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Independent Power Producers can help Africa’s power crisis

Panel members at the Africa Energy Indaba’s conference on Power Purchase Agreements (PPA) and Independent Power Producers (IPP) said IPPS can help solve Africa’s power crisis


The keynote speakers and panel members at the fourth IPP and PPA Conference said on 23 February at the annual Africa Energy Indaba conference in Sandton IPPs can help solve Africa’s power crisis. The IPP and PPA conference was sponsored by Herbert Smith Freehills, an international law firm with extensive experience in advising IPPs in Africa.


Dr Elham Ibrahim from the African Union Commission said there was a need to involve IPPs in addressing Africa’s power needs as governments could not do it on their own.  “I believe the time for more serious action has come for scaling up the implementation of renewable energy in Africa. The continent has abundant renewable energy resources in the form of hydropower, solar, wind, geothermal and bio-energy that are appropriate for responding to the challenge of energy access, especially for our large rural population”, she said.


IPPs are now present in 18 Sub-Saharan African (SSA) countries. Currently there are 59 projects of greater than 5 Megawatts (MW) capacity in SSA in countries other than South Africa with a committed capital investment of $11.1bn and 6 800 MW of installed generation capacity. Including South Africa adds 67 more IPPs, bringing the total to 126, with an overall installed capacity of 11,000 MW and investments of $25.6bn.


In addition to IPPs, significant increases in generation capacity have stemmed from Chinese-funded projects. Chinese-funded generation projects can be found in 19 countries in Sub-Saharan Africa. Eight of these countries have IPPs as well as Chinese-funded projects.


In South Africa the Renewable Energy Power Producer Procurement Programme (REIPPPP) was launched in 2011 by the Department of Energy and was a resounding success, spurring investment into SA’s energy sector with R194bn in commitments. At the end of 2015, 6 376 Megawatts (MW) of power was successfully procured from 102 IPPs in four bid rounds of the REIPPPP.

 

Of the 6 376 MW procured, just over 2 000 MW of electrical generation capacity has been connected to the national grid with more due to be connected in October this year. This is equivalent to just under half of the capacity of an additional coal-powered station, delivered in a third of the time.


Paddy Padmanathan from ACWA Power said in his keynote address that the key to successful IPPs was the allocation of risk to those best able to mitigate the risk. Although most risk analysis focused on the ability to pay of the offtaker, an equally important part was the willingness to pay as political changes could impact this factor half way through the term of the offtake agreement.


In that respect Jasandra Nyker from Biotherm Energy gave the audience comfort as she said that despite numerous changes in the head of government in Zambia, the renewable projects that she had been involved with had gone ahead without a hitch.


Investors in Tanzania’s power sector on the other hand are worried about the rising number of contract disputes between foreign companies and the government, including the row between IPP Symbion Power and Tanesco over the failure to pay for power from the 120 MW Ubungo gas-fired plant. Tanesco stopped taking power from Ubungo in May 2016, but under the terms of the PPA it continues to incur the charges each month. Symbion is owed around $35 million by Tanesco.


A recent successful IPP project in neighbouring Mozambique shows what can be done to address Africa’s power needs. In February 2016 Mozambique President Filipe Nyusi inaugurated the 120 MW Gigawatt Park gas-fired power station in Ressano Garcia. The project, which took 18 months to complete, was developed by South African investment group and majority shareholder in the project Gigajoule International.


The stalling by state-owned electricity utility Eskom on signing PPAs with 37 IPPs since July 2016 has undermined the credibility of the South African government. On 9 February 2017 President Jacob Zuma in his State of the Nation Address instructed Eskom to sign the outstanding PPAs.


“Eskom will sign the outstanding power purchase agreements for renewable energy in line with the procured rounds,” Zuma said. Panel members said however that the damage has been done and IPPs would in future be more wary of participating in South Africa’s power procurement.


Politicians and bureaucrats do not seem to understand the concept of “time is money” so the millions of dollars in interest charges while no revenue was being generated since July 2016 will make private sector investors wary of preparing bids where there was little certainty.


“The changing of the rules in midstream has done severe damage to South Africa’s hard won reputation as a reliable partner. What you need from governments as an IPP partner is certainty, predictability and trust that commitments will be met,” Matthew Ash from Ash Konzult said. Fazeel Moosa from Investec said that smaller projects have greater flexibility, while a modular approach to project development could also help establish trust between all parties concerned. “What we are seeing is that phased projects have a greater chance of success so Noor 1 for instance leads to Noor 2, Noor 3 and so on,” Moosa said.


Paddy Padmanathan from ACWA Power agreed and said that community involvement was also a key success factor. “When we develop a project we aim to maximize the retention of value in the local and national economy and in the local communities through maximizing the share of expenditure for construction and operation and maintenance at a local and national level. We do this by maximize local skills development and meaningful job creation, so with partners such as Nestle and Revlon we undertake in parallel, community development activity to uplift and contribute to the local economy and community,” he said.

