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Between April 2016 and December 2017, Eskom’s seventeen coal-fired power stations reported nearly 3,200 exceedances of their daily Atmospheric Emissions Licenses limits for particulate matter, sulfur dioxide, and oxides of nitrogen

JOHANNESBURG, South Africa, February 5, 2019/ -- Yesterday, Greenpeace Africa (www.Greenpeace.org) submitted comments to Naledzi Environmental Consultants [1] opposing Eskom's application for postponements and suspensions [2] from complying with South Africa's Minimum Emission Standards (MES). The MES, which are relatively weak [3], are designed to improve air quality in the country, but this has been significantly compromised by Eskom’s almost complete reliance on coal for electricity production and repeated requests for postponements from complying.

“Greenpeace Africa is vehemently opposed to Eskom’s application for further postponements and/or suspensions from air quality legislation. In the interests of realising our constitutional right to a healthy environment, absolutely no further postponements should be given to Eskom (or, indeed, any other entity).

“Eskom should either comply with the MES or its coal-fired power stations must be retired (at an accelerated pace) because thousands of people’s lives are on the line,” said Melita Steele, Senior Climate and Energy Campaign Manager for Greenpeace Africa. 

Eskom was granted a five-year postponement from compliance in 2015, and the embattled utility is now applying for yet another set of postponements and, in some cases, complete suspensions from complying.

“While we acknowledge that Eskom is in crisis, we can no longer ignore the deadly impacts of Eskom’s dirty fleet of coal-fired power stations. It is unacceptable that in Eskom’s application, the utility is significantly downplaying the health impacts and premature deaths from their coal-fired power stations.

“Eskom consistently ignores international research standards and uses outdated research, unacceptable timelines and highly exaggerated cost assumptions for retrofitting pollution abatement technology. According to international best practice, compliance with the MES is absolutely possible [4]; Eskom is simply choosing instead to seek out a new licence to kill,” continued Steele.

Air pollution, with its devastating impacts on human health and well-being, remains a critical problem in South Africa. This is particularly worrying in areas such as the Highveld, where air quality remains poor or has further deteriorated from “potentially poor” to “poor” and is out of compliance with air quality legislation. Mpumalanga province in South Africa is the largest NO2 air pollution hotspot in the World, as new satellite data assessed by Greenpeace showed for the period of 1 June to 31 August 2018 [5].

To date, Eskom’s levels of compliance have been abysmal. Between April 2016 and December 2017, Eskom’s seventeen coal-fired power stations reported nearly 3,200 exceedances of their daily Atmospheric Emissions Licenses limits for particulate matter, sulfur dioxide, and oxides of nitrogen. Eskom’s 'Emission Reduction Plan' would allow the company to operate its entire existing fleet without even rudimentary controls for two of the most dangerous pollutants emitted from coal-fired power plants, sulphur dioxide and mercury [6].

“As far as Greenpeace Africa is concerned, no further postponements or suspensions can legally be granted to the utility by the National Air Quality Officer and Eskom’s application should be dismissed. We take this position given the air pollution crisis in Mpumalanga, the length of time that Eskom has had available in which to prepare to comply, the flawed application, and the thousands of premature deaths that will be caused if Eskom does not comply.

“Eskom has presented no evidence in this application or otherwise that indicates its commitment to decommissioning, which makes suspensions from complying an impossible choice. We call on Eskom to abandon its renewed  attempt to avoid complying with air quality legislation that has been put in place to protect people’s health,” ended Steele.

Notes to the editor

1. Naledzi Environmental Consultants (www.Naledzi.co.za) are running the public participation process on behalf of Eskom as they finalise their submission. The comments are submitted as part of the public participation process that Eskom is conducting for their application. Their application is due to be submitted to the National Air Quality Officer by 31 March, after which the National Air Quality Officer will make a decision. There is no deadline for this decision to be taken.
2. Greenpeace Africa was an Interested and Affected Party for Eskom’s original application for postponement from complying with Minimum Emission Standards (MES) in 2014, and we remain an Interested and Affected Party for Eskom’s revised request for postponements. We strongly opposed the decision to allow Eskom to postpone complying with the MES in 2015, and we believe that the grounds for opposing Eskom’s updated application are even stronger in 2019.
3. Compared to many other countries, South Africa has very weak Minimum Emission Standards that allow coal-fired power stations to emit close to 100 times more sulfur dioxide (SO2) than allowed in China’s key regions, 20 times more than existing stations in India, over 45 times more than new plants in India and over 20 times more than current regulations in the European Union. They also allow emissions of about 6 times more particulate matter than allowed in the EU and China’s key regions, and almost 5 times what is allowed for new stations in India; and 15 times more nitrogen oxides (NO2) than allowed in India (new builds) and China (key regions) and more than 7 times more than currently in the EU.
4. China retrofitted approximately 250 gigawatts of existing coal-fired capacity with air pollution controls (FGD) between 2005 and 2011, bringing share of capacity with SO2 controls from 14.3% to 89.1% in six years; and India is targeting bringing its entire coal fleet into compliance with stricter standards than the MES by 2022, requiring retrofits in much of its 220GW of operating capacity. According to India’s Ministry of Power, the procurement, construction and connection of an FGD takes 30-36 months, and according to the International Energy Agency 24-36 months.
5. Here (https://bit.ly/2PYsngQ) is a link to the interactive NO2 map on Facebook.
6. There would also be substantial exemptions for controlling NOx and dust emissions.

