DEE, National Treasury: South Africa ITP Programme RFP Delayed 6 Months

• The Department of Electricity and Energy and National Treasury have delayed the Independent Transmission Project (ITP) programme's Request for Proposals (RFP) from Q3 this year to Q2 next year.
• This six-month delay is intended to allow for better institutional capacity building and risk assessment, preventing a potentially failed procurement process.
• A new credit guarantee vehicle, backed by National Treasury, the World Bank, FSD Africa, and DBSA, was incorporated in August to protect investors from credit risks from the National Transmission Company South Africa (NTCSA).
• The NTCSA is being unbundled from Eskom's transmission assets to form the Independent Transmission System and Market Operator (ITSMO), which will be the counterparty for private investors.
• Concerns remain about the lack of a full timetable beyond the RFP and the overall pace of grid expansion, with only 1,164km planned initially against a 2034 target of 14,500km.

A key development underpinning the ITP programme is the establishment of a credit guarantee vehicle, specifically designed to mitigate credit risks for investors dealing with the National Transmission Company South Africa (NTCSA).

The Department of Electricity and Energy (DEE) and National Treasury recently announced a significant adjustment to the timeline for the Independent Transmission Project (ITP) programme. The Request for Proposals (RFP), originally anticipated in the third quarter of the current year, has been postponed by six months, now expected in the second quarter of next year. This delay impacts a crucial initiative designed to attract substantial private investment into South Africa's electrical grid infrastructure, which is vital for achieving national economic growth targets and expanding access to electricity.

While the South Africa ITP programme RFP delay represents a setback in the immediate schedule, authorities suggest this pause is a strategic move to ensure a more robust and manageable procurement process. The government believes that rushing to market with a call for proposals could lead to difficulties in management or result in inflated pricing if bidders are unable to accurately assess project risks. A failed procurement, it is argued, would ultimately cause more extensive delays and prove costlier than a carefully considered postponement aimed at strengthening institutional capacity. This marks the first time private investors are expected to engage in the development of transmission lines within the country.

A key development underpinning the ITP programme is the establishment of a credit guarantee vehicle, specifically designed to mitigate credit risks for investors dealing with the National Transmission Company South Africa (NTCSA). This essential financial mechanism is a collaborative effort involving National Treasury, the World Bank, FSD Africa, and the DBSA. The guarantee vehicle, which was formally incorporated in August, is currently being prepared to provide crucial support for the entire programme, ensuring that potential investors have the confidence to commit to long-term, multi-billion rand investments.

The NTCSA itself is undergoing a significant transformation, as it is in the process of being unbundled from Eskom, taking over its transmission assets. Upon completion of this unbundling, the NTCSA will evolve into the Independent Transmission System and Market Operator (ITSMO). The ITSMO establishment timeline is critical, as this entity will serve as the primary counterparty for private investors constructing new grid infrastructure. Given that the ITSMO is still in its formative stages and lacks its own established balance sheet or credit history, the NTCSA credit guarantee vehicle becomes indispensable, offering a vital risk management function that addresses this institutional gap.

Despite the institutional advancements and the strategic delay, concerns persist regarding the overall South Africa electricity transmission investment timeline. Current projections suggest that new grid infrastructure may not become operational before the end of the decade. While the DEE National Treasury RFP delay announcement specified the revised RFP date, it notably omitted any commitments for subsequent phases, such as bid adjudication, negotiations with successful bidders, and the crucial financial close that precedes construction. A comprehensive timetable, extending through to financial close, would significantly aid in managing expectations and facilitating effective planning for all stakeholders.

The existing grid infrastructure already acts as a major constraint on new electricity generation projects, hindering the efficient transfer of power from cost-effective generation sites to consumption centers. Both Eskom and BLSA are in agreement on the necessity of swiftly concluding the ITSMO establishment and the Eskom transmission assets unbundling. Expediting this process is seen as crucial for bolstering investor confidence in the broader grid investment outlook, providing clarity on the institutional landscape. While the credit guarantee vehicle offers support, a robust and creditworthy institutional buyer like the fully established ITSMO is vital for long-term confidence. The initial phase of grid investment targets only 1,164km of new lines, a modest start compared to the NTCSA’s ambitious plan for 14,500km by 2034, underscoring the need for this procurement to be followed by many others.

Lawyers advising energy sector clients should be aware of the revised timeline for the Independent Transmission Project (ITP) programme's Request for Proposals (RFP) and the ongoing establishment of the NTCSA/ITSMO and its credit guarantee vehicle. These developments are critical for assessing project feasibility, risk, and investment structuring in South Africa's electricity transmission sector.

Source: Original reporting via industry expert commentary.