe the stagnation of the launch of the Bid Window 5 is a result of the instability and financial woes of state-owned utility Eskom, and the updated IRP not yet being signed into law.
In April 2018, South Africa signed 27 independent renewable energy agreements with a combined investment value of 56 billion rand and a combined capacity of 2,300MW from Bid Windows 3.5 and 4 of the REIPPPP. This brought renewed hope to independent power producers and boosted investor confidence. Further, Eskom announced during 2018 that it is preparing to roll out 360MW battery energy storage systems financed by the African Development Bank and the World Bank that will consist of supplying, installing and operating distributed battery storage infrastructure at Eskom sub-stations, including those located at existing variable renewable energy plants operated by Eskom Renewables (including the Bank-funded 100MW Sere wind farm), forthcoming distributed solar photovoltaics to be implemented by Eskom Distribution, and the new REIPPPP sites.
South Africa supplies 40 per cent of Africa's electricity through the Southern African Power Pool and other arrangements. Although South Africa owns the fifth largest recoverable coal reserves in the world (estimated at 66.7 billion tons), the Minister of Energy confirmed that a total of 91 renewable projects had been connected to the grid with a capacity of 63,000MW. This has brought the total investments in renewable energy to approximately 201.8 billion rand under the REIPPPP. South Africa's five largest renewable energy projects are multibillion-rand wind farms that contribute a collective 645.71MW to the grid with 6,360MW of wind power being determined for procurement by independent power producers (IPPs).
However, in 2019, South Africans were also hit by rolling blackouts implemented to protect the grid from total collapse or blackout with Stage 6 load shedding being rolled out since December 2019. The reasons for the lack of energy capacity is Eskom's poor management, the lack of funding or misappropriation of funds, and maintenance and labour issues. In response to the challenges faced by Eskom, the Department of Mineral Resources and Energy issued a Request for Information in December 2019 with respect to the design of a Risk Mitigation Power Purchase Procurement for power generation (referred to as the RFI). Under the RFI, the Department of Mineral Resources and Energy called for 3,000MW of emergency power capable of connecting to the national grid within two years from the date the RFI was issued. Further, the expensive and overdue operation of Medupi and Kusile coal-fired plants have resulted in severe pressure on the national grid without a sufficient reserve margin from generating assets to meet peak demand, and the government of South Africa being forced to consider the unbundling of Eskom. This will result in Eskom being unbundled in three divisions – generation, transmission and distribution – which will positively end Eskom's monopoly but will cost millions in taxpayer money to implement.
The Minister of Mineral Resources and Energy also confirmed that the Khanyisa and Thabametsi coal-fired power stations – projects that will add approximately 863MW to the national grid once operational and are South Africa's first privately owned coal-fired power plants – must implement the latest technology to reduce harmful emissions as a reaction to continued court actions regarding the projects' impact on the climate. However, following the decision by major financial institutions such as Standard Bank and Nedbank not to fund new coal IPPs, there has been little progress with respect to the development of the Khanyisa and Thabametsi coal-fired power stations.
Unfortunately, there have been no noteworthy developments following the expressions of interest by the South African government during 2016 in relation to the proposed 600MW gas-fired power project alongside one or more state-owned companies. Moreover, the South African government is still at work to draft regulations that ensure the exploration of shale gas does not harm the environment (shale gas makes up only 3 per cent of the total primary energy supply). This is due to increased interest in shale gas and the US Energy Information Administration confirming that South Africa is ranked eighth in terms of technically recoverable shale gas resources in the world. South Africa's plans in respect of further nuclear power stations also appear to be on hold, given the amendments to the updated IRP whereby nuclear may not be expected to be introduced until 2030.
i The regulators
In South Africa, energy regulation is overseen by three regulators:
- the National Energy Regulator (NERSA), established under the National Energy Regulator Act 2004, which regulates electricity, piped gas and petroleum pipeline industries;
- the National Nuclear Regulator (NNR), established under the National Nuclear Regulator Act 1999, which regulates nuclear energy; and
- the Petroleum Agency of South Africa (PASA), established under the Mineral and Petroleum Resources Development Act 28 of 2002 (MPRDA), which regulates petroleum exploration and production.
