Tuesday, January 18

Where a $ 5 billion green incentive meets coal policy

The world’s richest countries are courting South Africa as a model for how to transition to a more climate-friendly future from dependence on coal.

While $ 5 billion worth of loans and grants are offered as a first step, transforming Africa’s most industrialized economy takes more than cash. He needs to win over power brokers like Gwede Mantashe, a former coal unionist who is now energy minister and president of the ruling African National Congress, to weaken the nation’s dependence on the black rock.

A prominent member of the South African Communist Party who also completed his MBA this year, Mantashe has made it clear that saving the planet is not his top priority.

Gwede Mantashe Photographer: Waldo Swiegers / Bloomberg

Envoys from nations like the US, Britain and Germany met with government ministers in Pretoria last month with the $ 5 billion package to finalize a deal that could be announced at the upcoming COP26 global climate conference on the end of the use of coal. But Mantashe did not appear. The 66-year-old was hundreds of miles away, addressing a mining investment conference and arguing against attempts to curb the use of the country’s massive coal resources. Instead, he called for investing in experimental technologies to reduce carbon emissions.

It is not an outlier. Coal, mined mainly in the eastern province of Mpumalanga, has underpinned the system of political patronage and economic empowerment of blacks that has kept the ANC in power since the end of apartheid.

“We industrialize on the basis of coal,” said Jesse Burton, a Cape Town-based senior associate with the E3G climate research group. “Coal is the backbone of our economy,” he said, although he noted that it is no longer the cheapest form of energy.

Fuel supplies 82% of South Africa’s energy, and companies that rely on coal power account for 45% of employment and 70% of exports, according to Roger Baxter, CEO of Minerals Council South Africa, who represents the majority of mining companies. . The coal transport companies alone, many of them owned by blacks, employ 5,000 people. Black shareholders now own a third of the companies that supply coal to the state power monopoly Eskom.

Which helps explain why politics is so potentially explosive.

President Cyril Ramaphosa, who co-founded the National Union of Mine Workers in the 1980s, has established a powerful commission to guide the country toward lower emissions and more renewable energy. But he also relies on Mantashe, a bulwark against rivals in the six-member group run by the ANC.

“He is Ramaphosa’s only ally in the top six. Everybody else has pulled knives, ”Burton said. “If the ANC’s dependence on revenue from coal mining is as great as everyone thinks, it takes someone like Mantashe to manage it.”

That means maintaining the support of the unions. Eskom employs more than 42,000 people, many of them in its 15 coal plants; Coal mines employ almost 90,000 people.

The unions backed Ramaphosa on his rise to the top of the ANC and remain on his side, giving Mantashe even more influence.

“He knows the levers he controls,” said Ralph Mathekga, an independent political analyst and author of books on the ANC. “That is why he has the audacity to push on his agenda. Look at how one man’s energy vision is holding back the president’s energy agenda. ”

Mantashe challenges such characterization, saying that he shares the ultimate goal of climate activists.

“In South Africa, there is no one who is opposed to moving from high carbon emissions to low carbon emissions, including coal companies,” Mantashe said in an interview. “Where there is debate, it is navigating the transition. We must navigate it carefully without hurting ourselves. ”

As for skipping the Sept. 28 meeting with climate envoys, Mantashe said he did not directly involve his portfolio. “It was not a beauty pageant between ministers,” he said.

Mantashe said it supports technology that can mitigate carbon emissions and is driving the development of the country’s gas fields.

Tyrone Seale, acting spokesman for Ramaphosa, quoted the president’s views in the Oct. 11 issue of a weekly letter to the nation. He spoke of the dangers of climate change and the need to cut emissions and get help. He warned that if South Africa does not reduce its dependence on fossil fuels, it could face difficulties in exporting its products.

Weaning South Africa from coal is seen as critical, as is providing a model to other developing nations as the urgency of the transition to greener energy increases.

The redevelopment of South Africa’s energy industry would be cheaper than in other coal-dependent nations, as many of the country’s coal plants are nearing the end of their useful lives. Civil society groups and the government have also been investigating how to cushion the impact of these closures on coal-dependent communities for several years, and opposition to coal on environmental grounds has been growing.

“Because the closings are already coming, that provides an opening and a space to have this conversation, to think about planning, what you can do,” Burton said.

Wherever it goes, the energy transition will likely become entangled in the web of patronage and political influence that dominated the era of so-called state capture under former President Jacob Zuma, who was ousted in 2018.

An investigation by the government’s Special Investigation Unit into Eskom’s coal purchasing practices showed that the coal shortage that began in 2007 was self-inflicted and led to a proliferation of small supply deals. The result: Coal costs rose, quality fell, and bidding procedures were scoffed at, he said.

In 2015, Hitachi Ltd. agreed to pay $ 19 million to settle the US Securities and Exchange Commission’s charges of making “improper payments” to the ruling South African party to help it win contracts in the construction of power plants in South Africa. Coal. That same year, the then Minister of Energy, Mosebenzi Zwane, stepped in to secure the sale of the coal mines that supplied Eskom to a company controlled by the politically linked Gupta family and Zuma’s son, Duduzane.

Eskom said law enforcement agencies are investigating its coal contracts and one has been canceled as a result.

While not all coal deals are tainted by corruption, the industry is nevertheless deeply intertwined with politics.

Mike Teke, CEO of Seriti Resources Holdings Ltd., which supplies 32% of Eskom’s coal, said he gave Ramaphosa’s 2017 campaign for the ANC presidency R600,000 as he and other business leaders supported the president against a rival backed by Zuma.

One of Seriti’s largest shareholders, Thebe Investment Corp., was established in 1992 by a company whose chairman was Nelson Mandela. Former ANC Finance Minister Nhlanhla Nene is on its board.

“Many of the companies associated with the South African coal mining industry have significant influence within the ANC,” Shridaran Pillay, Africa Director at Eurasia Group Risk Advisory Service. “Downstream industries supported by mining play a supporting role for regional political elites.”

© 2021 Bloomberg


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