Distributed by APO Group on behalf of Greenpeace

South Africa has become an increasingly complex place to do business. Structural challenges, sluggish growth fuelled by potential electricity shortages, strikes and high unemployment make for a difficult and uncertain environment. It seems likely that 2019 will be no exception, particularly given that it is also a general election year. To improve long term certainty and unlock investment and growth, structural constraints will need to be addressed systematically. 

While South Africa managed to slip out of a technical recession after the economy saw a 2.2% rebound in Q3 2018, the World Bank has projected that South Africa's economic growth will accelerate more slowly to only 1.3% in 2019, held back by constraints in household credit extension, high unemployment rates and lowered government spending due to fiscal consolidation.¹ 

As insurers, we also face an uncertain and rapidly changing environment. In recent years, rates have reached unsustainable levels in many classes, particularly the property sector. There were promising developments in 2018 and generally improved underwriting disciplines, and we have seen an improvement in the property pricing environment which has developed positively, albeit with less momentum in the second half of 2018.  Looking ahead in 2019, we should expect to see a continued emphasis on risk selection and rate adequacy. Insurers must continue to drive improvements in risk management standards with closer scrutiny on risk quality, building health and safety and compliance as well as the risks created by deteriorating infrastructure and failing municipal systems, both to address issues in the insurance market and for the long term sustainability of South African businesses.

Reduced capacity in the market will mean that certain types of risk are likely to be considerably more difficult to place than previously. The past few years have made it clear that South Africa is not exempt from catastrophe events and changing weather patterns. The frequency and severity of drought, flooding, severe storms and wildfires has resulted in South Africa no longer being viewed by reinsurers as a low catastrophe region.

The reality is that in today’s globally interdependent environment, South Africa is no longer isolated by geography or industry. We need to be more ready and agile than ever before to respond to new developments, new challenges and new risks. 

Risks are more interconnected than ever and as insurable exposures continue to increase and Africa becomes more integrated into a globalised, interconnected world, opportunities and challenges will increase. Circumstances at home and abroad have significant implications for multinational and African-based businesses in terms of their risk management strategies, business continuity plans, travel risk and decisions on where to deploy their capital.

Risk managers should no longer only be concerned about the protection of physical assets. They should be digging below the surface, where new and potentially significant risks are lurking. They need to look further into the future for new emerging risks that are evolving and impacting the probability and severity of existing risks.

In 2018, we conducted a risk survey of 481 executives with responsibility for risk management, from 24 countries across Africa. The results show that the top-three risks which are of concern to risk managers are technology, political and trade credit risk and terrorism.

Technology Risk is a subject that has been grabbing headlines lately so it is not surprising that it is a major concern for business. The speed of digital advancement and the reliance on technology makes this a particularly challenging risk for businesses and one which will continue to rise up the agenda. No business can afford to be complacent about the potential impact of cyber risk.

Cyber-crime is a real and present danger and we are seeing attacks becoming increasingly common and more sophisticated. It is not possible for businesses to defend against all eventualities. IT and risk managers need a united front to avoid gaps and vulnerabilities. Businesses need to have plans in place to deal with the consequences of an attack or a breach, so that when an incident occurs, it can be quickly contained, reducing the financial and reputational impact. The potency and diversity of cyber threats makes any vulnerability an urgent priority.

Political Risk and Trade Credit Risk was the second most cited cause for concern. The current political turmoil continues to drive an increase in business indecision, social unrest, riot risk and a flight of foreign investment.  As businesses continue to expand across borders they are faced with a number of geopolitical threats such as expropriation, discrimination, political violence, forced abandonment, trade agreements and exchange controls. 

As we draw nearer to an election in May 2019, there is a risk that more uncertainty which could further erode business and consumer confidence.  Given the current uncertainty, we may see a deepening of strategic risks arising from economic, political and regulatory factors. 

Terrorism was the third greatest concern amongst Africa’s risk management community. Recent years have seen an increase in major terrorism events across the world, with attacks in Brussels, London, Madrid, Nigeria, Paris, Tunisia and Turkey.

In this volatile environment, it is important to understand the threat and for businesses to protect their financial well-being. The main challenge for risk managers is how to prepare companies for a world in which terrorism and political violence are very real and ever changing threats.

Given the current state of the market and economy, it is vital that businesses look to insurers with solid track records, strong financials and global pedigree that can provide the stability needed to navigate the risks of unknown and challenging market conditions, and honour large-scale claims.  There are many factors at play which will fundamentally change the risk landscape as we know it. 

The insurance sector continues to play a vital role in promoting economic growth. The industry has its work cut out for 2019 to address the complex and fast-evolving risks that clients face.  Putting dynamic, fit for purpose insurance solutions on the table that are up to the task will no doubt be a key  priority for 2019.

