Saturday, September 19, 2020

Men separated from boys as Chinese contractors flood energy projects

JOHANNESBURG: At a time when the credibility of most Chinese contractors is questionable, it seems the preferred Engineering, Procurement and Construction (EPC) contractor for Mmamabula Export Power Project is not in doubt because of its track record and relationship with heavyweight Siemens.

Developers of Mmamabula said this week that they have identified Shanghai Electric Group as a preferred EPC contractor bringing hope that the project is on track after a set back early in the year.

The President and CEO of CIC Energy, Gregory Kinross, explained that after a preliminary agreement with EPC contractor, they are bullish about the project taking off.

“The project will be built of lump sum turnkey basis. That is how they (Shanghai Electric) will build the project. Turnkeys are quicker to implement,” Kinross said.

The announcement of the preferred EPC contractor for Mmamabula follows on the heels the controversy surrounding the announcement of China National Electric Equipment Corporation (CNEEC) as EPC contractor for Morupule B project.
Allegations are that CNEEC has no track record to undertake a large project as Morupule expansion and government of Botswana was even advised by the Chinese Embassy. According to the Botswana Power Corporation (BPC), Morupule B is 600 MW (4×150 MW units) coal fired, air cooled power plant adjacent to the existing 132 MW Morupule A.
However, Shanghai Electric has excited the market with its track record. Apart from it having operational power plants, it also has a relationship with Siemens, which was previously rumoured to be in talks with CIC Energy for Mmamabula development.

Shanghai Electric 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 uses 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 of 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 added.

Developers of Mmamabula will initially start with a power plant with a net capacity of 1320 MW, which is far less from when the project was conceptualised.

Initially, the energy project was supposed to be a mega power station with two phases with Phase One comprising a mine producing 10 million tonnes a year supplying a power plant of approximately 2, 400 MW.

After the preliminary agreement with the Chinese contractor, CIC now has to approach Botswana Power Corporation (BPC) and Eskom, who are the two power offtakers.

The majority of power will be sold to Eskom. CIC Energy in June failed to reach an agreement for a turnkey EPC contract on terms acceptable to lenders and failed to agree a risk allocation with BPC and Eskom, which was important to secure a manufacturing slot.

Sponsors needed to pay a reservation fee of 42 million Euros, which they considered too high and risky and that was when they approached the two governments. The two governments of Botswana and South Africa that own the two power offtakers felt that the money was too much.

CIC Energy has to conclude EPC contract terms first with Shanghai Electric, which is key to concluding agreements with electricity offtakers and lenders. Jennifer Feinberg, CIC Energy’s Executive Vice President-Finance said that the Shanghai Electric offer is more competitive than the previous one made by the contractor they negotiated with.
With concerns over the Chinese contractors’ bad environmental issues, CIC Energy Chief Operations Officer (Projects) Tore Horvei said they have decided to make Shanghai Electric comply with International Finance Corporation (IFC) environmental rules.

When operational, Mmamabula project will employ 1, 000 workers although some skills that are not available locally will be sourced from abroad. At construction stage, Horvei revealed that they want to make sure that the project benefits Batswana.

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