Another power station delayed

Brendan Ryan | Tue, 15 Dec 2009 07:15

[miningmx.com] -- CIC Energy’s (CIC) Mmamabula energy project (MEP) to build a 1,200MW power station in Botswana has been held back yet again by South African regulatory requirements.

On Monday, CIC confirmed the latest delay which was first indicated as likely by former Eskom CEO Jacob Maroga to Miningmx in October.

Maroga commented at that time, " If I had my way I would sign agreements with IPPs (independent power producers) tomorrow on the basis that I had reached an understanding with Nersa (the National Energy Regulator of SA) that this is how the terms should look.

“However, Nersa has until the end of June 2010 to reach its final determination on Eskom’s application and finalisation of any PPA (power purchase agreement) could be delayed until then.”

This is the latest in a string of delays on finalising the commercial terms for CIC to go ahead with the coal-fired station which would sell the bulk of its power to Eskom.

The delay is bad news for TSX-listed CIC and also for South Africa. At best, it will lengthen the period during which Eskom will struggle to meet electricity demand and, at worst, it could lead to increased levels of load-shedding.

The setbacks to CIC, and other IPPs attempting to develop power projects in South Africa such as Ipsa Plc, are despite stated aims by Eskom and the South African government that they want to encourage private sector participation in the country’s power generation industry.

CIC announced that the latest information published by the Minister of Energy on December 3 has indicated that requirements for new generation capacity in terms of the first integrated resource plan (IRP1) would only cover the three year period from April 2010 to March 2013.

Requirements for new capacity beyond that are to be dealt with in a second integrated resource plan (IRP2) “which will be prepared following an extensive public consultation process that will commence in the first quarter of 2010 and is targeted for completion in mid-2010.”

CIC had initially hoped to bring Mmamabula on stream in 2013 but that target was revised in July last year. Reason was the on-going debate between Eskom and government over the terms for PPAs with IPPs.
Before CIC can proceed with Mmamabula it must sign a PPA with Eskom and it had hoped to finalise that agreement by September last year but this was pushed out to end-March 2010.

CIC president Greg Kinross commented, “ based on the company’s understanding of the regulations, an approval of the MEP by the Department of Energy will only be possible following the completion and gazetting of the IRP2 and then only for commencement of commercial operations no earlier than 2014 or such later period as may be indicated in the IRP2, once completed.”
Kinross added that CIC has reassessed its project development programme as a result of this development.
Instead of pushing for rapid achievement of financial close and start of construction CIC is going to defer most project development activities “until such time as the IRP2 has been completed”.

Kinross commented, “this will be implemented by the deferral of activities that are being performed by the financial consultants, legal consultants and engineering consultants who are assisting the company in the development of the MEP.
“While the slow pace of the regulatory process in South Africa is frustrating these spending deferrals and our C$41m treasury gives us the flexibility to weather this delay,” he added.

Any delay to CIC’s MEP will further worsen Eskom’s ability to meet future power demands because of delays to its own two major new power stations now under construction.

Eskom recently confirmed that the second of these stations - Kusile near Witbank – has been delayed by a year from its planned start up in 2013.
The first new station due to come on stream is Medupi – situated near Lephalale – which is supposed to start operations in April 2012.

According to Exxaro Resources - which will supply the coal to Medupi - construction of Medupi is running six months behind schedule but that is denied by Eskom which maintains Medupi is on track.

Published by: miningmx.com