-- ENDS --

References:  ‘Global Economic Prospects 2019, Sun-Saharan Africa’; World Bank
http://pubdocs.worldbank.org/en/307811542818500671/Global-Economic-Prospects-Jan-2019-Sub-Saharan-Africa-analysis.pdf  (Accessed 14 Jan 2019)

“Reliable, cost-effective electricity is vital not only to improving people’s lives but to the economy’s ability to attract investment and create jobs. Our Integrated Resource Plan must be carefully calibrated to ensure that energy security is not compromised,” says Black Royalty Minerals CEO Ndavhe Mareda. “In particular, a rapid and aggressive transition away from coal will put the entire economy at risk. We need to strike the right balance.”

Mareda argues that South Africa’s current draft Integrated Resource Plan is too ambitious and that attempts to meet the targets will have serious consequences. It is important to recognise that coal provides 76 percent of South Africa’s energy at present, and the country is still investing large amounts of money in new coal-generation.

In addition, the country has large reserves of coal. It is thus important that the nation gets a proper return on its investment in this technology. At the same time, the coal industry employs some 82 000 people earning more than R22 billion, and it supports economic activity related to its value chain valued at R61 billion. “It is vital that we plan carefully to ensure that new jobs are created to counterbalance those that are lost, and that the economic contribution of the coal value chain is replaced. It is also very important to consider affordability - if electricity is too expensive, it will deter investment and will also impact the poor,” he points out.

One also needs to recognise that South Africa currently lacks a significant domestic renewable technology sector, and thus its capacity to provide significant numbers of new jobs is non-existent. In addition, a high reliance on imported technology and skills will reduce the multiplier effect the industry will have on the economy as a whole. The truth is that while renewable energy is making huge strides, it is not yet ready to provide the all-important base power that any economy depends on.

It is subject to the vagaries of unpredictable weather patterns, which means that energy generation will usually not coincide with energy demand. Energy storage is thus critical but, at present, affordable mass energy storage remains a pipe dream. The example of Germany is instructive. While it has been at the forefront of embracing and incorporating renewable energy into the power mix, it has experienced bumps in the road. The rapid transition to renewables led to the cost of electricity for households to almost double between 2000 and 2017.

In addition, even though it has a reputation for pioneering renewables, coal continues to provide 40 percent of its power. Another consequence of a badly planned energy transition is that it will discourage investment in coal mining. This in turn would affect not only the industry’s ability to keep up supplies to South Africa’s own growing fleet of coal-fired power stations, but also to supply coal to Asia’s high-growth economies. At the same time, says Mareda, the environmental consequences of coal must be faced up to. However, there are emerging technologies that attempt to mitigate many of the downsides. For example, Integrated Gasification Combined Cycle (IGCC) and Eutectic Freeze Crystallisation are leading technologies aimed at reducing the use of water, while carbon capture has become standard at many coal power stations globally to reduce emissions. Again, the example of Germany is instructive: it has failed to meet its emission reduction targets despite its huge investment in renewables because it failed to monitor increases in other sectors, such as transport and manufacturing. Electricity generated by coal is not the only cause of carbon emissions.

To summarise, Germany reduced its dependence on coal by only 10 percent, and it has a strong domestic renewable energy sector and invested hugely in the transition. Even so, the cost of electricity doubled. This is despite Germany’s position as a global leader in the adoption of renewables and committing significant skills and billions of euros to their efforts. The draft Integrated Resource Plan 2018 proposes that South Africa reduces its dependence on coal by rather more (approximately 16 percent), but the country has neither local renewables know-how nor the ability to raise the capital sums needed. Compared to Germany, on a proportional basis South Africa’s transition targets are very ambitious.

Mareda concludes: “We do need to make the transition, but it must be planned carefully in line with our socio-economic realities and goals. Specifically, we recommend that the current 2030 goals be pushed out to 2050. A gradual transition will give us the chance to realise a return on our investment in coal, build a strong local renewables sector, and manage the impact on the coal industry and the economy as a whole more effectively.”

by Wesley Grimm, Associate and Craig Miller, Director at Webber Wentzel

The taxation of real estate investment trusts (REITs) was discussed at the recent National Treasury Workshop on the 2018 draft Taxation Laws Amendment Bill, held on 4 September 2018, in Midrand. The correct tax treatment of certain anomalies, including the taxing of commercial lease deposits, was raised.

Commercial lessors typically hold significant deposits from tenants, both in number and value. A view has emerged among certain officials at SARS that commercial tenant deposits comprise gross income where such amounts are not deposited into a separate bank account.

It is trite law that a taxpayer may not be subject to tax on amounts received by them for the benefit of another. Though commercial lessors receive tenant deposits, such deposits are not received by them on their own behalf and for their own benefit. 

In the case of Omnia Fertilizer Limited v CSARS 65 SATC 159, the court held that the accounting treatment of amounts by a taxpayer evidences the intention of the taxpayer. Factually, where commercial lessors treat tenant deposits as a liability for accounting purposes they do not intend to receive such amounts on their own behalf and for their own benefit within the meaning of gross income. This is supported by the fact that lessees reflect deposits paid by them as assets in their financial statements.

