Karpowership SA: How many more?
The South African contract that Karpowership is pursuing could be a game-changer for the group, making Eskom its biggest customer in the world. What will we pay and how much will the Turkish conglomerate have in its pocket? AmaBhungane does the math.
Read the main story: Powerships: Inside the Karadeniz Global Empire
A high-profile estimate puts the cost of Karpowership’s 20-year South African contracts at over R200 billion. This number is simply the “assessment rate” provided by the company when it bid for allocations under the Risk Mitigation Independent Power Producer Supply Program (RMI4P), multiplied by the absolute maximum amount of electricity that Eskom can buy from the company in terms of rules *.
This represents 225.7 billion rand over 20 years or 11.3 billion rand per year.
The RMI4P rules also provide for a guaranteed minimum “take or pay” element where Eskom must pay for a certain amount of electricity, whether it actually needs it or not.
This equates to 70% of the maximum possible sales, i.e. 7.9 billion rand per year or 158 billion rand over 20 years.
This is the turnover at the level of the local Karpowership SA subsidiary, 49% owned by a local consortium. It all comes from Eskom.
These are approximate figures, however, as the actual tariff that Karpower and the other bidders will charge is linked to the prevailing gas prices, among other conditions.
These numbers represent revenue, which is a good measure of what Eskom will pay, but a bad measure of how much money Karpowership will make.
They include the costs of fuel that the company buys and resells simply as a “pass-through”. If you take that out of the equation, you get the things that really make up Karpowership’s income.
The main one is the capacity charge or, to put it simply, the cost of renting the powerships.
There are also smaller items that the parent company charges the local branch with, such as spare parts.
Rental income and spare parts, which together constitute the bulk of total turnover, all accrue to the international group. Less spending will be incurred in South Africa, however. According to the documents that Karpowership submitted as part of its local bid, the local cost component amounts to around 9.3% of operating expenses, excluding fuel.
So what is the contract worth for Karpowership?
In connection with an ongoing legal case involving allegations of corruption in the RMI4P process, Karpowership has filed parts of its RMI4P offering that show the breakdown of expenses in one of its three proposed projects: Coega.
According to the document, the rent paid abroad will be around R35 billion, and an additional R6 billion will be paid for spare parts over the 20 years. This seems to exclude the fuel vessel that will accompany the powerships. That’s an additional R11.7 billion.
This can be roughly extrapolated to the three projects (Saldanha is slightly smaller). The 20-year lease becomes about 95 billion rand – 4.75 billion rand per year. If you convert that to dollars at an exchange rate of R14 / $, you get $ 339,285,714 per year.
If you add this to Karpowership’s global rental income total in 2019, South Africa’s rent stands at 32% of the new total.
If you add spare parts and fuel to the mix, South Africa could potentially contribute up to 41% of the company’s non-fuel revenue.
A whale of a deal indeed. DM
* The premise of RMI4P is that new power generators must deliver their full power under contract within minutes of notice and keep sending it until Eskom says stop. This only applies between 5 a.m. and 9:30 p.m. – a total of 16.5 hours per day. This means that the absolute maximum number of hours a bidder can supply electricity during their contract is 16.5 (hours) * 365 (days) * 20 (years). If the tenderer is contracted for a capacity of 1220 MW, which would be the case with Karpower, the maximum MWh sold is 16.5 * 365 * 20 * 1220. Multiply this by the tariff and you get the figure of several billion South Africa will pay.