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COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: LM155Nov20
In the matter between
GREENSTREET 1 (PTY) LTD Primary Acquiring Firm
And
SOLAR CAPITAL DE AAR 3 (RF) (PTY) LTD Primary Target Firm
Panel : Ms M Mazwai (Presiding Member)
: Mr E Daniels (Tribunal Member)
: Dr T Vilakazi (Tribunal Member)
Heard on : 21 January 2021
Order Issued on : 21 January 2021
Reasons Issued on
: 5 March 2021
REASONS FOR DECISION
APPROVAL
[1] On 21 January 2021, the Competition Tribunal (“Tribunal”) unconditionally
approved a large merger between Greenstreet 1 (Pty) Ltd and Solar Capital De
Aar 3 (RF) (Pty) Ltd.
[2] The reasons for the approval of the proposed transaction follow.
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PARTIES TO THE PROPOSED TRANSACTION
Primary acquiring firm
[3] The primary acquiring firm is Greenstreet 1 (Pty) Ltd (“Stanlib Fund II SPV”), a
special purpose vehicle ultimately controlled by Stanlib Asset Management
(Pty) Ltd, which is a wholly owned subsidiary of Stanlib Ltd (“Stanlib”). Stanlib
Fund II SPV and all the firms it controls, all the firms controlling it and the various
firms controlled by those firms, shall be referred to as the “Acquiring Group”.
[4] The Acquiring Group is involved in the provision of financial service s. Stanlib
Fund II SPV is a private equity investment fund established with the objective
of acquiring a portfolio of long-term infrastructure assets.
[5] Of relevance to the proposed transaction are the various controlling interests
held by the Acquiring Group in wind and solar photovoltaic (“PV”) independent
power producers (“IPP s”) which operat e under the Renewable Energy
Independent Power Producer Procurement Programme (“REIPPPP” )1 to
supply Eskom SOC Ltd (“Eskom”) with electricity, as set out in the table below:
Project name Share-
holding
Location Power
output2
Mulilo Renewable
Energy Solar PV
Prieska (RF) (Pty)
Ltd (“Mulilo Prieska”)
80% Pixley ka Seme District
Municipality, Northern Cape
20MW from
solar PV
Mulilo Renewable
Energy Solar PV De
Aar (RF) (Pty) Ltd
(“Mulilo De Aar”)3
80% Pixley ka Seme District
Municipality, Northern Cape
10MW from
solar PV
1 See “Background to the renewable energy independent power producer procurement programme” for
a detailed description.
2 The respective contracted generation capacities in terms of megawatts (“MW”).
3 Stanlib Fund II SPV recently acquired indirect control of Mulilo Prieska and Mulilo De Aar
(LM174Mar20).
3
Project Kalkbult 35.1% Pixley ka Seme District
Municipality, Northern Cape
75MW from
solar PV
Project Linde 30.53% Pixley ka Seme District
Municipality, Northern Cape
43MW from
solar PV
Project Dreunberg 38.32% Joe Gqabi District
Municipality, Eastern Cape
75MW from
solar PV
Kouga Wind Farm 40.6% Sarah Baartman District
Municipality, Eastern Cape,
80MW from
wind power
Primary target firm
[6] The primary target firm is Solar Capital De Aar 3 (RF) (Pty) Ltd (“SCDA 3”),
which is controlled by several firms. SCDA 3 is a solar PV project located within
the Pixley ka Seme District Municipality, Northern Cape.
[7] SCDA 3 has been operational since 2016 and is contracted to supply 75MW of
electricity produced from solar energy to Eskom under the REIPPPP. It was
awarded this project in the second round of the REIPPPP.
PROPOSED TRANSACTION AND RATIONALE
[8] The Acquiring Group intends to acquire a 40% controlling stake in SCDA 3 from
existing shareholders . Post-merger, the Acquiring Group will exercise joint
control over SCDA 3.
[9] The Acquiring Group submits that its rationale for the proposed transaction is
in accordance with its investment approach to invest in long-term infrastructure
projects in South Africa.
[10] For the sellers, the proposed transaction represents an opportunity to realise
their investment in SCDA 3.