In essence, not every obtaining of physical control over money or money’s worth (i.e. an asset with a monetary value) constitutes a receipt for the purposes of the definition of gross income. Money obtained and banked by someone (as agent or trustee for another) does not receive that money as gross income i.e. tenant deposits are not "received by" commercial lessors within the meaning of gross income. Rather, tenant deposits are provided by lessees to commercial lessors as security for the fulfilment by tenants of all their obligations. A tenant deposit, so received, does not belong to the commercial lessor; ownership remains vested in the lessee and must be refunded to the lessee in terms of the relevant lease agreement.

In Pyott v CIR 1945 AD 128, the amounts received by the taxpayer were set aside as a provision for allowances on containers returnable to Pyott, but the deposit amounts were not deposited into a separate trust account and were utilised for the general purposes of the business. By contrast, tenant deposits received by commercial lessors are meticulously recorded and kept separate, often in call accounts. SARS' purported reliance on the Pyott case is for this, and other reasons, therefore factually incorrect. It is not disputed that where deposits are available to a taxpayer, to do with it as it pleases, then such deposits would, and should, be included in that taxpayer's gross income and may, consequently, be subject to income tax as the deposits are received by that taxpayer for its own benefit. 

In MP Finance Group CC (in liquidation) v CSARS  2007 SCA 71, the Court held that an amount will be "received by" a taxpayer for the purposes of the definition of gross income if it has intended to receive such amount for its own benefit (our emphasis). Upon receipt, commercial lessors have no intention to receive the tenant deposits for their own benefit for the ordinary purposes of their business. When the deposit, or a portion thereof, is applied by a commercial lessor it would only constitute gross income in the commercial lessor's hands at that point in time.

In Special Board Decision No. 166 (Germiston Special Board), dated 18 March 2002, similarly to the decision in C v COT 46 SATC 57 individual lessors received rental deposits, which were reflected as current liabilities and refundable upon the expiry of the respective leases. The lessors in that case were entitled to deduct from the deposits to be refunded any amounts owing to them by the respective lessees at the end of the lease period. The board held that there was no contingency attached to the taxpayer's obligation to refund the deposits. The mere fact that lessors may apply the right of set-off did not render the taxpayer's obligation to repay the deposits conditional and, by extension, could not cause the deposits to be included in the lessor's gross income. This feature alone, so it was held, was enough to distinguish the case from those like Pyott. 

The inescapable conclusion is that commercial lessees intend to deposit money with commercial lessors in such a way that the deposits should be kept separate from the commercial lessors' own funds. This is consistent with the view expressed by SARS on its website on the page titled Tax on Rental Income, which we agree with and which is repeated below:

"The receipt or accrual of a rental deposit by a lessor need not be included in the lessor’s gross income at the stage of receipt or accrual if there is an unconditional obligation on the lessor to refund the deposit at a later stage. It will only become gross income when the deposit is applied by the lessor..."

For SARS to seek to impute different legal consequences to commercial lease agreements, other than what was expressly agreed between the parties, undermines the sacrosanct principle of legal certainty. Commercial lessors and lessees are agreed, in fact and in law, as to the treatment of the tenant deposits and SARS may not unilaterally re-imagine the legal effect of the terms of the lease agreements (CSARS v Cape Consumers Proprietary Limited 61 SATC 91).

Commercial tenant deposits are akin to a loan with a definite and unconditional liability to refund it to the relevant lessee. Consequently, such deposits should not be included in commercial lessors' gross income because there is an absence of a beneficial receipt by commercial lessors and such deposits are received on capital account.

National Treasury stated that it hopes to clarify the taxation of REITs, including anomalies in relation to taxing commercial tenant deposits, in the 2019 legislative cycle.

By Karl Blom, an Associate at Webber Wentzel

Cloud computing has increasingly become a staple of modern business.  For those who wish to leverage the cloud in Africa, certain regulatory and practical issues need to be considered.

The proliferation of low-cost bandwidth and cloud storage solutions in Africa has led to an increased reliance by adoption by these solutions by African countries.  Many considerations arising in the Africa-cloud industry are shared by our foreign counter-parts: issues pertaining to data security, confidentiality and data ownership do not differ significant between Africa, America and Europe.  However, Africa's geography and rapidly-evolving legislative environment have led to the emergence of Africa-specific issues in the context of cloud computing.

Compliance with local laws:

African countries have rapidly sought to address the protection of personal information of their citizens.  While such practices are often welcomed (particularly by consumers), there is presently a lack of harmony between many of these laws, resulting in practical difficulties for a company to achieve compliance across all of its operations in Africa.  For example, a company seeking to process information in the cloud must consider whether a particular jurisdiction restricts (or outright prohibits) the transfer of personal information across its borders, whether its data protection laws protect the personal information of juristic persons (such as companies and trusts) and whether the relevant data protection authority may impose criminal and/or civil sanctions.  The cost implications of a private-cloud versus a public-cloud deployment may be significant and should be borne in mind when considering a cloud solution in Africa.

