Government is plotting a way out of the Morupule B 5&6 multi-billion Pula lopsided agreement with Japanese contractor Marubeni Corporation.
Botswana Power Corporation (BPC) last month sought legal advice from Lawrence Khupe Consulting on circumstances under which their agreement with Marubeni Corporation “can be renegotiated and/ or alternatively terminated.”
BPC Chief Executive Officer Chief Executive Officer Dr. Stefan Peter Schwartzfischer who is worried that the Marubeni agreement will bankrupt the corporation wrote to President Khama last week 6th June, proposing a plan to wiggle out of the contract.
In proposing what he called scenario 1, Schwartzfischer states: “the signed PPA for Morupule B5&6 cannot be terminated except under the default by the seller. Therefore, the contract needs either to be renegotiated or government does not provide the required guarantee in which case the project will not be realized.”
Schwartzfischer has also proposed that “instead of paying for surplus capacity over the next 20 years, (approx BWP 2 billion per year) government should terminate the sale of Morupule B and “invest in the Morupule B defects remediation project (approximately BWP 2, 5 billion), which is a once off cost. In addition amortize the Morupule B loan over the next four years (total BWP 6 billion.)
The Morupule B 5&6 agreement which seems loaded against government is also being questioned by the Minister of Finance and Development Planning, Kenneth Matambo and his counterpart in the Ministry of Mineral Resources, Green Technology and Energy Security Sadique Kebonang.
Permanant Secretary in the Ministry of Finance and Development Planning, Cornelius Dekop has asked the Ministry of Energy Security to investigate the financial implication of the project on the economy.
Marubeni Corporation through their lawyers Minchin and Kelly wrote to Vice President Mokgweetsi Masisi asked him to intervene and save the project. Kebonang wrote back on June 14th stating, “as explained to your Mr Narita on the 29th May 2017 and to the project sponsors and the lenders, during the meeting that I held with them in London on the 27th april 2017, the government is still reviewing various aspects of the project. As the review process is still ongoing the executive Branch of government is not able to take to take any decision during the course of this week.
Documents passed to the Sunday Standard detail how Japanese contractor Marubeni Corporation and its politically connected citizen partners have trapped government into a lopsided contract with significant windfall profits at the expense of the tax payer and the BPC.
Marubeni Corporation has been awarded the tender to expand Morupule B power plant by another 300MW (Unit 5&6). The Sunday Standard has in its possession a letter from BPC Chief Executive Officer Dr. Stefan Peter Schwartzfischer dated 6th June 2017 warning President Khama about how the Morupule B5&6 unconscionable contract with Marubeni Corporation will cripple the BPC and the Botswana economy.
Schwartzfischer took issue with the firm Purchase Power Agreement (PPA) between government and Marubeni Corporation. The tariff structure of a Purchase Power Agreement (PPA) comes mainly in two forms; a firm (take and pay) and a non firm (pick and pay). The disadvantage of a firm PPA is that the buyer pays for 100% of the power generated whether used or not, while a non-firm PPA is favourable to the buyer as the buyer pays only for utilized capacity.
The BPC boss came up with a six year projection of the financial burden on BPC which will arise from the firm PPA agreement between government and Marubeni Corporation. Botswana’s demand forecast indicates that the country will have surplus generation capacity from year 2020 and in that year, BPC will lose P1.9 billion in payment for surplus electricity it does not need. In 2020 BPC will pay P1.95 billion for the electricity it will buy through the firm PPA instead of the P 26 million it would pay for its electricity needs under the favourable non-firm PPA.
Government officials who negotiated the project also undertook to provide a sovereign guarantee to the contractor to raise a loan for the project. The project which is Botswana’s first Independent Power Producers (IPP) project where the contractor funds construction of the power station and recoup their investment from selling power to BPC was supposed to have commenced four months ago but has stalled because government will not provide the sovereign guarantee.
The Japanese contractor is demanding a P8.5 billion ($804 million) surety upfront as security for any potential payment defaults by the struggling Botswana Power Corporation (BPC).