Each of these Acts, with other key legislation regulating the respective industries (the Electricity Regulation Act, 2006 (the Electricity Regulation Act), the Petroleum Pipelines Act 2003, the Gas Act 2001 (the Gas Act), the Nuclear Energy Act 1999 and the MPRDA) establish the framework for energy regulation in South Africa. That legislation, with the regulations, notices, rules and guidelines issued thereunder, grant expansive regulatory power to the regulators, including issuing, amending and revoking licences, and approving tariffs.
ii Regulated activities
Under the Electricity Regulation Act, a licence is required for the operation of each of electricity generation, transmission and distribution facility and in respect of importing, exporting and trading of electricity (collectively, the Licensed Activities). The Act provides exemptions for licences in respect of (1) any generation plant constructed and operated for demonstration purposes, (2) any generation plant constructed and operated for own use, (3) any non-grid connected electricity supply other than for commercial use, and (4) any other activity relating to the Licensed Activities in respect of which NERSA has determined that a licence is no longer needed. In relation to the last referenced exemption, NERSA may require that persons undertaking such activities nevertheless register those activities with NERSA.
A person obliged to hold a licence in terms of the Electricity Regulation Act must apply to NERSA for the licence in the form and applying the procedure prescribed. The application must be accompanied by the prescribed licence fee. The information required to form part of the application includes, among other things:
- a description of the applicant, including the vertical and horizontal relationships with other persons engaged in the operation of the relevant Licensed Activity;
- the administrative, financial and technical abilities of the applicant;
- a description of the proposed generation, transmission or distribution facility to be constructed or operated;
- a detailed specification of the services that will be rendered under the licence;
- a general description of the type of customer to be served;
- the tariff and price policies proposed to be applied; and
- evidence of compliance with the IRP.2
The process entails publication of notices of the application in appropriate newspapers or other media, and the applicant responding to objections to the application being granted, and culminates in NERSA making a decision on the application within the prescribed period.
In terms of the National Nuclear Regulator Act 1999, no one is allowed to procure a site, or construct, operate, decontaminate or decommission a nuclear installation except under the authority of a nuclear installation licence. The process prescribed for the making, consideration and issue of the licences is similar to that outlined above, albeit that the timelines are shorter and an applicant may further be directed to serve a copy of its application upon every municipality affected by the application and any other body or person as the chief executive officer of the NNR determines.
Licences are also required for the storage, transportation and reticulation of gas and petroleum through petroleum pipelines. Licences for the storage, transportation and reticulation of petroleum through pipelines are issued by NERSA. Although the procedure for applying for the licences is similar to that for the Licensed Activities, only owners of storage, transportation and reticulation facilities, respectively, may apply.
Licences for exploration or production rights in petroleum resources are generally issued pursuant to bidding processes initiated by the Minister of Mineral Resources and Energy. The Minister invites applications for exploration and production rights in respect of designated blocks on predefined terms and conditions.3 Successful applicants are still required to submit applications to PASA for a reconnaissance permit, technical cooperation permit, exploration right or production right. In certain instances, the Minister will, upon consideration of PASA's recommendations, either grant or refuse the application. In the event that the application is granted, the exploration right or production right must be registered with the Mineral and Petroleum Titles Registration Office, and the permits must be filed and noted with the Mineral and Petroleum Titles Registration Office. The rights issued by the Minister of Minerals Resources only constitute limited real rights.4
iii Ownership and market access restrictions
In 2010, much of South Africa's electricity generation capacity was state-owned. At that stage, Eskom, a state-owned utility with a monopoly over the national transmission grid, produced close to 95 per cent of the country's electricity, with the balance sourced mainly from municipalities. As with electricity generation, transmission and distribution capacity was restricted to the state and state-owned entities. In his 2020 State of the Nation Address, President Cyril Ramaphosa stated that the South African government will start the procurement of energy power from projects capable of delivering electricity into the national grid within three to 12 months of approval, thus allowing municipalities the opportunity to procure their own power from IPPs.
In 2011, the South Africa government launched the Integrated Resources Plan, which called for the country's electricity capacity to be doubled from its 2010 level of 238,272GWh using a diverse mixture of energy sources, mainly coal, gas, nuclear and renewables, including large-scale hydro to be imported from other countries in southern African.