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BACKGROUND TO THE RENEWABLE ENERGY INDEPENDENT POWER
PRODUCER PROCUREMENT PROGRAMME (“REIPPPP”)
[11] According to the Competition Commission (“Commission”), the REIPPPP was
established in 2010 by the (then) Department of Energy, the National Treasury
and the Development Bank of Southern Africa. The Integrated Resource Plan
for electricity (“IRP”) 2010 -2023 provides a long -term plan for electricity
generation. The IRP calls for the doubling of electricity capacity using a diverse
mixture of energy sources, mainly, nuclear and renewable energy. The
REIPPPP contributes to the IRP’s target of 29 330MW of additional renewable
energy, and cogeneration capacity from the private sector by 2025.
[12] The REIPPPP office’s mandate is to enhance South Africa’s power generation
capacity by securing electricity from various renewable energy sources from
the private sector. This is done through a tender process that culminates in the
IPPs selling electricity to Eskom.
[13] The Department of Mineral Resources and Energy (“DMRE”) begins by
announcing a new round of bidding (“bidding window”) for available projects
under the REIPPPP. In each round, the DMRE indicates the total megawatt
(“MW”) value that it wishes to achieve through renewable energy resources and
the technologies that it wishes to contribute to that MW output. Interested
parties submit proposals indicating, inter alia, what technology they will employ,
where the plant will be based, the anticipated power output of the plant and the
price per MW to purchase electricity.
[14] According to the merging parties, i n each bidding window, the DMRE selects
bidders who it awards with the status of preferred bidders . In each of the four
previous large bidding windows announced since 2011 , no less than 53 bids
were received, and no less than 13 bidders were awarded the status of
preferred bidder.
[15] According to the Commission, the IPPs u nder the REIPPPP cannot alter the
[15] According to the Commission, the IPPs u nder the REIPPPP cannot alter the
price and volume of energy supplied to Eskom except for inflation, nor can they
supply electricity to any third parties. It is for this reason that the Commission
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concluded that the proposed merger would not lead to a substantial prevention
or lessening of competition.
[16] According to the Commission, it is likely that the Electricity Regulation Act 4 of
2006 provides the Minis ter of the DMRE a discretion to allow the direct
procurement of electricity by municipalities from IPP projects . The
consequences of this likelihood are explored in the following section.
RELEVANT MARKETS
[17] The Commission considered the activities of the merging parties and found an
overlap in the supply of electricity to Eskom by renewable energy producers
using solar PV.
[18] It submitted that the relevant market is the national market for the supply of
electricity to Eskom by renewable energy producers using solar PV.
[19] The merging parties also submitted that the relevant market is the national
market for the supply of electricity to Eskom by IPPs via solar PV technology .
They submitted that the geographic market was a national market because the
location of an IPP’s plant is only a function of where the renewable energy
resource is located, and that the electricity produced is sold to Eskom and
supplied directly into the national grid.4
[20] The Commission also assessed the impact of the proposed transaction at local
and district municipality level, in particular the supply of electricity to Eskom by
way of solar PV in the Pixley ka Seme District Municipality and the Emthanjeni
Local Municipality. It did so as a worst -case scenario because it is not clear
whether or not the Electricity Regulation Act provides the Minister of the DMRE
the discretion to allow municipalities to directly procure electricity from IPP
projects. The Commission cons ulted the National Energy Regulator of South
Africa (“NERSA”) in this regard. NERSA stated that existing arrangements
4 In support of this, the merging parties submitted that some parts of the country are more desirable for
the location of an independent power plant using renewable energy resources, depending on the type
of renewable energy resource being used. The Northern Cape, for example, is ideal for solar PV
power plants because of the high levels of sunshine that the area experiences.
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under the REIPPPP could not be diverted without a new bidding process being
initiated. The REIPPPP’s IPP office informed the Commission that r ecent
amendments to the electricity regulations on new generation capacity enable
municipalities in good standing to procure new generation capacit y from IPPs,
but that this is a distinct and separate process from the REIPPPP.
