Six local and South African banks have teamed up to provide the P1.4 billion required for the expansion of Morupule Colliery.
This comes amid reports that construction at the adjacent power station is moving ahead of schedule.
Morupule Colliery is expanding from one to three million tonnes of coal per year in order to meet increased demand from the Botswana Power Corporation (BPC)'s Morupule A and Morupule B power stations, which are presently under construction. When completed, Morupule A and B will pump out 820 megawatts, consuming 2.8 million tonnes of coal per annum. With development ongoing at the P11 billion Morupule B project, the commencement of the colliery's expansion has come under pressure.
Debswana, which owns Morupule Colliery, has set itself a target of June 2011 for first production from the expanded mine. With early works and tenders for major contracts having also been rolled out, financial close for the multi-billion expansion has become a priority for Debswana.
Debswana Senior Project Manager, David Scott, told Mmegi last month that capital raising for the debt finance portion of the colliery's expansion was being finalised. Equity funding from Debswana had already been allocated.
This week, it emerged that Stanbic Bank Botswana, First National Bank of Botswana and Barclays Bank Botswana as well as Standard Bank South Africa, RMB and Absa had teamed up to provide financing for the colliery's expansion. On Wednesday, the law firm arranging the transaction, Collins Newman & Co. confirmed that the banks had secured the right to provide debt finance for Morupule's expansion. Said Collins Newman & Co. senior and managing partner, Parks Tafa:
Although individual allocations are presently unclear, the multi-billion Pula transaction ranks among the biggest on record, involving local banks and, according to analysts, is an indication of the local banking sector's maturity and depth. Morupule Colliery and BPC have already signed a 20-year contract for the supply of 50 million tonnes of coal for the Morupule A and B power stations. The contract period ends in 2023 and includes pricing, quality and other terms.
Concerns have been raised that the cost of debt financing for the colliery, particularly that provided by local commercial banks, could have implications on the cost of power from Morupule B Power Station. Costlier electricity could then have negative effects on the larger economy. However, Debswana officials have previously maintained that the 20-year contract merely reflects the investment being made into the expansion of Morupule Colliery.
"We have to purchase new machinery and other equipment for the expansion and the price of coal has to cover this investment over the 20-year duration of the contract," Debswana officials said.
"The price and quality of delivered coal provides a fair and reasonable basis for the long-term sustainable operations of the colliery in support of the expanded power generation requirements of BPC for the nation of Botswana until 2032."