The REIPPPP has served as the primary vehicle through which the South African government has procured renewable energy from private sector power producers. Bid Window 4 under the REIPPPP programme provided that projects developed thereunder must be 40 per cent owned by South African citizens, with people of colour holding a minimum of 12 per cent (with a target of 30 per cent) and a minimum of 2.5 per cent ownership by local communities (those communities within a 50km radius of the project). In addition to the ownership requirements, REIPPPP bidders are also required to bid on other non-price factors known as 'economic development requirements', which are designed to achieve the government's IRP objectives of promoting job growth, domestic industrialisation, community development and black economic empowerment (a programme designed to counter the adverse economic effects of apartheid by initiating, among other things, ownership and control of capital by South Africans of colour, women and disabled persons (Historically Disadvantaged Persons or HDSAs), as well as skills transfer and enterprise development of legal entities owned by HDSAs).
The Coal Baseload IPP Procurement Programme provides that 51 per cent of each project must be owned by South Africans and 30 per cent must be black ownership. Ownership criteria for gas-to-power and nuclear procurement is still unknown. Save as outlined above, there are no foreign ownership or aggregate holdings constraints under the REIPPPP and the Coal Baseload IPP Procurement Programme.
The preliminary information memorandum (PIM) for the Liquefied Natural Gas to Power Independent Power Producer Procurement Programme (LNG-to-Power IPP Procurement Programme) was released on 4 October 2016 by the then Department of Energy (DOE). The PIM provides insight into the proposed LNG-to-Power IPP Procurement Programme and provides the basic framework being considered by the DOE for the minimum mandatory socio-economic objectives, all of which will be provided in further detail under the request for qualifications (RFQ), which was meant to be issued during November 2016. To date, the RFQ has not been issued and, in all probability, will only be released once the DOE has finalised the contentious updated IRP, which was released for public comment in December 2016 (extended to 31 March 2017) (discussed in Section IV.iv). Although not linked to the LNG-to-Power IPP Procurement Programme, Transnet (SOC) Limited, a state-owned freight and logistics company, signed a cost-sharing agreement with the International Finance Corporation on 23 July 2019 to conclude a feasibility study and facilitate investment in natural gas infrastructure in Kwa-Zulu Natal. The feasibility study is for the development of an LNG storage and regasification terminal at the Port of Richards Bay and the repurposing of Transnet pipelines for natural gas transmission to inland markets.
The Petroleum and Liquid Fuels Charter, issued under the MPRDA, provides a framework for black economic empowerment within that industry. Holders of exploration and production rights are obliged to reserve shareholdings for HDSAs in their respective companies. Companies active in the upstream sector are obliged to reserve participation interest of not less than 9 per cent for HDSAs, while companies in the midstream and downstream sectors must reserve a 25 per cent participating interest for HDSAs. These companies must further make contributions towards the funding of skills development initiatives.
iv Transfers of control and assignments
Transfer of control and the assignment of a licence issued in respect of the Licensed Activities, including generation licences issued to IPPs, are restricted by conditions imposed on the licensee by NERSA.5 Accordingly, each licence must be reviewed case by case to determine the specific approvals required for its transfer. However, the Electricity Regulation Act generally provides that a licensee may not cede or transfer its powers or duties under a licence to any other person without the prior consent of NERSA. The transfer of control and the assignment of licences issued to IPPs are further regulated by the implementation agreement between the DOE and the IPP; that agreement provides for, inter alia, government support for the development and financing of relevant IPP projects.
A nuclear licence is not transferable in terms of the National Nuclear Regulator Act 1999.
Regarding the transfer of control and the assignment of a licence or permit in the petroleum sector, the position is as follows: (1) a reconnaissance permit is not transferable, nor does it grant the holder any exclusive right; (2) a technical cooperation permit is not transferable, but the holder of the right has an exclusive right to apply and be granted an exploration right over the area described in that permit; (3) an exploration right is transferable and the holder has an exclusive right to apply for and be granted a renewal of the right, or for a production right, over the area described in that exploration right; and (4) a production right is transferable and the holder has an exclusive right to apply for and be granted a renewal of that production right.
