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Bulletin

A Win for Independent Power Producers

Fasken
Reading Time 3 minute read Reading Level Easy

Yesterday (26 March 2019), Judge P.A. Meyer handed down judgment in the High Court of South Africa (Gauteng Division, Pretoria) dismissing the application by the Coal Transporters Forum. The application was to interdict Eskom from entering into power purchase agreements with three Independent Power Producers (IPPs) in the Small Project Programme and to declare the power purchase agreements already concluded by Eskom in Bid Window 4 of the Renewable Energy Independent Power Producer Procurement Program invalid.

 

The judgment reflects on the development of the South African government’s integrated resource plan which, although recognising South Africa’s dependence on coal as its primary source of power generation, seeks ultimately to reduce carbon emissions and foster a balance of generation technologies.

In this vein, and following the publication of the final version of the integrated resource plan 2010-2030 on 6 May 2011, which provided for a 17.8 GW allocation of power generation from renewable sources, the Minister of Energy (the Minister) published a determination on 1 August 2011, pursuant to her powers in terms of section 34(1) of the Electricity Regulation Act 4 of 2006 (the ERA), in which she determined that 3725 MW of renewable energy should be procured from IPPs. On 19 December 2012, the Minister published a further determination resolving that an additional 3200 MW of renewable energy should be procured from IPPs.

The primary contention of the Coal Transporters Forum was that Eskom was not entitled to conclude power purchase agreements with the IPPs until such time as the National Energy Regulator of South Africa (NERSA) had taken certain decisions in relation to, inter alia, the prices and tariffs at which the electricity produced by an IPP should be sold and purchased and other matters which, the court found, could be regulated by imposing license conditions on the IPPs.

The High Court found that there was no merit in this argument. NERSA, when issuing a generation license, is bound by the determinations of the Minister made in terms of section 34(1) of the ERA and in respect of which NERSA concurred. There is nothing left for NERSA’s discretionary determination. Moreover, on the basis of the principles set out in Oudekraal Estate Pty Ltd v City of Cape Town and other 2004 (6) SA 222 (SCA), irrespective of whether or not an administrative decision is unlawful, such administrative decision (and the consequences thereof) will stand until set aside by a court in proceedings for judicial review. Accordingly, the licences granted and the decisions to sign the power purchase agreements stand and must be deemed valid until or unless set aside on review. NERSA, therefore, is functus officio and there is nothing left for it to determine.

The High Court reiterated that the process and procedure in challenging and setting aside an administrative decision of this nature is by means of legality review proceedings or review proceedings under Promotion of Administrative Justice Act 3 of 2000, and not proceedings wherein a party merely seeks that the contract concluded be set aside by a court of law and be declared null and void.