Construction industry needs regulatory certainty

Regulatory certainty is fundamental to the development of the construction industry in any jurisdiction. The construction industry depends on the willingness of companies to invest in capital projects, and the willingness of financial institutions to advance debt. They will only do so if they know that their investment is secure. Recent regulatory developments in the electricity and mining sectors in South Africa may affect the development of the construction industry in these sectors in the immediate future.

Security of supply

Over the last decade, the South African construction industry has been driven by a housing boom, major construction works in rail and road infrastructure (particularly with the development of the high-speed rail transport system known as the Gautrain and road upgrades undertaken by the South African National Roads Agency) and the construction of the stadia for the football world cup last year.

Rolling electricity blackouts that occurred in early 2008 have brought the South African electricity sector, and the need for security of supply, into sharp focus. The manner in which the shortage of capacity is addressed will have a direct impact on the South African construction industry and project financing. A draft of the Integrated Resource Plan 2010, as required under the Electricity Regulation Act 2006, was recently published and maps out electricity requirements and the desired energy mix up to 2030. It anticipates the coming on line of some 38 gigawatts of electrical capacity over the period, with 8.7 gigawatts in the next decade alone. Of this, 5 gigawatts is planned to be from renewable energy sources, 1.15 gigawatts from combined cycle gas turbine plants, and 1.3 gigawatts from co-generation.

Eric le Grange is a director in the projects department at Edward Nathan Sonnenbergs