One well-publicised estimate puts the cost of the South African Karpowership contracts over 20 years at more than R200-billion. This number is simply the “evaluation tariff” the company provided when it bid for allocations under the emergency Risk Mitigation Independent Power Producer Procurement Programme (RMI4P), multiplied by the absolute maximum amount of power Eskom can buy from the company in terms of the programme’s rules*.
This comes to R225.7-billion over 20 years or R11.3-billion per year.
The RMI4P rules also provide for a minimum guaranteed “take or pay” element where Eskom has to pay for a certain amount of power, irrespective of whether it actually needs it.
This is equal to 70% of the maximum possible sales, ie, R7.9-billion per year or R158-billion over 20 years.
These, however, are ballpark figures because the actual tariff Karpower and other bidders will charge is tied to reigning gas prices, among other conditions.
These figures 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 fuel costs which the company simply buys and sells onward as a “pass-through”. If you remove that from the equation you get the elements that really make up Karpowership’s income.
The main one is the capacity charge or, for simplicity’s sake, the rental cost of the powerships.
There are also smaller items that the parent company charges the local subsidiary for, like spare parts.
Rental income and spare parts, which together make up the bulk of total revenue, all go to the international group. Smaller expenses will, however, occur in South Africa. According to documents that Karpowership submitted as part of its local bid, the local component of costs come to about 9.3% of the operating expenditure, excluding fuel.
So what is the contract worth to Karpowership?
As part of an ongoing court case involving allegations of corruption in the RMI4P process, Karpowership has filed parts of its RMI4P bid that show the breakdown of expenses at one of its three proposed projects: Coega.
According to this document, the rent paid abroad will be roughly R35-billion, with another R6-billion paid for spare parts over the 20 years. This seems to exclude the fuel ship that will accompany the powerships. That’s an additional R11.7-billion.