News in South Africa 29th March:

1. Moving away from Eskom:

The National Energy Regulator of South Africa has awarded a private electricity trading licence for the first time in over 12 years, as the country looks to move away from Eskom’s power monopoly.

Moving away from Eskom
Image taken by: Pixabay

The license enables Enpower Trading to source competitively-priced, predominantly renewable power from multiple independent power producers (IPPs) and small-scale generators, transport or ‘wheel’ this energy across the national and municipal grid networks, and sell it to customers at a discount to prevailing electricity tariffs.

Nersa’s awarding of this licence represents a critical step forward in the Department of Energy’s roadmap, which plans for the unbundling of Eskom’s generation, transmission and distribution business units to enable the transition from a single-buyer model to a more competitive domestic open market model, Enpower Trading said.

“Our vision is to enable much-needed additional generation and storage capacity, and to help foster an efficient power market by offering offtake solutions to IPPs, competitive tariffs to customers, and the sustainability of supply to municipalities and their constituents,” says Enpower Trading director Charl Alheit.

This regulatory relaxation is expected to drive an increase in the number of South African IPPs and small-scale embedded generators (SSEGs) and consequently, the availability of independently-produced renewable energy.

How it works

  • Enpower Trading signs an energy offtake agreement with Nersa-registered IPPs, which are connected to either the municipal or Eskom grid.
  • A use of system agreement (UoSA) is then entered into between the municipality, as the distributor, and Enpower Trading.
  • Customers sign a Power Purchase Agreement (PPA) with Enpower Trading, which outlines the amount of energy to be supplied at which rate.
  • Enpower Trading pays the municipality for the use of the grid, ensuring that the municipality does not lose the income derived from its mark-up on electricity sales.

The group said it is specifically targeting municipalities looking to future-proof their business model and transition their business focus away from the sale of electricity and towards the sale of distribution network services.

“We’re essentially unlocking additional capacity in the market without government or municipalities having to add additional liabilities to their balance sheets, and further making sure the municipality remains whole from an income perspective in the process,” said Alheit.

2. Landlords slash rent:

The country’s largest landlords are being forced to take stiffer and stiffer haircuts on rentals as they confirm leases with existing as well as new tenants.

In some instances, property funds are reporting rent reversions (averages or derived) of well over 20%. This means some leases are being concluded with tenants at rentals that are, on average, about a quarter lower than the lease that had just ended. For example, a lease would be signed (whether as a renewal or with a new tenant) at R148m2 over space where a lease had just ended at R200m2.

Average rental growth turned negative between 2017 and 2019, in other words prior to the Covid-19 pandemic. At this point escalation rates that had been enjoyed by landlords for more than a decade simply became unsustainable. By the end of a lease, the escalations meant that rentals being paid were higher than alternative available space. This trend was sharply exacerbated by the pandemic and saw landlords switch their reporting to “reversions” instead of “rental growth”.

In the second six months of 2021, Growthpoint saw rent reversions of -15.4% across its 1.3 million square metre retail portfolio. This was not far off the figure for the year to the end of June (-15.6%). In a pre-close update last month, Redefine says its “rent reversion on [retail] renewals to January was -4.6% on 90 128m2”. This space comprises around 7% to 8% of its total retail portfolio.

The real pain is being felt in offices, because of a combination of oversupply in certain nodes (particularly Sandton) and a sharp reduction in demand due to the adoption of flexible working arrangements spurred on by Covid-19.

Rent reversions in the sector are largely hovering above 18%. On that hypothetical rental of R200m2, a rental reversion of 18.9% (as reported by Growthpoint) would mean a new lease at R162m2.

