Saturday, October 24, 2020

BPC sells Morupule B to ‘bungling’ Chinese

Cabinet this week reached an agreement to sell the troubled Morupule B power station for an undisclosed bargain basement price, Sunday Standard has been informed.

Although information is still sketchy, sources close to the sale told this publication that the plant was being sold for about half its construction costs to China National Electric Equipment Corporation (CNEEC), the Chinese contractor that was commissioned to build the plant under controversial circumstances.

In a memo addressed to Botswana Power Corporation (BPC) staff, the corporation stated that over the past few months the company together with the shareholder had been looking at options of ensuring security of supply and making the corporation financially viable again.

The memo further states that the BPC has been running at a loss for the past eight years (since 2009) and given the pressure and competing priorities, the Botswana government can no longer sustainably support the corporation.

“It is on this note that the shareholder made a decision to sell one of the assets of the Corporation being Morupule B 600 MW Power Plant to ensure reliable power supply and reduce the Corporation’s debts,” reads the statement.

It states that Morupule B has proven to be costly to maintain and operate due to construction and equipment defects and the decision to sell the power plant will go a long way in alleviating this situation.

Documents passed to the Sunday Standard which are believed to have been part of the sale negotiations between government and CNECC reveal that the value of the plant had depreciated to almost half the P20-billion that government has already used in the construction and repair costs of the facility.

The Sunday Standard probe also turned up information that by 2014 when the Chinese contractor was kicked out of site, the plant which was initially budgeted for USD905.4million (P9.5 billion at current exchange rate) had already accumulated cost overruns in excess of USD1.660 billion (P17 billion). The current figure is believed to be much higher

Documents passed to the Sunday Standard suggest that Morupule B’s current value is less than half the close to P20-billion already spent on the plant and is believed to have been sold for less than the initial budgeted cost of P9.5 billion because its lifespan was badly compromised even before it was handed over to government in 2014.

Morupule B suffered a string of operational and maintenance failures using up its insurance spares and would have had to close down had one of the vital spare parts broken down.

A report compiled by the Chinese contractor between January and March 2014, before they left the site, suggests that everything that could possibly go wrong with the plant actually went wrong. The report reveals how Morupule B poor operating and maintenance (O&M) practice compromised asset management, cost government a lot of money and reduced the lifespan of the plant.

The contractor warned that although the plant operators were not familiar with the system, they ignored the manufacturer’s instructions on numerous occasions, threw out the operating manual and chose to fly blind.

Between January 1 and January 28th 2014 the Morupule B team had to shut down and restart unit 40 of the plant 10 times. This is by far in excess of the statutory requirement of once every two years. The shutdowns and restarts involve pressure tests beyond the ordinary operating pressure of the plant and speed up the wear, tear and fatigue of the plant. The Chinese contractor warned that “this kind of frequent shutdown and restart shall adversely impact the equipment life cycle especially for the heating surface and pressure parts”.

During the three months covered in the report, the Chinese contractor pointed out 25 operating and maintenance breaches which it warned would reduce the lifespan of the plant.

The Chinese contractor, however, absolved itself from plant’s operating and maintenance failures, claiming that during January 2014, they were not allowed to check the running status of the units although they issued three warning letters about the clutters coming from unit 10 and 40.

The valve boilers clutter indicated that the system was operating above the certified pressure. The contractor warned that the clutter may have been a result of the frequent lifting of the valves suggesting “a lot of over-pressure phenomenon.” They pointed out that this would reduce the lifespan of the safety valves “which are critical to the plant and very expensive” to replace. They further warned that “the over-pressure phenomenon shall lead to the leak and also reduce the life cycle of pressure parts” of the plant.

The report further reveals how Morupule B staff ignored the equipment operating manual. The boiler outlet temperature in one of the air duct burners was allowed to rise from 558 degrees Celsius to 1 151 degrees Celsius far in excess of the protection value of the outlets temperature which is 860 degrees Celsius, resulting in an explosion and fire outbreak. The shift staff, however, did not notice the fire for a long time. The refractory, the flexible junction and the cables were burnt “which shall cost a lot for the BPC to fix”, stated the report.

