Botswana and the rest of the SADC region have been urged to adopt the Independent Power Producer (IPP) model as the continued monopoly of state power utility Botswana Power Corporation (BPC) has failed to deliver power, therefore threatening past economic gains.
The plea came from Managing Director at Norconsult Africa, Tore Horvei–who has insight knowledge of the regional politics that led to the failure of Mmamabula Energy project. The former CIC Energy’s Chief Operating Officer (Projects) says the IPP model is the in-thing around the world and it offers strong performance delivery compared to utilities like Botswana Power Corporation (BPC) or Eskom.
“BPC is losing P1 billion every year; something needs to be addressed quickly,” Horvei told the annual Botswana Resource Sector Conference. “The cost of power is rising even in South Africa which used to be at the bottom of the power curve cost”.
There are several operational IPP projects in the continent despite challenges like lack of clear procurement frameworks and some utilities not being the best clients. The model is working in Zambia, South Africa and Mozambique in the region, but not happening in Botswana. In South Africa alone there are 65 projects across all sources of energy, including renewable, that strive to deliver to the grid. Since the failure of Morupule B, BPC is desperate to meet national demand and has now resorted to short term power solutions that have led to the corporation losing millions of Pula annually paying for diesel powered contingency plants.
“If we do not plan well, we resort to short term solutions. This is a lucrative business, but at very high cost to the economy,” argued Horvei. “This is bleeding BPC and Botswana; you need to get out of it.”
CIC’s Mmamabula project, which could have been a bellwether to the IPP sector, ended up being a disaster that Horvei hopes will be provide hard lessons from mistakes that will not be repeated.
However, Horvei warned that IPPs are high risk compared to state utilities—therefore they require higher equity return. They also need longer Power Purchase Agreements (PPA), for example, 10-15 years for renewable energies and 20-25 years for base load IPPs. They also need supportive host governments with clear policy commitment to the development of IPP’s. He said opportunities exist in Botswana where demand stands at around 650 MW and additional capacity is needed. But with demand growth of 5 percent per year including necessary reserve margin (+15 percent); the system requires 750 MW capacity. CIC Energy spent $CAD100 million trying to put up an export (1200MW)
and domestic (300MW) energy project at the complex it was developing in Botswana, but were denied by regional politics. The reluctance by South African and Botswana governments to sign power purchase agreements led to the failure of the project.
“Mmamabula failed because of political reasons. CIC (then) wanted a solution at Mookane, but it failed on the sponsor side,” admitted Horvei. Although Mmamabula sits on large coal resources, its power export project cannot go ahead until Eskom signs Power Purchasing Agreements (PPAs) as almost 75 percent of the electricity will be channelled through the Eskom grid.
Initially, the project was to produce 2400 MW of electricity, but was last year scaled down to 1200 MW as the cost shot past the P100 billion mark, which was made worse by the tough Engineering, Procurement and Construction (EPC) market. Botswana was one of the early IPP movers in capacity expansion, but the failure of Mmamabula meant the country lost steam. However, things could change with the appointment of a Management Contractor at BPC, which releases the burden on state utilities to lead the expansion.
“Relying on BPC to lead capacity expansion is risky,” he said. “BPC’s role in future generation expansion should be revisited,” he added, saying other energy sources like solar and gas should be considered. Horvei said Botswana has large and diverse energy resources which should now be exploited even for export.
“The time is ripe for decision making. What we need is to act and get things done and stop talking about things,” he said.