Karpowership deal; Fuel Price & Refining interventions: discussion

Meeting report

Discussion on Basic Fuel Price and Refining Capacity
The Committee engaged with the Basic Fuel Price (BFP) briefing by DMRE on 14 April 2021.

Mr Arico Kotze, Committee Secretary, presented the list of BFP interventions by the Committee:

• There is a significant complexity involved in determining fuel prices, and the action required is to conduct further public engagements and consultations on alternatives.

• There is a need to remove the 15% premium on freight, and the action required is to urge DMRE to engage with freight companies to resolve this. The Committee must continue to follow-up with DMRE through briefings in Parliament and the submission of written reports.

• A policy consideration is required to disconnect the Road Accident Fund from the BFP.

• Discussions must be conducted on the regulation or deregulation of fuel products. The White Paper on Energy encourages deregulation to move towards transforming the market and allowing wholesalers to compete based on price in a levelled playing field.

• The Committee must find ways of addressing intra-trade initiatives with the Pan-African Parliament to find common ground to increase the procurement of oil from African countries that are oil suppliers.

• There is a need to conduct a thorough review on the BFP and to consider alternatives to the domestic taxation of it. High fuel prices have a socio-economic impact that should not be ignored during this process.

• Alternative sources of fuel should be investigated and briefings received on biofuels and hydrogen fuel cell technologies.

The list of interventions by the Committee on the state of refining in the country were:

• The possible closure of various refineries in South Africa necessitates further discussion to ensure sustainable supply and refining of fuel products for the South African market.

• There is a need to ensure the maximum stocking of fuel products when cost is at its lowest to enhance reserves and ensure sufficient strategy-based fuel stocking.

• The closure of the Engen Refinery in Durban necessitates a smooth conversion of the refinery to a terminal to ensure minimum job losses.

• Shell and BP are in the process of evaluating a number of options, including obtaining an owner-operator for the refining asset, and the Committee should continuously monitor this process.

• There is a dire need to ensure that consumers are not adversely impacted by the differences between importing and the local production of fuel products.

• The development of building a local mega-refinery requires the need to address increasing local refining possibilities. This relates to Saudi-Aramco waiting to build a refinery in Richards Bay.

• The Committee must address the developments in the world of mineral resources. The actions required for this intervention relates to the establishment of a research institute for energy resources and having an adequately specialised skills base in South Africa. This means the involvement of higher education institutions and other government research-based state-owned entities.

• Amendments to legislation require attention in the event that the legislation might impede or slow down the transformation processes.

The Chairperson thanked the Secretary for outlining the interventions. He stated the importance of incorporating the interventions into practice and asked for input from Members.

Mr K Mileham (DA) referred to refinery capacity and the need to address the developments in the world of mineral resources. He expressed concern that the Committee is calling for a new research institute to take on the role of an existing institute.

The Chairperson recognised the valuable point raised by Mr Mileham. He asked if the intervention should be disregarded entirely, or whether it should be reworded to call for an effective research institute for energy resources with a specialised skills base.

Mr Mileham advocated that the intervention should be reworded to call for an effective research institute for energy resources with a specialised skills base, as this would enhance the capacity and operationalisation of the current institute tasked with this mandate.

The Chairperson agreed with Mr Mileham and the intervention was reworded: “To ensure that the South African National Energy Development Institute (SANEDI) is efficiently resourced as a research institute for energy resources with a sufficient skills base”.

Ms P Madokwe (EFF) added that the interventions should also incorporate aspects of manufacturing.

The Chairperson agreed the matter of establishing productive local capacity for manufacturing can be accommodated. The intervention was reworded to include: “to provide for the establishing of industries to manufacture local components for the South African market”.

The Chairperson stated that the Committee will have to factor these interventions into its programme to engage with them.

The Committee agreed to the list of interventions.

