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00:00And now joining us is South African Minister of Electricity and Energy Minister Ramakhopa. Thank you so much for your
00:07time. You're in Beijing. We appreciate you being with us. We've had some reporting that suggests that this delegation that
00:14you are a part of is seeking some investment into South Africa's grid. What more can you tell us about
00:20the purpose for this trip.
00:21Well, thank you very much for the invitation. It's an inter-ministerial visit. I'm with the Minister of Trade, Industry
00:31and Competition. And I'm also with three of our provincial governors to use the language of the U.S. and
00:40China, what we refer to as the premiers.
00:44And also we have brought our DFIs, the Industrial Development Corporation and the DBSA, which are two of the premier
00:54DFIs on the continent based out of South Africa.
00:58We also brought some of our SOEs in the ecosystem of electricity and energy in our country, notably ESCOM, which
01:09is the biggest SOE, electricity SOE on the continent.
01:14So our intention is to attract the Chinese investors to support our electricity plan, what we refer to as the
01:23integrated resource plan.
01:25We have an ambition of adding 102 gigawatts of new capacity in the next 12 years.
01:32And about 70 percent of that will be coming from renewable energy sources.
01:37We're anticipating to bring 34 gigawatts from wind, 25 gigawatts from solar PV and 16 gigawatts of distributed generation.
01:53And in addition to that, we have 5.2 gigawatts of nuclear and about 16 gigawatts of gas to power.
02:02So this is the most comprehensive and ambitious electricity plan on the continent.
02:07And we think that the Chinese partners, the OEMs, the financing institutions, technology partners will be very helpful in helping
02:19us to achieve this ambition.
02:21So we've got the project prospectors.
02:23We have already packaged the project, including rolling out the 14,500 kilometers of transmission expansion and modernization.
02:33So these are significant investment.
02:36The total value of this investment we anticipate is about 180 billion U.S. dollars.
02:42So we are confident that we will be successful with our mission here in China.
02:47And really the response has been nothing but positive.
02:53What can you tell us about the response?
02:55Have you secured any of this funding at this point?
03:00The good thing about the Chinese actors in the electricity space is that the majority of them, as we speak,
03:07as I speak to you, already invested in the country.
03:11Remember that this is not a novel initiative in our country.
03:14We have started the reform agenda.
03:17We have liberalized the generation side.
03:21We are de-risking ourselves from a monopoly that is ESCOM.
03:26We started this initiative in 2011, so about 15 years into this program.
03:31And the Chinese EPCs have been very big players over that period.
03:39I mean, we have about 7.9 gigawatts.
03:41That is already online.
03:44We are anticipating another 8.1 gigawatts to come on stream in the next 12 months.
03:50A few of those are reaching commercial operation date in the next three months or so.
03:55So we, the Chinese players have always been active on our, in our market, the electricity market.
04:03What we are doing now is just to broaden that participation.
04:07But more significantly, we are asking them to locate manufacturing and production in our country.
04:14They are in familiar territory, so this is not virgin territory.
04:17And what is great is that those who already have a presence in our country,
04:21they are helping us to make the case for other Chinese players to come into, into South Africa.
04:27But the long and short is that it has been resounding.
04:31The meetings I've had this morning only serve to attest to the fact that there is commitment to come to
04:36the country.
04:38What, what does that look like for partners?
04:40Should we expect state-owned Chinese companies coming in, or are they private investments that you're looking to?
04:49So, we're finding that there's a combination.
04:52The ones that move first into the South African market have largely been the state-owned enterprises.
04:59But as you can imagine, the significant capacity in China to a point where they could be argued that it's
05:08over capacity.
05:09So, some of the actors are looking for new markets.
05:13And principally, these are private sector actors, industries.
05:17I mean, the three, four meetings I've had just this morning alone was mainly with the private actors
05:25who have been studying the South African market.
05:28But they wanted the reassurance of the political leadership around the environment, the conditions, and some of the issues
05:38that could be answered at the policy level. And I'm confident that we have been able to prevail.
05:44And we are seeing that there's an elevated interest to come into the country.
05:49So, the long and short is that it's a mix of state-owned entities and the private sector.
05:56Do you think you'll walk away this week, then, with firm commitments from both?
06:01Or is this sort of an ongoing, the start of an ongoing process?
06:07So, what we've done very well, and this is a lesson we've learned over a period of time, is that
06:14before we even arrived here,
06:16we had already conversed and mobilized potential investors, in addition to those who had already a presence in the country.
