The High Court case, in Pretoria on March 27, saw the full gamut of human emotions: anger; frustration and folly, followed by joy.
The latter emotion came from the long-suffering 27 independent power producers who won the case against an interdict to pave the way for the signing of the Power Purchase Agreements (PPAs) with the Department of Energy – the 20-year agreements that give them a chance to claw back $3.8 billion in investment.
The deal will add 2,300MW of green power to the estimated 40,000MW in installed capacity. Despite this, green power will make up 5% of South Africa’s power.
Outside the court, the thwarted National Union of Metalworkers of South Africa (Numsa) members and pressure group Transform SA weighed in with the anger and frustration coupled with a threat to block the streets in protest. As the union licked its wounds, the court poured on salt by ordering it to pay costs as it stuck the application from the roll.
“We got it from Eskom that if they introduce these renewables, they’ve done calculations on power station by power station on how many jobs will be lost. When we did this study last year it was found that 30,000 to 40,000 jobs are likely to be lost and there seems to be no interest about that,” says Numsa Secretary Irvin Jim.
“We are prepared to block the streets to achieve this.”
This claim despite the fact that Eskom will have to close down a number of its ageing and crumbling coal-fired power stations.
“The South African population is being taken for a ride. Our fiscus is being looted because these companies, IPPs are only producing 5% power and taking 30% of Eskom’s profits,” says Transform SA’s Adil Chabeleng outside the court.
The mighty National Union of Mineworkers (NUM) – the biggest union in Africa with more than 300,000 members – agrees with Numsa that the unions don’t want private money generating the people’s electricity. They also feel that capitalists have benefited from public money ploughed into kick-starting green energy with preferential tariffs.
“We view this capitalist IPPs deal as a backdoor privatization of Eskom. The plan is to privatize 42% of Eskom by 2030 masquerading as the implementation of clean energy,” the NUM said in an angry statement.
“We are going to mobilize all our members and society to revolt against this planned madness called IPPs.”
Days after this fire and fury, Energy Minister Jeff Radebe shocked many by putting pen-to-paper for the PPAs to end the years of waiting.
The big problem now is to revive the dormant green power industry in South Africa.
“We have to resuscitate the industry to generate this power. Supply chains have to be rebuilt and manufacturing restarted. The whole supply chain has lain dormant for nearly three years,” says Brenda Martin, a board member of the South African Renewable Energy Council that represents most of the 27 IPPS.
Martin also refutes one of the claims of the unions that green power will see billions leaving South Africa and into the pockets of foreign investors. Numsa’s legal counsel Advocate Nazeer Cassim had argued in court that the signing of the IPPs could be viewed as a form of economic looting.
“Only 25% of this deal is owned by foreign investors and the rules of the game is that most of the money must stay in the country.”
Whatever the fall-out over the signing of the PPAs, just weeks before, this unsteady progress was a pipe dream after many months of dithering and a court case.
Picture this: multi-millionaire, suited and booted, investors leave air-conditioned airport lounges to fly thousands of miles to Africa to accept a government invitation to finally sign up for a return on their investment; only to arrive to, amid confusion, a court case, disappointment and a union that they’d never heard of, threatening to block the streets in protest against the deal. Confused? Most of them were.
“Excuse me,” a fresh-off-the-plane Italian investor, who looked like a clown lost in a circus, at the Department of Energy, asked one of the many young journalists at the press briefing, in Pretoria, on March 13.
“What is happening?”
The confused man from Milan was one of a number of foreign investors, from Spain to the United States, who flew in to sign PPA contracts. Investors expect it will take them a decade to claw back their money.
There was chaos before the investors landed that morning. Overnight, the militant Numsa – a union that appears to have forgotten that the Berlin wall came down – claimed it had won a late-night court interdict against the signing.
When it came to the signing later that day, in Pretoria, Energy Minister Radebe told investors that the courts had in fact not issued an interdict, as Numsa had claimed; it rather postponed the next hearing until March 27. You can understand the confusion of the man from Milan.
“It’s a banana republic,” chirped one of the South African investors in the wake of a day to forget in the course of renewable energy.
