May 2024

ENERGY transition in south africa

The combination of unprecedented climate disasters and energy insecurity in South Africa has amplified the call for decarbonisation and the prioritisation of a shift towards cleaner and more reliable energy sources such as wind and solar. In 2022, floods in KwaZulu Natal caused 459 deaths[1] and an estimated US$2 billion in damage.[2] Major flooding was repeated in April and again in June of 2023 and most recently in January of 2024. At the same time, South Africa’s energy crisis intensified. Eskom, the country’s national energy supplier, was forced to schedule power outages on 330 days in 2023 – more than double the amount experienced in 2022 and almost ten times as much as in 2021.[3] This punishing schedule of ‘loadshedding’ has crippled businesses and compromised food security, prompting widespread protest.

South Africa’s Just Energy Transition Investment Plan (JET-IP) is aimed at weaning South Africa off its heavy reliance on coal and setting its economy on a pathway to decarbonisation and climate resilient development. Envisioned to be implemented from 2023 to 2027 at a cost of ZAR1480 billion,[4] the Investment Plan seeks to rapidly scale back emissions, which currently position South Africa as the 14th largest greenhouse gas emitter on global rankings.[5] To date, the Plan has attracted pledges of $11.9 billion (almost entirely in concessional lending rather than grants) from International Partners Group donors, which include the US and a number of European countries.[6] Low carbon minerals – manganese, lithium, vanadium and copper – are identified as key strategic minerals in the Plan’s pathway to decarbonisation. With over 80% of the world’s deposits of manganese ore as well as commercial mining in vanadium and copper,[7] South Africa’s mining sector is central not only to the JET-IP but to the energy transition globally.

Yet the JET- IP Plan emerges against the backdrop of several institutional and policy concerns, including rampant corruption, a poorly designed fiscal regime, and, of particular focus in this piece, a historically troubled mining sector, among others.[8] Discussed in detail below, all these issues threaten the integrity and feasibility of this ambitious plan. Urgent action to strengthen governance is crucial to ensure a just energy transition, that doesn’t come at the cost of the earth or the local communities near the sites of extraction.

A TROUBLED MINING SECTOR

South Africa’s mining sector turmoil is no secret. For decades, the government has battled to get a handle on the irregular issuing of mining licenses, the displacement of mining town communities, and ensuring accountability and transparency from mining corporations, amongst other issues.[9] For example, Corruption Watch found a general lack of transparency around the negotiation and confirmation of mining royalty agreements with mine-affected communities, including the withholding of mining royalties by companies.[10] With  unaddressed weaknesses in governance in the mining policy framework, there is an increased risk of corruption in the sector. In this context, expanding mineral extraction in connection to the energy transition without addressing systemic inefficiencies poses very real threats for local communities, the national economy and the public interest at large.

These concerns are exacerbated by the fact that much of the critical mineral reserves that are targeted in the Just Energy Transition Investment Plan are found in the country’s remote and less developed provinces. The vast majority of the 20 manganese mines in South Africa, for example, are located in the dry Kalahari Basin of Northern Cape Province. The Northern Cape has been a major mining province since the diamond rush of the 1870s. However, it continues to grapple with historical challenges, including inadequate infrastructure to support mining, illegal mining activities and the unjust displacement of indigenous communities by mining companies.[11] Auditor-General Tsakani Malulekehe’s remarks that “the lives of the people in the Northern Cape are negatively affected by municipalities’ inability to properly manage the resources under their control”[12] highlighting weakening regulatory capabilities and a decline in political and administrative leadership in the region.

In this context, the increase of demand for transition minerals can exacerbate illegal mining activities. Of particular concern is the apparent rise in the prevalence of organised illegal mining, especially in the chrome and copper sector, by large, sophisticated, internationally affiliated syndicates. Avaricious opportunists have already begun to take advantage of the growing demand for these minerals with estimates suggesting that as much as 10% of annual chrome production (roughly 600,000 tonnes) depends on illegal mining.[13]

Surface-level mines in the north-eastern parts of the country have begun to spring up where chrome is first washed in local washing plants and then smuggled through neighbouring Mozambique or domestic ports eventually ending up in China.[14] With operators of these mining operations bypassing the legal supply chain, there are no accountability measures related to fiscal, environmental or social considerations.

