Morupule B�s P8 bn guarantee is too risky � PS
Pauline Dikuelo | Friday June 23, 2017 14:25
Appearing before the Public Accounts Committee (PAC) recently, the permanent secretary in the Ministry of Finance and Economic Development, Solomon Sekwakwa revealed that government had re-thoughts about giving the project a guarantee as it was not only a lot of money involved but there were issues of how government’s money would be protected.
“Government had re-thoughts about giving a guarantee to the Marubeni-Morupule B project considering the risk that comes with it. There are certain things that need to be discussed like how are we protected,” he said.
Expansion of the power plant, which was supposed to start six months ago, has been stalled after government declined to give Marubeni the sovereign guarantee, which the Japanese contractor needed to secure funds from banks for the project.
The 300MW power project was supposed to be Botswana’s first independent power producers (IPP) project where the contractor finances construction and recoup their costs from selling the power to Botswana Power Corporation (BPC).
According Sekwakwa, the government felt that some of the demands that come with giving the project a guarantee were unreasonable noting that the government cannot afford such amounts.
He said as part of the guarantee, they wanted the government to provide a dollar price guarantee for 30 years and this was risky as it was difficult to predict exchange rates for over three decades.
“They are also demanding that if BPC fails to give them power; government must pay them U$245,000 (P2.45 million) per day for that period. And if Water Utilities Corporation does not supply them with water, they were also demanding similar amount. Government cannot afford such amount and even further how will we be protected in such arrangements,” he said.
Sekwakwa was responding to a question by specially elected Member of Parliament Bogolo Kenewendo who wanted to know if there is any guarantee project that government is working on in relation to energy.
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 power purchase agreement, (PPA) the Asian firms will recover their costs by selling the power to BPC through a 30-year PPA 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 national power generation to more than 1,000 MW.
Energy minister, Sadique Kebonang previously told Mmegi BusinessWeek that the guarantee was erroneously included in the tender documents and the issue would now be debated in the July Parliament session, as the government is not allowed by law to grant a sovereign guarantee.
“But there are chances that Parliament can reject the guarantee as they would have to look at things such as 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 find 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 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 National Development Plan 11, that envisages pumping a total of P10 billion between April 2017 and March 2023 to the BPC for “operational support”. It has also emerged that Marubeni 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 has the funds in place to start the project as soon as the PPA is signed. It now looks like they need the sovereign guarantee to secure funding,” Kebonang said.
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.