More inexplicable for investors was how these IPP contracts raised the ire of the unions almost overnight; there was hardly a peep from them in the years of government foot-dragging over signing them that has left many of the green power producers; at least 14 of the 27, according to industry, sources – on the brink of bankruptcy.
The coal-fired power stations of South Africa, built in the 1970s, are ramshackle and inefficient. Last year, the government said it was going to shut down the 3,000MW Kriel, 1,000MW Komati, 2,000MW Hendrina and the 1,600MW Camden power stations, all in Mpumalanga, anyway.
In any case, renewable energy generates a mere 5% of South Africa’s total power so the chances of green energy elbowing out coal, which produces nearly 80%, are unlikely in the extreme. It is more likely that South Africa’s coal-fired power stations will perish under the weight of repair bills and the cost of compliance with environmental regulations on account of the vast amount of acrid black smoke they belch into the African sky every year.
Other energy experts put down the government lethargy over signing the PPAs to ill-advised complacency. Low growth leading to low demand for electricity, plus a 500% increase in cost since 2007, has seen a cessation of power cuts in South Africa, for the time being.
Under the current energy scenario, South Africa will have more than 60GW of capacity by 2022, against a flagging demand of below 30GW, Ted Blom, a partner at Mining & Energy Advisory, said.
All in all, South Africa, which once dreamed of building the continent’s leading green power industry, creating thousands of jobs, has done quite a lot to destroy that dream. As well as the near three-year delay over signing the IPP contracts – the government has been penny-pinching, that is, trying to negotiate down tariffs with the argument that the country doesn’t really need energy right now.
What it means is that South African renewable energy producers are now looking across the continent for projects in favour of trusting the backed-up process in their own country. One of the unintended consequences of this whole controversy is likely to be that a score of African nations – who once lagged behind in renewable energy – could find themselves at the cutting edge of the industry thanks to South African technology and knowhow fostered by South African tax money and exported thanks to foot-dragging over contracts in Pretoria. Now, for hard-pressed South African taxpayers, that is an issue worth blocking the streets over.
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Maipato Kesebang normally grows maize, jugo beans and sweet reed on her 20-hectare plot of land northwest of Gaborone, Botswana’s capital. But last year, worsening drought and heatwaves destroyed much of her harvest.
“The little that grew feebly we just ate. Nothing was left for storage or to sell,” she said.
Usually when her crops fail she turns to collecting wild spinach to sell, to support her two sons. But even that is now disappearing as climate change brings harsher weather and more people turn to harvesting the vegetable to survive, she said.
So last year, for the first time, she signed up to Ipelegeng, a long-standing government safety net program that provides temporary jobs for those struggling to make ends meet.
Now she works one month out of four cutting back overgrown grass and trees, desilting dams and drains, collecting litter or cleaning streets.
She’d prefer to work every month – but demand is so high for the jobs that there aren’t enough slots, she said.
“We only work for a month, then we go home and wait for three months before we apply again. That’s because there are too many people now needing the relief,” said Kesebang, as she pulled weeds on her parched plot of land.
As harsher droughts and hotter weather linked to climate change ruin crops more frequently in Botswana, the country is facing a new challenge: growing demand for social assistance programs.
About 68,000 people worked for Ipelegeng as of March 2018, according to figures from Statistics Botswana, up from about 64,000 in March 2016. Of those on the rolls, about 47,000 were women, according to the agency.
To accommodate rising demand, Botswana’s government last August increased the number of Ipelegeng slots by 5,000, after declaring 2018-2019 an expected drought year.
That will cost the country an extra $2.7 million – money that it does not readily have as its national budget does not specifically set money aside for drought relief, said Billyboy Siabatho, deputy director of the rural development council at the Ministry of Local Government and Rural Development.
“Often, when drought comes, we end up borrowing from funds that would have been set aside for infrastructure development projects,” he said.
Ipelegeng’s main objective is to provide short term employment and relief, while helping carry out development efforts the country sees as important, he said.
“During drought periods, there are fewer farming activities. Therefore most people relocate from farms to villages, looking for alternative sources of income,” Siabatho said.
“Due to limited job opportunities in rural areas, most people rely on Ipelegeng as an alternative source of employment,” he noted.
