SA power tender lights up coal sector
Mbongeni Mguni | Friday September 11, 2015 14:26
According to experts, even if one of the three companies secures half of the supply contract on offer, or 300MW, the project will still rank among the largest in the private sector, in terms of capital investment.
At present, experts conservatively estimate that for every megawatt of coal-fired electricity, developers need to invest US$2 million (P20.8 million) in capital costs, meaning the 600MW project will require at least US$1.2 billion (P12.5 billion).
On August 31, South Africa’s department of energy closed the window for submissions of bids in its 2,500MW coal baseload Independent Power Producer programme. The 600MW tender exciting local coal juniors is the ‘cross-border’ component of the programme.
Shumba Coal, African Energy and Jindal Africa are leading the local charge for a share of a contract that promises hundreds of jobs, skills development and other economic spin-offs for Botswana.
Already, all the three have roped in South African partners – by way of varying arrangements – in order to better position for the contract, whose winners will be required to supply the power by December 2021. “That’s a huge investment.
“If companies here can get even half of that, it will represent billions of pula in investment in power. Even though the supply will be going outside the country, this is a very good economic opportunity that the industry here should be very happy about.”
Shumba Coal finance director, Thapelo Mokhathi is speaking in front of a roomful of coal sector stakeholders who represent the battle-weary survivors of the troubles on the local coalfields.
The eastern coalfields have had very little to be happy about in the decade or so that its most active explorers have been on the scene. For a region known to contain at least 23 billion tonnes of indicated coal resources – according to government’s Coal Roadmap – a series of setbacks over the years led to the exit of many and the financial disappointment of even more.
The most famous of these setbacks, Eskom’s ‘betrayal’ of CIC Energy in July 2009, is still the subject of debate and a sore point for Batswana. Eskom, in July 2009, rejected CIC Energy’s tariff proposal for electricity from the Mmamabula Energy Project, leading to its mothballing in December 2009 as Eskom had been targeted to take up 75 percent of the project’s output.
The delay in the Trans-Kalahari Railway project and the lack of any other viable coal export route also threw many players under the bus, leading survivors to view power generation as a more viable option.
According to Mokhathi, lessons have been learnt. “We have discovered that for coal (exports) to be sufficiently commercialised, it must be underpinned by power,” he explains.
“The power allows us to take care of the middlings that come up from the washing of coal and this would, in turn, allow the export business to grow. “Unlike before, we were working on assumptions, but now there’s certainty about the need for electricity.”
For government, which has historically been quick to support all endeavours on the eastern coalfields, the three companies’ bids are in line with the Coal Roadmap, the blueprint for the extraction of value from the country’s coal resources. According to the plan, government wants all power players to first make available domestic generation of 1,200MW, before looking across borders.
At present, the various projects underway, which include expansion of Morupule B, the 300MW greenfield, at least 200MW in solar power easily surpass the 1,200MW cap.
“When we reach 1,200MW we will be at what the economy can take for the next 10 to 15 years,” says Minerals, Energy and Water Resources deputy permanent secretary, Nchidzi Mmolawa.“We have (thus) given three companies support letters to try their luck in South Africa for the power tender.”
Luck may not be a factor, however, as the three Botswana-based companies are miles ahead of their rivals by all accounts. Among them, Shumba Coal, African Energy and Jindal have some of the region’s most advanced power projects with detailed geological, technical and financial studies complete. They also boast billions of tonnes of easily accessible coal.
In addition, the three projects sit on the border with South Africa, close to the connecting transmission lines that will enable them to supply their power to Eskom faster and for less.
“We are sitting in a very good position as a country in terms of our coal resources and it’s important that there’s coordination,” says Mokhathi. And there is even more reason to be confident. Both Eskom and the Botswana Power Corporation (BPC) have committed to a grid expansion project known as the Botswana–South African Interconnector or BOSA.
The project, tagged as strategic by the Southern African Power Pool, will decongest the existing Matimba–Phokoje–Insukamini line and increase avenues for regional electricity trading, the BPC says. Even with bitter memories from the numerous disappointments, for investors in the three local bidders a new ray of hope is filtering through.