The consent of the Minister of Mineral Resources and Energy must be obtained in the event that a holder wishes to cede, transfer, let, sublet, assign, alienate or otherwise dispose of a prospecting right or exploration right or interest in such a right, or a controlling interest in a company that holds such a right (except in the case of a change in controlling interest in a listed company). An application for the Minister's consent must set out and prove that the transferee has the required technical and financial ability to comply with the obligations imposed on the holder of the exploration or production right.
A licence granted to a person or entity under the Gas Act may not be assigned to another party, is valid for 25 years and may be renewed after the expiry of the licence period.
Transmission/transportation and distribution services
i Vertical integration and unbundling
The Independent System and Market Operator (ISMO) Bill was introduced in 2011. The purpose of the Bill was to restructure the electricity supply industry by providing for the establishment of the ISMO as a state-owned company autonomous from Eskom to serve as the dedicated procurer of electricity for onward sale to wholesale offtakers. The ISMO Bill, when established, would have removed the operation of the transmission grid from Eskom and allow for easier access to the grid by IPPs. However, the ISMO Bill was suddenly withdrawn in the final stages of it being adopted by its sponsor, the DOE, in June 2015.
On 20 February 2019, an explanatory summary of the ISMO Bill was published for public comment in accordance with Rule 276(1)(c) of the National Assembly Rules.6 The ISMO Bill now seeks to (1) create the ISMO as the entity responsible for system operation and the purchase of electricity from electricity generators, (2) split Eskom into two parts, in terms of which Eskom will continue to function as an electricity generator and ISMO, with a view that the ISMO will take ownership and control over the national electricity grid and serve as the central buyer and distributor of electricity from all electricity generators; and (3) allow metropolitan municipalities to purchase electricity directly from IPPs in certain defined circumstances. The Bill seeks to bring an end to the Eskom monopoly, by unbundling Eskom into different divisions.
The gas pipeline network comprises the Rompco Pipeline7 (used to transport gas from Mozambique into South Africa), which is the main pipeline network in South Africa, and several other short-range pipelines, which are privately owned. Owners of these pipelines are compelled under their licence conditions to grant access to third parties on commercially reasonable terms only to the extent that they have uncommitted capacity in these transmission pipelines.
ii Transmission/transportation and distribution access
The transmission of electricity is currently being undertaken exclusively by Eskom. Save for contractual commitments under wheeling agreements with Eskom, there is no obligation on Eskom to provide third-party access to the transmission grid. Eskom distributes electricity directly to customers and to municipalities, who redistribute the same (see Section IV, Energy Markets).
There is currently no regulated framework for use-of-system charges for embedded generators. Some of these generators (primarily IPPs) sell to Eskom through approved power purchase agreements, while others wheel energy to third parties through bilateral agreements with Eskom.
Generators that wish to wheel energy face a number of challenges, including the charges involved, which may render small projects uneconomical; the generator being required to obtain a licence from NERSA to generate and for the wheeling transaction; the generator having to comply with Eskom's onerous requirements for grid connection; and entering into multiple agreements with various distributors.
Although Eskom has provided guidelines on its website for wheeling costs on its network,8 it still remains a complicated process. NERSA has said that it is working on developing a standardised framework for these arrangements.
The Gas Act provides that a licensee of a gas transmission pipeline must provide access to its pipeline to third parties, while the Petroleum Act provides that a licensee of a petroleum pipeline must provide access to its loading facilities and uncommitted capacity in storage facilities to third parties. These requirements will be provided as conditions on a licensee's licence. However, a distributor is not compelled to grant access.
Eskom's tariffs are regulated by NERSA under the Electricity Regulation Act. These tariffs are based on Eskom's costs plus a reasonable rate of return.
A suite of supply policy guidelines for the integrated national electrification programme was last updated on 26 November 2018 by the DOE (the programme provides that the DOE (which merged with the Department of Mineral Resources in May 2019) is responsible for assisting municipalities with the funding of implementation of electrification projects to achieve universal access to electricity by 2025 and is one of the pillars of the government's energy transformation strategy, born in the 1998 White Paper on Energy Policy).
