The pitfalls and potential of community trusts in SA’s renewable energy programme

26 Mar 2025

Many of the challenges with community trusts in the mining industry have already established themselves in the renewable energy sector. The potential for positive change in our communities exists within these trusts, but we need to radically change how we implement them.

A framework for community trusts

In March 2011, the government introduced the Renewable Energy Independent Power Producer Procurement Programme (REIPPPPP), with its core mission to diversify and increase the country’s energy supply, through private sector investment in the development of renewable energy projects. In addition to the technical requirements for independent power producer (IPP) bidders, there are a host of community-related obligations.

In essence, IPPs must establish a community trust to hold a certain percentage (usually between 2.5% and 5%) of equity in the project. The community equity shareholding is usually purchased through a loan, and this must be serviced before community trusts fund development projects. The funds from the equity stake are to be used for community development, be it skills development and capacity building or infrastructure projects that will benefit the community.

It’s not the first time community trusts have been the chosen model for benefit-sharing from industry development. Since the late 1990s some in the mining sector have opted for community trusts. This was formalised by the Mineral and Petroleum Resources Development Act of 2002, which required that mining companies set aside a percentage of their revenues for community development, which is often funnelled through community trusts. However, in the decades since their introduction, there are few examples of a truly successful model.

Challenges and how to overcome them

Community trusts often lead to conflict: community members fight for the scarce roles of community trustees; company and community members do not agree on how funds are spent; communities feel aggrieved at the lack of consultation and, ultimately, what they perceive to be the failure of trusts to deliver tangible, sustainable and positive impacts on their lives. While the REIPPPP is still in its infancy, many of the same challenges seen in the mining sector have already established themselves in renewable energy community trusts.

Sequencing of the bidding process

IPPs are required to submit a trust deed before the financial close of the project. Usually, this is during the “preferred bidder stage” that follows an evaluation of all bidders. Submitting the trust deed at this stage is supposed to ensure that the community trust is legally established and ready to operate once the project is financially closed and moves into construction. It’s supposed to guarantee that the community’s stake in the project is formalised and that the IPP has fulfilled its socioeconomic obligations as outlined in the REIPPPP criteria.

However, submitting at this stage does not allow for community consultation. Understandably, engaging the community before there is certainty of the project’s financial future may create expectations that a project cannot meet, damaging relationships from the outset. The problem is that by the time the community is consulted on the trust, many important decisions have been made on its structure, management and purpose. Communities (and IPPs) are then forced to make the trust work regardless of any gaps that may appear once the company understands the local context, capacity limitations and community needs better.

Changing the point at which trust deeds need to be submitted requires intervention by the Department of Energy and Electricity, which is tedious and takes time. Industry bodies thus need to step in and apply pressure on the department for a more flexible approach to the sequencing. Until that happens, companies should accept that they may need to amend a trust deed at a later stage once consultation has been possible, showing a willingness to incorporate the voices of the community. Even this, however, is not a simple matter since it requires the approval of the Master of the High Court, which is a quagmire of inefficiency, but it will at least suffice as an interim solution.

Trust governance

Trust governance is a big challenge, with the requisite skills, knowledge and experience being largely absent from trustees. It is unreasonable and unrealistic to expect community members to understand something as complex as a trust that most lawyers would spend years to grasp. Company trustees are equally guilty of being ill-equipped to manage trusts. Without the appropriate capacity to govern trusts, we cannot expect them to perform optimally.

Companies need to carefully consider trustee appointments to ensure a comprehensive and diverse skill set, and training and capacity building needs to be prioritised – for community trustees and company trustees alike.

General challenges

Similar to what we’ve seen in the mining sector, the community trusts within the REIPPPP framework are exhibiting the following general challenges:

Lack of consultation by the company with the community – consultation is crucial to, first, use local knowledge and experience in shaping the company’s understanding of the local context and what the most imminent needs of the community are that the trust could potentially address; second, ensure there is buy-in from community members who are, after all, the parties affected by the development of these projects in their area; and third, to build relationships between the parties, which is crucial to the long-term sustainability of the trusts. Without appropriate consultation, communities are excluded, companies lose out on the benefit of local knowledge and relationships are damaged from the outset.

Power imbalances between the company and the community are a given. However, these imbalances are exacerbated by trust structures that are skewed to favour company interests. A more balanced division of power between the trustees will not only go a long way in building trust, but also ensure the community is appropriately represented in the management and decision-making processes of the trust.

Intra-community disagreements and disputes arising from trust business create tension and division and could lead to conflict, which is not only damaging to communities but to the renewable energy project itself. While there will never be a fail-safe way to avoid such disagreements, ensuring consultation with a broad range of stakeholders from the outset and prioritising building trust-based relationships can go a long way.

Trustees do not prioritise monitoring and evaluation. As with any other project, continuously reviewing your performance, your ability to meet goals and to adjust where necessary is crucial to ensuring success. Preferably, this process should be managed by an external party to avoid bias and so-called sweetheart reviews. An external view also provides a fresh perspective that allows teams to learn lessons and improve as required.

Unlike the mining sector, where finances look slightly better (not least of all because they have a significant head start compared with IPPs), renewable energy community trusts have limited capacity for impact due to the relatively small dividends they have available. This is exacerbated by the fact that there are long delays in trust monies becoming available because of the need to repay loans for the equity the trusts receive. While there is no clear solution to this issue yet, as with most investments patience and time in the market are crucial – one may trust that the market for renewable energy will continue its upwards trajectory, allowing these long-term investments to yield significant dividends in time. Until that happens, it is crucial to manage the expectations of the community beneficiaries regarding the limitations of the trust.

Conclusion

The potential for positive change in our communities exists within community trusts, but we need to radically change how we implement them. The trust tool will only be as effective as companies allow it to be. Viewing community trusts as a necessary frustration and tick-box exercise will lead to clashing interests and conflict between stakeholders. Rather, community trusts should be seen as opportunities for collaboration and long-lasting impact. DM

Nadia Gava is a senior associate at Concentric Alliance, a conflict resolution practice based in Johannesburg. She’s an attorney, focusing on mediation, facilitation and stakeholder engagement primarily in the mining sector.

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