Infrastructure and Service Levels:

Demand for cloud computing services has increased significantly in Africa and, as a consequence, an increased need for bandwidth has emerged.  While service levels are an oft-negotiated point in any jurisdiction, those seeking to operate in Africa must be mindful of the technical capabilities of their cloud service provider as well as their ability to leverage in-country resources (especially where restrictions on cross-border data processing applies).  In this regard, clauses relating to service levels (in particular, service uptime) as well as third party sub-contractors (who may be based in a different jurisdiction) must be reviewed to ensure that service continuity and performance is preserved.

Concluding remarks:

The benefits of a cloud solution will always depend on the underlying business case.  While legal issues may introduce additional complexities to cloud deployments across Africa, these should not be considered as show-stoppers if they addressed from the outset.

The Break Free movement in Africa is co-ordinated by Greenpeace Africa, African Climate Reality Project (ACRP), 350.org and Earthlife Africa Jhb

JOHANNESBURG, South Africa, May 25, 2018/ -- Today, Africa Day, citizens and communities in almost 20 countries across the African continent are gathering, taking to the streets and actively blocking the fossil fuel economy as part of a continent-wide day of action.

By joining the Break Free movement, regular citizens and activists from communities across Africa will call on governments and business to put an end to fossil fuels and move towards a just transition to 100% renewable energy for all.

There are over 30 events registered (goo.gl/hnLJE1), in which those hardest hit by fossil fuels projects and the impacts of climate change will make their voices heard by those in power.

Some of these events include:

• A picket in Lephalale where communities will call for the cancellation of the local proposed private coal-fired power station, Thabametsi;
• A photo exhibition showcasing the work of anti-coal activists (Lamu);
• Representatives from coal mining affected communities will denounce the effects of coal mining (Abuja);
• ACRP will update local decision makers on the realities of climate change and discuss their plans and progress towards shifting to 100% renewable energy (Johannesburg);
• Anti coal activists will be mobilising in Bargny, Ngadje beach to oppose the launch of the first coal power plant in (Senegal).

The Break Free movement in Africa is co-ordinated by Greenpeace Africa (www.Greenpeace.org/africa), African Climate Reality Project (ACRP), 350.org (http://350.org) and Earthlife Africa Jhb: empowering local communities to rise with acts of courage and come together as a global movement for climate action and justice.

Content for documentation will be made available on the co-ordinating organisations’ social media platforms, including soundbites from our Break Free podcasts and hi-res images of the local events.

QUOTES

“Funding fossil fuel development will only exacerbate the impacts of climate change. Africa has an opportunity to develop its energy sector using clean, renewable energy. It is this development that banks and financial institutions should support, and break free from financing fossil fuels. It's time to deCOALonise Africa!" -  Landry Ninteretse, Regional Team leader, 350.org (http://350.org) 

"South Africa’s almost complete reliance on coal for electricity has severe consequences for water. To protect our right to clean and accessible drinking water, we must Break Free from coal and irrational water-intensive projects like Thabametsi must be stopped. There are effective alternatives to coal, but there are no alternatives to water" - Nhlanhla Sibisi, Climate and Energy Campaigner, Greenpeace Africa.

“Declaring War against mother earth is suicidal, because no one gives breath best like she does. Coal fired power stations are a giant ticking time bomb, waiting to explode.” - Thabo Sibeko, Programs & Education Officer, Earthlife Africa.

“By having more fossil fuels burning in South Africa we expect to see increased climate change impacts in our country – and that’s from a bigger, long term perspective. By developing in water-stressed regions, coal-fired power stations would be undermining a crucial resource that they need to run, while putting extreme pressure on the surrounding communities’ basic needs”. – Gillian Hamilton, ACRP Branch Manager.

Notes

350.org (http://350.org) is building the global grassroots climate movement that can hold our leaders accountable to science and justice.

Earthlife Africa is a non profit organisation that encourages and supports individuals, businesses and industries to reduce pollution, minimise waste and protect our natural resources.

Greenpeace Africa (www.Greenpeace.org/africa) is an independent environmental campaigning organization with a vision of ‘an Africa where people live in harmony with nature in a peaceful state of environmental and social justice’.

The African Climate Reality Project works with African Climate Leaders, governments, NGOs and scientists across the continent to create tools and resources to support a network of African leaders who mobilise communities to find solutions to climate change.

Distributed by APO Group on behalf of Greenpeace

Market conditions in 2017 were challenging for the South African insurance industry with significant loss activity and a soft pricing environment. Last year saw a number of large losses and natural catastrophes (Nat Cats), with substantial losses incurred as a result of heavy storms, floods, drought and fires.  Added to this, South Africa is currently experiencing a weak economy driven by political uncertainty as an election year approaches. This uncertainty continues to undermine business and consumer confidence.

“On the whole, we saw an erosion in underwriting margins to unsustainable levels in 2017,” said Gary Jack, Country President of Chubb Insurance South Africa. 

