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MELISSA FOURIE: Karpowership projects risk being another Medupi

11 August 2022 at 9:35 am

A Karpowership vessel. Picture: SUPPLIED
A Karpowership vessel. Picture: SUPPLIED
After news broke on Monday of its unsuccessful appeal against the refusal of environmental approval for its floating gas powerships, Turkish energy company Karpowership described the outcome as “another blow to the country’s attempts to resolve an electricity crisis”. In fact, the appeal decision ascribes the failure of the application to “gaps in information and procedural defects that are material and fatal”.

It is a mistake to believe — as Karpowership implies — that environment minister Barbara Creecy and environmental regulators should be blamed for the company’s inability to get the regulatory approvals they need. The problem lies with the projects themselves.

Karpowership requires regulatory approvals from various authorities, including the National Energy Regulator of SA (Nersa), for its three proposed projects in Richards Bay, Coega and Saldanha. All of its approval applications are being contested by a range of parties, on many different grounds and for good reason.

Environmental and climate justice groups GroundWork, the South Durban Community Environmental Alliance (SDCEA), Green Connection, and many others have raised serious concerns about the environmental and climate impacts of the Karpowership projects. Represented by the Centre for Environmental Rights (CER), GroundWork and the SDCEA opposed both Karpowership’s application for Nersa approval and its appeal against the refusal of environmental authorisation — and have committed to taking further legal action if necessary.

GroundWork and the SDCEA’s concerns include that if authorised, the Karpowership projects would emit an irreversible amount of potent methane greenhouse gas (with a global-warming potential 84-86 times that of CO2 over the project’s 20-year lifespan) and risk jeopardising SA’s ability to meet its climate-change commitments. It is estimated that the three Karpowership projects would produce greenhouse gases of almost 50-million tonnes of CO2 equivalent, taking up over 1.18% of SA’s national carbon budget.

Higher consumer risks and costs

In April 2022, environmental justice group Green Connection and civic action group Organisation Against Tax Abuse (Outa) launched separate court applications to set aside the generation licences granted by Nersa for the three Karpowership projects. Outa argues that Nersa failed to consider that the Karpowership 20-year “emergency” contracts would not resolve load-shedding, but will instead tie SA to an expensive long-term contract.

Many of the objectors have relied on independent economic assessments to raise concerns about the cost implications of the Karpowership projects. A 2021 independent economic assessment by the Rocky Mountain Institute (RMI) found that Karpowership’s 20-year lifespan risks them becoming a burden to SA electricity customers and is “inconsistent with a least-cost investment plan for the nation”.

In support of Outa’s court application, local economics research institute Meridian Economics concluded that Karpowership is not required to meet SA’s load-shedding problems on an urgent basis, and that there are “faster and substantially cheaper generation-project options available to complement the portfolio of existing generation resources on the grid to eliminate load-shedding in the short term”.

Like RMI, Meridian found that the Karpowership project will “expose consumers to much higher costs and much higher risk than the portfolio of alternatives available”. Those alternatives are, of course, the long pipeline of renewable-energy and storage projects that could be ready within two years.

It is estimated that the three Karpowership projects would produce greenhouse gases of almost 50-million tonnes of CO2 equivalent, taking up over 1.18% of SA’s national carbon budget.

Many organisations, including coastal communities that are concerned about the risk the projects pose to the ocean and fishing, have set their sights on the potential financiers of the Karpowership projects — the Development Bank of Southern Africa (DBSA), Absa and Investec — and have called on these financial institutions to distance themselves from the Karpowership projects.

Both Absa and Investec faced questions at their shareholder meetings from shareholder activist group Just Share about their support for the Karpowership projects. This resulted in acting Absa CEO Justin Quinn saying that “the bank was not about to give away our reputation that we have built on one transaction”, and that scrutiny of any funding for the Turkish company will be subject to reputational due diligence. Investec also tried to keep its options open, saying it had not yet committed unconditional support and that the projects would still have to pass its “very, very robust” due diligence processes.

The Karpowership projects will cost SA an astronomical amount. The amaBhungane Centre for Investigative Journalism has analysed the bid and contract terms and concluded that the contract would cost the country at least R225.7bn over 20 years, or R11.3bn per year — close to the R218bn estimated by the Council for Scientific & Industrial Research (CSIR) in 2021. Moreover, it appears that the SA contract would likely constitute close to half of Karpowership’s non-fuel revenue.

It is worth noting that Karpowership alleges it has spent R400m on applications for regulatory approval. This money was spent entirely at its own risk. One has to wonder where this money went if its applications still cannot pass muster with the forestry, fisheries & environment department — not that the department is generally known for unnecessarily blocking projects, much to the ire of civil-society organisations.

Karpowership’s pressure on SA regulators to force a decision should be seen for what it is: an attempt to exploit load-shedding to tie the country into a long-term contract that would be extremely profitable for the company, but a financial and climate albatross around the country’s neck. If we have learnt one thing from the financial disasters that are Medupi and Kusile, it is to ensure that enormously expensive, long-term projects actually solve the problem and do not create giant new ones.

• Fourie is executive director of the Centre for Environmental Rights.