The objective of the policy guidelines is to develop and provide a suite of supply frameworks in line with the 1998 White Paper on Energy Policy and guidelines, thus providing a uniform set of standardised supply options and connection fees, as well as a uniform approach to electrification tariffs for electrification customers for all licensed entities providing electricity.
Oil and gas
In relation to gas and piped petroleum product, tariffs are negotiated on a commercial basis and then approved by NERSA.
The Department of Mineral Resources and Energy is mandated to regulate the tariffs applicable to the manufacturing, wholesaling and retailing of petroleum products through the implementation of the Petroleum Products Act 1977 and the responsibility resides with the Controller of Petroleum Products (this is too wide a matter to be discussed in this chapter).
iv Security and technology restrictions
South Africa's nuclear legislation,9 which is based on several international conventions to which South Africa is a party,10 provides for the establishment of internationally endorsed protocol on nuclear safety, political and financial risk, and ultimate state liability. The NNR is mandated to provide for the protection of persons, property and the environment against nuclear damage as the competent authority for nuclear regulation in South Africa.
The NNR has developed regulatory requirements in accordance with the National Regulator Act, the South African Nuclear Energy Policy (2008), Minimum Information Security Standards and IAEA Nuclear Security Series No. 7. The latter is the International Atomic Energy Agency's implementing guide on Nuclear Security Culture, which prescribes characteristics, attitudes and behaviour of individuals, organisations and institutions in supporting the establishment of effective nuclear security. The development of the regulatory requirements is to assure nuclear security or physical protection systems at nuclear installations or associated actions in South Africa.11
Several of Eskom's power stations and other facilities, as well as municipality distribution installations, have been designated national key points. National key points are strategic installations, which require heightened state security.
Renewable energy and conservation
i Development of renewable energy
The South African energy sector has undergone extensive transformation in recent years. In August 2011, the DOE launched the REIPPPP, an unprecedented, world-class procurement programme with the audacious goal that the country produce 17,800MW of renewable energy by 2030. This objective was set against a backdrop of the country's then current generation capacity becoming increasingly inadequate to meet the ever-rising electricity demand of a growing economy. The inadequacy manifested in Eskom, with its monopoly over generation and transmission capacity, implementing rolling blackouts throughout the country in late 2007 and early 2008. Rolling blackouts resurfaced in 2014 and early 2015. Although widespread load-shedding has not occurred since September 2015, consumer trust in Eskom's ability to deliver reliable power supply is conditioned on a wait-and-see approach.
After the electricity blackouts in 2008, the country decided to draw investor interest by initiating a process to introduce renewable energy feed-in tariffs (REFITs) to facilitate the introduction of renewable energy to the power system. In 2009, NERSA published REFITs with proposed tariffs designed to cover generation costs plus a real after-tax return on equity of 17 per cent, fully indexed for inflation.
However, in 2011, NERSA terminated the REFIT programme because the National Treasury was of the opinion that the REFIT approach contravened public finance and procurement regulations. The REFIT programme was subsequently terminated and replaced by the REIPPPP.
The initial IRP sets out the government's strategy for the establishment of new generation and transmission capacity for the country for the period 2010 to 2030. It calls for the doubling of the country's electricity capacity from its 2010 level of 238,272GWh, using a diverse mixture of energy sources, mainly coal, gas, nuclear and renewables, and including large-scale hydro to be imported from other countries in southern African. The initial IRP further details how this demand should be met in terms of generating capacity, type, timing and cost. The initial IRP also serves as an input to other government planning functions, inter alia, economic development, funding, environmental and social policy formulation. It is also a process by which the requirement for further investment in electricity generation capacity for South Africa is determined.
At the time that the IRP was initially promulgated, the government advised that it should be viewed as a 'living plan' that would be revised every two years to ensure its relevance with regard to (among other things) technological and environmental developments in the global arena.
The national Integrated Energy Plan (IEP) serves as the government's master plan for the entire energy system, with its focus on the broader objective of reducing the overall energy intensity of the country. The IEP regulates energy industries and promotes investment in electrical power, greater employer benefits and more favourable environmental impact. The IRP, on the other hand, being subordinate legislation to the IEP, focuses specifically on electricity.