“In response, it is widely predicted that 2018 will see remedial action, including a hardening of rates and a demand for more stringent risk management. Insurers are placing increased focus on risk quality and risk management which places greater demands on client risk managers to ensure risk mitigation programmes clearly support the insurability of their exposures.” Here, Chubb Insurance provides the following insights into the key risk trends in 2017 and what this means for the risk outlook for 2018:

• ·Rates should harden in 2018 – for the first time in years, there should be a genuine hardening of rates across corporate and commercial classes of business.  South African insurers have seen erosion of underwriting margins in certain classes of business. Property in particular has seen many large losses as a result of fires and weather-related events such as storms, floods and drought over the last few years.  Significant focus on portfolio management and the reassessment of reinsurance programmes can be expected.  The quantum of losses emanating from catastrophe events over the last two years in particular, has been exacerbated by deteriorating infrastructure.   These factors will provide the momentum for an upward movement on rates, which are clearly inadequate to fund the level of losses being seen following a protracted soft market.  The cost of reinsurance should rise, which ultimately drives a hardening market and higher rates. 
• ·Greater local investment in catastrophe modelling - South Africa has not traditionally been viewed as a catastrophe exposed geography and one of the key challenges in managing the insurance and reinsurance pricing for Nat Cats in South Africa is the lack of catastrophe modelling data. Wild fires and storms in the Western Cape and Knysna added an estimated R5bn to underwriting losses.  Floods, torrential rains and strong winds in Kwa-Zulu Natal and Gauteng in October added in excess of R1 billion to the cost of damages in the regions. Given the changing face of South Africa’s environment, there’s a growing need for enhanced modelling to help insurers model and price for this, as well as in portfolio structuring and the assessment of reinsurance programmes. Reinsurance capital plays a fundamental role in helping insurers manage the impact of major catastrophe events.
• ·Insurers will demand more stringent risk management – Insurers are increasing their focus on risk management standards, specifically in challenged industry classes, and requiring more stringent minimum standards prior to providing cover.  Insurers will also focus on managing exposures to contain the impact of large losses, particularly in challenged industry classes – this could see a reduction in line sizes and hence more carriers being needed to complete some placements. We will also see insurers driving an increase in excesses and deductibles, which are generally low by international standards, and more consideration to alternative risk transfer strategies (ART). In general, risk management standards are going to be expected to improve and with reduced capacity in the market, certain types of risk are going to be considerably more difficult to place.
• ·Competitive pressures amplified by economic volatility - Current economic and political factors will contribute to the pressures experienced in the insurance sector as insurers chase growth in a stagnant economy and businesses trim expenses, including insurance spend. Further sovereign downgrades in November add to the pressure - projects financed by international funders with minimum security requirements are forced to be placed into international markets, the attractiveness of SA as a reinsurance destination for African business is reduced and risk managers of multinationals with SA subsidiaries may re-evaluate local placing. Downgrades to junk status can also be associated with a number of economic consequences harmful to insurers. These include reduced growth, increasing unemployment, bond and equity asset valuations, currency devaluation and increasing inflation.
• ·Political risk – Current political turmoil continues to drive an increase in business indecision, social unrest and riot risk.  The 2016 #FeesMustFall protests in South Africa caused estimated damages of R600 million in the university sector alone.  As we draw nearer to an election in 2019, we can expect more uncertainty which could further erode business and consumer confidence.  Given the current political uncertainty, we expect to see a deepening of strategic risks arising from economic, political, and regulatory factors during 2018 and the foreseeable future. 
• ·Cyber risks are amplifying – The growing strategic importance of technology to business, combined with a proliferation of emerging digital-enabled threats, make technology risk a key challenge across all sectors. Disruptive technologies such as mobile computing, cloud computing and the Internet of Things create a greater level of exposure for companies to incidents such as cyber-attacks and social engineering fraud perpetrated by numerous phishing and vishing scams which pose enormous financial threats worldwide. In 2017 we witnessed Wannacry, a global ransomware attack, affecting more than 200,000 organisations. Ransomware is emerging as one of the most costly cyber threats facing organisations, with global losses projected in the hundreds of millions of dollars. Cyber breaches are estimated to cost the SA economy over R5.8 billion a year. Given the growing reliance on the internet and ICT infrastructure and new data protection legislation, managing the financial and reputational risks of cybercrime together with the associated costs of response and remediation will receive heightened focus in 2018.
• ·Flight to quality – given the current state of the market and economy, it is expected that there will be a flight to quality as businesses look to insurers with solid track records, strong financials and global pedigree that can provide the stability needed to navigate the risks of unknown and challenging market conditions, and honour any large-scale claims losses. 

“The key trend indicator for 2018 and beyond, both for South Africa and globally, is that volatility and uncertainty are here to stay,” Jack said.  “Weather catastrophes, political and economic upheaval, major reputational crises in both government and corporate sectors, currency volatility, flagging investor confidence, growing regulatory pressures, failing infrastructure, consumer indebtedness, unemployment and a shortage of management capability in key institutions are taking their toll on business confidence.  Volatility is something that South Africa will endure for the foreseeable future and businesses will need to find solutions to working within such a heightened risk environment. 

“The time to build resilience has never been more crucial as business leaders need to increasingly recognise the linkages between many competing risks and priorities. For those who prepare and proactively manage their risks, the circumstances that 2018 brings may well be a new set of business opportunities. Businesses that actively manage their risk profile will ensure sustainable pricing and insurability despite the pressured market. The good news is that as a global insurer with a vested interest in South Africa, Chubb Insurance remains committed to working together with our clients and brokers to mitigate their exposures and maintain insurability and sustainability.”