This lack of accountability is exacerbated by the use of small-scale mining permits by large operations. Obtaining a mining permit in South Africa is a 5-step process comprising application lodging, community consultation, a compliance assessment, license approval, and then ultimately, prospecting and mining can occur.[15] The same process applies to small and medium to large scale mining, except that medium to large mining requires a further financial and technical capability check and an environmental impact assessment. The acquisition of small mine permits by mining operations which then operate beyond their concession and at scale has become a major concern in South Africa.

TRANSPARENCY DEFICITS IN THE NATIONAL FISCAL POLICY

The governance landscape at the national level poses a further layer of issues. In February 2023 the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, officially grey-listed South Africa, citing inadequate compliance with international standards around the prevention of money laundering, terrorist financing and nuclear, chemical or biological weapon proliferation financing. In addition, the FATF noted a lack of satisfactory beneficial ownership transparency, monitoring, investigation and financial intelligence, concerns which are echoed in corruption scandals relating to South African political and business leaders in the critical minerals sector.[16] These factors pose important threats to the implementation of the Just Energy Transition Investment Plan by exacerbating the corruption risks present in the remote regions in which critical minerals are located.

Similarly, the role of the national energy distributor, Eskom, in South Africa’s energy transition poses a set of risks for the JET Investment Plan. Eskom is a state-owned enterprise that was once awarded for being the world’s best power company by the Financial Times. As a result of widespread corruption, mismanagement and poor planning, however, it is now considered by many to be the biggest threat to South Africa’s economy.[17] Tainted by scandal and heavily indebted, Eksom is poorly positioned to manage the huge new flows of finance that are required of the energy transition.

Ensuring a Just Energy Transition in South Africa

The Just Energy Transition Investment Plan represents a historic opportunity for South Africa. Given that South Africa has been more than prudent in adopting, implementing and complying with the requirements of the United Nations Framework Convention on Climate Change (UNFCCC) – the only legal instrument with codified funding opportunities so far – a serious consideration of new funding for the mineral and energy sector is a welcome opportunity. Yet, for the JET Investment Plan to effectively herald a ‘just’ transition, serious challenges and risks remain.

The Minister of Forestry, Fisheries and Environment, Barbara Creecy, said “South Africa must act fast and implement the Just Energy Transition (JET) plan before competition for funds from other developing countries increases”.[18] South Africa has certainly acted fast, but perhaps too fast. It was cautioned that the scramble for low carbon energy sources and that the financial incentives being offered to developing countries would result in ill-thought-out commitments and actions which would worsen already prevalent corruption.[19] In order to manage these risks, the South African government must strengthen governance in the sector or otherwise, the JET plan risks jeopardising a ‘just’ transition that may never materialise.

[1] Mbatha, A. (2022) Death toll from flooding in South Africa’s KZN rises to 459, Bloomberg. Available at: https://www.bloomberg.com/news/articles/2022-05-29/death-toll-from-flooding-in-south-africa-s-kzn-rises-to-459 (Accessed: 06 May 2024).

[2] Magidimisha-Chipungu, H. (2024) Why are floods in South Africa’s KwaZulu-Natal so devastating? Urban Planning expert explains, The Conversation. Available at: https://theconversation.com/why-are-floods-in-south-africas-kwazulu-natal-so-devastating-urban-planning-expert-explains-221285 (Accessed: 06 May 2024).

[3] BusinessTech (2024) Load shedding and blackout warning for 2024, BusinessTech. Available at: https://businesstech.co.za/news/energy/739825/load-shedding-and-blackout-warning-for-2024 (Accessed: 06 May 2024).

[4] The Presidency of the Republic of South Africa (no date) South Africa’s Just Energy Transition Plan (JET IP) 2023-2027. Available at: https://www.stateofthenation.gov.za/assets/downloads/climate/South%20Africa%20JET%20IP%202023-2027%20At-a-Glance.pdf (Accessed: 06 May 2024).

[5] Prater, T. (2021) The Carbon Brief Profile: South Africa, Carbon Brief. Available at: https://www.carbonbrief.org/the-carbon-brief-profile-south-africa/#:~:text=South%20Africa%20is%20the%20world’s,a%20heavy%20reliance%20on%20coal (Accessed: 06 May 2024).