It became a necessity to revise the initial IRP owing to capacity additions through Ministerial Determinations15 under Section 34 of the Electricity Regulation Act16 and to update key assumptions that have changed significantly since the promulgation of the initial IRP. Accordingly, the updated IRP was issued in October 2019 and it provides for the following new additional capacity by 2030: 1,500MW of generation from coal, 2,500MW from hydropower, 6,000MW from photovoltaic, 14,400MW from wind, 1,860MW from nuclear, 2,088MW for storage, 3,000MW from gas or diesel and 4,000MW from other distributed generation, cogeneration, biomass and landfill technologies.
What is the Independent Power Producer Procurement Programme?
The Independent Power Producer Procurement Programme was introduced as a vehicle for securing private sector investment for the development of new electricity generation capacity. The 1998 White Paper on Energy Policy identified that IPPs were expected to have a key role in developing and producing new electricity capacity in the country.
The REIPPPP was initiated with a request for proposals in August 2011, in terms of which IPPs were invited to bid in a competitive process.
NERSA is mandated, inter alia, to regulate trading activities such as electricity resale (buying and selling). Eskom purchases electricity that is supplied by IPPs to the national grid and in turn sells the electricity to industrial, mining, commercial, agriculture and residential customers in South Africa, some members of the Southern African Development Community and redistributors (municipalities), who in turn redistribute electricity to businesses and households within their areas.
Section 155(6)(a) and (7) Schedule 4B of the Constitution list electricity reticulation as a competence of municipalities in South Africa. Each municipality is a service authority for the electricity reticulation function for the whole of its jurisdictional area and has the right to set tariffs in respect of its sale of electricity in its areas of jurisdiction. On 30 October 2014, the South African Local Government Association entered into a memorandum of understanding and active partnering agreement with all distributors, including Eskom, to ensure cooperative and collaborative working relationships.
Electricity can also be sold on to multiple customers by persons with bulk supply points, such as bodies corporate and office parks (known as Resellers). These Resellers are non-licensed traders of electricity in terms of the Electricity Pricing Policy. Resellers are not required to hold a distribution licence but they must be registered with the licensed authority (generally a municipality) from which the bulk connection was obtained.
To resell electricity, the licensed authority must complete a service level agreement with the Reseller to operate in its area of jurisdiction. The Reseller is also obliged to supply its customers with information on tariffs and tariff structures.
The Minister of Mineral Resources and Energy has indicated possible amendments to the licensing requirements in terms of the ERA which will, inter alia, exempt certain activities from requiring a licence under the ERA. Exempted activities may include (among others) the operation of generation facilities (1) for the sole purpose of providing standby or backup electricity in the event of an interruption in supply and (2) which do not have a point of connection. These amendments are also likely to extend to the operation of generation facilities with a capacity of no more than 1MW that supply electricity to customers regardless of whether that electricity is wheeled, and those generation facilities earmarked for demonstration purposes only.
South Africa is part of the Southern African Power Pool (SAPP), which includes several southern African utilities and supplies to neighbouring countries, being Zimbabwe, Lesotho, e Swantini, Namibia, Botswana, Mozambique and Zambia. While SAPP faces a number of major challenges, such as lack of maintenance of infrastructure, high transmission losses and limited funds to finance new investments, the energy volumes traded by Eskom since its inception in 1996 (around 4,500GWh) have increased steadily to more than 9,977GWh a year since 2003.
ii Natural gas
The use of natural gas as an energy source has stagnated; however, the government of South Africa is optimistic that natural gas will form the backbone of regional economic integration among South African Development Community member countries.
The Minister of Mineral Resources and Energy announced that it was the intention of the Department of Mineral Resources and Energy to fast-track the finalisation of exploration rights applications. However, these applications are yet to be finalised.
There have been no new developments in relation to the expression of interest, which closed on 20 June 2016, for the Gas 600MW IPP Procurement Programme. However, a feasibility study by NOVA Energy, a South African integrated natural gas company, has been initiated to assess the conversion of the Kelvin power station from a 450MW coal-fired power plant to a 600MW gas-fired power station.
iii Gas pipeline
A cooperation agreement has been signed with investors in respect of a 2,600km gas pipeline from the Rovuma Basin in northern Mozambique to Gauteng province in South Africa with an estimated value of US$6 billion.
