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South Africa: Draft block exemption regulations for suppliers and users of energy

13 March 2023
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The Minister of Trade, Industry and Competition (Minister) has issued an invitation to the public to comment on proposed block exemption regulations for energy suppliers, 2023 (Energy Suppliers Block Exemption) and block exemption regulations for energy users, 2023 (Energy Users Exemption) (here).

The draft regulations, issued in consultation with the Competition Commission (Commission) form part of the measures being applied by the South African Government to prevent an escalation of the current electricity supply constraints to a total blackout, as contemplated in the declaration of a national state of disaster which was proclaimed in February, 2023 (here).

The draft regulations are intended to exempt certain agreements or practices between firms operating in the South African energy sector from the application of section 4 (horizontal restraints on competitors) and section 5 (vertical restraints on suppliers and customers) of the Competition Act 89 of 1998, as amended (Competition Act), and to allow these firms to collaborate in alleviating electricity supply constraints.

Energy Suppliers Block Exemption

In terms of the Energy Suppliers Block Exemption, it is proposed that agreements or practices by suppliers of all forms of energy and related products, inputs and services (including for example, electricity, natural gas, liquified petroleum gas, paraffin and diesel; inverters, batteries, solar panels, wind turbines and generators; coal inputs; and storage and installation services) will be exempt from sections 4 and 5 of the Competition Act, if those agreements/practices have the sole purpose of:

  • increasing supply capacity and optimising energy supply, including for example joint investment in shared energy infrastructure; joint financing and risk-sharing in energy projects; joint training or skills development; or collaboration on optimising the level and timing of the energy supply to the national grid; or
  • reducing the cost or improving the efficiency of energy supply, including for example joint negotiation and purchasing of energy supply inputs and related products/services; or joint procurement and the sharing of security services for the purpose of securing infrastructure.

Energy Users Block Exemption

The draft Energy Users Block Exemption proposes that agreements or practices between users of all forms of energy (excluding suppliers of energy) be exempt from sections 4 and 5 of the Competition Act, if those agreements/practices have the sole purpose of:

  • securing backup or alternative energy supplies, through joint procurement of backup or alternative energy supply for purposes of supply to the national grid (including power purchase agreements) or sharing of backup and energy generation capacity, including energy generation equipment;
  • reducing the cost or to promote the efficient use of energy supply, through joint negotiation and purchase of energy and related product/service supply (including power purchase agreements) or joint financing of backup and alternative energy supply to the national grid or joint purchasing of shared backup and alternative energy generation capacity; or
  • alleviating, containing, or minimising the effects of the electricity supply constraints on operations through energy use, saving and optimisation initiatives limiting operational downtime and reducing energy demand, or joint procurement and the sharing of security services for the purpose of securing shared sites.

Exclusions and qualifications

Firms whose agreements/business practices fall within the scope of these exemptions will have certainty that they will not be prosecuted for contraventions of sections 4 or 5 of the Competition Act. However, there are  certain important exclusions and qualifications:

  • the fixing of selling prices of goods/services and collusive tendering is still prohibited outright;
  • firms owned and controlled by historically disadvantaged persons, and small- and medium-sized enterprises, must be afforded an opportunity to ‘opt-in’ to the agreements or practices entered into in terms of the draft block exemption regulations;
  • firms wishing to benefit from the Energy Suppliers Block Exemption, are required to seek prior approval from the Commission, and the Commission must make a decision within 30 business days from the date of application, failing which the application will be deemed to be approved. The Commission also reserves the right to revoke approval under specific grounds. Firms wishing to apply the Energy Users Block Exemption need not seek prior approval from the Commission;
  • firms must put in place monitoring mechanisms: any firm that enters into agreements or practices in terms of the draft block exemption regulations must notify the Commission and Department of Trade, Industry and Competition (DTIC) within 30 business days of their implementation; meetings of firms must be minuted and records of the agreements or practices must be retained; and the Commission reserves the right to request, at any time, copies of the same.   

Duration of the exemption

The proposed block exemptions will remain in operation for as long as the country remains in a state of national disaster, or the regulations are withdrawn by the Minister.

Deadline for comments 

Stakeholders and interested persons are invited to submit comments by 23 March 2023.