How to manage vested interests in the energy transition

The issue was brought into sharp focus recently when journalist Annika Larsen interviewed André De Ruyter, the former chief executive of state-owned energy company Eskom in South Africa.

In the interview, De Ruyter alleged that Eskom has been captured, so to speak, and he estimated that more than $50 million every month is stolen from Eskom as a result of corruption. He further alleged that a member of the ruling African National Congress (ANC) had been involved in alleged corruption – an allegation the ANC has urged De Ruyter to substantiate, with the prospect of criminal charges being brought against him if he does not.

De Ruyter suggested that vested interests in preserving the interests of the coal industry sit behind acts he has alleged are designed to slow decarbonisation in South Africa. Regardless of whether there is truth in that claim, his comments should spur all power generators globally – whether they generate electricity from renewables or fossil fuels – to consider how vested interests may impact their operations.

One way that vested interests may materialise as a corruption risk for incumbents is if a gatekeeper, who has powers or influence over whether renewables projects are granted required licenses or permits or receive funding, approach someone working on their behalf to solicit a bribe in return for rejecting related applications or to stall on making a decision on them. The driver behind this risk is that gatekeepers may recognise that incumbents, particularly those involved in generating power through fossil fuels, may be threatened by the renewable new entrants and the gatekeepers may seek to take advantage of this.

Similarly, developers behind prospective renewable energy projects are at risk of gatekeepers soliciting bribes in return for progressing applications or securing the necessary approvals for their projects to progress. In other words, the sword cuts both ways and the risk applies equally to both incumbents and renewables new entrants.

Our earlier guide explores how businesses can manage corruption risk in the context of renewable energy projects – including the risk of bribes being solicited – but renewables developers also have to understand and address the risk that their business or project will become the victim of someone else’s bribe.

The first step in this regard is to undertake or commission some market analysis and relationship mapping to understand who the key influencers and decision-makers are. Proactively identifying who those individuals are and what the level of risk is can help businesses develop a strategy to address corruption risk and avoid being stonewalled out of opportunities because of a third-party bribe. Renewable energy developers could seek professional support from corporate intelligence and investigations experts to assist them with targeted research.

However, comments made by De Ruyter in his interview highlighted a further risk that businesses pursuing opportunities in the energy transition will need to manage – that of sabotage.

If policymakers and regulators do not manage the energy transition properly, to ensure that the transition is just, it is not inconceivable that renewable energy projects could be the subject of sabotage aimed at delaying their progress or increasing the costs involved in delivering it. The risk could again cut both way and incumbents could also find themselves being the victims of sabotage by unscrupulous developers who may seek to discredit them by damaging the reliability of their performance and by increasing costs.

Sabotage could take various forms, but vandalism is a particular risk – seemingly dispersed and unrelated events could in fact be part of an orchestrated campaign by persons that want to see projects fail or incumbents discredited.

Renewables companies and incumbents both need to be actively aware of this risk. They should take note of warning signs and ensure there is a proper internal investigation into each incident of vandalism so that the broader risks are identified and appropriately dealt with.

The risk is arguably heightened with relatively low-paid blue-collar employees or contractors who may be induced into accepting payments to commit acts of sabotage by outside actors. This puts an added emphasis on ensuring recruitment vetting processes are robust, but businesses might also wish to consider commissioning lifestyle audits, to the extent they are permissible under local laws, to scrutinise the financial affairs of individuals that are already in post.

Lifestyle audits can help businesses identify whether there is a gap between an individual’s known income and the levels of wealth that can be determined from their lifestyle choices. Where there is a gap, it can be an indication that they are the beneficiaries of corrupt or other illicit payments.

The change that the energy transition is bringing about will, in our assessment, create corruption and operational risks. The risks apply to incumbents and renewables new entrants. These risks should be proactively assessed and managed. Professional advice and support should be obtained, where needed, particularly when corporate and intelligence and investigations support may help understanding new or changing markets and for lifestyle audits.