The aim of the meeting was to get an update from Treasury on the latest developments regarding the REFIT program.
In particular SAPVIA wanted to understand Treasury’s views on:
- Requirements from lenders in terms of underwriting each project bid;
- The amount of local content in project bids that will be necessary;
- Current blockages regarding rezoning of land and environmental assessments of solar projects;
- The provision of standard contracting documents with the RFP package.
Here are the outcomes of the meeting:
- Treasury advised that the process for procuring renewables would now follow after the NERSA tariff review;
- RFPs would most likely be released at the end of July/beginning of August because Treasury/DOE would have to revise the documents in consideration of the new tariffs;
- The procurement would again be competitive in certain criteria and would be bound by a fixed REFIT price;
- When asked about Treasury’s commitment to a REFIT procurement process, it was indicated that they are not concerned whether it was a bid on price or REFIT but that it was important that the ultimate price was a fair reflection of market conditions. Their concern was that a REFIT fixed price process could be fraught with difficulties particularly in a country like South Africa where fluctuating interest rates and FOREX rates could kill a project between bid acceptance and financial closure if the price is fixed. Their support seemed to lie for a bid process where price was one of a number of criteria to a successful project;
- It was stated that there was “no way” Treasury would sign long term agreements at R3.94/kWh, as it was felt project developers would be placing a huge burden on the country and its people by requesting such tariffs. Ms. Breytenbach’s opinion was that contracts at that price could be at risk of being “re-opened” by politicians concerned about wasteful expenditure in 2-3 years time, and thus were inadvisable. On the other hand, Ms. Breytenbach appeared to be concerned the revised tariffs currently under discussion may have negative implications for issues such as BBBEE and local content in renewables projects;
- When asked about the requirements from lenders in underwriting bids, Ms. Breytenbach indicated that the previous procurement process would have required a firm underwriting but that the revised process might not require firm underwriting as the time constraints on projects were less;
- Ms. Breytenbach indicated that most of the blockages they were aware of regarding project development had now been relieved, and she was sure government departments were well aligned on the procurement process. She indicated that the delay was likely to cause both a decrease in momentum but also some breathing space for departments that were overwhelmed with REFIT based work. There was also now less urgency to complete a procurement process prior to COP 17;
- Ms. Breytenbach indicated that there would be a selection of standard contracts supplied with the RFP, including a PPA, an Implementation Agreement, Transmission/Distribution Agreement and a Financier Direct Agreement (between Lenders, Govt and SPV). No standard EPC or construction documentation would be provided;
- When asked if there was a possibility of releasing some of the criteria for bids to remove some uncertainty from the process, Ms. Breytenbach indicated that it might be possible, but that almost everything depended on the REFIT tariff review and she did not think it advisable to have a “half-baked” document out in the market;
- When asked if the NERSA process could be adjusted to apply only to later rounds of REFIT and that 2009 prices still be used to procure as before, her answer was that it might be possible, but she thought it was “too late” to remedy things now. Even with this adjustment, however, it seemed that the 2009 prices would not have been acceptable and that some type of price dependent criteria would be introduced.