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Karpowership SA is heading for choppy financial waters

Karpowership SA is heading for choppy financial waters
Ray Mahlaka
By Ray Mahlaka
18 Jun 2023
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Banks and other financial institutions are becoming nervous about providing funding to the conglomerate.

The financial viability of Karpowership’s floating gas powerships project in SA – mooted by the government as an emergency measure to plug electricity shortages – hangs in the balance.

Two factors are posing a big threat to the fate and viability of Karpowership South Africa, the local arm of Turkey-based conglomerate Karadeniz Holding, which hopes to moor its powerships in three SA ports.

The first is that commercial banks and other financial institutions are becoming nervous about providing funding to Karpowership to help it to set up ships in Richards Bay, Ngqura and Saldanha Bay. These ships use gas as fuel to generate electricity.

The second is that the government wants to adjust the duration of its procurement of power from Karpowership to five years from an initially agreed 20, which would have cost taxpayers more than R100-billion. That is the cost to Eskom and the fiscus, with fuel included, to procure electricity from Karpowership. Contracting Karpowership for five years is likely to reduce its earning potential and even place it in a position of not being able to recover the costs of setting up the powerships.

Back to the commercial banks and other financiers. Presumably, they are backing out of participating in Karpowership on reputational grounds. Since the government chose Karpowership in 2021 as the preferred provider of 1,220MW (on an emergency basis), the deal has been mired in several controversies.

It has been stalked by corruption allegations and worries that the taxpayer would be on the hook for costly payments to the company for decades. Karpowership also suffered a serious setback when the Department of Forestry, Fisheries and the Environment shot down its environmental impact assessments on the grounds that, among other factors, the moored ships would emit an irreversible amount of potent greenhouse gases and cause noise pollution during the generation of electricity.

Banks and financial institutions speak up


Absa, which was mentioned by Karpowership as one of its early funders during its licence application with the energy regulator, Nersa, has decided against providing funding to the company.

“We are not involved in the funding of Karpowership,” said Absa CEO Arrie Rautenbach at the bank’s annual general meeting in early June. Rautenbach admitted that Absa was part of the original funding process, subject to independent legal, technical, environmental, insurance and reputational due diligence processes. But in the end, Absa didn’t finalise a funding agreement with Karpowership. The bank did not want to be drawn into explaining why it didn’t support Karpowership or why its name was part of the company’s licensing application with Nersa.

Absa, along with the Development Bank of Southern Africa (DBSA), was in discussions with Karpowership from as early as 2020 to provide funding of up to R3.5-billion just to set up a ship at the Richards Bay port. The other two ships that would be moored at Ngqura and Saldanha Bay are each said to need similar amounts. It’s unclear why the three powership sites would require such amounts, considering that Karpowership’s construction activities are limited to transmission and gas supply lines, as the vessels arrive in the port ready for operation.

The DBSA confirmed to Daily Maverick that it was engaging with Karpowership about a loan facility as part of South Africa’s emergency response to Eskom blackouts. The institution said its approval of the loan facility had since lapsed, “given the time passed since the inception of the transaction”.

“The DBSA continues to engage players in the energy sector… The bank can confirm that any investment proposals tabled before it will be considered fairly and transparently, within the guardrails of its investment processes,” a spokesperson told Daily Maverick.

Even if the DBSA chooses not to provide funding to Karpowership for its operations in South Africa, it is already exposed to powership operations. The DBSA has provided Karpowership with a loan of $100-million to build a powership on the coast of Ghana.

At its annual general meeting this week, Standard Bank sidestepped a question from shareholders about whether it is exposed to Karpowership. However, no evidence could be found that Standard Bank has committed any financing to the Karpowership project.

Nonkululeko Nyembezi-Heita, the Standard Bank board chair, said the bank would continue to support oil and gas projects, which are a crucial part of the energy mix in the African continent.

“We are working on a number of oil and gas projects. It is not realistic for us to stop these funding projects as Standard Bank operates in many regions where energy availability is a challenge,” she told Standard Bank shareholders.

Civil society objections


Various civil society groups have objected to Karpowership being selected in 2021 as the preferred bidder under the Department of Mineral Resources and Energy’s emergency Risk Mitigation Independent Power Producer Procurement Programme. Among the groups is the Organisation Undoing Tax Abuse (Outa), which brought a court application to review the decision and asked for Karpowership’s submissions to Nersa and the department detailing the company’s motivation for being selected as the preferred bidder. Through this process, Outa was given a redacted version of the submissions, which it has appealed against.

Karpowership claims its selling point is cheap electricity that it might sell to Eskom. But Karpowership prices depend on the movements of the rand and international gas prices. Daily Maverick sent a list of detailed questions to Karpowership. Despite promising to respond to them, Karpowership failed to do so by the time of publication. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.

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