But as droughts continue to worsen in southern Africa, Siabatho wonders whether the government will be able to keep pace with growing demand.
He also worries whether people will begin to see dependence on safety nets as an easier route than farming, as crop failures worsen.
Botswana’s government, aware of the risks from worsening drought, began in December working on a new drought management strategy that aims to improve planning and budgeting for threats and not focus simply on responding to them, Siabatho said.
‘BEANS ARE BURNING’
For Kesebang, such help can’t come soon enough. Her farm, a few kilometers out of the town of Molepolole, sits in Kweneng District, which has the highest poverty levels in the country, of over 50 percent, according to 2018 report by Statistics Botswana.
Most of the 567 pula ($55) she earns each month she works for Ipelegeng goes to keep her youngest son in primary school.
“I buy books and uniform. Often nothing is really left. Life has become difficult,” she said.
The new planting season isn’t looking much more promising either, she said. Most of the maize, beans, sweet reed and watermelon she planted in late December are struggling, she said.
“The beans are already burning. I have no hope of harvesting maize. Maybe the watermelons will survive,” she said, hopefully.
She’s already given up plowing three-quarters of her farm, to avoid greater losses, she said, though she has allowed a friend to try her luck farming a four-hectare section.
For now, Kesebeng heads to town each day to join hundreds of other temporary workers trimming tree branches that obstruct traffic.
Harsher weather isn’t hitting only the poorest farmers, either. Oduetse Koboto, who heads the environment and climate change unit at the United Nations Development Programme, said he saw little harvest from his own farm last year, in part because of floods.
“I planted tomatoes on 1.5 hectares. I expected to make 200,000 pula ($19,000). I lost. I had also planted a hectare of green peppers, expecting 600,000 pula ($58,000) from it. I lost all that too,” he said.
His 600 mango trees produced not a single useable fruit, he added, and “this is regardless of the fact that I use drip irrigation, solar pumping, and spent on farm maintenance all year round”.
“Imagine what the poor in villages must be going through,” he said.
Botswana for over a decade has invested in helping farmers boost grain production and improve food security, including through measures such as better access to credit, technology, seeds and water.
But with droughts worsening, improving harvests remains a challenge – and the country continues to import over 80 percent of its food from South Africa.
“Low production in the agricultural sector due to drought has led to high import bills in cereals, dairy, poultry products and feeds, to name but a few,” Siabatho said.
Costs for programs like Ipelegeng also are rising, he said, noting that the program now costs over $28 million a year to run.
For Kesebang, stress levels are also rising. After watching her new crops wilt, she was nearly hospitalized as a result of anxiety and high blood pressure, she said, and had to remain in Molepolole for two weeks.
Recent rains have now given her a bit more optimism.
“A week into February it rained at least twice. The few plants that survived are recovering. I have hope,” she said. -Reuters
South Africa’s Eskom Extends Power Cuts, Needs Bailout By April
South African power utility Eskom cut electricity for a fourth straight day on Wednesday, as the department of public enterprises warned the struggling state-owned firm needed a cash injection by April to survive.
Eskom, which supplies more than 90 percent of the power in Africa’s most industrialized economy but is laden with more than $30 billion of debt, is battling a shortage of capacity that threatens to derail government plans to lift the sluggish economy.
President Cyril Ramaphosa said last week that the government would support Eskom’s balance sheet but said details would be announced in a budget speech by the finance minister on Feb. 20.
The department of public enterprises, which oversees Eskom, said in a presentation to parliament that Eskom was technically insolvent and would “cease to exist” at the current trajectory by April, unless it gets the bailout. The minister, Pravin Gordhan, however, ruled out privatization of the utility.
The department also said Eskom was struggling to keep its mainly coal-fired plants running due to coal shortages and poor maintenance, with 40 percent of breakdowns a result of human error.
The cash-strapped company said it would cut 3,000 megawatts (MW) of power from the national grid from 0600 GMT on Wednesday, likely until 2100 GMT. This follows a similar cut on Tuesday and 4,000 MW on Monday in the worst power cuts seen in several years that drove the rand currency down on Monday. The rand was slightly firmer against the U.S. dollar on Wednesday.
Around a third of Eskom’s 45,000 MW capacity was offline on Tuesday.