Discussion on RMIPP-Procurement Programme & Karpowership contract
The Chairperson reminded the Committee that Members have not yet had the opportunity to thoroughly engage with the information presented on the RMIPP-Procurement Programme, and this meeting is designated for asking questions of clarity. Members now had the opportunity to discuss the report and present their inputs on the briefing received on 21 April.

Mr Mileham proposed that the Committee endorses the launching of an investigation into how bids were awarded for the multi-billion rand programme to fast-track new power production. There is more and more evidence of political connectedness in this process as someone with no experience in the sector of power generation was awarded a tender of this magnitude. This tender is expected to cost R 218 billion (R10.9-billion per year for 20 years). This shows the need for a comprehensive investigation into the process that was followed, including the criteria applied. It should be made clear if the adjudication of the tender award was above board to ensure that there is no possibility of corruption or state capture. The Zondo Commission’s comments on how Parliament has failed in the past to hold the Executive accountable cannot be ignored. It is paramount that the procurement process be followed to the letter.

Mr S Kula (ANC) referred to Mr Mileham’s call for an investigation as ‘baseless’ and unfounded.

Mr Mileham called for a point of order.

Mr M Mahlaule (ANC) responded that a point of order cannot be called until Mr Kula has finished his point.

Mr Mileham again called for a point of order.

Mr Kula pointed to Mr Mileham calling for a point of order when there is disagreement between Members on the matter under discussion. It does not warrant a point of order.

The Chairperson called for the silence of all Members. He asked Mr Mileham what the point of order is.

Mr Mileham replied that Mr Kula made a statement that his comments were baseless. This was unparliamentary as Members are entitled to raise concerns and make proposals. Mr Kula can debate the issues raised by other Members but cannot disregard them as baseless and unfounded.

The Chairperson ruled that the statement that 'it is a baseless argument' is not grounds for saying another Member is out of order. He asked Members to debate and put facts on the table to support their arguments.

Mr Kula continued that people should not be punished for political activism. People who are politically active or politically connected are still allowed to participate in the procurement processes of the country. He disagreed with Mr Mileham that people without little or no experience should not be given access to opportunities. This goes against the country’s transformation agenda that has maintained the need for new role players in these sectors. The accusations of corruption or state capture must be founded on facts. There is no need for an investigation at this point in the process. The reasoning put forward by Mr Mileham is not enough to warrant a full-scale investigation, despite any personal suspicions Mr Mileham might have. The Committee must focus on addressing the electricity challenges in the country.

Mr Mahlaule stated that the personal suspicions of Members should not influence their arguments before the Committee. It is important to not put unfounded blame on people who are innocent. It cannot be argued that there is corruption or threats of state capture simply because someone is politically connected.

Mr J Lorimer (DA) stated that previous power procurement programmes in the country have been known for being plagued by corruption and has crippled South Africa’s capacity for industrial growth. It resulted in economic knock-on effects including mass unemployment. The RMIPP-PP is another massively expensive power procurement programme, and it cannot be argued that there is not a public perception of government corruption. It is incumbent on the Committee to ensure that the minds of the public are put at ease. There are still questions about the duration of the Karpowership contract and the costs involved. The perception of insider tendering is fostered when those who are politically connected are awarded tenders of this scale. There are also questions remaining on whether the contract would be value for money and how it will impact the cost of electricity for the everyday consumer. He supported the proposal by Mr Mileham. He noted the rush that some Members have to defend this opaque and suspect contract.

Mr Mahlaule raised a point of order on this last statement by Mr Lorimer. It is incorrect to state that there is a rush to defend the Karpowership contract which is under debate in Parliament and require Members to voice their views in the Committee.

Ms V Malinga (ANC) stated that the discussions are in the interest of the public. The Committee is tasked with ensuring that there is a stable energy supply in the country. If there are issues that need to be clarified on the information received in the DMRE briefing, then the Committee must ask for clarity from DMRE. It is not correct or proper merely to cast suspicions.

Mr Mileham replied that it is in the public’s interest to ensure that the procurement process followed is above board and that no corruption is involved in any form.