[21] Given the possibility of direct procurement by municipalities, the Commission
proceeded to assess the supply of electricity to Eskom by renewable energy
producers using solar PV technology nationally, at district level (Pixley ka Seme
District Municipality) and at local level (Emthanjeni Local Municipality), located
in the Pixley ka Seme District Municipality.
[22] We have assessed the competition effects of the p roposed transaction on the
above basis, however, since the renewable energy markets are relatively new
and developing, we leave the exact product and geographic market delineation
open.
IMPACT ON COMPETITION
[23] The Commission found that the merging parties enter ed non-negotiable, 20-
year power purchasing agreements (“PPA’s) with Eskom, as preferred bidders
under the REIPPPP.
[24] In calculating the estimated market shares of the merging parties , the
Commission utilised the power plants’ production capacity in terms of MWs.
National market for the supply of electricity to Eskom by renewable energy
producers using solar PV technology
[25] The Commission found that the merged entity would have a market share of
approximately 12% in this national market with an accretion of approximately
3% as a result of the proposed transaction . It found that the market for the
supply of solar PV energy at a national level is fragmented and includes many
participants that would constrain the merging parties.
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District (Pixley ka Seme District Municipality) market for the supply of electricity
to Eskom by renewable energy producers using solar PV technology
[26] The Commission found that the merged entity would have a market share of
approximately 35% in this district market with an accretion of approximately
12% as a result of the proposed transaction. The Commission further found that
there are currently six alternative solar PV renewable energy projects in the
Pixley ka Seme District Municipality.
Local (Emthanjeni Local Municipality) market for the supply of electricity to
Eskom by renewable energy producers using solar PV technology
[27] The Commission found that the merged entity would have a market share of
approximately 43% in this local level market with an accretion of approximately
34% as a result of the proposed transaction. The Commission found that there
are currently two alternative solar PV renewable energy projects in the
Emthanjeni Local Municipality.
[28] As indicated, t he Commission assess ed the district and local level supply
markets under a worst -case scenario as is it not clear whether municipalities
would in time be allowed to procure electricity directly from REIPPPP projects.
[29] The Commission further submitted that the above market shares, at both district
and local municipality levels, are likely to be overstated as the current capacity
by each of the merging parties’ projects is committed exclusively to Eskom for
a period of 20 years under the REIPPPP.
[30] Furthermore, t he Commission found that t o the extent that the merger may
result in high market share accretions and concentration at municipal level s,
the merged entity’s long-term agreements under the REIPPPP would constrain
it from acting unilaterally to the detriment of customers or competitors . This is
because pricing is determined upfront when the bid is awarded and cannot be
altered for the duration of the IPP project.
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[31] The Commission also consulted NERSA. NERSA reiterated that the IPP
projects awarded in terms of the REIPPPP are to supply Eskom only and
municipalities are thus not able to procure renewable energy from any of these
existing projects. NERSA clarified that it also needs to issue a licence for any
renewable energy project to supply a municipality with electricity.5
Our Assessment
[32] In light of the parties’ submissions regarding a national market (where the
renewable energy is provided directly into the Eskom grid), we tested with the
parties during the hearing whether there would be locational advantages to
providing renewable energy at municipal level, thereby giving the merged entity
a further competitive advantage (in light of the increased market shares arising
from this transaction ) should (future) direct procurement by municipalities be
permitted.
[33] The merging parties acknowledged that there would be locational advantages.
However, for purposes of this merger assessment, nothing turns on this as
direct municipal supply by IPPs is not permitted yet. This however may be
relevant to the assessment of future competition.
[34] The merging parties also stated that the merged entity would be precluded in
any event from tendering for direct municipal supply as NERSA proscribes this.
They acknowledged however that nothing precludes the parties from forming a
new consortium and tendering for direct municipal supply.
[35] We tested the impact of this proposed merger on future competition and
whether the Commission had assessed (i) the number of mergers engaged in
by the acquiring firm, in light of section 12A(2)(k) (so-called creeping mergers);
and (ii) potential information exchanges between the merging parties arising
from common shareholding in related IPP projects.