06:26We were able to curate, and how we organize the conference and attendance to the conference,
06:32these people who are now satisfied that there's a case for investment.
06:36We have already answered all the key questions, so we are coming here really to firm up on those.
06:42And you can see, I mean, just yesterday and today, there has been firm commitments,
06:48just setting up industries, transformer capacity, and the manufacturing of wires, pylons, inverters, smart meters.
06:59A few of them are expanding their already existing footprint.
07:04Some of the OEMs are looking to partner with local players.
07:08And, in fact, the conversation is beyond South Africa.
07:11I mean, if you know that South Africa is the most industrialized economy on the continent,
07:16we serve as a battery for the region.
07:19By that, I mean that we supply all our neighbors with electricity.
07:24We account for about 75% of the total installed capacity in the SADEC region,
07:30just over 50% of installed capacity in sub-Sahara.
07:34So what some of these actors, especially on the transmission side,
07:38we're looking to work with them to build what we call the regional interconnectors
07:43to allow us to have sufficient capacity, more than we do now,
07:48to transport the electrons, or if you like, the electricity into neighboring countries,
07:53because we are seeing more and more investments in the neighboring countries
07:57on mining and beneficiation.
07:59Just our region, our own, the South African development region there,
08:03we have, we account for 30% of the known critical minerals,
08:10which are going to undergate the transformation and the decarbonization agenda.
08:15So really the opportunities are on the continent in the region,
08:19and they will require electricity to be realized.
08:23What does that mean, Minister, for capital allocation?
08:26Is the focus going to be then on transmission in South Africa,
08:29or are the discussions a bit more broad throughout the week?
08:35Well, the discussions are broad,
08:38but I think the basis of how we broaden that discussion
08:43is just an appreciation that you need a point of lending,
08:46and that point of lending in South Africa,
08:49and you use South Africa as a springboard into the African market.
08:53So what do we do?
08:54We catalyze that investment to allow for early decision-making
08:58in relation to capital allocation.
09:00We need to give investors assurance of a pipeline.
09:05There has to be see-through of that pipeline.
09:07They must have confidence that the state
09:08will deliver against that pipeline.
09:11So we're using South Africa as that lending platform.
09:14And once they have this confidence,
09:16and those who are already present,
09:18the confidence gets to be elevated,
09:21then they can think of moving into the continent,
09:24and as they do that,
09:26they are going to increase capacity utilization in South Africa
09:30and be able to provide solutions for the region.
09:35But what is important is that we have to start somewhere,
09:38and there's an appreciation that South Africa provides
09:41an excellent opportunity for those who have ambitions
09:44of supporting the electricity development, evolution,
09:49and the reform agenda on the continent.
09:52South Africa is a place to start.
09:54So we're aggregating all of these hectares,
09:56and from there, they can spread into the continent.
10:01Minister, what are the assurances, though,
10:03you are giving investors?
10:04Because Bloomberg has reported that ESCOM
10:07is reflecting peak winter demand,
10:10hitting as low as 26 gigawatts on some evenings,
10:13and potentially that could start to decline.
10:15What is it that you are assuring investors
10:19that their input, their capital, will be returned?
10:25Oh, by the way, that's a good sign
10:27of the reform agenda working.
10:29So here, too, we have had this monopoly,
10:33and we have liberalized.
10:35So what it means is that those who have demand
10:40for electricity have got more options.
10:43They don't have to rely just on ESCOM.
10:45So we have seen an increase in bilateral contracts.
10:48By that, I mean private generators providing electricity
10:53to private consumers in the form of mines, smelters,
10:59and heavy, intense, energy-intense industries.
11:03So it's a good sign of a market that is opening up
11:07and liberalizing.
11:09Secondly is that we are building the regional interconnectors.
11:13The future of ESCOM is really not in the country.
11:17It's on the continent.
11:18Like I said, it's a backbone of electricity generation.
11:22There's going to be increased competition at home,
11:24which is good for the consumer, good for the economy,
11:28good for investment, research, and development.
11:31But what ESCOM will continue to do
11:34is to be the anchor of this supply on the continent.
11:39The South African market also shows that this,
11:42like I said earlier on, it is maturing.
11:45So we started in 2011.
11:47So there's greater levels of confidence by the market.
11:51There are no defaults.
11:52The state has played the role of being the backstop.
