TRENDS & DEVELOPMENTS: PROJECT FINANCE 2020 – SOUTH AFRICA

Authors: Brigette Baillie and Biddy Faber

Trends & Developments in the South African market during 2020

South Africa has historically had a strong showing in the public-private partnership (PPP), concessions and independent power project (IPP) markets, having undertaken:

  • PPPs in the healthcare, prisons, transport infrastructure, serviced government office accommodation and biosciences sectors;
  • concessions in the toll roads and port sectors; and
  • peaking power and renewable energy IPP projects.

However, the last 12 months have seen little activity in these traditional PPP, concessions and IPP sectors, and the activity has been largely focused on project financings in the commercial and industrial sectors, with a number of financings being undertaken in respect of industrial operations (such as brown– and green-field factory developments of various sorts) and small scale captive renewable power solutions for industrial off-takers. Whilst the market has also seen the finalisation of the financing of some of the renewable energy projects from the fourth round of the Renewable Energy IPP Procurement Programme, these have been lags from the mass closing of those projects in 2018.

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SOUTH AFRICAN ENERGY UPDATE IN RESPECT OF NEW POWER GENERATION PROCUREMENT – JUNE 2020

Author: Brigette Baillie

The following events have occurred in the broader South African energy sector in recent months.

BACKGROUND

AMENDMENTS TO SCHEDULE 2 TO ERA TO PERMIT GENERATION AND DISTRIBUTION WITHOUT A LICENCE FROM NERSA

AMENDMENTS TO NEW GEN REGS IN RESPECT OF MUNICIPALITIES

PROCUREMENT OF POWER BY COMPANIES IN THE PRIVATE SECTOR

PROCUREMENT OF 2 000MW OF GENERATION CAPACITY TO BE CONNECTED TO GRID IS SHORTEST TIME POSSIBLE

ADDITIONAL PROCUREMENT PROGRAMMES FOR MORE THAN 10 000MW POWER

THE 2 500MW NUCLEAR NEW BUILD PROGRAMME

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PATRICK LEYDEN WINS 2020 CLIENT CHOICE AWARD FOR ENERGY & NATURAL RESOURCES

Patrick Leyden, a director in Herbert Smith Freehills’ Johannesburg office, is the winner of Lexology’s 2020 Client Choice Award for Energy & Natural Resources in South Africa.

Patrick, a corporate lawyer, practises across a number of industry sectors but specialises in mining and energy in Sub-Saharan Africa. His experience includes domestic and cross-border M&A transactions, corporate restructurings, equity capital markets, and black economic empowerment and indigenisation transactions.

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THE SOUTH AFRICAN CARBON TAX ACT IS UNCONSTITUTIONAL BUT DOES ANYONE HAVE THE STOMACH TO CHALLENGE IT?

Author: Dr MATTHEW BURNELL 

We were told that the carbon tax would come into effect from 1 June 2019. However, as the date drew nearer it seemed unlikely as the Carbon Tax Bill had not been signed by the President, the regulations needed to implement the Act were not finalised, the conflicts between the Bill and the proposed climate change legislation had not been resolved and, in fact, the greenhouse gas emission levels were well below predicted levels due to a sluggish economy. Despite these concerns the President signed the Bill and confirmed that the Act would come into effect as planned. Government lived up to their promise.

Since then, the practicalities of trying to implement, budget and cater for the tax are becoming a reality for many companies. On their behalf, business and industry associations are expressing opposition to the tax for the grounds set out above. National Treasury has remained resolute in its decision to implement the tax, indicating that the concerns mentioned will be resolved by the time the tax is payable.

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HERBERT SMITH FREEHILLS ATTENDS AFRICA ENERGY FORUM IN LISBON

Author: Joanne Elson 

The 21st Africa Energy Forum (AEF) took place on the 11th to 14th June 2019 in Lisbon, Portugal. The annual AEF is the largest Africa energy gathering of the year and easily draws over a 1000 delegates from all over the globe, including many government officials, public private sector representatives, developers, dealmakers, investors and business leaders, each with their focus on energy in Africa. This year renewable power together with new technologies in the battery storage and off-grid sectors were inescapable in their prominence. However, hydro, conventional power, LNG and oil & gas remain of key strategic importance in a number of jurisdictions.

Africa as an emerging market presents an opportunity to investors of all kinds and, in particular, development finance institutions with investment capital. These opportunities were discussed in great detail in highly focused sessions and break away meetings over the four day conference. Both public and private partnership investment opportunities were promoted in order to mobilise inward investment into the region. The delegates found the conference to be insightful and important given the ever prominent issue of power on the continent. Another key focus was on the ever increasing debt of governments either by way of direct guarantee liabilities or contingent liabilities with respect to their State utilities’ obligations.

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MINES AND ENERGY MERGER: TOO MUCH ON GWEDE MANTASHE’S PLATE? – LEYDEN

Author: Patrick Leyden

In a move that is likely to be welcomed by the mining industry, President Ramaphosa has appointed Gwede Mantashe as the Minister of Minerals and Energy (which now combines the Ministries of Mineral Resources and Energy).

During his short erstwhile tenure as Minister of Mineral Resources, Mantashe made significant progress in addressing several fundamental issues that have hampered investment into the South Africa mining industry over the last five years. His decisive action in addressing corruption and maladministration within his Department as well as taking steps to promote regulatory certainty were positively received by both domestic and international investors alike. As a result, South Africa gained twenty seven places under the Policy Perception Index and also made considerable gains under the overall Investment Attractiveness Index in the Fraser Institute’s most recent Mining Investment Survey.

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SOMALIA AND THE OWNERSHIP OF ITS OIL AND GAS

Authors: Rebecca Major, Jeremy Griffin and Mika Morissette

Since the collapse of Somalia’s central state in 1991 and the ensuing decades of civil war, the central government’s ownership rights over Somalia’s oil and gas have been called into question, particularly in Somalia’s semi-autonomous regions.

As set out below, the central government (the Federal Government of Somalia or “FGS“) and the governments of the semi-autonomous regions (conveniently located in some of Somalia’s most oil rich areas) have both claimed ownership. For international oil and gas companies (“IOCs“) seeking to do business in Somalia, this raises a key question – who should they contract with?

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THE QUEST FOR A BALANCED HOST GOVERNMENT CONTRACT: AN MSGBC BASIN PERSPECTIVE

Author: Stephane Brabant and Etienne Marque 

THE CHANGING LANDSCAPE OF THE OIL AND GAS SECTOR

The recent discoveries in the MSGBC basin (covering Mauritania, Senegal, the Gambia, Guinea-Bissau and Guinea-Conakry) have triggered a great deal of hope for the upstream industry, the host States and their populations. Indeed, the development of these fields could potentially contribute significantly to economic growth and development, turning the sub-region into a regional energy hub.

In legal terms, the upstream oil and gas industry is structured around a single, underlying instrument: the Host Government Contract (HGC). At its simplest, the HGC constitutes a quid pro quo whereby a sovereign State grants rights to explore and exploit within a certain area to a private company in consideration for a share of the extracted petroleum and the fulfilment of certain minimum exploration and exploitation obligations.

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