It has further emerged that two boiler FBHE fluidising fans were run at a current beyond that stipulated in the equipment manual. The fans were run at a current of 134 Amps while the stipulated current is 128 Amps. The contractor warned that this would destroy the motor and reduce the plant lifespan.

The contractor also warned that the outlet temperature in one of the air duct burners was allowed to reach a temperature of 1 203 Degrees Celsius far in excess of the outlet temperature protection value of 860 Degrees Celsius.

The boiler reheat temperature was allowed to reach 574 Degree Celsius at a pressure of 154 bar while the setting value of the reheat steam is supposed to be only 540 Degrees Celsius at a pressure of 138 bar. The contractor warned that the overheating would lead to deformation and leakage of the tubes. In addition this would adversely affect the equipment lifespan especially the heating surface and the pressure parts. Indications are that the overheating went on for a long time as it was noted during the inspection on January 27 and 28 and again during the March inspection for both unit 10 and 40.

The report further revealed how Morupule B staff pushed the voltage of the plant boards beyond the limit. “The voltage of boards for 6.6kV and 400v” were allowed to reach 7.00kV and 430V.  The contractor warned that the excess voltage would “destroy the electrical equipment and reduce the life cycle” of the plant.

Sunday Standard investigations have turned up further information that because of the frequent operating and maintenance failures, the plant has already used up its insurance spares increasing Morupule B’s risk profile.

An insurance spare is held by the company in its parts inventory that they would not expect to use in the normal life of the plant and equipment but if not available when needed would result in significant losses or even collapse of the company.

Insurance spares are more like the insurance you may buy to cover your house or car. You don’t want to claim on the insurance but you don’t want to be without it. Insurance spares are the ultimate as a ‘just in case’ inventory which may result in a collapse of the plant if they are not available when needed.

Morupule A for example still has insurance spares although it has been in operation for many years.

Botswana Power Corporation Workers Union (BPCWN) Secretary General Bahithetswe Lentswe confirmed that they were briefed on the imminent sale of Morupule B power station by the newly appointed Chief Executive Officer Dr. Stefan Schwarzfischer.

“BPC held a meeting with the union and the executive management to inform us about the sale of the plant. They further informed us that the decision was taken by Cabinet but they did not disclose the name of the buyer,” said Lentswe. 

He said the BCP management would not address some of the questions that they had raised. 

“We wanted to know the implications of the sale of the power station on the employees and who was likely to buy it. But the CEO and his management did not have answers. We then asked the Deputy Permanent Secretary (Gaollathe) Dipholo to request the relevant minister to come and address us,” said Lentswe. 

The power station was due for completion in October 15, 2012, but was eventually handed over to government on May 4, 2014, with a subsequent root cause analysis report fingering the Chinese for poor workmanship and quality of equipment.

The project has branched off into many controversies, and at some point CNEEC was reported to be blackmailing Botswana with a threat to pull the plug off the project or abandon it all together if they were not exempted from paying the P600 million they owe the taxman in value added tax (VAT).

The threat came after the Botswana Revenue Services (BURS) obtained a garnishee order allowing them to impound the CNEEC payment from the BPC.

Sunday Standard investigations turned up information that the BPC was forced to violate the High Court order and pay CNEEC because the Chinese company was threatening to either abandon the project or switch it off.

The Chinese company had initially approached government for a tax exemption. When their proposal was turned down, they then turned to the BPC to masquerade as the importer of construction material from China, thus offloading liability for VAT on the Botswana parastatal. Although the Chinese company has been claiming its VAT refunds from BURS, it has not been paying its share of VAT, which has accumulated to a staggering P600 million.

It has emerged that invoices for the project were generated in China and payments also made in that country where the financing bank is based, and invoices only presented to the BPC for purposes of issuing certificate to facilitate payments, cutting out BURS.

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