The economic development obligations placed on developers in terms of the Renewable Energy Independent Power Producer Procurement Programme are fairly onerous and can have far-reaching implications for renewable energy projects in South Africa if protests by unhappy local communities are events of default.
To comply with the ownership requirement imposed as part of the economic development obligations, developers often structure their projects so that up to five percent of the shareholding in the project company is held by a local community (which is located within a fifty kilometre radius of the project site). Where developers intend the local community shareholding to qualify as shareholding by black people, then at least 85 percent of the benefits to the local community must accrue to black people.
A local community that holds in excess of five percent direct or indirect shareholding in the project company is required to have both an economic interest in the project and exercisable voting rights. Local communities are concerned about when the benefits related to the economic interest will accrue to them.
It is imperative that there is transparency and communication between the developers and the local communities.
Although issues such as the accrual and payment of dividends are generally dealt with in the corporate documents relating to the project company, the mechanics related to these issues are often not communicated to or understood by the local community involved in the project, which leads to uncertainty on the part of the local community. This uncertainty results in frustration and has in some cases led to protest action by the local community against a project in which they are involved.
In an effort to protect their investments, funders are increasingly looking to make protests by the local community an event of default in the funding documents. In order to prevent funders having the ability to default the project for local community protests targeted at a project, it is imperative that there is transparency and communication between the developers and the local communities to avoid increasing dissatisfaction amongst the local communities.