Government this week assured CIC Energy and investors that it is still behind the Mmamabula Energy Project that will eventually narrow trade deficit between South African and Botswana, despite stumbling blocks in Pretoria.
The Botswana and Canada-listed company this week, out of frustration and tedious regulatory process in South Africa, decided to shelf some of its plans with talk in the grapevine that the project ‘might be put on ice’.
Minister of Minerals, Energy and Water Resources, Ponatshego Kedikilwe, told legislators this week that government has been given assurance by the Public Enterprises minister about South Africa’s continued interest in the project.
“The government of Botswana remains committed to the development of the country’s vast coal resources as part of the diversification of the country’s economy,” said Kedikilwe.
“…I wish to emphasise that this hiatus, unfortunate as it is, does not mean the Mmamabula Energy Project is being shelved. The government will continue to actively encourage the development of the project as well as viable use of the abundant coal resources.”
Although Mmamabula sits on large coal resources, its power export project can not go ahead until Eskom signs Power Purchasing Agreements (PPAs) as most 75% of the electricity will be channeled through its grid.
Botswana Power Corporation (BPC), the local electricity utility, as another off taker, on the other hand can not sign its PPAs with CIC Energy because it will consume a fraction of the power.
South Africa has released an overview of Integrated Resourced Plan 1 or IRP 1, which spells out the government’s policy on the build programme for the electricity generation capacity during the next three years or April 2010-March 2013.
However, the minister revealed that Mmamabula falls outside the IRP 1 horizon because it is expected to deliver power in 2014 with the 20 year IRP 2 expected to be finalised next year.
“This therefore means that there will regrettably be an inevitable delay to the implementation of the Mmamabula Energy Project”, stated Kedikilwe.
Although not being specific, the company said Monday night it was deferring certain financial, legal and engineering activities related to the mega power project in Africa.
CIC Energy as the promoters of the project last year made significant appointments including the London based investment bank, NM Rothschild and Sons (UK), as its financial advisors for the envisaged power plant.
Other companies doing business with the company include Absa Capital, a division of Absa Bank Limited and the Standard Bank of South Africa Limited, two leading South African banks that were appointed as mandated lead arrangers for the commercial bank facility and the Export Credit Insurance Corporation of South Africa (Pty) Ltd portion of the debt financing.
The latest blow is the mirage of migraines that Mmamabula is suffering from as previously the project was downsized because of costs.
Initially, the project was to produce 2400 MW of electricity, but was last year scaled down to 1200 MW as the cost past the P100 billion mark, which was made worse by the tough Engineering, Procurement and Construction (EPC) market.