A proposed hyperscale data-centre campus at Coega could generate employment opportunities and an estimated R895m a year in municipal property rates, but a row has broken out over the huge amount of electricity needed to make it happen.
On the one hand, Vexa Infrastructure told the Nelson Mandela Bay council on Thursday that the project would not be commercially viable if it had to buy electricity from the metro rather than becoming a direct Eskom customer.
This was because the hub could not depend on a reliable supply from the metro as power failures often plagued the city.
On the other side of the equation, some councillors say the city simply cannot afford to forgo the R7bn in electricity revenue the deal could bring in.
The proposal, presented at a special council meeting, envisages a large-scale artificial intelligence and cloud-computing campus in the Coega SEZ, with Vexa estimating it could create 34,800 construction “job-years” over six years and 500 permanent jobs.
Councillors questioned why the proposed multibillion-rand project had not first been subjected to detailed scrutiny by the relevant committees, particularly over its electricity, water, environmental and financial implications.
Vexa asked the council to support the development in principle and record the municipality’s non-objection to a direct Eskom supply of up to 556MW, while authorising the city manager to negotiate a collaboration framework with the company, Eskom and the Coega Development Corporation.
The item was passed after a heated debate, with opposition parties voting against the decision until they received more information.
The council approved a request for the proposed Vexa SA data centre in the Coega Special Economic Zone to connect directly to Eskom rather than receive electricity as a municipal customer.
The company has offered to invest up to R3bn in municipal and community infrastructure, including electricity, water and other infrastructure, while estimating that the project could create a R25.3bn opportunity for Eastern Cape suppliers, according to a presentation.
Vexa intends to develop energy-secured, low-carbon data campuses for AI and cloud computing.
“The project has the potential to become one of the city’s largest ratepayers while ordinary municipal rates and service charges continue to apply,” according to the presentation.
But it warns that planning figures will only be confirmed through valuation, detailed design, financing and definitive agreements.
Vexa is seeking authorisation for the city manager to negotiate a municipal collaboration framework agreement.
The final agreement and implementation plan will then be brought back to council for approval.
The data centre is going to use more electricity than the whole of Nelson Mandela Bay, hence we see it as fit to be an Eskom customer.
— Vexa representative
Under the proposed framework, the municipality, Eskom, Coega and Vexa would work together across four areas during the first 12 months.
These would include securing a direct electricity supply from Eskom and navigating licensing and regulatory processes.
The work would also include co-ordinating municipal services, rates, land-use planning, roads, and water and wastewater requirements.
On top of this, it would identify priority municipal and community infrastructure projects.
When contacted, Coega business development executive manager Asanda Xawuka confirmed exploratory discussions with Vexa.
“The project is at pre-feasibility stage and due to non-disclosure agreements signed, no further information can be divulged.”
At the meeting, Vexa director Lufuno Mantsha said it would be the biggest hyperscale data centre in Africa.
“The data centre is going to use more electricity than the whole of Nelson Mandela Bay, hence we see it as fit to be an Eskom customer.
“If we are not allowed to be an Eskom direct customer, our project will not be commercially viable or bankable.
“We’ve sat there at the back, and we’ve listened to all the issues that the city faces — electricity and water — so we then spoke to council members, bearing in mind the issues that the city has ...”
He said the R3bn cash investment would help address these issues.
“This will allow the city to close the gaps.
“Currently the city loses about R1.8bn every single year because of bad metering, theft and maintenance issues.
“So Vexa is coming on board to try to help the city.
“We’re not coming to bypass the city.”
DA councillor Ondela Kepe asked why the deal would be unbankable or unfeasible if the proposed data centre became a customer of the city’s.
“I put it to you that we could do a lot more with the tariffs that we are going to generate from the electricity,” Kepe said.
“Why would we consider leaving that off the table?”
DA councillor Dries van der Westhuyzen asked about the amount of water the data centre would require
“This is a drought area,” Van der Westhuyzen said.
“We get water restrictions and droughts every other year.
“We’ve just been through the most horrific drought that we’ve ever had.
“This presentation says nothing about the water.
“My perception is that it is going to use more water than electricity.”
He said the proposal was never presented to the infrastructure and engineering committee to debate the water issue.
“I get very upset when I see things like this.
“Water is the most important issue.
“We can buy electricity, but we can’t buy more water.”
GOOD councillor Lawrence Troon asked why the council should make a decision based on a 10-minute presentation.
“What this requires is a workshop with the councillors, with the officials concerned,” Troon said.
“There are councillors who will just put up their hand because they put up their hand for anything.
“But some of us are responsible.”
ACDP councillor Lance Grootboom said the council would not want to reject an investment.
“Obviously, it will provide jobs,” he said.
“But my concern is that the city has the distribution licence.
“They are within our jurisdiction. Now they want to connect to Eskom.
“So, we have to evaluate what the impact is.
“How much money is our metro losing every year from electricity sales?”
He then asked how much municipal water would be used for the campus.
ANC councillor Xolani Notshe said the city was desperate for such projects.
“However, our hunger for such projects shouldn’t stop us from asking important questions,” Notshe said.
“One of those is what are the environmental and possible health implications?”
Mantsha said the company would not be using municipal water.
“One of the main reasons we chose Coega was because of the sea.
“Vexa intends to use seawater to cool its GPUs [graphics processing units], not drinking water.
“Why is the project not bankable with the municipality?
“In the city’s annual report last year, it was reported that there were about 1,140 electrical breakdowns.
“I think 80 of those were solved in the first 24 hours.
“So, in the data centre industry, the uptime needs to be 99.99%.
“If the uptime is less than that the customer can sue.
“The city’s electrical maintenance is not bankable.
“No financing house will give you credit.”
He said they had met Coega officials to discuss the environmental and health concerns.
“The only thing is that the data centre’s building will trigger an environmental assessment because of the diesel tank farms.
“But an environmentalist will then do an assessment.”
Energy expert Prof Vally Padayachee said the data centre would be welcome news economically.
“From an economic point of view, if all goes well, you bring in money,” he said.
However, he said it was vital for any good engineer and system operators to protect the grid from collapsing and protect grid reliability.
“If you’re going to install 556MW of power, someone has to provide it.
“Maybe in the short term they will have capacity, but grid capacity would come into it.
“On the other hand, you don’t want to lose sight of the rollout of these data centres locally and nationally.
“From a strategic point of view, protecting the grid from collapsing is our main requirement.
“If we have capacity to cater for this 556MW, that is fine.
“But if you have run out of capacity and try to install it, that would be irresponsible.
“These risks needed to be mitigated against.
“Our grid is congested.
“It is a constipated grid.
“So, every electron we bring on, we must evaluate it.”
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