Morupule B expansion stalled as contractor demands P8bn surety
Brian Benza | Thursday April 13, 2017 18:00
Unit 5 and 6 is Botswana’s first Independent Power Producers (IPP) project where the contractor funds construction of the power station and recoup their investment from selling power to BPC.
Construction of the plant was supposed to have started four months ago but in what is likely to be an embarrassing case of oversight by government officials and their legal advisors, it has emerged that a provision to award a sovereign guarantee to the contractor was erroneously included in the tender. This goes against government policy, which stipulates that Botswana does not offer such kind of security.
“Marubeni had stated that they would start construction as soon as we sign the Power Purchase Agreement, which we did in December. When we expected them to start works in January, they then turned around and demanded we pay sovereign guarantee upfront, which was a surprise to us. As a government, our policy is that we offer any other kind of guarantee or support agreement but not sovereign guarantee, which gives the contractor powers to grab any asset of the state when BPC defaults. I am not sure how the sovereign guarantee was included in the tender. It was an oversight on our part as well as our legal advisors. I only discovered this yesterday after going through the original tender documents,” Minister of Mineral Resources, Green Technology and Energy Security, Sadique Kebonang said on Tuesday.
Marubeni won the contract last year together with South Korea’s Posco Energy, which will carry out the operations and maintenance of the plant.
According to the agreement, the Asian firms will recover their costs by selling the power to the BPC through a 30-year power purchase agreement at a cost of P812.56 per MegaWatt hour.
If construction had started on schedule, the first power from the plant was envisaged to kick into the national grid by May 2020, lifting the national power generation to more than 1,000 MW.
“If our negotiations to find an amicable solution are not successful, I will then need parliamentary approval to grant such a guarantee which we can now only do in the next session in July. But there are chances that Parliament can reject it as they would have to look at things such how many jobs are going to be created by the project for us to commit such a large amount of money. Remember we could not afford the P7 billion that was required to save BCL which employed over 5,000 people,” he said.
According to Kebonang, a sovereign guarantee would mean Botswana deposits $804 million into an independent escrow account which Marubeni can recall even after a month’s default by BPC.
Marubeni insistence that government pays the P8.5 billion sovereign guarantees could be driven by BPC’s current precarious financial position.
Dogged by huge operational losses, BPC has been relying on government subsidies to operate as a going concern.
In the 2017/18 financial year, BPC got a P1.46 billion allocation, which was the first under the National Development Plan 11 that envisages pumping a total of P10 billion between April 2017 and March 2023 to the BPC for “operational support”.
For the financial year ended March 2015, the BPC received a subsidy of P2.33 billion and another of P2.32 billion for the year ended March 2016. For the year ending March 2017, the BPC was allocated P1.35 billion in February 2016 and received an additional P1.3 billion in a supplementary budget in December.
But Kebonang insists that, as a 100% shareholder of BPC, the government support agreement should be enough surety that any defaults would be catered for by the state.
It has also emerged that Marubeni also needs the sovereign guarantee to secure funding from financial institutions, a situation that government says it was not aware of.
“All along the understanding was that Marubeni already had the funds in place to start the project as soon as the PPA was signed. It now looks like they need the sovereign guarantee to secure funding,” said Kebonang.
When they won the tender early last year, Marubeni and Posco announced that $600 million will be financed by Export-Import Bank of Korea, Japan Bank for International Cooperation (JBIC) and an international commerce bank through project financing.