/ 6 June 2023

Karpowership: Contract to be negotiated amid heavy fuel oil fears

Powergroup SA has approached the Johannesburg high court to seek an urgent interdict against Turkish group Karadeniz Energy, accusing it of attempting to remove it from a natural gas deal worth over R200 billion. (Karpowership)

Talks about decreasing the 20-year contract between the government and Karpowership, the Turkish owner of a fleet of powerships, to five years are set to begin this week.

This is according to a cabinet source who said the government was looking to reduce the term as new information had come to light that not all the power would be generated from gas but that heavy fuel oil could be used. 

At a media briefing on Friday, electricity minister Kgosientsho Ramokgopa reiterated that the 20-year ship agreement had to be cut to five years. But they “haven’t had that conversation” yet with Karpowership, he said.

“While 1 220 megawatts of the targeted electricity could come from gas-fired power provided by Turkey’s Karpowership, under an agreement that’s already in process, the balance may be generated from fuel oil plants owned by the company,” the cabinet source said.

Environmental groups and cabinet sources fear the company will be using heavy fuels, including oil, as well as gas.

This goes against South Africa’s climate goals of using fewer fossil fuels and more renewable sources of energy.

Karpowership was recently granted access to the ports of Ngqura, Durban and Saldanha Bay for 20 years. But the Karpowership project is on hold after failing the environmental impact assessments. The company is working on an appeal.

Heavy fuel problem

According to another cabinet source, the possible use of heavy fuels will be the main negotiation factor to force Karpowership’s hand to decrease the contract term.

“Cutting the contract to a shorter term has been agreed upon by all the ministers involved in electricity. The aim is to use the services for a shorter term as an emergency. We don’t foresee the emergency continuing for 20 years. 

“The use of heavy fuels will be against our promise to cut emissions; we aim to stick to the NDC [nationally determined contribution] goals,” the source said. The NDC goals aim to decrease South Africa’s carbon footprint by 2050.

On whether Ramokgopa has the power to negotiate a shorter term, should Karpowership eventually secure the environmental authorisation required to progress projects at Ngqura, Richards Bay Saldanha Bay to financial close, he said: “I have determined what constitutes an emergency, period.”

He added he had not yet engaged with Karpowership about shortening the timeframe, but “how I enter that conversation is on the basis that the period I have outlined is non-negotiable”.

“It can’t be anything more than five years, I give you that assurance,” he said, repeating the timeframe provided to lawmakers earlier in the week when he said 2 000MW of powership capacity should be procured.

He said the rationale for a shorter contract term was based on the fact that South Africa was likely to be able to close its supply deficit using mostly renewables and battery storage within about 3,5 years.

“Let’s say you give it [the powerships] 10 to 20 years, do you want to tell me that, in that period, you will not be able to find additional energy sources to close what essentially constitutes the deficit?

“And I must say that, from my engagement with the ministers, my peers, we are not at odds on this one.”

Kim Kruyshaar, CEO of Green Audits, said there were fears that Karpowership planned to use heavy fuels instead of gas and that the price of gas had increased.

“When Karpowership responded to DMRE’s [department of mineral resources and energy] call for emergency energy, gas was cheaper than heavy fuel oil. Now gas is more expensive.  Low-sulphur heavy fuel oil is more expensive than heavy fuel oil but is cleaner. Both release more CO2 into the atmosphere on combustion per kilowatt.”

She added that powerships came with many problems, including noise and the impact of switching from gas to heavy fuel. “Imagine the smoke and emissions from 10 generators per Karpowership, nevermind the noise of those big generators. It is imperative that the risks of, and impact of, fuel switching from gas to low-sulphur heavy fuel oil is addressed in all objections.”

This comes at a time when the national energy regulator has approved Karpowership generation licences, and the department of transport has approved its application to access the three ports for 20 years.

Energy Minister Gwede Mantashe and Public Enterprises minister Pravin Gordhan have also come out in support of powerships, an indication that the government is moving swiftly to secure them. 

Environmental group Greenpeace Africa spokesperson Chris Vlavianos said the decision to grant Karpowership access to South African ports before it had secured environmental approvals was “ludicrous”.

“Permission was granted on February 26 and was not publicly disclosed. Fossil fuel companies rely on secrecy and deception to secure their profits.

“In South Africa, they are using the electricity crisis and the desperation of South Africans to try to sell a solution that, in the long term, will be bad for the economy, bad for small-scale fishing communities and bad for the climate crisis.

“Fossil fuels are not sustainable, from their extraction to their transportation to their burning. It is toxic at every step.

“The South African government must use its better judgement and prioritise investments in renewable energy, and implement a just transition in which nobody is left behind,” Vlavianos said.

Karpowership was awarded three bids for a total contracted capacity of 1 220MW to be provided via powerships moored in Coega, Richards Bay and Saldanha in the Risk Mitigation Independent Power Producer Procurement Programme.

Karpowership also received permission from the department of forestry, fisheries and the environment on 3 May to file a revised environmental impact assessment but this is on hold as environmental lobby groups appeal against the decision. 

The department recently condoned a 60-day period for Karpowership to refile its environmental impact assessment report for the Richards Bay project.

Karpowership had not responded to questions about the possible use of heavy fuel oil at the time of publishing.

Mandisa Nyathi is a climate reporting fellow, funded by the Open Society Foundation for South Africa