Wihan Meintjes, Gerhard Rudolph, Mongale Falla, Waldo Krige, Alessandra Pardini*
The year 2024 has been a pivotal one for South Africa.
Despite initial scepticism in some quarters, South Africa’s first government of national unity (GNU) since the advent of democracy in 1994 has survived, and many would argue thrived, in its first 100+ days. As South Africa enters the traditional ‘builders break’ in December, significant policy decisions are anticipated. South Africa assumed the G20 presidency from 1 December 2024 and already called for a strengthened global response to finance its just energy transition and to harness critical minerals.
Amidst these political changes and policy considerations, the country’s energy, infrastructure and construction sectors present a compelling narrative in 2024.
- Murray & Roberts’ business rescue a symbolic end to an era
During the lead-up to the 2010 FIFA World Cup, the commencement of construction on the Medupi and Kusile power stations, and the anticipation of the R25 billion Gautrain’s first commercial trip in 2011, the South African construction sector was thriving. Contractors Murray & Roberts, Aveng, Basil Read, Group Five and WBHO made up the so-called “big five”, with Stefanuti Stocks also holding a significant market share. From June 2000 to June 2008, an investment in any of Aveng, Group Five, Murray & Roberts and WBHO would have been spectacular, yielding a compound annual return of 35.4%, 51.7%, 54.4% and 59.2% respectively. However, the industry’s contribution to South Africa’s GDP plummeted from and all-time high of over R 150 billion (USD 8.6 billion) in 2016 to just over R 110 billion (USD 6 billion) in 2023.
On 21 November 2024, Murray & Roberts Limited filed for voluntary business rescue, marking a symbolic end to the once-thriving South African construction industry, following similar fates for Group Five (2019) and Basil Read (2023). Factors contributing to this decline include a lack of infrastructure investment and maintenance post-2010, the Covid-19 pandemic, corruption, economic downturns and ongoing energy issues. Recently released photos (credit: Businesstech) of some of South Africa’s largest power stations starkly illustrate the current depth of the country’s, and indeed the once flourishing network operator Eskom’s, problems.
Of the so-called ‘big five’, only WBHO and Aveng remain, though WBHO’s share price fell by 36% between 2017 and 2022. Metis Strategic Advisors have been appointed as Murray & Roberts’ business rescue practitioners, offering some stability in drawing on their experience with Group Five’s business rescue since 2019.
- Organised crime’s grip
- Rising influence of the ‘Construction Mafia’
The South African construction industry continues to grapple with the pervasive threat posed by the ‘construction mafia’. This group’s extensive influence, misguided reliance on public procurement policies and widespread extortionist tactics are well-documented and were previously addressed on the ACL Blog.
Recent incidents have underscored the severity of the problem: the murder of a City of Cape Town official in 2023 while on a site inspection for one of the City’s housing developments, the attempted murder of a Stefanutti Stocks coastal manager in June 2024 and death threats against senior politicians seen to combat these groups. Reports from South Africa’s inaugural National Construction Summit, held on 19 November 2024, revealed that over 180 projects worth approximately R 63 billion (around USD 3.5 billion) have been disrupted by the ‘construction mafia’s’ influence since 2019.
- The fight-back
Efforts to combat the ‘construction mafia’ are intensifying, with active involvement from national and provincial governments, and the private sector. South Africa’s courts are also adopting innovative strategies to tackle this issue.
In July 2024, the Gauteng provincial government announced the establishment of specialised crime-fighting units to patrol major sites, while in August 2024, the City of Cape Town announced an agreement with private sector stakeholders to increase security measures and establish dedicated task forces around significant projects.
A historic partnership agreement was signed by the ministries of Public Works and Infrastructure, Police, and Finance, along with the Construction Industry Board, at the National Construction Summit in November 2024. The agreement is premised on three pivotal pillars: (i) strengthening the legislation governing the construction industry, (ii) expanding public-private partnerships, and (iii) increasing infrastructure investment.
- Addressing immediate challenges
In the meantime, various anecdotal risk mitigation strategies have been proposed by lawyers and industry stakeholders to address this issue. These strategies include ensuring staff are appropriately trained to handle both legitimate and illegitimate community forums, enhancing private security measures at construction sites, and structuring downstream procurement in a fair, transparent, and accessible manner.
