BPC seals deal for 180MW power station

*Key tariff agreement to be signed in July
*Local firm mobilises capital for development
*Power station taps into coal bed methane

The Botswana Power Corporation (BPC) and local energy firm, Karoo Sustainable Energy (KSE) have sealed a multi-million Pula deal that will see the construction of a 180-megawatt power station fuelled by coal bed methane next year.The deal, which takes the form of a Power Purchase Agreement (PPA), has reached the final draft stage and is expected to be signed by July, more than two years after negotiations kicked off.The PPA with KSE is the first of its kind in Botswana.Under the 15-year deal, KSE will build, own and operate a 180-megawatt (MW) power station to be built in Mmashoro, and supply the BPC with power. The station will use the proven riches of coal bed methane (CBM) in the area.

On Wednesday, the CEO of Kalahari Energy (KSE's holding company), Steve Martin told Business Week the PPA required financial close of the project within 15 months of signing and full commercial operations within 21 months. "The negotiations have been finalised and we are in a situation of waiting for the BPC to submit a final draft of the agreement for signing, which we expect in July," Martin said in an interview."I cannot compliment the BPC and the ministry (minerals, energy and water resources) enough for understanding their role in helping us commercialise CBM in Botswana."They have been very supportive in how this deal is structured especially in giving us flexibility and time for a financial close."In many countries I have worked in, you will not find parastatal stakeholders realising that they hold a huge responsibility for the commercialisation of such projects." The PPA tariff, denominated in US dollars, consists of a capacity and energy charge, the former accounting for the capacity available to the BPC and the latter being the actual consumption.

In addition, the PPA features a minimum take-or-pay volume, with KSE expecting that the Mmashoro power station will run for an average of 15 hours a day. The government has reportedly provided a guarantee or the BPC's payment obligations. Besides the usual sensitivity associated with PPAs, negotiations between the two parties were further complicated by the fact that CBM pricing is a novelty in Botswana."When the BPC put the tender out, they only mentioned the power they wanted and left the fuel solution to the potential bidders," said Martin."This allowed us to bid an electricity tariff competing against coal, liquid fuels and others."


KSE expects to spend P189 million by the end of the year being for exploration and production of gas, with another P150 million for capital investment and equipment. Seventy-five percent of the funding will be debt and the balance, equity, with a potential provider of the former already identified.  Under the PPA, the BPC has allowed financial closure, or the sealing of binding commitments for funding from equity holders and debt financiers, to be in two parts within the 15 months. According to Martin, the Mmashoro power station will resemble the Orapa 90 MW facility, which KSE is running under an asset management agreement with the BPC. According to its design, the Orapa station is scheduled to switch from diesel to CBM.

"The Mmashoro power station will be exactly the same technology as Orapa, equipped with four 45 megawatt General Electric turbines," he said."The project will feature fully integrated CBM production wells and gas gathering, transport and storage facilities."The CEO estimated that Kalahari Energy's lease area in the Central District has enough CBM to support 1,300 MW of generation for 30 years. Botswana is estimated to contain enough recoverable gas to produce 30,000 MW of power for 30 years. KSE is continuing its exploration and development of gas wells on its lease area."Our aim is to work with the BPC to grow our generation to 1,000 MW and allow the BPC to be the exporter and trader of power in the Southern African Power Pool," Martin said."The additional exploration is growing the company towards that 1,000 MW which we hope to achieve by 2020," he stressed.

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