The Chairperson responded to the point of order raised by Mr Mahlaule. Members should not attack each other but should keep to the topic under discussion in the meeting.

Mr Mileham continued that the stability of energy and electricity supply is in the public interest and is of paramount importance. This is why it is important to launch an investigation to ensure that the procurement process involved in the Karpowership contract is beyond reproach and with no corruption involved. He agreed with Mr Lorimer that the sector is known for widespread corruption in contracts of this scale. It is the duty of Parliament to ensure that effective oversight is rendered.

Mr Mahlaule stated that there is no need for the Committee to enter into a debate on the proposal raised by Mr Mileham. It is unacceptable to label Members as defending the Karpowership contract without proper submissions being made. Casting suspicion does not warrant full-scale investigations without properly founded grounds to do so and with the underlying facts presented to the Committee.

The Chairperson stated that the Committee has the responsibility of ensuring that the Executive accounts for its actions. The purpose of the meeting is to get clarity and discuss what was presented to the Committee in its engagement with DMRE. Members can enquire into the procurement process that was followed on the tender, but this is an accountability measure that is not necessarily the same as a full-scale investigation. Members should respond to the presentation made to the Committee. It might be necessary to request DMRE to appear before the Committee once again to clear up confusion or to provide more information on the procurement process followed.

Mr Mileham stated that there is a need to assure the Committee that the procurement process in the awarding of the tender was above board. Members were told by DMRE that the proper processes had been followed, but no details were given. Details were not given on why there was a need to enter into a 20-year contract to amortise capital costs which raises a question mark on the soundness of the tender award. His proposal of launching an investigation was not meant to imply that the Committee should adjudicate on the matter but there is a need to assure the Committee that the procurement process in the awarding of the tender was above board and without any political interference or undue influence.

Mr Lorimer stated that the presentation received on the tender was deficient and that there are points that Members need clarity on, such as the details of the procurement process. Clarity is needed on the degree of public participation and adherence to BBB-EE that was followed.

Mr Mahlaule agreed with Mr Lorimer that more details are needed on the procurement process. Engagement with DMRE is necessary before endorsing a full-scale investigation. He cautioned that this topic of discussion risks treading on the toes of what is within the mandate of the Standing Committee on Public Accounts (SCOPA). Launching a probe into the Karpowership contract would set a bad precedent and would be an abuse of a power that is not bestowed on this Committee. He proposed that the matter be referred to SCOPA if Members feel that there is something untoward about the Karpowership contract.

Mr M Wolmarans (ANC) agreed with Mr Mahlaule that scrutiny of the Karpowership contract in the form of an investigation necessitates that the matter be referred to SCOPA if Members feel that there is something untoward about the contract. He agreed with Mr Lorimer that more details are needed on the procurement process. It would be jumping the gun to launch an investigation and would be an interference in the matter that is the purview of DMRE. It is the duty of DMRE to compile the report on this. Thereafter the Committee can enter into this type of discussion.

The Chairperson stated that the Committee should engage with the DMRE representatives who are present. He asked DMRE to respond to the questions raised.

DMRE response
Adv Thabo Mokoena, DMRE Director General, agreed with Mr Mahlaule that scrutiny of the Karpowership contract in the form of an investigation necessitates that the matter be referred to the Standing Committee on Public Accounts, and further details will be provided by DMRE. When dealing with procurement, all the rules of a public procurement process are applicable to all the bidders.

The Director General replied that the time period of the Karpowership contract is applicable to all bidders, not just Karpowership, who participate in the RMIPP-Procurement Programme. After the 20 year period, all the projects will be decommissioned. On the economic development requirements, DMRE has looked at local skills, job creation, socioeconomic development and enterprise development in this process. The requirements that companies had to comply with were assessed in line with these economic development requirements. DMRE has no concerns about compliance with the law in the awarding of the tender to Karpowership.