[6] Creamer, T. (2024) Jet pledges rise to $11.9bn as South Africa moves to Finalise Implementation Plan, Engineering News. Available at: https://www.engineeringnews.co.za/article/jet-pledges-rise-to-119bn-as-south-africa-moves-to-finalise-implementation-plan-2023-09-29 (Accessed: 06 May 2024).

[7]Adams, MD. (2020) A Competitiveness Analysis of The South African Manganese Industry Using Porter’s Diamond Model. Available at: https://wiredspace.wits.ac.za/server/api/core/bitstreams/559bb7bf-5810-4816-a6dd-45b507eed2ec/content  (Accessed: 09 May 2024).

[8] ECDPM (2023) Two years into South Africa’s Just Energy Transition Partnership: How real is the deal? Available at: https://ecdpm.org/work/two-years-south-africas-just-energy-transition-partnership-how-real-deal#index-4 (Accessed: 09 May 2024).

[9]Corruption Watch (2018) Mining Royalties Research Report 2018. Available at: https://www.corruptionwatch.org.za/wp-content/uploads/2019/03/Mining-royalties-research-report-final1.pdf (Accessed: 06 May 2024).

[10] ibid.

[11] Nkabane, N. (2023) Remarks by the honourable deputy minister of Mineral Resource and Energy Dr Nobuhle Nkabane on the occasion of the Northern Cape Provincial Mining Investment Conference, 10th March 2022, Kimberly. Office of the Premier, Province of the Northern Cape. Available at: http://www.northern-cape.gov.za/index.php/component/content/article?id=1690%3Aremarks-by-the-honourable-deputy-minister-of-mineral-resource-and-energy-dr-nobuhle-nkabane-on-the-occasion-of-the-northern-cape-provincial-mining-investment-conference-10th-march-2022-kimberley#:~:text=As%20in%20any%20other%20province,Ore%20degrading%20the%20road%20infrastructure (Accessed: 06 May 2024).

[12] O’Regan, V. (2023) AG slams northern cape municipalities’ ‘inability to manage their resources’, Daily Maverick. Available at: https://www.dailymaverick.co.za/article/2023-06-02-auditor-general-slams-northern-cape-municipalities-inability-to-manage-their-resources/ (Accessed: 06 May 2024).

[13] Global Initiative Against Transnational Organized Crime (2022) The Shine Dims on South Africa’s chrome as ruthless pirates muscle in on mining operations, Daily Maverick. Available at: https://www.dailymaverick.co.za/article/2022-06-30-the-shine-dims-on-south-africas-chrome-as-ruthless-pirates-muscle-in-on-mining-operations/ (Accessed: 06 May 2024).

[14] Skrdlik, J. (2022) Illicit chrome mining economy thriving in South Africa, Organised Crime and Corruption Reporting Project. Available at: https://www.occrp.org/en/daily/16489-illicit-chrome-mining-economy-thriving-in-south-africa (Accessed: 06 May 2024).

[15] Transparency International – Accountable Mining Program (2020) Mining License Process Map: South Africa. Available at: https://mining.transparency.org.au/wp-content/uploads/2020/06/South-Africa_mining-permit_V1_June-2020.pdf (Accessed: 06 May 2024)

[16] Sguazzin, A. (2023) Vekselberg-linked firm helps pay for ANC’s electoral conference, Bloomberg. Available at: https://www.bloomberg.com/news/articles/2023-03-02/vekselberg-linked-firm-helps-pay-for-anc-s-electoral-conference#xj4y7vzkg (Accessed: 06 May 2024).

[17] Sguazzin, A., Naidoo, P. and P. Burkhadt (2022) Eskom turns 100 next year – here’s how it went from world best to SA’s biggest economic risk, News 24 Business. Available at: https://www.news24.com/fin24/economy/eskom-turns-100-next-year-heres-how-it-went-from-world-best-to-sas-biggest-economic-risk-20220927 (Accessed: 06 May 2024).

[18] Nyathi, M. (2023) Creecy: SA must act on just energy transition or lose out on funding, The Mail & Guardian. Available at: https://mg.co.za/environment/2023-03-14-creecy-sa-must-act-on-just-energy-transition-or-lose-out-on-funding/ (Accessed: 02 May 2024).

[19] Transparency International, Accountable Mining Program (2022) What Does the Energy Transition Mean for the Mining Sector? Available at: https://transparency.org.au/what-does-the-energy-transition-mean-for-the-mining-sector/ (Accessed: 02 May 2024).