Greg Kinross,
President,
CIC Energy
 
3 September 2010 – Chinese and Canadian developers submitted a tarrif offer and a draft power purchase agreement (PPA) for a proposed term of 30 years for the planned 300-MW Mookane domestic power project.  This project could be developed at an estimated cost of US$800-million.

The power station would be Botswana’s first private, base-load independent power producer and could begin production by the middle of 2013.

It is to be located on a site that is adjacent to the proposed Mmamabula energy project, which is premised on the securing of a cross-border PPA from South Africa. The Mmamabula energy project has been placed on ice while South Africa finalises the next version of its integrated resource plan, which will indicate the role that imports will play in the country’s power mix for the next 20 years.

The Mookane power station would be situated on the same Mmamabula coal resource, in the southern region of the country, but would draw its primary energy from the western block as opposed to the central block, which would feed the 1 320-MW Mmamabula energy project, should it proceed.

Should a PPA be secured, the project will be one of the largest power projects in the region to be supported by Chinese developers and financiers, principally affiliates of the Golden Concord Group Limited (GCL) and the China-Africa Trade & Industry Development Corporation respectively – the $1,5-billion, 600-MW Kafue Gorge Lower hydropower project has also attracted Chinese investors and funding support.

The entire initial capacity will be sold to the BPC, but cross-border sales are possible in future should the plant be expanded to 450 MW. CIC Energy’s spokesperson Erica Belling says that the associated 200-million-ton coal resource would be able accommodate such an enlargement.  According to Belling, the PPA deliberations are expected to continue for some time, but that it is hoped that these negotiations will be finalised by year-end.

The submission to BPC followed on for the conclusion of a shareholder’s agreement involving CIC Energy, which is listed in Toronto and Botswana, and the Botswana units of GCL.

The GCL affiliate will own 70% of a newly formed holding company, called GCL-CIC Mookane Power Holdings, which will in turn hold the equity in the two Botswana project companies that will build and operate the Mookane project. CIC Energy affiliates will own the 30% balance.

Belling says that, should the PPA discussions be concluded in 2010, and the financing completed in early 2011, it is possible that construction could begin in the second quarter of the 2011 calendar year.

CIC Energy president Greg Kinross adds that, all going well, the project would be fast-tracked to deliver electricity by the middle of 2013.

He reports that the basic engineering design and integration into the BPC transmission grid has been completed, as has the mine plan for an initial production of 1,3-million tons of coal yearly.

A lump sum, fixed price for the engineering, procurement and construction contract for the power station, associated infrastructure, and the mine is expected to be agreed to with the GCL affiliates by the end of this year.

The plant will employ circulating fluidised bed boilers, which, together with a proposed washing plant, will significantly reduce sulphur emissions. It will also be developed in line with best environmental practices, owing to the fact that the developers are likely to seek some development finance institutions funding support.

Project costing and financial models have been completed and term sheet negotiations with lending banks for project debt financing have started.

It is expected that the project will be project financed at a ratio of not less than 70% debt, with the balance contributed by the equity partners. Chinese financial institutions are expected to contribute the majority of the debt funding.