The Kudu Gas Deal: Zambia’s CEC commits millions

 

Windhoek ‑ Copperbelt Energy Corp will pay between US$70 million and US$100 million for a 30-percent stake in Namibia Power Corp’s 800-megawatt Kudu gas-to-power plant in southern Namibia, chairman Siyanga Malumo, told journalists in Windhoek last week.

CEC, the largest supplier of power to mining companies in Zambia and listed on the Lusaka Stock Exchange, sealed a deal to take up a 30-percent equity stake in the Nampower’s Kudu plant last week.

Nampower has also agreed to sell 300MW generated from the gas-fired plant to CEC starting in late 2017, when the plant is expected to start generation, managing director Paulinus Shilamba said.

Nampower is divesting 49 percent stake in the Kudu plant, which seeks to generate electricity from Namibia’s Kudu gas fields, about 200 kilometres off the southern town of Oranjemund.

The remaining 19 percent stake would be “sold through a competitive bidding process”, Shilamba said.

The US$1.2 billion combined cycle gas turbine power station, the first of its kind in Africa, would be financed through 70-percent debt and 30 percent equity, project manager Gershon Rukata said.

“We are looking at financing US$800 million of the capital requirements through debt and US$400 million through equity, which will come from the three partners,” he said.

CEC, which has agreed to a US dollar price denominated power off-take contract, will take 300MW from Kudu, while 100MW would be made available on regional energy trading mechanism known as the Southern Africa Power Pool (SAPP).

“CEC added considerable value to the Kudu project, as the off-take denominated in US dollars has lessened the burden on Nampower to manage the foreign currency exchange risk exposure as the residual exposure is now slightly more manageable.

“Their further interest to participate in the Kudu project as investors definitely demonstrate without a doubt their full commitment in ensuring that this project is successfully implemented and commissioned by end of 2017,” said Nampower chairperson Mari Nakale.

Nakale said that Kudu power plant would guarantee security of supply to Namibia, a net electricity importer.

“Kudu project is of strategic interest to Namibia, as it will monetise the gas resource, and further stimulate oil and gas exploration in Namibia.

“The Kudu gas field can, therefore, no longer continue to be a stranded asset. It needs to be developed, and commercialised for the interest of Namibia and the region,” Nakale said.

The power plant will generate power at approximately 10 to 11 US cents per kWh, a price, which is competitive with any new power stations that have come on stream around 2011.

CEC’s Malumo said the price is in line with generational costs at thermal power stations in the region.

“We are coming from a regime where tariffs were too low to a point where governments in the region admitted that generation would not be sustained at those prices.

“Tariffs have to be pushed up to a position where it’s economic to do power stations,” Malumo said. Meanwhile, power demand from existing and new mining projects in Zambia’s Copperbelt and North-West regions will rise to 1 550M over the next five years from the current 900MW, CEC managing director Michael Tarney said in an interview.

Power demand in the Copperbelt is projected to rise to 850MW from a current demand of around 650MW, Tarney said.

Demand in the North-West province will surge to 700MW over the next four to five years from 250MW currently, as new mining projects come on stream.

“Demand is being driven by new investments in copper mining and smelting,” Tarney said. Companies including Vedanta Resources Plc’s Konkola Copper Mines, Glencore Xstrata’s Mopani Copper Mines, Barrick Gold Corp’s Lumwana and China’s CNMC have announced production expansion plans.

“They are all expanding and some are sinking new shafts and this means we have to find more power,” Tarney said.

First Quantum Minerals Ltd.’s Sentinel copper mine, which will start production around June this year, would require about 400MW once it is fully operational, Tarney said.

Zambia’s hydro generation capacity drops as water levels recede during dry seasons and CEC would rely more on “importing thermal like this deal we have signed with Nampower”.

“We are trying to keep pace with demand as the energy industry has been slow in investing in generation,” Tarney said.

Demand has also been rising in the Katanga province, the Democratic Republic of Congo’s copper heartlands, where CEC supplies up to 100MW to six mining companies.

Mining companies in the DRC would also form part of the market for supplies from Kudu, Tarney said.

February 2014
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