Gov�t faces P4bn suit over new Morupule B contract
Staff Writer | Friday August 18, 2017 18:00
Industry sources with knowledge of the contract between the Botswana Power Corporation (BPC) and the Japan’s Marubeni and South Korea’s Posco Energy say it contains a $400 million (P4 billion) breach of contract clause. “Marubeni can sue government and the Botswana Power Corporation for $400 million, which is the profit that the contractors were supposed to make over the 30-year period of the Power Purchase Agreement (PPA). I am not sure if they can renegotiate the whole contract itself but if the project doesn’t go ahead because of the guarantee, then it would come at a huge cost to the government,” said the source, who declined to be named, as he was not authorised to speak on the matter.
Whilst Energy Minister Sadique Kebonang signed the PPA with the contractors in December last year with expectation that works would start in January 2017, construction of the 300MW power station known as unit 5&6 is yet to start with Marubeni demanding that government pay an $800 million sovereign guarantee upfront.
Unit 5&6 is Botswana’s first independent power producers (IPPs) project where the contractor funds the construction of the power station and recoup their investment from selling the power to the BPC.
Marubeni requires the guarantee for it to access project funds from its financiers, which would be used as security if BPC defaults on its power purchases.
Granting of the guarantee would need Parliamentary approval and Kebonang is now expected to take the matter before legislators in the current sitting of the National Assembly. It is also not clear if granting the guarantee would not result in a breach of law as the fiscal rule stipulates government’s external debt and guarantees, which are currently at around 16% of gross domestic product (GDP), should not exceed 20% of GDP.
The Ministry of Finance and Economic Development officials will have to decide if the sovereign guarantee demanded by Marubeni should be treated as a normal loan guarantee since neither government nor BPC have acquired a loan. If a decision is taken not to grant the guarantee, it might not only come at a huge cost to government but it could also dent Botswana’s credibility in light of the current $277 million that the country is facing from Russia’s Norilsk over the aborted BCL deal to buy the Nkomati mine.
Marubeni’s insistence that government underwrites the PPA with the sovereign guarantee 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 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.
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.