Namibia’s Kudu gas project on ice

By Timo Shihepo

WINDHOEKNAMIBIA has put its mega 884MW Kudu Gas power project on ice as part of new belt-tightening measures.

The Southern Times has established that the government has decided to push back the project by at least 10 years.

Namibia had signed off R4.9 billion as surety for the project, seen as a long-term solution for the country’s growing energy needs.

Last month, in a package of austerity measures announced by the Finance Ministry, President Geingob’s government trimmed R5.5 billion or 10 percent off the national budget, as the country seeks to contain a budget deficit.

Construction of the Kudu gas-to-power plant on the south-western coast of Namibia was expected to start last year and be completed by 2018, but it never took off the ground. More than R700 million has already been spent on studying the project’s viability without yielding any tangible results.

The Southern Times understands that the Namibia Power Corporation (NamPower) stands to lose out most, as it might be forced to relinquish its 51 percent stake in the project. Sources close to the utility say its board and management have not yet been informed of government’s decision, while the company was already in talks with potential investors interested in buying up a percentage of its stake in the project.

The National Petroleum Corporation of Namibia (Namcor), which was involved in the exploration part of the project, also stands to be stripped of its 44 percent cut of the upstream side of the project. The project’s survival will be left in the hands of the private sector.

Private investors have to fork out US$1.3 billion (R17.6 billion) if they are interested in running with the project, a task which might prove challenging.

United Kingdom firm, Tullow Oil partnering Japan’s Itochu Corp had a combined 46 percent stake in the exploration side of the Kudu Gas project and pulled out in 2014 citing other major developments. The two prioritised the said other projects over Kudu.

The Kudu project has divided the government, with questions raised over its viability. In 2013, former NamPower board chairperson Leevi Hungamo resigned as NamPower chairman after then former Mines Minister Isak Katali requested Cabinet permission to give him the boot.

Katali’s reasons for the request was that Hungamo was against the project after questioning its viability, despite getting the Cabinet’s green light. Hungamo jumped before he could be pushed.

The Mines and Energy ministry has also locked horns with the Ministry of Finance, with the ministry responsible for treasury claiming government could not afford the project.

The Minister of Finance, Calle Schlettwein, is not too keen on the project, it is understood.

The Southern Times is also reliably informed that the government is contemplating removing the project from the National Integrated Resource Plan (NIRP) for Namibia’s power sector.

The new NIRP is defined by the Electricity Control Board (ECB), as a master plan for the electricity supply industry, and ranks the electricity projects based on importance.

The Minister of Mines and Energy, Obeth Kandjoze, however maintains that the Kudu Gas project remains vital for the country. He says he still expects the project to be commissioned, albeit in a different year, 2020.

The NIRP was reviewed last year and was expected to be released on July 21 this year. Some stakeholders believe that it is unlikely that ECB will release it for fear of criticism.

“NIRP is awaiting ministerial and cabinet approval before being released. A number of stakeholder workshops and meetings were held to allow the public to give input,” ECB CEO, Foibe Namene, insists.

Namene also denies that there was a meeting on July 13 where she is reported to have told stakeholders that the Kudu Gas project is not expected to be operational within the next decade.

The Southern Times has also seen a “concerned” letter dated March 2, 2016, from Namibia’s Consumer Advocacy for Electricity (CAE) sent to the Director of Hatch Management Consulting, Hatch Robert Griesbach in which the ECB CEO Namene was also copied in.

Hatch Management is a Canadian company picked by the ECB to develop and review its NIRPs.

The letter states that “for the NIRP 2016 to be implementable and acceptable as a working high-level Decision Support System (DSS), it must include a PLAN for the preservation of Credit Ratings whilst pursuing ESI (electricity supply industry) projects. Otherwise, this work may not be able to resist the pressure to be ‘shelved’ as in the past.”

Speaking to The Southern Times this week, CAE’s Peter Nutt said the country is wasting money and time on fighting for something which is not viable.

He feels the reason why big companies pulled out of the project is because they have realised that it is not feasible.

“We must be honest to ourselves that the probability of this project being feasible is not high and we can’t wait forever. We must go on with other projects,” he said.

November 2016
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