Mmamabula under threat of input costs

Staff Writer
The failure of the promoters of MmamabulA Export Power Project to seal deals with Engineering Procurement and Construction (EPC) contractors may force them to go the route of what observers have been calling for - the downsizing of the project to make it more affordable.

Infact, the situation is so serious that a reservation deadline has twice been postponed by ministerial intervention and twice been missed.

Addressing a media briefing yesterday, the Minister of Minerals, Energy and Water Resources Ponatshego Kedikilwe said the import of the precarious circumstances presently bedevilling the project was that Mmamabule could not go ahead as initially conceived.

Rising EPC and input commodity costs internationally that recently led to the suspension of the Activox refinery at Tati now posed a threat to Africa's largest green field energy project whose latest cost estimates hover around $16 billion or P105 billion.

Kedikilwe said the high cost of commodities internationally was real. "I will go to the bank smiling on the BCL side, but since the Botswana Power Corporation (BPC) and other energy projects use steel and other commodities, I will go to the bank crying," he said.

The MmamabulA project venture capitalists CIC Energy said Monday that it failed to reach an agreement for a turnkey EPC contract on terms acceptable to lenders.

CIC Energy failed to reach an EPC agreement on risk allocations with the project's off-takers, namely, the Botswana Power Corporation (BPC) and Eskom of South Africa.

The risk allocation agreement was crucial in order to enable sponsors and EPC contractors to secure manufacturing slots at a time when competent contractors are limited with a long queue for their services.

The initial deadline to reserve the slot was 30 May 2008, but the minister went to Germany where he successfully persuaded the possible EPC contractors to extend the deadline to June 17. Commitment and reservation fees that sponsors needed to pay totalled 42 million

euros or P434 million.

"The 17 June deadline passed but the reservation fee had (still) not been paid," a concerned Kedikilwe told journalists yesterday. "The EPC contractor could no longer reserve the slot when the fee had not been paid."

"The sponsors were required to pay the reservation fee to contractors. But given the high costs, they (the sponsors) considered it risky to pay a commitment fee and then they looked to the off-takers (the BPC and Eskom). This is what led to the difficulties."

The off-takers (BPC and Eskom) could not take the risks involved because they entail a lot of money, he added.

The minister announced that the project could not go ahead as initially conceived but that other options were being considered to better execute what was to become SADC's second most ambitious energy project after the DRC's Inga .

The initial cost estimates of the Mmamabula project were $5 billion or P37 billion, but they now exceeded P100 billion - a figure which is more than Botswana's own foreign reserves.

But Kedikilwe was at pains to re-assure the media briefing that Government remained committed to the project because energy security posed a grim problem to the southern African region.

"Plan B shall still aim at 2013 for commissioning," he said. "The two governments (Botswana and South Africa's) remain committed to the project and we cannot abandon (it). There is no alternative but to proceed with the project."

CIC Energy said on Monday that it was looking at alternative configurations for Phase One of the project. The company said one alternative was to downsize.



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