Chinese giant takes over 300 MW project

MBONGENI MGUNI
Staff Writer | Thursday March 4, 2010 00:00

 

With the 1 200 MW coal-fired Mmamabula Energy Project (MEP) hamstrung by South African bureaucracy, CIC Energy last week announced it would fast-track the development of a 300 MW power station for domestic consumption purposes.

The new station - which will also be coal-fired - will leverage on the technical groundwork done for MEP and seek a Power Purchase Agreement with the Botswana Power Corporation and financial input from debt and equity partners.

CIC Energy yesterday unveiled Golden Concord Holdings Limited (GCL) as the new majority equity holder in Mookane Domestic Power Project (MDPP), revealing that the Chinese firm's affiliates would act as the construction contractor and operator of the planned power station.

CIC Energy will remain a 30-percent equity holder in MDPP and will be responsible for overseeing the development and operation of the mine that will supply the power station. More strategic equity partners are expected in MDPP.

'We have had discussions with GCL for quite some time on ways in which our two companies could work together,' said CIC Energy President, Greg Kinross.

'After CIC Energy decided to defer further development work on the MEP due to the ongoing unresolved regulatory issues in South Africa, the discussions with GCL quickly focussed on the possibility of jointly developing a smaller power project specifically for the Botswana market.

'We have also briefed the Government of Botswana on the MDPP and we believe that it will interest them.'  Said GCL chairman, Zhu Gong Shan: 'This is a very exciting development for us. We are very interested in opportunities in southern Africa and this is an excellent project for us to establish our presence in the region.'GCL presently operates several power plants, coal and other mines, as well as property development in China. The company has two coal-fired power plants, one of which is capable of producing 1 470 MW (gross).

The coal mine to support MDPP will be on a different portion of the Mmamabula coalfield while the power station will be adjacent but physically separate from the site planned for MEP, Kinross explained.

Analysts believe MDPP's development has been prompted by the need for CIC Energy and its shareholders to start seeing returns from its massive investment in the Mmamabula coalfield. Conservative estimates indicate that CIC Energy and its equity partners have spent more than P551 million in developing the Mmamabula Energy Project. By November 30 last year, CIC Energy had cash and cash equivalents of P292.7 million, which are considered adequate for recurrent expenses up to November 2010.

But with MEP on ice, CIC Energy is not spending cash on the project. However, it will soon begin incurring costs towards MDPP, albeit on a smaller scale than MEP.

GCL's entry, therefore, has further relieved CIC Energy of the financial burden of MDPP because the Chinese giant will carry the construction and operation of the 300 MW station. CIC Energy will focus its coffers on developing and operating the mine.

With MEP apparently paling into the background, the CIC President was quick to counter perceptions that the Canadian firm was pulling out of the 1 200 MW project.

'This announcement regarding the MDPP does not in any way alter our commitment to the MEP,' Kinross said.'We believe that the region needs both projects and it is our intention to develop both projects in a manner that both can be realised, subject to satisfactory resolution of the South African regulatory issues.'

This year and beyond, CIC Energy and GCL will negotiate and obtain a Power Purchase Agreement secure its approval by the government, negotiate contractors for mine and infrastructure development, secure an Independent Power Producer licence, a mining licence and other permits.