CIC Energy officials were this week over the moon after the South African government published Electricity Regulations on New Generation Capacity that may pave way for the conclusion of Power Purchase Agreements (PPAs) with Eskom.
Gregory Kinross, the company’s CEO, said in Gaborone on Friday that funding model for Eskom in relation to power purchased independently is the only stumbling block for the Mmamabula Energy Project (MEP).
“The key issue is the approval of PPAs,” Kinross told journalists from Gaborone and Pretoria.
“The project (MEP) is not bankable without the two contracts,” he added.
CIC last March formally submitted PPA offers to Botswana Power Corporation (BPC) and Eskom for a 30 year agreement, but one submitted to the South African electricity utility has been hampered by lack of clear Independent Power Producers (IPP) framework.
In Botswana, Mmamabula helped in the development of a legal framework for IPP, which is now subject to implementation by the government. Kinross revealed they are working with government for Implementation Agreement.
Eskom finds itself in a precarious situation because a funding model is being sought that might delay PPA although the utility company needs electricity from different sources to meet its needs.
“The issue now is not Mmamabula, but the Eskom model of funding,” Kinross added saying the coal field is well proven and the coal is suitable for the boilers.
On the other hand, Kinross stated that BPC could only approve its PPA after Eskom approval because 75 percent of the electricity will be sold to South Africa while 25 percent is destined for the BPC grid.
“The government of Botswana supports MEP. BPC awaits the outcome of Eskom process because an Eskom PPA is required for the project,” he stated.
It is anticipated that the South African government approval of Eskom funding model could be completed by September that will lead to financial close by first quarter of 2010.
Kinross downplayed the possibility of the South African government declining PPA saying they are on the forefront of filling the demand gap saying they could do something with the huge coal deposits (over 2 billion tones in reserves).
“No is not a possibility,” he said. “But if it is a no, we can do something with coal deposits.”
“Eskom has two power projects in the pipeline, but there is still a need for Eskom to have a private sector projects. We are in front of the queue opportunity,” added Tore Horvei, CIC’s Chief Operating Officer (Projects).
The officials added that the discussions they had with the South African government was that Mmamabula was ahead of other IPPs.
“Eskom is likely to approve a third power station and, if so, we will be ahead of Eskom inbuilt,” added Kinross.
Kinross said that the new Electricity Regulations on New Generation Capacity published in the Government Gazette of August 5 ‘is a very positive’ step that they have been waiting for.
The regulations are expected to, amongst others, facilitate fairness and non discrimination between the IPPs and buyers while at the same time calling for the regulation of entry of buyer and IPP into a PPA.