CIC Energy shifts focus to 300 MW station

MBONGENI MGUNI
Staff Writer | Wednesday March 3, 2010 00:00

It is expected that supplies from the 300 megawatt station, dubbed the Mookane Domestic Power Project (MDPP) will be sold to the Botswana Power Corporation, giving the Canadian company its first taste of profit from its massive coalfield. With CIC Energy's shareholders eager for their investments to start bearing fruit and the company's cash flow taking a beating from delays in the Mmamabula Energy Project, the MDPP has emerged as a win-win solution for the Canadian company and Botswana, whose supply/demand balance is precarious.

CIC Energy management revealed that the focus on the 300 MW power station was influenced by the need to move away from a reliance on the Mmamabula Energy Project (MEP).

'As a result of the delays in the regulatory approval process in South Africa and in light of the capacity requirements of Botswana and the company's desire to advance the development of the Mmamabula Energy Complex's coalfield, CIC Energy is exploring the possibility of developing a smaller power station, targeted at 300 MW (gross), for supply exclusively to the Botswana market,' officials said.

The officials said the MDPP's development would be significantly accelerated by the groundwork already done on the technical requirements for the MEP. The smaller power station's development is expected to be significantly accelerated by the fact that CIC Energy has amassed a largess of technical information regarding the Mmamabula coalfields, since it began developing the MEP. As such, the Canadian miner believes that the MDPP will adapt certain work that was done in preparation for the MEP such as resource planning, geotechnical analysis, engineering design and analysis, environmental and social impact assessments, and draft documentation negotiated with the BPC and government.

'As a result, the company considers that the MDPP is already at a more advanced stage of development than either the Coal to Hydrocarbons project or the Export Coal project,' officials said. CIC Energy officials said discussions were ongoing with potential participants in the Mookane project. At present, the Canadian company's cash and cash equivalents will not be sufficient to finance the MEP and/or the Mookane Domestic Power Project, as well as support ongoing working capital requirements.

'Should the discussions with other potential parties regarding the MDPP be successful, the company expects that it will begin incurring material costs for the development of the Mookane project.

'The development costs prior to financial close for the MDPP are expected to be smaller in magnitude than those for the MEP and the company anticipates that its cash and cash equivalents would be adequate to fund development costs for the MDPP.'

CIC Energy hopes to raise the capital required primarily from debt, equity raised via joint venture arrangements and further capital-raising if needed.

The Mmamabula Energy Project has stalled owing to South Africa's delay in granting the local developers regulatory approval paving way for the finalisation of the Power Purchase Agreement with Eskom. CIC Energy and its equity partners are waiting for the second Integrated Resource Plan (IRP 2) to be done by the South African Ministry of Energy, which will detail that country's new generation capacity and approve or reject MEP's contribution.

IRP 2 is scheduled to be completed and gazetted between 2010 and 2013, meaning that the MEP can only be expected to commence commercial operations no earlier than 2014 or even later.

Initially, the MEP would have involved a 2 400 MW power station powered by a four million tonnes per annum coal mine. CIC Energy subsequently revised the power station to 1 200 owing to skyrocketing costs involved, prior to the fast pace of developments being frozen by South African policy makers. South Africa is expected to take up 75 percent of the MEP, while the BPC will take up the rest.

Besides the MEP and the MDPP, CIC Energy also has plans for a coal to hydrocarbons and export coal project, both of which have also suffered delays due to the South Africa regulatory delays.