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Economic Development (ED): Hard Facts about the Soft Truth

 

Economic Development (ED): Hard Facts about the Soft Truth 

THE SOFT TRUTH

After the August 13th review of the REIPP by Liz McDaid (REI4P review) it unfortunately seems as if some ‘soft facts’ are making their way into everyday conversations about Renewable Energy as ‘hard truths’, and with Jeff Rudin’s recent missive in the Daily Maverick Renewable Energy a prisoner of privatisation her one-women crusade to unearth all things nefarious in the REIPP needs to be confronted head-on and dismissed, with the contempt that it deserves – although, to be sure, this situation is not one entirely of her own doing. In an ironic twist, the state is the source of its own misinformation.

To be clear, Mr Rudin is correct in most respects: the state shifting the burden of responsibility for the social well-being of the many onto Independent Power Producers does foist together two very awkward bed-fellows. In the real world, the relationship between the have’s (the IPP’s) and the have-nots (local communities living in economy poverty) is always going to be a challenging one that by its very nature has to be chaperoned by the State – most especially because of the opaque nature of IPP’s bid commitments. However, having established our concurrence with the authenticity of Mr Rudin’s socio-political commentary, we cannot leave unchallenged McDaid’s assertions, specifically with regard to job creation in the REIPP.

The REIPP as a policy falls squarely within the National Development Plan and as such, as a policy, it simply has to be underwritten by job creation. The problem is, the REIPP is driven virtually exclusively by the Department of Energy, and the DoE does not understand what a ‘job’ is and consequently neither do the IPP’s, with the DoE going so far as to make publically available data that confuses and refutes its own, real, job creation figures. To attest to the complexity, master’s student Sarah Stands undertook an entire thesis, researching Job Creation in the REIPP.

THE HARD FACTS

Using an example from the two documents above, McDaid claims: “According to the DoE’s figures drawn from successful bids, the first window would create a total 23 883 jobs – 13 069 in construction and 10 814 in operations (DoE 2012b). However, a disappointing number of operational jobs (only 463) would go to South Africans (see Appendix D), which are considered longer term and more valuable than construction jobs. This implies little long-term benefit for South Africans.”

Pray tell, how is it possible that in a program that is creating over 10 000 operational jobs – locally based long term South African jobs – less than 500 of these jobs are occupied by local citizens?

McDaid has omitted to factor in that Renewable Energy facilities are contracted in to operate for 20 years, and that the DoE figures of “only 463” refer to only one year in the life of an RE power plant.

In fact, Stands’ research, conducted within the IPP unit of the DoE, indicates that in the O&M phase of BWR1 alone of a total of 10 754 person-years, 8 727 person-years (80+%) are allocated to South African Citizens.

McDaid has mistaken the 463 sustainable jobs created every year in the first BWR and compared them with an aggregate person-months of the whole 20 year timeline that a bidder commits to.

For these two to be comparable, you need to multiply the jobs with the lifetime of the project (in years) or divide the person year jobs with the lifetime (in years). This is why the construction jobs seem to have a much higher local component than the operation jobs. In reality, over the three BWRs, 20 221 sustainable jobs for Citizens and 11 247 sustainable jobs for local communities have been created by the programme to last the 20 – year duration.

If we really want to consider local jobs to address unemployment and poverty, we should be looking at those jobs created for local communities. In BWR1, the total Citizens ‘jobs’ (1 650 person-years), 31.5% are allocated to local communities (living within 50km of the IPP). In all three BWRs, 55.6% are allocated to local communities, mostly due to the additional reporting element of jobs per MW.

Further, in all 3 BWRs, only 12% of person-months/person-years are allocated to non-south Africans thus, 82% of all jobs go to Citizens. Beyond the numbers, personal interviews with bidders indicated that fewer internationals were taken on due to the unexpected skill level of local South Africans, resulting in a better outcomes than what is presented in the results published by the DoE. The real issue here is that information of IPP compliance has not been released, and the lack of transparency is perpetuating the false assumptions.

In the O&M phase specifically, the Citizen percentage across technologies was higher as it required less highly-skilled individuals. One Developer/EPC has claimed that across two RE projects, only one international was hired – to programme the large transformers as this was a skill that is currently unavailable previously in the country.

To her belated credit, Liz McDaid disclaims her own analysis when confronted about the misinterpretation of the numbers “I found the job data confusing so rather used official numbers available. Appendix D is a DoE document which I quoted from and attached in full so that everyone could see it was DoE, not my calculations” (personal email correspondence). She continues to respond when asked if the numbers she was comparing did not have the same denominator (PY and PM), “What you say does make sense because according to the DoE updated window 3 figures in the main text, the table differentiates between construction jobs (which I assume are then full time for the length of the construction) and operational jobs which are given in job/years. I think that the data presented in appendix D were from the first window maybe when DoE staff were not sure how to present the job data?” 

Which begs the question, why didn’t Jeff Rudin clarify this when publishing his follow-up article?

Another aspect of Rudin’s thought-piece to contest is that he states that an inherent consequence of the commercialisation of power generation is that since labour comes at a cost IPP’s would naturally minimise job creation and undermine South Africa’s commitment to labour intensive investment. However, the fundamental structure of the REIPP incentivises bidders to create as many jobs as possible and absorb the associated cost implications. The issue is not that too few jobs are created, but that too many ‘unskilled’ jobs rather than ‘meaningful’ jobs (that require training and planning unconducive to the programmes lack of a future horizon) are created. As Rudin states, IPP’s are not experts in dealing with communities and job creation, and nor are they educators.

Contrary to the assertions by Rudin and McDaid, the REIPP definitely is taking ‘bold practical steps’ and it is creating significant benefits for economic growth, job creation and poverty alleviation, especially when considering that it is just three years in.

In conclusion, one of the aspects that we can agree with in Rudi’s opinion piece, is that the programme is not well structured: “competitive capital is unavoidably secretive, a condition which makes problematic information sharing, particularly with would-be competitors”. When the state defers responsibility for development and education prerogatives to what are essentially ‘power generators’ there will be unavoidable structural and functional problems with implementation. Yes, there is a dire need for more transparency and collaboration with government in order to get this novel and very complex programme right, and to achieve the goals of the National Development Plan.

Yes, we can all agree that the IPP’s are being handed a significant social responsibility that is not core to their business. Yet some are going to great lengths to attempt the task and IPPs requesting help to implement strategies required of them in the programme should be heard rather than criticized without solutions. One ED manager was even looking forward to being audited by the DoE on ED outcomes, as some clarity would be provided in what is expected.

And, finally, yes, because of the way the projects are structured, allocated community funds are yet to filter into local trusts.

But 20 year commitments have been made, for 64 RE projects in South Africa. Minister Molewa is indeed correct: South Africa’s new renewable energy programme does represent ‘bold practical steps’ with ‘significant’ benefits for economic growth, job creation and poverty alleviation, never mind the climate.

Regards, 
The Altgen Team


 

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