POWER CRISIS
Karpowership offers to chop 20-year energy deal to five years — but there’s a new price
Following the extended controversy over the merits of procuring power from Karpowership, the Turkish company says it’s willing to enter into a five-year deal.
Seemingly desperate to clinch a multibillion-rand “emergency” electricity supply deal with South Africa, the Turkish Karpowership group has offered to cut the original 20-year contract down to five years. But there is a catch: the price tag for a shorter contract would shoot up.
In a television interview with eNCA journalist Annika Larsen on 9 August, Karpowership chief commercial officer Zeynep Harezi asserted that her company was ready to dispatch five floating powerships to South Africa and to start generating electricity within “90 days” or less.
“We are ready to come for only five years [instead of 20 years as specified in the current government proposal],” she said — though she was careful to add that her Istanbul-based company did not rule out an extension to the proposed contract after five years.
Harezi’s public gambit follows a lengthy and heated controversy about the merits of entering into a protracted and costly energy deal with the Turkish majority-owned floating powerships company.
The exact cost of the deal remains secret, though the CSIR has estimated that it could be around R228-billion.
Read more in Daily Maverick: Karpowership SA is heading for choppy financial waters
Since then, the price of gas has rocketed following Russia’s invasion of Ukraine — a factor acknowledged by Harezi, who suggested that natural gas prices could account for 60-70% of the costs of a new deal.
Responding to suggestions from Larsen that the price tag of a 20-year deal could exceed R300-billion, Harezi asserted that South Africa was paying in the region of R35-billion a year for diesel-based peaking power supplies, whereas Karpowership was offering a five-year deal that would cost “less than R15-billion” annually to provide about 1,200MW of electricity from five floating power ships plugged in at the ports of Richards Bay, Coega and Saldanha Bay.
Though Harezi presented this offer as a bargain, the jury is still out on whether this is really a fair “apples with apples” cost comparison.
Chris Yelland, energy analyst and managing director of EE Business Intelligence, cautioned that gas prices were subject to significant fluctuations based on the US dollar price for liquid natural gas and the dollar/rand exchange rate.
Yelland told Daily Maverick that if the Karpowership tariff for a revised five-year contract were to rise, a fresh government procurement process was needed to allow other power bidders the opportunity to revise their initial offers and contract terms.
“Clearly, Karpowership has not offered anything because they have not been [officially] approached by anyone in government or the IPP [Independent Power Procurement division of the Department of Mineral and Energy Affairs].”
Interestingly, however, Harezi suggested that her company held a meeting with Public Enterprises Minister Pravin Gordhan (“that lovely gentleman” in her words) about three to four weeks ago, along with representatives of Eskom and the Transnet National Ports Authority for an “open discussion”.
On the role of Minerals and Energy Minister Gwede Mantashe in the Karpowership deal, Harezi insisted she had never met Mantashe, nor been approached by South African government representatives to reduce the contract term to five years.
Read more in Daily Maverick: Gwede Mantashe doubles down on state support for Karpowership
There had never been any “political aspects”, she said in response to Larsen’s questions about the black economic empowerment stipulations of the emergency power procurement process.
South Africa is an “important project”, but not the “only” commercial opportunity for Karpowership, she said.
Significantly, however, she said that Karpowership had met a prospective South African BEE “gentleman” partner as far back as 2016. DM
Only R228,000,000,000 over 5 years (R46,000,000,000 a year – how many schools, clinics, hospitals could be built with this money?).What a bargain! While this Karpower lackey likes to compare the cost of the power ships to the cost of diesel currently being used by the ANC to keep the lights on, she conveniently forgets to mention that the use of gas or diesel is not economically sustainable. She also mentions nothing about the environmental damage caused by these ships. The money can be best used to develop the renewable energy sector.
It does not make financial or scientific sense. The only explanation is al lot of this money going into a chair or something in Luthuli House. Denise Smit
Very well said, thank you!
