The Mmamabula power project is being hurried after it suffered setbacks last year when power off-takers Botswana Power Corporation (BPC) and Eskom declined to underwrite risk at the back of escalating costs of the project.
This week the promoters of the project, CIC EnergyÔÇölisted on the Botswana Stock Exchange (BSE) —revealed that the expectation is to complete the Power Purchase Agreements (PPAs) and financing this year.
“These bids are being reviewed by the management team and board of Eskom and BPC and the outcomes of this process are expected in the second calendar quarter of this year,” Greg Kinross, President of CIC Energy said in a statement.
The proposed PPAs are for 30 years.
The move follows the formal award of an Engineering, Procurement and Construction (EPC) to Shanghai Electric Group.
The developers last year signed a preliminary agreement with the Chinese outfit immediately after another EPC contract for Morupule B was awarded to China National Electric Equipment Corporation (CNEEC), another Asian company.
“With the EPC contract signed, we are on-track to complete the Power Purchase Agreements and financing this year for the Mmamabula Energy Project,” added Kinross.
Last year, the promoters failed to reach an agreement on risk allocations for a turnkey EPC contract with the two power offtakers BPC and Eskom and terms acceptable to lenders.
The risk allocation agreement was crucial in order to enable sponsors and EPC contractors to secure manufacturing slots at a time when competent contractors are limited with a long queue for their services.
The initial deadline to reserve the slot was 30 May 2008, but the minister went to Germany where he successfully persuaded the possible EPC contractors to extend the deadline to June 17.
Commitment and reservation fees that sponsors needed to pay totaled 42 million euros or P434 million (at the exchange rate at that time).
When the project is complete, BPC is expected to get 25% percent of the export power share while Eskom will import 75%.
Eskom Enterprises MD, Brian Dames, told the South African Mining Weekly last year that: “There was an issue on price, but we were extremely close to a deal. They then came back to me last week to say they were now not sure when their mine could be built as they were battling with prices from their suppliers.”
Kinross said this week that as is typical for an Independent Power Producer (IPP) project, the EPC contract is a lump sum turnkey contract involving engineering, procurement, construction, testing and commissioning.
CIC Energy plans to finance the project with funds from Development Finance Institutions (DFIs) like Industrial Development Corporation of South Africa Limited, Development Bank of Southern Africa Limited, IFC and African Development Bank.
It will also be financed by certain export facilitation banks like the Export-Import Bank of China (CExim) and South African and other commercial banks. The first phase is expected to cost around $3 billion or P23 billion.
The planned capacity of the Mmamabula Energy Project power station will be approximately 1,320 megawatts (MW) (gross) or 1,200 MW (net) comprised of two supercritical 660 MW units (gross).
The technology used will be air-cooled to conserve water, supercritical boilers will be used for higher efficiency and flue gas desulphurisation will be used for sulphur removal.
Shanghai Electric is said to have operational power plants and has a relationship with Siemens, which was previously rumoured to be in talks with CIC Energy for Mmamabula development.
It ranks amongst the largest manufacturers of power plants in the world, having sold 30 000 MW in 2007 comprising units of between 300 MW and 1000 MW each.
It also uses the technology base from Siemens/ Westinghouse, Alstom and Foster Wheeler.
Actually, Siemens owns 32% of Shanghai Electric turbine factories with most of the company’s power plants under the license of Siemens. It accounts for 35% of every new power plant built in China.
Kinross said that Shanghai Electric will control supply chain. “Shanghai Electric controlling the supply chain is advantageous. Asian contractors are quicker and that is why we are bullish on the timetable,” said Kinross, adding that there are 60 power plants of their configuration in China.
“They do not contract out and that is why they gave terms that are bankable,” he said.