30 August 2010 – An October meeting of the South African cabinet will consider the recently drafted Second Integrated Resource Plan (IRP2), a vital document, delays of whose approval have frozen the multi-billion Mmamabula Energy Project and its neighbour, the Mmamantswe Project.
Should the South African cabinet approve IRP2, the South African Department of Energy will promulgate the document by November. The two power projects in eastern Botswana have the potential to produce 2200 megawatts, more than 16 million tonnes of coal per annum and employ thousands of Batswana at construction and operation stages. Canadian group, CIC Energy, is driving Mmamabula, while Australian firm, Aviva, is developing Mmamantswe.
However, lengthy delays in formulation of the IPR2 and its presentation to the South African parliament and cabinet have hamstrung both projects, leading to the Mmamabula Energy Project (MEP) being put on ice in December 2010 and the Mmamantswe project being placed on care and maintenance last May.
IPR2 is a policy document that will guide South Africa’s response to its energy challenges over a 20-year period. It is essentially South Africa’s national electricity plan intended to "develop a sustainable electricity investment strategy for generation capacity and transmission infrastructure for the country over a period of five to 25 years".
IPR2 will outline the role Independent Power Producers (IPPs) like CIC Energy and Aviva will have in South Africa’s energy sector from 2014 and beyond, the period covered by the policy document. IPR2 will specify requirements for new generation capacity and enable IPPs to know how much power they will be able to sell to South Africa.
MEP’s 1 200MW coal-fired power station and the 1 000MW coal-fired Mmamantswe Project are entirely dependent on IRP2’s approval and its inclusion of supply opportunities for IPPs.
According to legislation, the government of Botswana will not grant licences to both coal mines and power stations if the developers cannot provide evidence of power purchase or off-take agreements. CIC Energy plans to sell 75 percent of MEP’s power to Eskom while Aviva’s entire output from Mmamantswe is targeted at the South African market.
This week, it emerged that all eyes in the regional energy sector are on the meeting of the South African cabinet in October. This comes after the South African Department of Energy (DoE) briefed a parliament portfolio committee on energy on a draft IRP2, a crucial step for the document’s approval.
In June, the department published the draft IRP2 for public comment, receiving 81 submissions from the public and some of the IPPs, among them CIC Energy.
The draft IRP2 indicates South Africa’s need for IPP supply and demonstrates its urgent need for funding, new generation and alternative power sources in the 25 years after 2013.
However, CIC Energy and Aviva will be wary of certain comments that emerged during the June consultative process. Some of the respondents said they were "strongly against coal and nuclear as future energy solutions".
They also pointed out the difficulty of obtaining funding for coal and nuclear power, saying the "importance of a low carbon economy and renewable energy such as wind, solar and geothermal" could not be overstated. Other respondents called for the use of emerging technologies such as solar hydrogen and sugar fan fibre in IPR2.
"Further public consultation will take place towards the end of September," said South Africa’s DoE. "A revised draft plan will be drawn up and discussed with key stakeholders before tabling in the cabinet."
Aviva officials this week stressed that Mmamantswe’s future hinged on IPR2 that was still being hammered out by South Africa’s DoE.
"The project is on hold pending the release of South Africa’s key power plan in September 2010 which will set the framework for private power investment and address imported power requirements," Aviva CEO, Lindsay Reed, said in a presentation on Wednesday.
The Australian group and its local partner Mawana Minerals plan to establish a special purpose vehicle to "facilitate participation in the South African power procurement process as it emerges".
Although CIC Energy officials were unavailable for comment at the time of going to press, the Canadian group has been in the forefront of efforts to push IRP2 towards finalisation.
In announcing the extension of MEP’s Engineering, Procurement and Construction contract in June, CIC Energy President Greg Kinross said the group was monitoring the South African regulatory process closely.
"The extension of the EPC contract is a key accomplishment towards maintaining the Mmamabula Energy Project in a ready mode to be able to restart project development following the resolution of the regulatory matters in South Africa regarding new power projects," said Kinross.
"We remain cautiously optimistic that these regulatory matters will be resolved in the third or fourth quarter of this year, in conjunction with the gazetting of the IRP2."