There are a few lies and inaccuracies in the response. Firstly the cost of power from Karpower based on the original bid was in fact more expensive than that from OCGTs and CGTs burning diesel (that is even at the ludricous cost that PETROSA charges ESKOM for diesel). Secondly the carbon cycle of natural gas is in fact worse than that of coal if all emissions are taken into account (plenty of research and literature from reliable sources on this). The change in the natural gas taxonomy in the EU barely passed muster in their parliament and besides that the EU has an established network so the change was at the time almost forced notwithstanding that it is only intended to last to 2030. Be that as it may a few simpler questions that put matters into perspective. Who supplies LNG/CNG to Karpower? Shell SA. Who owns shares in Shell SA and will therefore benefit from the contracts? This is nothing less than Kusile and Medupi and Hitachi SA revisited. Fortunately if they change the price they will have to go through the bidding process again or if the bid is considered an unsolicited bid they will have to disclose the whole of the bid make up which includes the financial agreements. Signing with Karpower makes no sense whatsoever neither from an economic nor from an engineering perspective.
There’s a few things I don’t understand, what are 1200 MW actually going to do? Most of the time we are around 4000mw short with 11 to 15 in perpetual breakdown. Additionally the private sector has added according to reports somewhere between 4000 and 10000mw of embedded solar. I have yet to see this production factored into national production stats. Would it be possible for DM to do a basic breakdown of what load shedding has cost the economy and what the capow deal will actually mean to the national bottom line. Basically is we spent 228b would the government have any realistic chance of recouperating it through increased GDP.
get these ships out of our sight. a fool can see the rip off!
I would recommend all Daily Maverick readers find when eNCA repeats the interview. It is almost as good as the de Ruyter one. I was particularly interested about Zeynep Harezi doing a duck and dive after talking about the environmental habitat of a black heron and Karpowership will have to purchase a game farm, which she quickly backtracked on ( an eau de cologne moment suddenly became urea ) . Also the 49% BEE ownership with connected individuals and how that came about from 2016. She really was in good form. She was on the ships so they are ready to be in SA within a couple of months. The requirement of a complete new bid should the duration change to 5 years was noted. The last bid repeat I can remember is when SANRAL retendered the bridges after a suspect requirement that design engineers couldn’t be part of adjudication process so that they could confirm the construction methodology was good. The Chinese pulled a fast one there on the rebid and took the majority of work, including suspect BEE partners. It is out in the open now.
Now there are five of these things ready to set sail for the goldmine that is South Africa! I thought three was the number being contemplated? Obviously supply is running ahead of demand. How surprising!
If they’re committed to using gas rather than the filthy fuel oil they used in Nacala, then the issue is just one of price. And since, to end loadshedding, SA will have to use this kind of power from one source or another over the next few years, the issue now is simply one of price comparison. Or perhaps the purveyors of intermittent renewables would prefer us to wait in the dark while they sort out their transmission and storage challenges??
ENCA website, you can view it now.
Some further comments – South Africa is the only Country in Africa who requires BBE partners. Worldwide Indonesia is the only country who requires local input.
So our focus is not fast track get power to the grid quickly as per the rest of the world but give a local BEE partner the cream. It seems the partner is not BROAD BASED but 2 accountants, a lawyer and connected Thabo George Ngwenya.
A further comment, I thought negatively spoken, was that on arrival if Karpowership used local South African Karpowership selected for the sitework connections it would take 3 months but there is a list of “tender approved contractors” it would take 9 – 12 months.
She used a saying ” As a guest you cannot untie the goat”. I don’t think she was referring to Gwede.
The impression I got was that having a BEE partner, ” tender approved contractors” the total price of the Project could be greatly reduced. I heard a cry for help here to say we are an international company on a sail in and sail out basis and we have been hampered with the huge cost of BEE and putting money in a few hands.
The secret shareholder agreement includes the BEE partner to provide their share of development costs.
The definition of development cost was not detailed so there could be massive profits by the BEE here based on the wording.
A question on corruption payment was craftily avoided. Anika raised the Zondo Commission Report findings. This Project should be chasing value for money.
Um wait… We generate approx 3.7 mw by burning 937 508 149 litres in the fiscal year ending March 2023, at a cost of R6.4 billion (this is 3 to 4 load shedding levels) but we gonna enter a deal for R15 billion per annum to add 1.2mw (which is 1 loadshedding level) so we would still need diesel… Surely it would be better to double down on diesel which would save R7 billion and forgo taxes on diesel (because I am sure it’s taxed) and the R7 billion for repairs or down payment to a new power station (or invest in a private power station) with these figures shurly the diesel ships are not even worth thinking about.