PeriodRetail rent reversionOffice rent reversion
GrowthpointSix months to Dec 31-15.4%-18.9%
RedefineSep to Jan-4.6%-18.6%
HypropSix months to Dec 31-13%-18.2%
Investec Property FundYear ended March 31-11% (expected for entire portfolio)
SA CorporateYear ended Dec 31-8%-20.5%
AttacqSix months to Dec 31-8.1%-10.1%
EmiraSix months to Dec 31-18.3%-17.4%
Liberty Two DegreesYear ended Dec 31-26%-24.8%
It must be reiterated that these are averages for each fund’s portfolio of assets.

This means that some leases could be signed at, say, 5% less than the rental of the lease that had run its term (or been terminated) while others may be signed at, for example, 25% less.

3. Crypto remains resilient:

As a bleak first quarter draws to a close, crypto seems to have the wind in its sails. It has pushed through the $2 trillion barrier and is proving surprisingly resilient amid global chaos.

At Monday’s high of $47,765, market leader bitcoin broke above the narrow $34,000-$44,000 range it’s traded in for most of 2022. Through a steady grind higher from a low just above $40,000 on March 21, it has gained 18%.

Its comparative steadiness, versus previous performance at least, contrasts with stock markets, traditional currencies and even safe-haven gold, which have been shaken by the Russian invasion of Ukraine as well as the Federal Reserve’s tightening.

Bitcoin’s jumpiness has waned of late.

Its 30-day volatility is around 4%, about two-thirds the level it was in June 2021, according to futures trading platform Coinglass. The highest this year was 4.56% on March 16.

This measures its deviation from its own standard levels, and bitcoin has still had wild swings, such as a 17% jump on March 1. But it’s distinctly tamer than in 2021 when it could move as much as 40% in a day.

By comparison, the tech-heavy Nasdaq has whipsawed 5-6% on numerous days in 2022, and was down 20% for the year as of March 14, before it rallied to cut half that loss.

4. Poison attack on peace negotiators:

Russian oligarch Roman Abramovich and Ukrainian peace negotiators reportedly experienced symptoms from a suspected poison attack earlier in March, sources familiar with the matter told the Wall Street Journal.  

Sources told the Wall Street Journal that Abramovich and the Ukrainians experienced symptoms including red eyes and the peeling of skin on their hands and faces.

According to the report, their conditions have since improved.

Sources familiar with the matter told the Wall Street Journal that they blame the attack on Russians who want to derail ongoing peace talks. 

Ukrainian President Volodymyr Zelenskyy said on Sunday that Abramovich has been trying to help Ukraine during Russia’s ongoing war against the country.

Russia has been accused of suspected poison attacks in the past, including the one that nearly killed top Kremlin critic Alexei Navalny.

Talks set to begin Tuesday:

Air raid sirens sounded across Ukraine before dawn on Tuesday as Ukrainian and Russian negotiators prepared to meet in Turkey for face-to-face talks, with Kyiv seeking a ceasefire without compromising on territory or sovereignty.

Ukraine and the United States hold little hope of a breakthrough at the meeting later on Tuesday, the first direct talks between the two sides in more than two weeks, even though Russia’s invasion appeared to have stalled on several fronts.

Ukrainian Foreign Minister Dmytro Kuleba said of the talks in Turkey: “We are not trading people, land or sovereignty.”

“The minimum programme will be humanitarian questions, and the maximum programme is reaching an agreement on a ceasefire,” he said on national television.

A senior U.S. State Department official said Russian President Vladimir Putin did not appear ready to make compromises to end the war. read more

Ukrainian interior ministry adviser Vadym Denysenko said that he doubted there would be any breakthrough.

5. Vaccines expiring:

The South African government is set to destroy more than 92,000 doses of Pfizer’s coronavirus vaccine that expire at the end of March.

The government failed to encourage enough public demand for the vaccines and made no arrangements to donate them to other countries before they reach the end of their shelf life.

In February, the government announced the shortening of intervals between Pfizer shots and the ability to have a Pfizer booster regardless of if a person had a Johnson & Johnson jab.

All information sourced from articles posted by: BusinessTech, Moneyweb, Reuters, Business Insider, and Business Day.

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