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Debswana-Botswana Oil P8 billion fuel partnership to create 100 jobs

18th May 2022
Head-of-Stakeholder-Relations

The partnership between Debswana and Botswana Oil Limited (BOL) which was announced a fortnight ago will create under 100 direct jobs, and scores of job opportunities for citizens in the value chain activities.

In a major milestone, Debswana and BOL jointly announced that the fuel supply to Debswana, which was in the past serviced by foreign companies, will now be reserved for citizen companies. The total value of the project is P8 billion, spanning a period of five years.

“About 88 direct jobs will be created through the partnership. These include some jobs which will be transferred from the current supplier to the new partnership,” Matida Mmipi, Head of Stakeholder Relations at Botswana Oil, told BusinessPost.

“We believe this partnership will become a blueprint for other citizen initiatives, even in other sectors of the economy. Furthermore, this partnership has succeeded in unlocking opportunities that never existed for ordinary citizens who aspire to grow and do business with big companies like Debswana.”

Mmipi said through this partnership, BOL and Debswana intend to impact citizen owned companies in the fuel supply value chain that include transportation, supply, facilities maintenance, engineering, customs clearance, trucks stops and its support activities such as workshop / maintenance, tyre services, truck wash bays among others.

“The number of companies to be on-boarded will be determined by the economics at the time of engagement,” she said. BOL will play a facilitatory role of handholding and assisting emerging citizen-owned fuel supply and fuel transportation companies to supply Debswana’s Jwaneng and Orapa Letlhakane Damtshaa (OLDM) mines with diesel and petrol for their operations.

“BOL expects to increase citizen companies’ market share in the fuel supply and transportation industries, which have over the years been dominated by foreign-owned suppliers. Consequently, the agreement will also ensure security of supply for Debswana operations, which are a mainstay of the Botswana economy,” Mmipi said.

“Furthermore, BOL will, under this agreement, transfer skills to citizen suppliers and transporters during the contract period and ensure delivery of competent and skilled citizen suppliers and transport companies upon completion of the agreement.”

Mmipi said the capacitating by BOL is limited to providing citizen companies oil industry technical capability and capacity to deliver on the requirements of the contract, when asked on helping citizen companies to access funding.

“BOL’s mandate does not include financing citizen empowerment initiatives. Securing funding will remain the responsibility of the beneficiaries. This could be through government financing entities including CEDA or through commercial banks. Further to this, there are financial institutions that have already signed up to support the Debswana Citizen Economic Empowerment Programme (CEEP),” Mmipi indicated.

While BOL is established by government as company limited by guarantee, it will not benefit financially from the partnership with Debswana, as citizen empowerment in the petroleum value chain is core to BOL’s mandate.

“BOL does not pursue citizen facilitation for financial benefit, but rather we engage in citizen facilitation as a social aspect of our mandate. Citizen facilitation comes at a cost, but it is the right thing to do for the country to develop the oil and gas industry,” she said.

Mmipi said supplying fuel to Debswana comes with commercial benefits such as supply margins. These have traditionally been made outside the country when supply was done by multi-nationals for a period spanning over 50 years. With BOL anchoring supply for Debswana, this benefit will accrue locally, and BOL will be able to pay taxes and dividends to the shareholders in Botswana.

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VAT in Africa Guide 2022 – Africa re-emerging

18th May 2022

PwC Africa has presented the eighth edition of the VAT in Africa Guide – Africa re-emerging. This backdrop of renewal informs on the re-emergence of African economies and societies which have been affected by the COVID-19 pandemic.

In this edition, which has been compiled by PwC Africa’s indirect tax experts, covers a total of 41 African countries. It is geared towards sharing insight with our clients based on the constantly changing tax environments that can have a significant impact on business operations.

Within Africa, governments continue to focus on expanding the tax net by improving revenue collection through efficient compliance systems and procedures. PwC Africa has observed that revenue authorities also continue to take a keen interest in indirect taxes as part of revenue mobilisation initiatives.

Maturing VAT system and upskilling SARS 

“In South Africa, VAT is becoming more relevant as a revenue source for the government,” says Matthew Besanko, PwC South Africa’s Indirect Tax Leader. “Strides have been made to upskill South African Revenue Service (SARS) staff and identify VAT revenue leakages, particularly in respect of foreign suppliers of electronic services to people and businesses in South Africa.”

Broadening the tax base and digital economy

In the past year, South Africa, Mozambique and Zimbabwe saw updates to their VAT legislation, or introduced specific legislation targeting electronically supplied services (ESS), which is in line with the global trend of attempting to tax the digital economy. “The expectation is that Botswana will also introduce VAT legislation in due course, while the National Treasury in South Africa has also made mention of revising the rules to account for further developments in the digital economy,” Besanko says.

