Botswana’s dream of exporting power to region teeters

By Mpho Tebele

Gaborone – Botswana’s dream of exporting power to other countries in the region will be temporarily delayed following a dispute with the contractor over the expansion of the troubled Morupule B power station.

The dispute is over an $800 million guarantee that the contractor demands from the government in case the state-owned power utility Botswana Power Corporation (BPC) is unable to pay.

Botswana, which relies heavily on power imports mainly from South Africa, was hoping to export power after the expansion is completed.

Japan’s Marubeni and South Korea’s Posco Energy were last year awarded the contract for the expansion, but a row between them and the government over a sovereign guarantee has delayed the plant’s expansion.

Energy Security and Green Technology Minister Sadique Kebonang is quoted by local media as saying contractors were due to start work in January but demanded the payment of $800 million guarantee in case the loss-making BPC failed to pay.

Kebonang said only parliament, which is currently on a recess until July, can approve such a payment.

Unit 5 and 6 is Botswana’s first Independent Power Producers (IPP) project where the contractor funds construction of the power station and recoup their investment from selling power to BPC.

According to the agreement, the Asian firms will recover their costs by selling the power to the BPC through a 30-year power purchase agreement at a cost of P812.56 per MegaWatt hour.

If construction had started on schedule, the first power from the plant was envisaged to flow into the national grid by May 2020, lifting the national power generation to more than 1,000 MW.

The plant would eventually generate a total of 1,200 MW when all the expansions works are completed by May 2020.

The $970 million coal-fired power station was originally built by China National Electric Equipment Corporation (CNEEC) but has often broken down, leading to a reliance on diesel generators and imports from South Africa.

Kebonang said Marubeni had stated that they would start construction “as soon as we sign the Power Purchase Agreement, which we did in December”.

He said instead of starting with works in January, they turned around and demanded the government pay sovereign guarantee upfront, which he described as “a surprise to Botswana government”.

“As a government, our policy is that we offer any other kind of guarantee or support agreement but not sovereign guarantee, which gives the contractor powers to grab any asset of the state when BPC defaults.

“I am not sure how the sovereign guarantee was included in the tender. It was an oversight on our part as well as our legal advisors. I only discovered this yesterday after going through the original tender documents,” Kebonang said.

“If our negotiations to find an amicable solution are not successful, I will then need parliamentary approval to grant such a guarantee which we can now only do in the next session in July.

“But there are chances that Parliament can reject it as they would have to look at things such how many jobs are going to be created by the project for us to commit such a large amount of money. Remember we could not afford the P7 billion that was required to save BCL which employed over 5,000 people,” he said.

A sovereign guarantee would mean the government deposits $804 million into an independent escrow account, which Marubeni can recall even after a month’s default by BPC.

Mmegi newspaper reported Marubeni insistence that government pays the P8.5 billion sovereign guarantees could be driven by BPC’s current precarious financial position.

Dogged by huge operational losses, the power utility has been relying on government subsidies to operate as a going concern.

In the 2017/18 financial year, BPC got a P1.46 billion allocation, which was the first under the National Development Plan 11 that envisages pumping a total of P10 billion between April 2017 and March 2023 to the BPC for “operational support”.

For the financial year ended March 2015, the BPC received a subsidy of P2.33 billion and another of P2.32 billion for the year ended March 2016. For the year ending March 2017, the BPC was allocated P1.35 billion in February 2016 and received an additional P1.3 billion in a supplementary budget in December.

But Kebonang insists that, as a 100% shareholder of BPC, the government support agreement should be enough surety that any defaults would be catered for by the state.

It has also emerged that Marubeni also needs the sovereign guarantee to secure funding from financial institutions, a situation that government says it was not aware of.

“All along the understanding was that Marubeni already had the funds in place to start the project as soon as the PPA was signed. It now looks like they need the sovereign guarantee to secure funding,” said Kebonang.

When they won the tender early last year, Marubeni and Posco announced that $600 million will be financed by Export-Import Bank of Korea, Japan Bank for International Cooperation (JBIC) and an international commerce bank through project financing.

April 2017
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