CIC Energy Corp says about 20 percent of the project's capital costs is expected to be contributed by the equity investors while the remaining 80 percent will be provided in the form of limited recourse project debt.
Already, the two are mulling over prospects of selling portions of their equities to raise further cash to avoid making huge borrowings.
"CIC Energy and International Power are evaluating the option of selling down a small portion of their respective equity stakes to a third party in order to access low-cost debt finance," says an update from CIC Energy.
Currently, the two developers are negotiating with undisclosed South African and international lenders and leading export credit agencies that include the Japan Bank for International Cooperation (JBIC), which is a leading global project financier.
On the other hand, the company has appointed an international law firm Shearman & Sterling LLP as the international lenders' counsel while it has appointed Webber Wentzel Bowens as the South African lenders' counsel for the project.
It is anticipated that the project costs might escalate because of substantial global demand for power plants, which means engineering, procurement and construction (EPC) contract prices might increase.
But the company said it is advancing well in its discussions with a select group of EPC contractors following the launch of a formal EPC tender late last year. "Due to substantial global demand for power plants, a robust construction market and tight supply for engineering services, EPC contract prices for power stations have increased significantly since the project was initiated in 2005."
The company nevertheless said a definitive EPC contract is expected to be signed concurrent with power purchase agreements, the implementation agreement with the Government of Botswana and project financing agreements towards the end of 2007, the update says. It further says discussions with Eskom Holdings Limited and Botswana Power Corporation (BPC) over power purchase agreements (PPAs) are also progressing well. According to CIC Energy, the "signing of definitive agreements is anticipated towards the end of 2007" with The PPAs expected to have a term of approximately 40 years.
The majority of the power is expected to be sold to Eskom. Formal PPA negotiations with Eskom commenced in August 2006 while with BPC in November 2006.
The Mmamabula Energy Project, which is a two-phased energy project, is currently undergoing a bankable feasibility study that will pave way for financing. Last month, the president of CIC Energy Gregory Kinross said there was a lot of appetite from South African banks and the JBIC to finance the project.
Phase One of the project will generate between 2 100 and 2 400 megawatts (MW) of power. The Phase One coal mine will produce between 7.5 and 9.0 metric tonnes of coal per year. So far, CIC Energy has spent over P240 million on the project.
It is anticipated that commercial operations of the power station will commence by the first quarter of 2012. The Mmamabula Power Project comes at a time when the Southern African region is experiencing electricity shortages as Eskom of South Africa is no longer able to meet demand.