The power cuts are prompting frustration among ordinary South Africans, with traffic gridlock in major cities during rush hours as traffic lights stop working and switched-off fans leave office workers sweating in the summer heat.
Business owners with no access to backup power sources have also been hit.
“We’re struggling,” said Eunice Mashaba, a manager of a textile shop north of Johannesburg who said he had to close the shop early on Tuesday because most customers do not carry cash but have to rely on debit or credit cards for payment.
Ramaphosa announced a plan last week to split Eskom into three separate entities in an effort to make it more efficient as he tries to lift the economy before an election in May, but faces opposition from powerful labor unions and from within his ruling African National Congress party. -Reuters
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A Bad Omen? Emerging Markets ‘Most Crowded Trade’ For First Time
Investors made a U-turn on emerging markets, naming them the most crowded trade, in Bank of America Merrill Lynch’s survey for the first time in its history.
This marked a big reversal from last month, when fund managers said “short EM” was the third most-crowded trade – showing how fast the mood can shift in an uncertain market.
It could prove to be a bad omen for emerging markets, though, as assets named “most crowded” usually sink soon afterwards.
Previous “most crowded” trades have included Bitcoin, and the U.S. FAANG tech stocks, which led the selloff in December.
Emerging-market stocks .MSCIEF are up 7.8 percent so far this year, and flow data on Friday showed investors pumped record amounts of money into emerging stocks and bonds.
Emerging-market assets had a torrid 2018. Crises in Turkey and Argentina ripped through developing countries already suffering from a strong dollar and rising U.S. yields pushing up borrowing costs.
But a dovish turn by the Fed at the start of the year, indicating the world’s top central bank would not raise interest rates as quickly as previously expected, sparked fresh enthusiasm among investors.
Major asset managers and investment banks such as JPMorgan, Citi and BlueBay Asset Management ramped up their exposure to emerging markets in recent weeks..
The Institute of International Finance (IIF) predicted a “wall of money” was set to flood into emerging market assets.
However, there are some indications momentum may be waning. Analyzing flows of its own clients, investment bank Citi noted they had turned cautious on emerging-market assets over the last week, with both real money and leveraged investors pulling out funds following four weeks of inflows.
BAML did not specify whether the “long EM” crowded trade referred to bonds, equities or both.
Outside emerging markets, investors’ main concern remained the possibility of a global trade war. It topped the list of biggest tail risks for the ninth straight month, followed by a slowdown in China, the world’s second-largest economy, and a corporate credit crunch.
Overall, BAML’s February survey – conducted between Feb. 1 and 7, with 218 panelists managing $625 billion in total – showed investor sentiment had hardly improved. Global equity allocations fell to their lowest levels since September, 2016.
“Despite the recent rally, investor sentiment remains bearish,” said Michael Hartnett, chief investment strategist at BAML.
Investors remained worried about the global economy, with 55 percent of those surveyed bearish on both the growth and inflation outlook for the next year.
“Secular stagnation is the consensus view,” BAML strategists wrote.
Following this theme, investors were most positive on cash and, within equities, preferred high-dividend-yielding sectors like pharmaceuticals, consumer discretionary, and real estate investment trusts.
As investors added to their cash allocations, the number of fund managers overweight cash hit its highest level since January, 2009.
The least preferred sectors were those sensitive to the cycle, like energy and industrials – which BAML strategists see as good contrarian investments if “green shoots” appear in the global economy.
Worries about corporate debt were still running high, with this month’s survey showing a new high in the number of investors demanding companies reduce leverage.
Some 46 percent of fund managers find corporate balance sheets to be over-leveraged, the survey found, and 51 percent of investors want companies to use cash flow to improve their balance sheets. That’s the highest percentage since July 2009.
Europe, one of investors’ least-favored regions, showed a slight improvement. A net 5 percent reported being overweight euro zone stocks, from 11 percent underweight last month.
But investors’ reported intention to own European stocks in the next year dropped to six-year lows as the profit outlook for the region continued to lag.
Allocations to UK stocks increased slightly from last month but the UK remained investors’ “consensus underweight”, BAML said. It has been so since February 2016. -Reuters
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