By Joon Chong, a Partner at Webber Wentzel

A recent Supreme Court of Appeal (SCA) judgment (Volkswagen South Africa (Pty) Ltd v CSARS) provided much needed clarity that Productive Asset Allowance (PAA) certificate amounts granted to automotive manufacturers are capital in nature as their purpose is to incentivise capital investments.

The PAA programme was the follow on of the motor vehicle industry development programme (MIDP) intended to develop an internationally competitive and growing automotive industry in South Africa. The purpose of the PAA programme was to continue the growth and competitiveness in the automotive industry by reducing the number of models produced by the industry, as was the global trend observed in other countries. In order to rationalise the models produced in South Africa, manufacturers had to invest extensively in plant upgrades and technology enhancements to be comparable with the world's best.

The PAA certificates were issued to compensate manufacturers for a portion of the capital outlay for the new plant and machinery necessary for the rationalisation. As such, the amounts on the certificates were calculated using a formula based on the investments in the qualifying plant and machinery. The recipient could then claim a rebate of import duty for the amounts on the certificates against the importation of the rationalised range of motor vehicles.

The taxpayer had submitted its tax returns for the 2008, 2009 and 2010 years of assessment on the basis that the PAA certificates received by it of ZAR 83,651,677; ZAR 76,895,388 and ZAR 48,338,557 respectively, were capital in nature.

SARS had assessed the taxpayer on the basis that the amounts in question were revenue in nature. In disallowing the taxpayer's objection, SARS had stated that "there is no indication from the PAA Guidelines that the amount, as received, was for the purpose of establishing an income-earning structure". SARS held the view that although the formula was based on amounts invested in the qualifying plant and machinery, this was done to calculate the allowance and did not mean that the taxpayer had been compensated "for the capital outlay in respect of the plant and machinery". In expressing this view, SARS had gone against its own interpretation note (Interpretation Note 59) which provided that a government grant made towards the cost of specified capital expenditure is capital in nature as the grant is made to assist a person to meet such capital costs.

The Tax Court held that the grants were made for capital expenditure. However, as the PAA certificates would lapse if not used within the specified period as payment for customs duties on the importation of motor vehicles, the PAA certificates were conditional and did not accrue until there were imports. Thus, the certificates only had value when motor vehicles were imported. The purpose of the grants was to assist the taxpayer with revenue expenditure in the form of customs duty payable on imports. Accordingly, the grants were revenue in nature.

The SCA was of the view that the PAA certificates were to assist with the taxpayer's new investments in approved productive assets required as part of the programme to rationalise motor vehicles manufactured in South Africa and to import others. The purpose of the PAA programme is to assist taxpayers in making the required capital expenditure, as was shown in the formula used to calculate the amounts. If the incentives had been paid in cash, there would have been no doubt that they were capital in nature. Allowing a rebate against customs duties of selected imported vehicles did not change the nature of the incentives. The rebate was the programme's method of reimbursing the manufacturers for the investments in the required capital assets. The reduction in payment of customs duty was not linked to the gross income of the taxpayer, but linked to the capital investments.

It is interesting that the PAA programme, with its purpose to promote economic development and employment in the automotive industry, had been misconstrued by SARS and the Tax Court, with SARS holding views which contradicted its interpretation note. The SCA observed that there were "insuperable difficulties" in holding the views held by SARS. Indeed, they are bizarre views, especially in light of the economic climate and its reliance on foreign investment. Fortunately, the PAA certificates have been clarified in this judgement as being capital in nature, albeit only at the SCA level.

The Committee was informed that even with a recapitalisation of R10 billion, SAA will remain under-capitalised, with a negative equity position of just over R9 billion

CAPE TOWN, South Africa, November 22, 2017/APO Group/ -- 

The South African Airways’ (SAA) new leadership, the Chairperson of the Board and the Chief Executive Officer (CEO) appeared before the Standing Committee on Appropriations at Parliament yesterday to brief the Committee on future strategies and funding of SAA.

Although both the Chairperson of the Board Mr. Johannes Bhekumuzi Magwaza, and the CEO Mr. Vuyani Jarana, have assumed the positions only 20 days ago, they had to  brief the Committee. “The Committee is acutely aware about the fact that this leadership is only 20 days in office, but had to  conduct this very important briefing,” said Ms. Pinky Phosa, Chairperson of the Standing Committee on Appropriations.

The Committee was informed that even with a recapitalisation of R10 billion, SAA will remain under-capitalised, with a negative equity position of just over R9 billion. According to Mr. Jarana, reasons for SAAs reliance on debt include a weak capital structure, overreliance on leasing aircraft, increased competition and ageing fleet and poor fleet profile.

In thanking the SAA leadership, Ms. Phosa said the Committee appreciated the presentation and the frankness in which it was shared with the members of the Committee. She said the Committee is happy that all governance structures are in place as that builds confidence, and reassures the members of the Committee and the public that the enabling pillars for sustainable operations are in place.