5 NERSA also clarified that upon the expiry of the 20 -year term, the national government has the first
option to acquire the IP P projects. Should the government opt not to acquire it, the IPP owner can
apply to renew the contract to supply Eskom or enter a contract to supply another third party. However,
that process requires a new license from NERSA.
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[36] The Commission noted that the majority of the mergers in renewable energy
have involved private equity firms . Given the short-term nature (5-7 years) of
private equity investment , any concerns of concentration contemplated in
section 12A(2)(k) seem unlikely. The merging parties further submitted that the
number of IPP projects in which they have interests pre-merger is only five of
104 existing IPP projects 6. Through this transaction, their involvement in IPP
projects will increase to six projects, which remains insignificant. We found no
basis to conclude that creeping acquisition is a concern in the context of this
proposed transaction.
Information exchange and future competition
[37] The Commission submitted that it did not consider the board representation of
the Acquiring Group on the various IPP projects to raise concerns as in its view,
the nature of the information in question was not ca pable of dampening
competition.7 This is because volumes, price, and customer (Eskom) are fixed
at the tender stage and cannot change once the contract has been awarded.
Therefore any exchange of information among the different IPPs in which
Stanlib has shareholding, cannot be used to dampen competition among its
existing IPPs8.
[38] While cognisant that the customer, volumes and price are determined at bid
stage and therefor e unlikely to change, we had a residual concern regarding
the use of information obtained through common shareholding and whether this
could influence future competition. The Commission submitted that the nature
of the information obtained by Stanlib throu gh its shareholding in the IPP
projects listed above is likely to be pro -competitive because it may enable
Stanlib in future consortia to submit more competitive bids or contribute to
optimising the management of specific power projects (noting also that Stanlib
does not typically participate at the REIPPPP bidding stage).
6 Transcript reference
7 Transcript page 76.
8 Transcript page 83.
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[39] Further, the Commission submitted that even if the Acquiring Group were to
utilise pricing or strategic information they had gained to benefit future bids,
those future bids would still be subject to competition from other bids.9
[40] We noted that since the commencement of the REIPPPP programme in 2011,
four rounds of bids (bid windows) have been issued, with the fifth scheduled to
have taken place in December 2020. In each of the four bid windows, no less
than 53 bids were submitted with no less than 13 bidders awarded preferred
bidder status.
[41] We concluded that the bidding process appears competitive given the number
of partic ipants. However, information exchanges in the renewable energy
markets should be more fully investigated on a case -by-case basis in future
mergers. We note that nothing currently precludes the constituent members of
a successful IPP to, independently of the IPP, f orm consortia with other
shareholders for the purposes of participating in other REIPPPP bidding
processes.10
[42] We further note that the renewable energy market s are relatively new and
developing. In this context s trategic information may go beyond information
about customers, price and volumes, and may include information for example,
on future investment plans and strategies, specific technologies to be used in
a project and the management of the production processes in terms of cost
efficiencies and other factors, which in turn also impact on price, output and the
ability to secure a contract with the customer (Eskom).
PUBLIC INTEREST
[43] The merging parties submitted that the proposed transaction would not result
in retrenchments or any other negative effects on employment in any of the
firms involved. The merging parties submitted that Stanlib Fund II SPV does
not have any employees, and the employee representative of Stanlib Asset
9 Transcript page 78.
10 See Commission’s Report, paragraphs 18 and 48.
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Management (Pty) Ltd did not raise any concerns r egarding the proposed
transaction.
[44] The Commission found that the proposed transaction was unlikely to raise any
employment or other public interests concerns.
CONCLUSION
[45] In light of the above, we concluded that the proposed transaction was unlikely
to substantially prevent or lessen competition in any relevant market. In
addition, we are of the view that no public interest concerns arise from the
proposed transaction.
[46] Accordingly, we approved the transaction without conditions.
5 March 2021
Ms Mondo Mazwai Date
Mr E Daniels and Dr T Vilakazi concurring
Tribunal Case Manager:
P Kumbirai
For the Merging Parties: N Altini and L Engelbrecht of Herbert Smith
Freehills South Africa LLP
For the Commission: W Gumbie & T Loate