South Africa’s National Treasury has also drafted legislation with the intention to introduce a reverse charge on gold, which is expected to come into effect later in 2022. While in Zimbabwe, revenue authorities have introduced a tax on the export of raw medicinal cannabis ranging between 10% and 20%, which came into effect on 1 January 2021.

ESG and carbon tax 

Key strides have also been made within the Environmental, Social and Governance (ESG) space. “ESG leadership, strategising and reporting is essential now for organisations that wish to flourish and remain relevant,” Kabochi says. He adds that companies need to consider how ESG and tax intersect, since tax is a significant value driver when businesses need to deliver on their ESG goals.

In South Africa, a carbon tax regime, which is being implemented in three phases, has been adopted. The second phase was scheduled to start in January 2023, however phase one was extended by three years until 31 December 2025.

Until then, taxpayers will enjoy substantial tax-free allowances which reduce their carbon tax liability. At the beginning of 2022, the South African government increased the carbon tax rate to R144 (about US$9), which is expected to increase annually to enable South Africa to uphold its COP26 commitments.

With effect from 1 January 2023, carbon tax payers in South Africa will also be required to submit carbon budgets and adhere to the provisions of the carbon budgeting system which will be governed by the Climate Change Bill. Where set carbon budgets are exceeded, the government plans to impose penalties. “At PwC, we are continuously focused on our renewed global strategy, ” The New Equation,” Kabochi says. “Through this strategy, a key focus area for PwC Africa is to support clients in adding value to their ESG ambitions and building trust through sustained outcomes.”

The New Equation is also an acknowledgement of the fundamental changes in the business environment in which PwC’s clients and other stakeholders operate. PwC continues to reinvent and adapt to these changes as a community of problem solvers, combining knowledge and human-led technology to deliver quality services and value.

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Economists project lower economic growth for Botswana

18th May 2022
CBD

Local and international economists have lowered their projections on Botswana’s economic growth for 2022 and 2023, saying the country is highly likely to fail to maintain high growth rate recorded in 2021 hence will not reach initial forecasts.

Economists this week lowered 2022 forecasts for Botswana’s economic growth rate, from the initial 5.3% to 4.8% and added that in 2023 growth could further decline to 4.0%. The lower projections come on the backdrop of an annual economic growth that recovered sharply in 2021 with figures showing that year-on-year real Gross Domestic Product (GDP) growth increased to 11.4%, up from a contraction of 8.7% in 2020.

Economists from the local research entity, E-consult, this week stated that the 2021 double digit growth that exceeded projections made at the time of the 2022 budget may be short lived due to other developments taking place in the global economy. E-consult Economist Sethunya Kegakgametse stated that the war in Ukraine has worsened supply problems in the global economy and added that before the war, macroeconomic indicators were seen as improving and returning to pre-COVID levels.

According to the economist the global economy was projected to improve in 2022 and 2023. Recent figures show that global growth projections have been revised downwards from the initial forecast of 4.9% in 2022 with the World Bank’s new estimate for global growth in 2022 at 3.2%.

The statistics also shows that International Monetary Fund revised their growth projections for 2022 and 2023 down by 0.8% and 0.2% respectively, falling to 3.6% for both years. “The outbreak of war has severely dampened the global recovery that was under way following the COVID-19 pandemic,” said the economist.

She stated that despite Botswana being geographically removed from the conflict, the country has not and will not be exempt from the disruptions in the global economy. “The disruptions to global supply chains resulting from the war will have a negative effect on both Botswana’s growth and trade activities.

The economic sanctions against diamonds from Russia will add uncertainty to the market which will have knock on effects to Botswana’s growth, exports, and government revenues,” said the economists who added that the disruptions are driving prices up and result with very high inflation in the local economy.

Kegakgametse projected that in an attempt to limit inflation Bank of Botswana will be forced to raise interest rate “Should the sharp increase in both global and local inflation persist, Bank of Botswana much like other central banks around the world will be forced to raise interest rates in a bid to control rising prices. This would mean an end to the expansionary monetary policy stance that had been adopted post COVID-19 to aid economic growth,” she said.

In the latest projections, the UK based economic research entity Fitch Solutions lowered 2022 real GDP growth forecast for Botswana from 5.3% to 4.8% “In 2023, we see economic growth rate decelerating to 4.0%,” said Fitch Solutions economists who also noted that the 2022 and 2023 economic growth projections may come out lower than the current forecasts, as it is possible that new vaccine-resistant virus variants may be identified, which could result in the re-implementation of restrictions. “In such circumstances, we cannot rule out that Botswana’s economy may post weaker growth than our baseline scenario currently assumes,” said the economists.

According to the projections, Fitch Solution stated that there is limited scope for Botswana government to increase diamond production and exports, following the economic sanctions imposed on Russian diamond mining companies operating in Botswana. The research entity added that De Beers is unlikely to scale up diamond output from Botswana in order to prop up diamond prices.

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