Tuesday, October 19, 2021

Botswana in fresh multi-billion power project blunder

History seemed to be repeating itself this week: Government awarded the P 8, 7 billion Morupule B phase 11 tender to a consortium of South Korea’s Posco Energy Company and Japan’s Marubeni against expert advice.

Documents passed to the Sunday Standard revealed how the Ministry of Minerals Energy and Water Resources (MMEWR) ignored expert advice from two reputable international consultants, Team Delphos International (TDI) and Aurecon and went ahead to award the tender to Marubeni & Posco Energy.

The consultancy reports which were passed to the ministry revealed that the consortium cheated its way to the multi-billion Pula tender and would not deliver the plant envisaged by Botswana.

The two consultancy firms instead recommended Kepco which they maintained would deliver the right plant in a period of about 11 months shorter than Marubeni & Posco Energy. “If this is converted to cost, Botswana Government can enjoy much more economical benefit when they chose KEPCO” states the report.

The decision to award the tender to the consortium, however, means that government will not be able to deliver the project in 2018 as promised by President Lt Gen Ian Khama and Minister Kitso Mokaila

The consultants also established that the proposed plant by Marubeni & Posco was in breach of allowable maximum capacity and will result in a P400 million (US$40 million) cost overrun.

It also emerged that the consortium cheated its way through the evaluation process. It omitted to include its project deviations in envelope 1 (technical proposals) and only included them in envelope 2 (financial proposals) after it had passed the technical evaluation. “That is very vicious trick to pass the technical evaluation and make their final tariff unreasonably low. But there was no consideration on that during the evaluation process” states a consultancy report under the headline: “Summary of problem (concern) on Marubeni & Pasco Energy (MP) bid evaluation.”

The report highlights Marubeni & Posco Energy’s 34 deviations stating that “some major technical deviations are totally unacceptable to Botswana government. And these are very critically linked with their low tariff and impossible to withdraw it even though they committed to withdraw through 3 times clarifications.”

The tariff rate is a very crucial business and political consideration: In a notice published in the Daily News last week, the PPADB stated that a joint venture between Japan’s Marubeni and South Korean, Posco Energy has won the bid to expand the Morupule B Power Station by a further 300MW. The consortium will supply Botswana Power Corporation (BPC) with power over a 30-year period at a cost of P812.56 per Megawatt hour.

Construction of what would be Botswana’s maiden project under the Independent Power Producer (IPP) model is expected to start late this year with the first electricity kicking into the national grid by May 2020.

“$600 million will be financed by Export-Import Bank of Korea, Japan Bank for International Cooperation (JBIC) and an international commerce bank through project financing.” Unlike in the 600MW Morupule B plant, in which government funded the project for $970 million, construction of the new 300MW, will be solely funded by the developers. The companies will then recover their costs by selling power to the BPC through a 30-year Power Purchase Agreement (PPA).

Aurecon supported Team Delphos International (TDI) recommendation that “it is impossible to recommend Marubeni & Posco Energy as preferred bidder because their deviations are very variable and give big impact on their cost.” The two consultancy firms which were engaged to advice government expressed concern that the Ministry seemed determined to award the tender to the consortium without first clearing outstanding issues on their project deviation. The report further highlighted a number of “critical deviations” by the consortium stating that the ministry only focused on the company’s initial tariff comparisons and turning a blind eye to Marubeni and Posco Energy’s “tricky deviations.”

It further states that “the number and extent of Marubeni’s deviations make it impossible to recommend its candidacy as a preferred bidder in the absence of further clarifications”

An energy expert who assessed the document said it was near impossible that Marubeni would be in a position to deal with the 34 deviations on time. “For them to deal with all the problems associated with their bid they will need a complete overhaul of their proposal and that means at least a whole year. Why wait that long when there is a bidder who has 2 otherwise inconsequential deviations?” he asked.  It has also emerged that the proposed Marubeni &Posco Energy construction model will not have back up plans in the event that there are problems with the units. The backup-referred to as redundancy- was a must in the RFQ (request for quotation) but the MP bid has no redundancy. Lack of redundancy means if there is something wrong with the units, the country will experience power cuts.” The energy expert explained. For MP to include a redundancy will mean an extra cost to the Botswana government “having no redundancy is like selling a car without wheels and then charging extra to put on wheels, it’s not how such plants are constructed” he added.

A leaked memo which has also been passed to the Sunday Standard points to an alleged discomfort my some MMEWR engineers over the Marubeni & Posco bid. A source at MMEWR says eyebrows were raised further when just 72 hours after TDI delivered its report to MMEWR MP announced that they have been appointed preferred bidders. The Korean Herald reported on the 2nd November 2015 that Marubeni & Posco were the preferred bidders.  “This is a ploy to attract investors. Negotiations were ongoing when that story ran. Why would they think they were the preferred bidders?”

Briefing the media in Gaborone last week, the minister of Minerals Energy and Water Resources, Kitso Mokaila said Botswana is set to become a net power exporter in the next three years when three projects that are currently underway are completed.

“We have also awarded the tender for the refurbishment of the 130MW Morupule A power station. Works have already begun and we plan to have the three of the four 33MW units running before year-end.

“We expect to be producing about 1020 MW by 2019. Currently our power demand stands at 600MW and is expected to rise to 700 by 2019. This should leave us with a surplus of over 300MW which we can export into the region,” he said.

The tender to refurbish the 120MW Morupule A power station was awarded to South Korea’s Doosan Heavy Industries at a cost of $204 million also under controversial circumstances.

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