Revealed: Why Morupule B deal failed
Mbongeni Mguni | Friday August 24, 2018 18:00
In June, the Public Procurement and Asset Disposal Board (PPADB) announced that the deal had been scrapped at the request of the procuring entity, the Ministry of Mineral Resources, Green Technology and Energy Security.
At the time, Ministry officials were tight-lipped on the reasons, with an official response to enquiries reading: “Government’s options remain open”.
Government, as the sole shareholder in the Botswana Power Corporation (BPC), had been leading talks with China Machinery Engineering Corporation (CMEC), a state-owned company related to China National Electrical Engineering Corporation (CNEEC) which built the 600MW power station.
BusinessWeek has since established that the offer made by the Chinese fell short of what government felt Morupule B was worth, given the initial capital expenditure and subsequent expenses.
Built at a cost of P11 billion, Morupule B by last year had cost overruns estimated at P4 billion, with a root cause analysis placing the majority of the blame on CNEEC.
“The response was not good; the price was wrong and it was not attractive given the money we had spent,” a highly placed source close to the latest development told BusinessWeek.
“That was the main thing. We were also not happy with other commitments in terms of remedial work, or the technical work of making the plant good.”
BusinessWeek has established that beginning on January 1 next year, CNEEC will bear the costs of a P1.2 billion remediation of Morupule B, which will involve taking each of its four units down for a year, completely overhauling that unit, then putting it back online.
CNEEC is bearing the costs under a contractual clause in the original agreement.
Morupule A and the other units will plug the demand gap when each unit goes down.
“That was where government also could not reach an agreement with the Chinese. Government specified that even when the plant is sold, the remediation work must be done according to certain specifications, such as using certain world-class equipment and not necessarily equipment from China.
“The Chinese however wanted to retain the right to source the parts wherever they wanted, including from China and this was unacceptable to government, given the experience already with Morupule B,” BusinessWeek was informed.
Had the sale gone through without agreement on this particular point, CMEC would have been working with its fellow state-owned firm, CNEEC, to overhaul Morupule B using materials that could possibly plunge the country back into an electricity supply crisis, insiders warned.
The veil of silence around the multibillion pula deal continued this week, with scant official information being availed.
PPADB officials, in an emailed response to enquiries, said the Chinese firm had not met the requirements, but referred further questions to the Ministry.
“So far, PPADB has not received any appeal from the bidder on the decision,” the officials said in a brief response this week.
Minerals permanent secretary, Cornelius Dekop said decisions on the future of the troubled power station would be made after the remediation is completed.
“It remains an asset of government and the Botswana Power Corporation until the day comes when we decide what to do.
“Disposal of assets is a standing government policy, from buildings to others, but for now Morupule B is a government asset.
“An attempt was made to sell it off and it was not successful,” he told BusinessWeek on Wednesday without elaborating.
The BPC is spearheading efforts to assess Morupule B’s future, with a commercial case due to be presented by management to the Board.
BPC CEO, Stefan Schwarzfischer told BusinessWeek the focus was on the remediation for now.
“It’s up to the BPC to come up with suggestions on how to move forward and we are discussing internally with our board, which will then move to the Ministry, then Cabinet.
“I cannot comment on any possible outcome. The decision is finally made by Cabinet.
“Ours is to look at the commercial case and present it to our board, then they will present to the Ministry,” he said.