She said it is reassuring that funding has been ring-fenced for the repayment of lenders. “The Committee welcomes the submission by SAA that it is committed to running an accountable and transparent business.” The Committee was in full support of the SAA Board’s submission that there will be zero tolerance on corruption and that they will be very decisive on any acts of corruption.

Ms. Phosa told the SAA leadership that the Committee is concerned about the fact that the Annual Financial Statements were not submitted on time. “Going forward, the Honourable Members would really wish to see timely reporting on accountability documents. We want a complete revamp in the reputation of SAA. It must become positive. It is clear that ethics and professionalism will need to be entrenched into the inner fabric of SAA. This is critical to build trust with not only the lenders and the banks, but with all stakeholders and all South African citizens,” reiterated Ms. Phosa.

The Committee welcomed the fact that there is now a multi skilled and multi-talented SAA team comprised of an experienced and capable board and a young and energetic executive team in place. The Committee was assured that the challenges experienced in SAA were not insurmountable and there have been similar cases elsewhere in the world and that there are many examples where change was executed successfully.

The Committee will allow the board and the executive space to go and bury themselves into the implementation of the strategy and that they may submit written quarterly updates, though we give them six months wherein they will come back to Parliament for a comprehensive briefing on work done”.

Distributed by APO Group on behalf of Republic of South Africa: The Parliament.

Recent on- and off-shore discoveries of globally significant quantities of natural gas in Southern Africa – including trillions of cubic metres of natural gas in the Rovuma Basin off the Mozambique coast, the biggest global find of natural gas in decades – represent a new dawn for the region’s energy landscape.

Natural gas is one of the cleanest, safest, and most useful forms of energy, providing the world with over 20 per cent of its energy requirements across power generation, industry and transport applications. In South Africa, at just three per cent, the meaningful addition of natural gas to the country’s energy mix will rejuvenate an overburdened, out-dated energy infrastructure and reduce cyclical energy shortfalls.

Perhaps even more importantly, it will stimulate the economy by allowing business and industry to lower their energy and operational spend while also creating significant numbers of new jobs and skills development opportunities. As the market for gas grows, the construction of new conversion workshops, gas filling stations and satellite gas distribution infrastructure will provide a permanent stream of direct employment. Downstream, training, operations and maintenance, bus assembly and manufacturing of trailers, cylinders and other gas equipment will also create significant employment avenues.

The South African government has stated that natural gas forms the backbone of regional economic integration among Southern African Development Community (SADC) member countries. Plans to establish a regional natural gas committee are also afoot, which will be tasked with promoting the inclusion of gas in the regional energy mix.

Natural gas is already a reality for industrial and transport sectors within a 300 km radius of Johannesburg thanks to NERSA-approved gas traders Virtual Gas Network (VGN) and NGV Gas’ development of a compressed natural gas distribution infrastructure, including delivery networks, filling stations and conversion systems. These companies (both divisions of CNG Holdings) have already converted state hospitals, canneries and manufacturing and assembly plants across a range of industries, in addition to commercial fleets, busses and around 1 000 taxis, to natural gas.

In so doing, these end users have been able to

• Reduce energy / fuel costs
  Natural gas has a high energy content and excellent price/kilojoule ratio, with consistent energy outputs that improve efficiency. Natural gas delivers 20% to 40% cost savings over petrol and diesel.
  
  
• Enhance site and vehicle safety
  Lighter than air, natural gas dissipates quickly into the atmosphere, reducing the risk of fire pools. It’s also more difficult to ignite, with a combustion temperature of 600° C (150° C higher than petrol and LPG).
  
  
• Lower operational and maintenance costs
  This cleaner burning fuel reduces residue, stench and carbon build up, lowering maintenance requirements and extending service intervals and prolonging overall equipment life, both in plants and in vehicles. This reduces downtime and loss of production time.
  
  
• Go green
  Natural gas emits less CO 2 and other harmful greenhouse gases than other fossil fuels. The inevitable introduction of carbon credits in South Africa will emphasise the economic and environmental importance of natural gas increasingly.
  
  
• Enjoy stable pricing schedules
  Natural gas isn’t prone to the constant price fluctuations seen in crude oil products, and therefore allows far greater budgeting accuracy while increasing customer cash flow.

Enhancing access to natural gas

Natural gas can be distributed in various ways: through pipelines; compressed in high pressure cylinders; or liquefied by freezing to -163° C in cryogenic tanks.

VGN and NGV Gas receive natural gas at a distribution station in Langlaagte via the Sasol Gas pipeline that runs from Temane to Secunda and then to Johannesburg. It then distributes gas to customers anywhere within a 300 km radius of this distribution station, managing the entire delivery process on a pay-as- you-use basis according to customers’ energy requirements.

The increased availability in Gauteng of this superior, alternative energy source is enhancing long-term profitability of assets in the industrial and transport sectors. As the gas economy develops, South Africa will be able to increase production efficiencies, economic growth and job creation, and reducing reliance on a less-efficient, polluting fuel used in an aging energy infrastructure.

CNG Holdings is a partner of the Industrial Development Corporation (IDC).