“The Sunrise energy project is the only one that can viably provide the volumes required to meet the increasing demand at a cost that is competitive in the market,” said Alan Winde, Western Cape Economic Opportunities MEC in a letter to Geoffrey Qhena, the chief executive of the Industrial Development Corporation (IDC), dated August 5, 2014, copied to Tina Joemat-Pettersson, the Minister of Energy.
Winde referred to a loan application by Sunrise Energy that was put on hold by the IDC at the time; the reason being the international investor in Sunrise’s Liquid Petroleum Gas (LPG) plant in Saldanha withdrew from the project.
Joemat-Pettersson’s reply two months later was an eye-opener. “We are cognisant that investment in the infrastructure for LPG import, distribution and transportation is of critical importance to ensure availability, affordability and reliable supply. It is important all stakeholders that have a role to play in ensuring we create a viable and conducive environment for investment within the sector act in a manner that does not inhibit investors from doing so,” she said on October 10, 2014.
Joemat-Pettersson immediately realised Sunrise would have a monopoly in the distribution of gas in the Western Cape, which has implications. This is exactly what happened, and what needs to be investigated.
Firstly, the amount of the loan, R1.2 billion, that Sunrise raised, with the support of Winde, from the IDC, while Transnet estimated the cost of the LPG facility was bigger than the Sunrise facility, was estimate at R595.7 million in 2014, inclusive of the fabrication and installation of LPG bullets, mechanical equipment, tanks, vessels, road-loading arms, pumps and valves, as well as marine facilities, instrumentation and control systems supply, engineering and construction management services and owners team costs, land and utility connection cost, site offices and operational equipment, etc.
More alarming is the cost of the facility owned by Avedia Energy in Saldanha; chief executive Atose Aguele confirmed again this week that the Avedia facility cost his company less than R300 million to establish - a facility that compares with global standards. Previous articles referred to the fact that Avedia invested private funds (the owner invested his own money) while Sunrise raised money form the IDC, and later from Royal Bafokeng Holdings and the Public Investment Corporation (PIC).
Important to note is the cost of the LPG import facilities have a direct impact on the cost of the LPG (the more expensive the facilities, the more investors have charge for the product).
The questions asked on behalf of consumers are:
What are the overall costs of these facilities and how do they compare relative to each other?
What is the impact on the consumer?
What was the original budget for these costs and are the overruns justified?
Business Report invited Sunrise Energy and Avedia Energy for an open debate that was scheduled for yesterday. Sunrise indicated in a meeting the week before that they “are too busy” while Avedia accepted and welcomed a debate.
The second controversy is the fee(s) charged. A global competitive analysis is currently being compiled, and the invitation to attend a public debate still stands.