Mr Jacob Mbele, DMRE Deputy Director-General: Energy Programmes & Projects, replied that the appointment of the independent transaction advisors was done by the IPP Office and the Development Bank of Southern Africa (DBSA). The request for proposals (RFP) and evaluation processes were all monitored closely by the IPP Office with the assistance of the advisors. The IPP Office was in constant discussion with all the entities involved in the authorisations. So far, it had not been made aware of any risk of not meeting financial close. Workshops had been held to ensure all processes for port permits were finalised. This was presented to the Committee during its previous meeting. This should clarify the questions on who was involved in the evaluation of the bidders for the tender.

Mr Bernard Magoro, Eskom Head of Independent Power Producers Office, agreed that there has been full compliance with the law on the appointment of Karpowership. All bidders were rated exactly the same, and in the manner prescribed by the law according to scores based on price and economic development. He confirmed that for economic development requirements, DMRE looked at local skills, job creation, social economic development and enterprise development. These requirements were evaluated in the tender process.

Discussion
The Chairperson thanked DMRE for the input and invited Members to comment.

Mr Mileham welcomed the explanation from DMRE on the process of the evaluation of the bidders for the tender. There is still a need for the Committee to be presented with the scorecards of the bidders to understand their positions in the process. He expressed the view that this matter is not something that can be easily referred to the Standing Committee on Public Accounts, as it is something that is the direct responsibility of DMRE and this Committee. The Karpowership contract appears to be manipulated, and this suspicion requires the Committee to take a deeper look to ensure that the procurement process followed was above board in every aspect.

Mr Lorimer stated that there is still a need for more clarity on the 20-year period of the contract, especially given that ship-based power is usually a more expensive source of power.

Ms Malinga stated that the discussions is going around in circles. The Committee has never asked DMRE for the scorecards of bidders. It seems as if the unsubstantiated allegations of Mr Mileham are being entertained by the Committee. The duty of the Committee is to hold the Executive accountable to ensure the safety and security of energy in the country.

Mr Mahlaule asked the Chairperson if the proceedings would continue like this. He noted his earlier point that an investigation is not in the purview of this Committee’s powers. The Committee cannot play the role of adjudicating over a tender when such disputes should be heard by or referred to the Standing Committee on Public Accounts. This does not amount to neglecting the Committee’s duty to holding the Executive accountable or dismissing if there is something untoward with the Karpowership contract. He questioned the relevance of the matter to the mandate of this Committee, as it falls within the mandate of SCOPA.

Mr Mileham asked that his proposal that the Committee endorse the launching of an investigation into how bids were awarded for the multi-billion rand programme to fast-track new power production be put to a vote by Members for a decision on this matter. The vote should be recorded for future reference.

Mr Kula stated that there are attempts from Members to problematise the procurement process followed so that aspersions can be cast on it in the media. It is not the appropriate time to entertain an investigation proposal without proper engagement with DMRE. The IPP Office and DMRE have cleared up the questions Members needed clarity on. He was against the need to vote on the proposal by Mr Mileham.

Mr Wolmarans agreed with Mr Kula that Members' questions were clarified, eliminating the need to vote on an investigation. There are no grounds on which the Committee can wholeheartedly agree an investigation is warranted.

The Chairperson stated that a vote was necessitated as Mr Lorimer had seconded the proposal for the vote, in line with the rules of Parliament. The Committee will now vote on whether there should be an endorsement of the proposal to launch an investigation into how bids were awarded for the multi-billion rand programme to fast-track new power production. This vote is on an investigation into the awarding of the Karpowership contract.

Vote on Karpowership contract investigation
The Chairperson said the following Members voted in favour of the proposal: Mr Mileham and Mr Lorimer, with six Members voting against the proposal.

The Chairperson concluded that the Committee has voted against the proposal for the launching of an investigation into how bids were awarded for the multi-billion rand programme to fast-track new power production. The vote was made by a two-to-six margin, and the matter is now dealt with.

After the Committee adopted the minutes of its 14 and 20 April 2021 meetings, the meeting was adjourned.