Stakeholders have also urged contractors to seek urgent (civil) interdicts at the first signs of interference from these groups to curb their activities. However, contractors face three major difficulties in this regard:
- Given the criminal nature of many of the construction mafia’s transgressions, contractors may be required to exhaust alternative remedies before approaching a court for interdictory relief. This often includes filing criminal complaints before pursuing civil interdictory relief;
- Urgent relief can be granted by South African courts on an interim basis, with the understanding that a final interdict must be secured in due course. This comes with a higher threshold and burden of proof, which has been difficult for contractors to meet in circumstances where perpetrators are not easily identifiable; and
- Identifying and serving legal processes and interim orders on the perpetrators involved in these well-organised underground networks is notoriously difficult.
As a case-in-point, in the recently reported judgment of Edwin Construction v Nkandla and other (2024), the contractor secured an urgent order in September 2022, interdicting eight respondents from interfering with or disrupting construction work. However, in 2024, the rule nisi was overturned and set aside on the basis that the contractor could not “provide evidence of the identity of the perpetrators.” In this case, photographs taken by the contractor, which allegedly depicted the respondents infiltrating the site, were insufficient to meet the threshold required to secure a final interdict.
We therefore continue to advise all parties involved in the construction value chain to implement comprehensive record-keeping processes. This should include attendance registers and minutes of any meetings and/or engagements with local communities and forums, both prior to and during the construction works, regardless of whether extortionist threats have been or are expected to be made in respect of the particular project.
- Signs of recovery
Despite the challenges, there are signs of recovery and reasons for optimism.
- Robust, independent and pragmatic South African judiciary
South Africa’s judiciary remains strong and independent. Although most high-value construction disputes are resolved through private arbitration, the courts have shown support for key principles affecting the industry. In 2024, both the High Court (in Innova Turnkey (Pty) Ltd and Others v Hollard Insurance Company Ltd and Another) and Supreme Court of Appeal (SCA) (in Bonifacio and another v Lombard Insurance Company) reinforced that liability under on-demand guarantees can only be avoided in cases of fraud by the beneficiary. The SCA further clarified that the guarantor, in this case Lombard Insurance, is not obligated to investigate the underlying contractual position when faced with a demand under an on-demand guarantee.
South African courts have also shown innovative reasoning in addressing issues related to the ‘construction mafia’:
- In Blue Print Housing (Pty) Ltd and another v Loeto and others:
- The court granted an interdict to the contractor, allowing the order to be served by erecting notice boards at the property entrances and using WhatsApp.
- The court dismissed the argument that contractors should exhaust all alternative remedies before being entitled to interdictory relief, noting that the contractor in this case had already sought assistance from the SAPS without success.
- While in YMB Investments (Pty) Ltd v Molale:
- The court allowed the order to be served by affixing copies to the main entrance gate and reading the order through a loud hailer at site.
- The court concluded that allowing organised criminal groups to infiltrate sites and hold employees and contractors ransom, and denying orders for interdicts on technical grounds, would permit “the law of the jungle to prevail rather than the rule of law.”
- Turning South Africa “into a construction site”
The South African government has implemented active recovery measures in respect of ailing infrastructure, which promises to contribute to what many is referring to as the unleashing of the country’s infrastructure boom.
The newly appointed Minister of Public Works and Infrastructure has set his sights on “turning South Africa into a construction site.” In March 2024, the government and Infrastructure South Africa launched the Construction Book 24/25, showcasing 153 anticipated infrastructure projects. The government has earmarked R 7.1 trillion (USD 424.4 billion) for infrastructure development from FY2023-24 to FY2025-26, with significant allocations for road (R 233.1 billion), water (R 121.3 billion), and housing infrastructure (R 45.9 billion).
- Improved sentiment in Q4
It is accordingly not surprising that the FNB/BER Building Confidence Index reported a significant rise in the confidence of South African main contractors, reaching a decade-high level of 51, in Q4 2024.
Some have estimated that the construction industry in South Africa is expected to grow by 4.8% to reach R 160.65 billion by the end of 2024.