The updated IRP of 2019 states that South Africa is planning smaller, modular nuclear plants and provides only for the procurement of an additional 1,860MW of nuclear power to be commissioned by 2024, which represents the 20-year extension of the life of the Koeberg nuclear power plant in Cape Town. The Koeberg Power Station reaches its 40-year end of design life in 2024 and plans are already in place to extend its design life and nuclear safety licence for an additional 20 years.
Nuclear power will therefore be procured at a pace, scale and cost affordable to South Africa, taking into account the rate of decommissioning of coal-fired power. One of the nine policy positions listed in the IRP 2019 is for the immediate commencement of a nuclear build programme.
The year in review
Amendment to the MPRDA
The Mineral Petroleum Resources Amendment Bill [B15D-2013] (the MPRDA Bill) was submitted to Parliament; eight of the nine provinces supported the Bill, subject to amendments. The main concerns raised by the provinces centred on some policy aspects relating to the Bill regarding some of the definitions in the Bill, inadequate procedures, systems and processes, the need for more clarity on concepts raised in the Bill, and conflicts with other legislation and government policies. The MPRDA Bill provides for state participation in any successful mineral and gas or oil development exercises carried out by the private sector that would result in the state receiving a right to free carried interest in all such exploration and production rights. The MPRDA Bill proposes that the South African government be provided with a 20 per cent 'free carry' in all new exploration and production rights.
On 28 November 2019, the Minister of Mineral Resources and Energy gazetted draft amendments for public comment to the MPRDA, and the guidelines for mine community resettlements. The Minister had withdrawn a previous version of the MPRDA in October 2018 as the legislative process had stalled after the National Council of Provinces had been unable to reach an agreement on the Bill. As a result, the Bill had become irrelevant to the industry's needs. The draft amendments reflected in the MPRDA 2019 introduce regulations to social and labour plans in the industry. These include requirements that holders of mining rights contribute towards the socio-economic development of the areas in which they are operating, and in labour sending areas. Applicants for mining rights are also required to consult communities to ensure their social and labour plans address the relevant needs of the communities. Further, a mining right holder must widely publish an approved social and labour plan in English and one other dominant in the official language commonly used within a mining community. Social and labour plans must also be reviewed every five years from the date of its approval by the Minister of Mineral Resources and Energy. The document emphasises that collaboration on social and labour plan projects must be transparent, inclusive and based on consultation with all stakeholders.
Conclusions and outlook
The year 2019 brought further positive developments in the energy sector as a result of the updated IRP, which will allow South Africa to focus on building a diverse energy sector that will also encourage the economy. The future looks very positive for renewable energy, and the much-anticipated revised draft of the IRP will help interested parties to understand which parts of the energy sector the South African governments will be supporting in the coming years.
1 Lido Fontana is of counsel, and Mzwandile Khumalo and Yolanda Dladla are associates at Covington & Burling (Pty) Ltd.
2 Electricity Regulation Act, 2006, Section 10(2), Paragraphs (a) to (g).
3 Mineral and Petroleum Resources Development Act 28 of 2002, Section 73(1).
4 id., at Section 5(1).
5 Electricity Regulation Act, 2006, Section 15(1)(k).
6 See Government Notice No. 42237 of 20 February 2019.
7 This is a joint venture between South African Gas Development Company Limited (also known as iGas), Companhia Limitada de Gasoduto (CMG) and Sasol Gas Holding Proprietary Limited.
9 Nuclear Energy Act 46 of 1999.
10 For example, the Convention on Nuclear Safety, 1994; the Convention on Early Notification of a Nuclear Accident, 1986; the Convention on Assistance in the Case of Nuclear Accident or Radiology Emergency, 1986; the Convention on Physical Protection of Nuclear Material, 1979. See also www.nti.org/treaties-and-regimes/treaties/.
12 The Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996).
13 Electricity Pricing Policy, GN 1398 of 19 December 2008.
15 A complete list of Ministerial Determinations can be found under Appendix B of the Updated IRP, hereinafter referred to as the 'Ministerial Determinations'.
16 No. 4 of 2006.