September 7, 2007

Private power providers get state backing

The government has approved an extraordinary concession to attract major private investors to the power generation sector with the assurance that it will buy the power generated. The state has also given an assurance that the National Electricity Regulator (Nersa) would regulate Eskom's single-buyer function and all agreements with private producers. These moves, which were taken at a cabinet meeting, follow the announcement of a consortium led by US power producer AES as the preferred bidder for two new power plants at a cost of about R5bn. This decision alone was seen as a boost for independent power producers (IPPs).
Chief government spokesman Themba Maseko said it was resolved that Eskom would be the single buyer of power from independent power producers and would also remain responsible for ensuring that independent producers made up 30% of new power generated. Maseko, in reply to a question, said the key to the policy was the assurance that the state would buy the power generated by the IPPs. Also vital to the plan is the role to be played by Nersa in that it will regulate Eskom's single-buyer function and will have to approve all commercial agreements between Eskom and the private producers.
This policy will ensure that the responsibility and accountability for the construction of power generation capacity is co-ordinated and will provide certainty to the private providers. It will also allow production cost benchmarking with the state utility. Over the next 20 years, Eskom will build all nuclear power plants in South Africe and the IPPs will build more than half of all non-nuclear power plants. Eskom CEO Jacob Maroga had before pointed to the need for substantial tariff increases to cover increased generation costs. The low electricity price has long been seen as a major disincentive to foreign investment in the electricity industry, as has the regulatory framework in which such investors would have to operate. (Business Day, Johannesburg)

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