South Africa Power Contracts Face Legal Challenge Over Graft

DNG Energy Takes Legal Action to Halt South African Power Award

DNG Energy, a South African gas company, sued to halt the government’s award of emergency power supply contracts, alleging that the process was tainted by corruption.

Some of the eight bid winners, especially Turkey’s Karpowership, which operates mobile, vessel-based power plants, were granted unlawful exemptions from the tender requirements, DNG said in court documents. Its lawsuit could hamper attempts to bring new generation capacity on line and address a crisis that’s seen state utility Eskom Holdings SOC Ltd. subjecting the nation to intermittent electricity outages.

Aldworth Mbalati, DNG’s executive director, said in an affidavit to the High Court that he was approached by a businessman with “close ties” to Energy Minister Gwede Mantashe and government officials who offered assistance to win a contract. Mbalati said he was told the outcome would be pre-determined, but rejected their proposal, according to the affidavit. He didn’t identify the people who approached him because he intends filing a criminal complaint.

“We strongly reject the allegation of impropriety on the part of Karpowership SA and as a consortium of local and international investors we have every confidence that the South African courts will deal with this appropriately,” the company said in a response to queries. “The false allegations levied by a failed bidder are alarming. It is right to have robust debate around the best options for South Africa’s energy future, but these debates should be fact-based.”

Power Outages

The tender winners have been contracted to generate 1,845 megawatts of electricity by August next year, projects the government expects to bring in 45 billion rand ($3.2 billion) of investment. The deals have yet to reach financial close.

Karpowership, a unit of the Turkish Karadeniz Energy Group, won the bulk of the contracts, which will run for two decades -- a deal worth an estimated 218 billion rand. That’s sparked concerns that the country’s may fail to reach carbon emission reduction targets.

“People who go to court are answered in court,” Mantashe said by phone. “Editors are not judges.”

All procurement rules were complied with and DNG’s lawsuit will be opposed, the Department of Mineral Resources and Energy, which Mantashe oversees, said in a statement on Friday.

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The opposition Democratic Alliance party on Thursday had a motion, backed by environmental activists, to have a parliamentary probe of the contract rejected.

Karpowership was granted exemptions with regard to conducting environmental assessments prior to submitting a bid as well as a so-called local content requirement, designed to stimulate South African business.

The power vessels supplied by Karpowership “were originally designed to supply electricity to countries with little to no electrical infrastructure such as war-torn countries, or countries which had suffered natural disasters,” DNG said. “The fact that these ‘short-term emergency ships’ would operate for 20 years in three critical ports further prejudices the development of liquefied natural gas terminals and severely prejudices the development of a gas economy.”

Karpower said all bids followed the same “transparent” process.

AmaBhungane, a South African investigative news organization, reported on the court documents earlier on Friday.

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