11:56The sovereign guarantees, we are gradually removing sovereign guarantees
12:01because the market has matured.
12:04Secondly, there's a big liquidity in the country.
12:10Our commercial banks and the DFIs,
12:13if you look at the levels of investment since 2011,
12:17a big part of that or a significant part of that
12:20is the South African commercial banks and the DFIs.
12:23There's a rule of law.
12:24We are able to protect your rights
12:26in the contracts that have been signed.
12:29If there's any dispute,
12:30there's a dispute resolution mechanism.
12:33Courts also serves as a basis for arbitration.
12:37We have instances where the courts have ruled against ESCOM.
12:40Courts have ruled in favor of ESCOM.
12:42It's an objective consideration of what is before them.
12:45And the last thing what sets us apart from the rest
12:47is that we've got a skill pipeline.
12:49Like I said, we're the most industrialized country
12:52producing the most number of engineers per annum.
12:56We've got experience, expertise in working in these fields.
12:59And if you come to think of it,
13:01it's seven of the major OEMs in the world
13:03on the auto sector in the country.
13:06We have an ESCOM.
13:07We have a transnet on the rail sector.
13:09We have SOSOL on heavy industry.
13:11And then the mines.
13:12I'm sure you know about the history of mining
13:14in this country and beneficiation.
13:15So the skills are there.
13:17The mindset is in place.
13:21Minister, maybe just finally,
13:23you're in China, you're in Beijing, of course.
13:25We noted that.
13:26It seems like you're going to need more investment
13:27outside of China.
13:28Where do you go to next?
13:30Do you have a pipeline of other partners
13:32outside of that market that you're looking to?
13:36Oh, yes.
13:38I think the Europeans have shown over time
13:40an appetite to participate.
13:43If you are to disaggregate the investors in the country
13:49over that period since 2011,
13:51you are going to find that on the project developer side
13:55is the Europeans, the EPC has been the Chinese,
13:59and gradually the Chinese have become developers
14:01and also EPCs.
14:04So there's a huge appetite from the Europeans,
14:07especially in the areas of green hydrogen,
14:10because I think the European conversation
14:12is around green hydrogen.
14:14It's how we green also the production capacity
14:17so that we are able to avoid
14:20the carbon border adjustment mechanism
14:22that is coming into place in Europe.
14:24We still want to protect the market share
14:26of South African products.
14:28And if anything, we want to grow it.
14:30So Europe is going to be our next focus.
14:34Those conversations have already started.
14:36It's how we package and lending in Europe as a team
14:39to present our case.
14:40So that's the route to follow.
14:42Right.
14:44And just finally, do you need to unbundle, then,
14:47to encourage more private investment,
14:48or do you package the investment opportunity
14:52the way that it is at this point?
14:55No, we unbundle.
14:57So it will be a function of those that we are targeting
15:01so that it's got alignment with what their priorities are.
15:06Like I said, sustainable aviation fuel,
15:09green hydrogen, a big conversation in Europe.
15:12And I think they've got their own demands to satisfy.
15:16We are able to make the case that South Africa can contribute
15:19effectively, efficiently, and more affordably
15:23in them meeting those requirements.
15:27Already, we've got a very strong historic relationship
15:30from an industry point of view.
15:32So they are more familiar with the South African market.
15:34I must say, even more than the Chinese,
15:37they've landed there much, much earlier.
15:39I mean, the auto sector, you already have the Germans
15:43are already in the country.
15:46Of course, I mean, the Japanese are also in the country,
15:48not necessarily from Europe.
15:49But the point I'm making is that there's
15:51an appreciation of how the South African industry has evolved
15:56and the environment in South Africa.
15:58So it's a much more easier conversation, a bit more aligned.
16:02Of course, language is a big issue.
16:05And the exchanges, cultural exchanges
16:08have been happening over time.
16:10South African students studying in Europe,
16:13huge investments on the stock exchange, European entities.
16:17So that helps a lot, because the Chinese market, they still,
16:22of course, like I said, it's 11 years of investment.
16:24But they're still in the face of learning this environment.
16:28And, of course, we're confident that the highest growth
16:33will come from China.
16:34But you need to de-risk.
16:35You have to engage with everyone.
16:38All we're interested in is to have investments coming into the country
16:42and supporting our agenda.
16:44And where it aligns with the requirements
16:47of these various geographies, I think that's where the sweet spot is.
16:51And I'm confident we're going to succeed.
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