Mmamabula delay to slow Botswana power plans

cic_energy_botswanaThe delay in the signing of a purchase agreement between regional power giant, Eskom of South Africa and promoters of the Mmamabula Energy Project (MEP) is poised to setback Botswana's ambitious plans to address its power demand and supply mismatch in the medium to long term.

The snag will result in the delay of the date in which MEP is supposed to start operating, further complicating power shortages in Botswana. Things might worsen after Eskom’s announcement last week that it is not ready to commit to purchase power from the P22 billion MEP. Eskom is supposed to purchase 75 percent of MEP’s initial 1,200mw scheduled to come on stream in 2013 while Botswana Power Corporation (BPC) takes 25 percent.

Despite the seeming lack of commitment from Eskom, the Botswana government and CIC Energy, the promoters of MEP say there is no cause for alarm. Botswana government MEP coordinator, Modise Modise has said that though there will be a delay of several months in the completion of the project, there is no reason to worry.

He said the region needs MEP to address its power demand and supply mismatch and it is too early to say when Eskom will finally commit to the deal. He added that at this time, is not possible to speak about what will happen if the off-take agreement with Eskom and BPC does not materialise.

Modise could not disclose whether BPC has had an agreement to purchase power from MEP or what will be the alternative for BPC given that it is a minority stakeholder in the project. “Project sponsors are negotiating with Eskom and BPC. Eskom is earmarked to take 75 percent of off-take and BPC the remaining 25 percent. There is no point in either off-taker signing a Power Purchase Agreement (PPA) at its own time, as the project would not be whole. Botswana remains keen to see the MEP executed. Details of negotiations with BPC cannot be disclosed.

“The question of alternatives in the event Eskom pulls out of the MEP is speculative at this stage. All concerned stakeholders are committed to further engagement and seeing the project developed to fruition at the earliest possible opportunity, subject to resolving the funding structure and agreeing suitable terms and conditions,” said Modise. He stated that MEP’s output has been factored into meeting the region’s demand and supply mismatch.

However, what could be more worrying for CIC and Botswana, which is only a small player in the project, is that Eskom apart from MEP, is currently engaged in numerous other Independent Power Projects (IPP) and this could be the reason why they cannot commit to MEP at this point.

Some are even questioning whether Eskom truly remain committed to the acquisition of private power, especially in light of the fall in demand as the economy is slowing due to the global recession.

Eskom spokesperson Fani Zulu was quoted by Engineering News Online saying that they had written a letter to CIC Energy indicating that it could not, at this time, commit to the proposed tariff offer until such time as there was greater certainty on whether such a contract would be financially sustainable.

Zulu said that the offer is materially higher than the price currently sanctioned by the National Energy Regulator of South Africa (NERSA), which recently granted Eskom a 31.3 percent tariff increase. He refused to speculate on whether any independent power producer contracts will be concluded this year.

CIC president Greg Kinross is optimistic that the project and funding preparations are proceeding well for the Morupule B coal power station and MEP. “We do not believe that any of the project fundamentals and compelling advantages of the MEP have changed as a result of this development, other than the additional time that is likely to be required to reach conclusion, which we are currently evaluating,” Kinross said.

Eskom started cutting down power supply to Botswana last year and the MEP along with other projects such as the Morupule B have been earmarked to address local and regional power shortfalls. Statistics from the Botswana Ministry of Minerals, Energy and Water Resources indicate that the country’s energy needs rose to 610mw in 2009 from 530mw, above a planned capacity of 510mw in 2009. This deficit is forecast to widen even more in 2010, with available capacity standing at 445mw and demand at 670mw.

Mmegi Online

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