Concern continues to be raised over the technical and financial criteria being used to prequalify bidders for South Africa’s inaugural independent transmission project (ITP) tender, which critics warn will marginalise domestic industry – notwithstanding a stipulation that there should be a minimum 49% South African equity participation.

Government has initiated a two-stage ITP procurement process, with the request for qualification (RFQ) documentation currently available for a non-refundable fee of R150 000 and with a submission deadline of September 23 having been set.

Qualifying consortiums will then be invited to respond to a request for proposals (RFP), which will be released after the prequalified bidders are named in November. Government anticipates setting a May bid submission deadline for the tender.

The prequalified entities will bid to build 1 164 km of powerlines and 2 630 MVA of transformation capacity across seven corridors during what has been termed ‘Phase 1’.

It is anticipated that a build, operate, own and transfer model over a term of between 25 and 30 years could be used. But the nature of the procurement model and the term will be made known only once the RFP is released, alongside how a fee-based Credit Guarantee Vehicle will be employed to derisk the projects in the absence of government guarantees.

The infrastructure is expected to unlock 3 222 MW of new renewables generation, especially in the Northern Cape and North West provinces, with subsequent and larger ITP procurement rounds anticipated thereafter.

The Independent Power Producer Office (IPPO), which is overseeing the procurement process, hosted a virtual conference for potential participants on August 26 that attracted more than 660 participants.

The conference was addressed by Electricity and Energy Minister Dr Kgosientsho Ramokgopa, who again underlined government’s desire to use ITPs to accelerate the roll-out of grid infrastructure, which was emerging as a physical constraint to adding new generation.

Given the scale of the investments to be built by both private ITP consortia and the National Transmission Company South Africa (NTCSA) over the coming ten years, Ramokgopa said government aimed to use the programme to stimulate domestic capability and industrial capacity.

The NTCSA’s Transmission Development Plan envisages the construction of 14 500 km of new powerlines and 133 000 MVA of additional transformers by 2034 at a cost of about R440-billion.

PREQUALIFICATION FRAMEWORK

During the online conference, several questions were raised about the qualifying criteria in the RFQ, including a criteria that project companies demonstrate prior contracting experience in relation to at least three ITP transmission line and substation projects that had been built in the past 15 years.

Previous engineering, procurement and contractor (EPC) experience in relation to the design, procurement, construction and commission of ITP powerlines and substations should also be demonstrated, while prospective EPC contractors in the project company would also need to submit three signed reference letters from their respective ITP project owners or clients.

In addition, a prequalifying project company would need to demonstrate that it had operations and maintenance contractor experience in relation to at least three extra high voltage powerlines and substations.

Such criteria could not be met by local companies given that Eskom and now the NTCSA had hitherto undertaken all transmission infrastructure development in the country. Domestic entities were, thus, unlikely to be prequalified as the main project sponsors, implying that the first ITPs would likely be controlled by foreign companies.

There were also questions about what the local content requirements would be, given that, while the Public Procurement Act was in force, regulations in relation to the designation of specific components such as towers, cables and other equipment had not been developed, with only interim rules in place.

This point was also raised at a previous event focusing on the TDP by Steel and Engineering Industries Federation of Southern Africa (Seifsa) CEO-designate Tafadzwa Chibanguza. He argued that delays in finalising the country’s new public procurement framework had made previous local-content designations unenforceable and had posed a risk to government’s industrialisation aspirations.

STRUCTURED FOR SUCCESS

In response, IPPO interim head Elsa Strydom insisted that the 49% South African equity participation pointed to the priority being given to the localisation of the ITP programme even during Phase 1, which was the first-of-its-kind for the country.

However, she added that the procurement process had been structured to ensure success, which required that participants had some experience in the design, construction, operations and maintenance of such infrastructure, as well as in delivering projects on time.

Local participants, she said, were in a position to enter into partnerships to ensure that they could participate in Phase 1 and had not been excluded.

Ramokgopa said the approach had been modelled on the renewable-energy procurement programme, which “started small” and increased in scale and in the number of participants over time.

However, he underlined government’s ambition to stimulate industrialisation through the ITP programme, as well as the NTCSA’s grid investments, and revealed that he was working with Trade, Industry and Competition Minister Parks Tau on those components that should be compulsory for local procurement.

The Minister stressed the importance, however, of kick-starting the programme within the timeframes outlined, which he said would build credibility.

He also acknowledged there should be no stop-start between procurement rounds to create the security of demand required for manufacturing investment.