An information memorandum on the liquefied natural gas (LNG) to power independent power producers procurement programme was published by South Africa’s Department of Energy (DoE) on 5 October 2016. The purpose of this memorandum is to describe the scope of the LNG-to-power IPP Programme for prospective and interested bidders and to highlight the opportunities the programme presents not only to such bidders but also the South African economy itself. Whilst the memorandum is not a procurement document, it does outline the policy context and general framework for the establishment of a procurement process.

The procurement policy framework

The LNG IPP Programme finds its roots in several policy frameworks, including the National Development Plan, the draft Integrated Energy Plan and the Integrated Resources Plan 2010‑2030, all of which identify the need for natural gas and its role in South Africa’s energy mix. It is in this context that various determinations made by the Minster of Energy culminated in DoE’s intention to procure 3 726MW of gas fired power of which 3000MW will be allocated to the Programme, 600MW through a 600MW gas-fired power plant and the remaining 126MW through a Domestic Gas-to-Power Programme.

The primary objectives of the Programme are:

  • to develop a gas economy in South Africa, including gas exploration and production from indigenous resources;
  • to encourage use of imports from adjacent sources within the Southern African Development Community; and
  • development of gas in the industrial, commercial, transport and residential sectors.

General features of the Programme

Pursuant to various studies undertaken by the DoE, Nqgura (Coega) (situated in the Eastern Cape Province) and Richards Bay l (situated in the KwaZulu-Natal Province) have been identified as the two feasible sites to develop LNG projects for the first phase. These ports have been earmarked for their potential for operating LNG import facilities, the current grid infrastructure and the availability of potential suitable sites for power generation facilities. A separate procurement process under the programme will be carried out for each site, with 1000MW being allocated to Nqgura and 2000MW to Richards Bay. A third site, Saldanha Bay (in the Western Cape), has been earmarked for development at a later stage under the programme.

A two stage process is envisaged. The first stage is a request for qualifications (RFQ) followed by a request for proposal (RFP), which only the short-listed preferred bidders pursuant to the RFQ may participate. The RFQ will benchmark core competencies across the full project chain which proposed participants must have in order to qualify to present proposals. The project chain includes procurement and supply of LNG, provision of a floating storage and re-gasification facility (or equivalent), development and operation of port infrastructure for the receipt and transmission of gas, and development and operation of a CCGT/OCGT power plant under a 20 year power purchase agreement with national utility Eskom. Potential participants must integrate all these elements.

A further notable feature is the requirement to provide excess capacity for the power plant gas requirements, to enable third-party offtake of both additional LNG and additional re-gasified product, and to facilitate development of a South African gas economy.

Potential benefits to the South African economy

Over and above serving as an anchor for gas infrastructure required for the establishment of a gas market in South Africa, the programme will provide for the exploitation of natural gas reserves within the SADC region. The potential held within South Africa for indigenous gas represents a significant opportunity to boost economic growth, employment and investment in the sector.

It is anticipated that the RFQ will be published in November 2016 with submissions due in February 2017, to be followed by a first draft of the RFP in April 2017 for engagement purposes. The final RFP is anticipated in August 2017.