Mmamabula ready to go by mid-year

Brendan Ryan | Wed, 11 Feb 2009 16:21

[miningmx.com] -- CIC ENERGY is on track to achieve financial close for its proposed Mmamabula power station project in Botswana by mid-year according to president Greg Kinross.

Addressing the Mining Indaba conference being held in Cape Town today Kinross said construction of the 1,300MW first phase of the coal-fired station at a cost of US$3bn would begin during the second half of 2009.

Coal production from the mine which will ultimately supply 6 million tonnes (mt) annually to the power station will start in 2011 with the first generating set due to be commissioned in early 2013.

The second generating set will be up and running four months after the first is commissioned.

The key development which must take place before financial close can be achieved is the signing of power purchase agreements (PPA) with Eskom as well as the Botswana Power Corporation (BPC).

CIC Energy was forced to drastically revise its original plans for Mmamabula last year after it was unable to agree terms with Eskom over the allocation of the financial risk associated with the project.

The allocation of financial risk has an impact on the electricity tariffs that have to be negotiated in the PPA.

Under the terms for the new project the financial risk will be covered by the preferred engineering, procurement and construction (EPC) contractor which is the Shanghai Electric Group.

Kinross said “good progress” was being made on the PPA negotiations with Eskom and the BPC.

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He commented, “the main issues to be agreed are the tariff and the terms and conditions of the agreement. We made considerable headway on these issues with Eskom over the past year. I am hopeful that we will conclude the PPA before mid-year.”

Kinross said CIC Energy projections on future power supply in South Africa still showed a hefty deficit over the next 20 years even after allowing for the current slump in demand which he described as a “two year breathing space for Eskom.”

The CIC Energy projection took into account Eskom’s stated desire to establish a 15% generating margin.

It dropped expected growth in gross domestic product (GDP) to 2% annually for this year and 2010 and assumed a recovery to 5% growth in GDP by 2012. Electricity demand was forecast to be flat to the end of 2010 after which it would rise at a rate equivalent to 84% of forecast GDP growth.

Kinross commented, “New capacity expansion requirements in Southern Africa are in excess of 1,500MW per annum for the next 20 years of which more than 1,300MW is in South Africa alone.

“National power utilities in Southern Africa are facing financial constraints which means there is a significant role for private independent power producers to complement utility investment programmes.”