- Progress in South Africa’s quest for a Just Energy Transition
In 2023, the South African Government approved an implementation framework for the Just Energy Transition Investment Plan. This 304-page framework aims to provide an implementation strategy for South Africa to reach net zero greenhouse gas emissions by 2050 in line with the best available science and, in the process, contribute to the country’s goals of social inclusion and the eradication of poverty.
The year 2024 has seen significant policy changes and judicial developments in this regard, with both public and private sectors striving to balance energy security with decarbonisation goals.
- Amended Electricity Regulation Act and Climate Change Act
On 16 August 2024, President Cyril Ramaphosa signed into law the Electricity Regulation Amendment Act (ERAA). The ERAA is seen as a transformative step for energy reforms. Over the next five years, it aims to:
- Establish the Transmission System Operator SOC Ltd, responsible for balancing demand and supply and prioritising power sources; and
- Create a new competitive electricity market.
Additionally, the long-awaited National Transmission Company of South Africa (NTCSA) has become operational in 2024, which marks a significant milestone in the country’s 26-year quest for market reform through Eskom’s ultimate unbundling.
Despite progress, challenges remain before the ERAA and Eskom’s unbundling process can fully realise their potential.
The government has also shown a strong policy commitment to climate change mitigation following more than a decade of discussion and discourse post the 2011 National Climate Change Response White Paper. The Climate Change Act, signed by President Ramaphosa on 23 July 2024, introduces regulatory mechanisms like sectoral emission targets and carbon budgets to meet Paris Agreement commitments. However, concerns about its practical efficacy, implementation challenges, and potential socioeconomic consequences persist, and the success of the act will be heavily reliant on the cooperation of major greenhouse gas emitters, such as Sasol and Eskom.
- Continued push towards renewable energy
South Africa’s Independent Power Producer Procurement Programme has also continued in full swing in 2024. The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) attracted numerous bids for its Bid Window 7 in August, and the year saw the country’s first three battery energy storage projects close. However, several disputes over ‘bid bonds’ called on projects that failed to reach commercial close are expected to continue into 2025.
Supply chain issues at South Africa’s ports and along key inland routes however continue to impede the timely advancement of major renewable projects, with a mid-year 2024 conference addressing some critical issues. Our teams continue to advise stakeholders in this area to mitigate domestic and international supply chain issues.
December 2024 also saw the High Court of South Africa overturning the government’s and the National Energy Regulator of South Africa’s (NERSA) 2019 plans to add 1,500MW of new coal-fired power to the national grid, declaring that these decisions failed to adequately consider the environmental and health impacts on children and future generations and did not comply with public participation requirements – another ruling that reflects a broader shift towards increased reliance on renewable energy.
Increased tension between Eskom and the NERSA was also evident in 2024. On 3 August, NERSA denied Eskom’s application to reserve grid connection capacity for so-called section 34 IPP projects, citing Eskom’s failure to identify the specific customers, or classes of customers, “that it intends to discriminate against”. This decision has been criticised, and our teams have advised several role players on issues surrounding Eskom’s conduct in withdrawing previously allocated grid capacity and imposing anticipated curtailment regimes. In 2025, we expect an increase in litigation and disputes involving Eskom, NERSA, and the NTCSA as they work to allocate the limited grid capacity fairly and incorporate curtailment arrangements into their budget quote processes.
- Investment protections
As South Africa and the broader region continue to seek significant investment to support its Just Energy Transition, investors will closely monitor the investment landscape in 2025 and beyond, particularly regarding protections offered by investment treaties and legislation. It is well-documented that South Africa has terminated many of its Bilateral Investment Treaties (BITs) with European Union states, with 39 out of 50 BITs either being terminated or never having come into effect.
Despite this, South Africa has been commended for implementing various other measures since 1994 to protect investments. Most terminated BITs remain effective due to their ‘sunset provisions,’ and the enactment of the 2015 Protection of Investment Act continues to offer some level of protection to investors. However, it remains to be seen whether the country’s evolving regulatory regime, aimed at achieving a Just Energy Transition, will be effective or if it could at some point face legal challenges similar to those encountered by countries like Spain over the past decade in their pursuit of renewable energy security.
