Mookane power project reaches critical crossroads

Staff Writer | Friday October 21, 2011 00:00

The future of the P5.6 billion, 300 megawatt Mookane Domestic Power Project was due to be decided yesterday as the deadline set by the minority Canadian shareholder to the majority Chinese investor elapsed.

CIC Energy, which holds 30 percent equity in the project, had given GCL Botswana, the Chinese majority shareholder in the project, until October 20 to buy out its (CIC Energy's) holding in the project.With CIC Energy seeking room to offer its share in the project to external parties, the Canadian company was contractually obliged to give its Chinese partner 'right of first refusal,' which was due to expire on yesterday.

'In the event that GCL Botswana elects not to exercise such right of first refusal, CIC International (a CIC Energy subsidiary) shall have the right to transfer all of its interest in the Mookane Domestic Power Project joint venture company to a third party,' the Canadian firm recently said. By press time, neither CIC Energy nor GCL Botswana had announced whether a deal had been reached for the Canadian firm's equity in the Mookane Domestic Power Project (MDPP). The deadline is the latest hitch in the dispute between the two MDPP equity partners sparked off earlier this year by the Chinese firm's assertion that the planned takeover of CIC Energy by an Indian firm would sabotage the 300MW project.

The Chinese firm, which was due to fund the lion's share of MDPP's P5.6 billionn capital expenditure, was concerned that the takeover of CIC Energy would result in the new third party reneging on agreed joint venture terms. In February, GCL Botswana, filed for dispute arbitration in Hong Kong, seeking to compel CIC Energy to jointly pursue a power purchase agreement with the Botswana Government.  A previous power purchase offer made by the two shareholders to the Botswana Government expired fruitlessly in December 2010. An agreement from government to buy the 300MW is key to MDPP moving to construction and commissioning of the coalmine and power station.

However, in a management analysis accompanying its recently released results, CIC Energy directors declared that the Canadian firm, had fully complied with its commitments under the MDPP shareholder agreement. 'It is the company's view that CIC International has no obligation under the MDPP shareholders' agreement to agree to new commercial terms and conditions for an alternative commercial offer, and consequently no obligation to develop a 300MW domestic power project with GCL Botswana,' CIC Energy management said. With the Canadian firm presently entertaining takeover bids from at least two suitors, its move to exit from MDPP has been read as an attempt to prevent the 300MW project from becoming an issue in any new takeover.

Analysts' interest has particularly been piqued by a clause in the CIC/GCL Botswana shareholder agreement under which the Canadian firm could offer a third party its shares in MDPP within 180 days of the October 20 deadline. The attempted takeover of CIC Energy by the Indian firm earlier this year floundered, with the suitor citing the MDPP dispute as one of the thorny issues.Said a local resources analyst: 'Having learnt from its earlier experience, CIC Energy is essentially asking GCL Botswana to either buy its shares in the MDPP. Should that offer elapse, CIC Energy will be free to then incorporate its share in MDPP in a new takeover bid from the suitors it has said it is engaged with.

It could technically also be free to sell to any other third party.' The timing of CIC Energy's latest move, has triggered speculation that the company could be close to reaching a deal with a new suitor. The Canadian firm gave GCL Botswana between September 5 and October 5, 2011 to either take up its share in MDPP or allow it to entertain third parties.

Whatever the identity of MDPP shareholders going forward, the 300MW project will struggle to prove its relevance to government, which is focusing all its energies on the 600MW Morupule B project. Analysts said with Morupule B set to start firing early next year, the once urgent need for MDPP and other similar independent power projects had waned, with the government enjoying elbow room to secure better outcomes in any power purchase agreements. Earlier this year, a two-year effort to secure 40MW from Zimbabwe was abandoned, with local energy strategists saying the 'window of opportunity' had closed.