Nersa settles with Outa in court battle about Karpowership

After months of opposition, Nersa, South Africa’s National Energy Regulator, settled with the Organisation Undoing Tax Abuse (Outa) and agreed to hand over the full, unredacted record of its decisions to approve generation licences for Karpowership.

Nersa was also ordered to pay Outa’s legal fees. Karpowership already withdrew its opposition to the application to compel production of the record as well as the main application calling for a review of Nersa’s licence decision, but Nersa continued to oppose both.

The Pretoria High Court was supposed to hear Outa’s application to compel Nersa to give Outa the full, unredacted record of its decisions to approve generation licences for Karpowership, but Nersa offered to settle minutes before the trial was supposed to start.

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The minister of Mineral Resources and Energy, Gwede Mantashe, decided in February 2020 that 2 000 MW of emergency generation capacity should be procured. The three Turkish Karpowership projects were given the green light to provide 1 220 MW of gas-fired generation capacity over a 20 year period to South Africans.

Nersa decision to grant three IPP licences opposed

Civil society opposed the decision on the grounds of the cost, environmental impact and length of the controversial contract. In April 2022, Outa filed an application for the review and setting aside of Nersa’s decisions to grant the three Karpowership projects independent power producer (IPP) generation licences. Nersa and Karpowership opposed the application.

“Outa strongly believes that Nersa’s decision should be reviewed and set aside as it was procedurally unfair, premature and lacking in transparency. In the main application (the review application) Outa called for the regulator to provide copies of all documents relating to the decisions to grant Karpowership the generation licences, together with the reasons for the decisions,” said Adv Stefanie Fick, executive director of Outa’s accountability division.

Nersa only provided a redacted version of the record in June 2022. Fick said Outa was therefore forced to compel Nersa to produce the full, unredacted record of its decision. The application to compel production of the full record was set down for hearing in the High Court on 4 and 5 June 2024.

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Karpowership withdrew on 17 May

After Karpowership’s withdrawal of its opposition to the application to compel on 17 May 2024, just ten days before the matter would be heard, it was still unclear whether Nersa would persist in its opposition, Fick said. Despite Outa’s numerous requests for clarity, the matter was due to proceed.

Just before the hearing started, Nersa’s counsel advised that they received instructions to present a settlement agreement that Nersa would hand over the full unredacted record, subject to the parties agreeing to a confidentiality regime.

Fick says although Outa partially accepted the settlement agreement, it still thought that it should reserve its right to argue at the review hearing or any other application that the provided record, which Nersa and Karpowership believe to be confidential, should be made publicly available.

Nersa agreed to this additional condition and the agreement was made an order of court.

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Outa asked for a punitive cost order

In addition, Outa believed that the costs tendered by Nersa were grossly insufficient and proceeded with a cost argument, asking the court to award a punitive cost order against Nersa as well as Karpowership due to their conduct in this matter.

Fick says during arguments it became clear that Nersa was only willing to settle because Karpowership gave Nersa permission to conclude confidentiality agreements.

“It is despicable to think that Nersa, our independent national energy regulator, will keep information away from public scrutiny unless it is given permission to do so by third parties. Transparency is crucial for accountability and when parties want to do business with government they should accept that their conduct will be under a microscope. Public entities act on behalf of society, they should not make deals if they are not willing to share the details,” she says.

In a written judgment handed down by Judge Leonie Windell on 5 June 2024, she found in favour of Outa and specifically ordered that Nersa and Karpowership pay the cost of the application on a punitive scale, including the cost of Outa’s counsel.

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Court findings against Nersa and Karpowership

The court found that:

• Nersa did not disclose any defence regarding its opposition to Outa’s application to compel.
• Nersa was granted “permission” by Karpowership to disclose the records.
• Nersa and Karpowership are ordered to pay the cost of the interlocutory application (the application to compel production of the full record), on an attorney and client scale. This is a punitive costs scale.

“It was unclear from the outset why Nersa and Karpowership vehemently opposed the application to compel. It has always been Outa’s position that the record should be made available for perusal as the National Energy Regulator Act requires that every decision by Nersa be “in the public interest” and “based on reason, facts and evidence.

“There was therefore no valid reason for Nersa or Karpowership to oppose the application. In fact, Outa should never have been forced to bring this application in the first place,” Fick says.

Outa believes that by obtaining the full unredacted record, it would be in a better position to evaluate Nersa’s decision-making in awarding the generation licenses to Karpowership.

“This is a victory for civil society and a step closer to transparency,” Fick says.

Outa’s main application for a review of Nersa’s decisions to grant the Karpowership licences continues.