PRI­VATE POWER PARAL­Y­SIS

CityPress - - Business And Tenders & Auctions - DEWALD VAN RENSBURG dewald.vrens­burg@city­press.co.za

South Africa’s multi­bil­lion-rand plan for two gaspow­ered pri­vate power sta­tions could take a decade to de­liver its first elec­tric­ity.

In­dus­try play­ers are also scep­ti­cal about lo­cal banks’ abil­ity to pro­vide the nec­es­sary fi­nance for a scheme roughly es­ti­mated to re­quire R50 bil­lion for cap­i­tal ex­pen­di­ture.

A round ta­ble event hosted by law firm Web­ber Wentzel this week saw a va­ri­ety of project de­vel­op­ers and fi­nanciers com­plain about the mas­sive un­cer­tain­ties re­gard­ing the gas in­de­pen­dent power pro­ducer (IPP) pro­gramme.

It fol­lows the hugely suc­cess­ful, but now paral­ysed, re­new­able en­ergy IPP pro­gramme and the less suc­cess­ful coal IPP, which is also fac­ing long de­lays.

“It will take a while to get off the ground. In the best case, you’ll have first power in eight years,” said Erik Wan­drag, head of en­ergy in­vest­ments at Harith Gen­eral Part­ners, an as­set man­ager in­volved in pri­vate power projects.

The gas IPP en­vis­ages a 1 000 megawatt sta­tion in Coega and a 2 000MW one in Richards Bay. How­ever, bid­ders will be ex­pected to es­tab­lish a larger nat­u­ral gas im­port­ing in­fra­struc­ture that also pro­vides gas to third par­ties in South Africa.

The idea is that the power sta­tions are the ba­sis of the mar­ket, but Wan­drag said that it could work the other way around.

“Maybe the an­swer is to scale back and not fo­cus on power at first. You can look at other mar­kets. There is a mas­sive in­dus­trial mar­ket,” he said.

The two sta­tions are ex­pected to cost some­thing in the re­gion of R25 bil­lion each and the first step to­wards a bid­ding process was taken in October last year with the re­lease of an in­for­ma­tion mem­o­ran­dum.

Since then the ini­tial time­lines have been pushed out sig­nif­i­cantly.

A re­quest for qual­i­fi­ca­tions (RFQ), which would re­sult in a list of com­pa­nies that can bid to build the sta­tions, was planned for late last year.

The in­dus­try now only ex­pects the RFQ in 2018 as the depart­ment of en­ergy first at­tempt to fi­nalise the con­tentious In­te­grated Re­source Plan.

This plan de­ter­mines the tim­ing of new power in­vest­ments and is mired in con­tro­versy due to the govern­ment’s al­leged ir­ra­tional at­tempts to limit new re­new­able projects.

Kh­wezi Tiya, Stan­dard Bank ex­ec­u­tive for oil and gas, sug­gested that the gas IPP RFQ would prob­a­bly only come out in 2018.

“At best you will have fi­nan­cial close at the end of 2020. In 2021 you start de­vel­op­ing and in 2023 is the ear­li­est likely gas,” he said.

Yousuf Haf­fe­jee, an Eskom vet­eran of 18 years now work­ing on the other side of the IPP busi­ness, also said that there would prob­a­bly not be much to do around gas for the next 18 months.

Haf­fe­jee is now re­gional vice-pres­i­dent of Marubeni – the pre­ferred bid­der for the coal IPP.

“With coal, the govern­ment took two years to eval­u­ate two bids. Our team for gas is in place, but I think it will be 18 months be­fore they even start,” he said.

“We are ea­ger to do a gas IPP ... It is go­ing to be a long drawn-out process, as we are ex­pe­ri­enc­ing with coal.

“The up­dated In­te­grated Re­source Plan was long over­due, but the tim­ing is bad in terms of the gas IPP.”

How­ever, the ele­phant in the room is still Eskom, which is the sin­gle buyer of power pro­duced by all IPPs.

The flag­ship re­new­able IPP pro­gramme is cur­rently in limbo due to Eskom re­fus­ing to sign any more power pur­chase agree­ments (PPAs).

These 20-year deals guar­an­tee the pri­vate con­sor­tiums build­ing the power sta­tions their in­come and are cen­tral to the whole scheme.

Eskom has balked at the cost of the first wave of PPAs for which it will have to pay for 20 years.

The state-owned util­ity now ar­gues that it does not need any more un­til after 2020.

This leaves 37 groups that had been cho­sen as pre­ferred bid­ders un­able to pro­ceed and un­cer­tain when or even if their projects would go ahead.

FUND­ING

A key con­cern with the gas IPP scheme is the abil­ity to fund the projects in rands as op­posed to dol­lars.

This is con­sid­ered cru­cial be­cause the IPPs will agree on a fixed rand tar­iff for 20 years and stand to lose if they take on lots of dol­lar debt and the ex­change rate de­pre­ci­ates.

The depart­ment of en­ergy has in­di­cated that the ex­change rate risk re­lated to the ac­tual gas im­ports will get passed on to Eskom and then on to con­sumers. It is not clear how it will work for debt re­lated to build­ing the sta­tions.

Haf­fe­jee ac­cused South Africa’s banks of com­pound­ing the prob­lem by not of­fer­ing com­pet­i­tive terms for power projects.

This was also a com­plaint in the early days of the re­new­ables pro­gramme when fun­ders man­aged to earn high re­turns. Ac­cord­ing to Haf­fe­jee, the coal IPP suf­fered as a re­sult and the gas IPP will face the same prob­lem.

“In South Africa you only have the South African banks to deal with to raise R25 bil­lion.” “I think the banks will tell you there is ca­pac­ity. “In the coal IPP we man­aged to fi­nance our project at R11 to the dol­lar. The other can­di­date did not ... I think there is not enough rand fund­ing avail­able,” said Haf­fe­jee.

“I have doubts whether there is suf­fi­cient depth [in the lo­cal cap­i­tal mar­ket] for both the gas ports. I think there is not enough com­pe­ti­tion be­tween the banks.

“This is all on the ba­sis of a sin­gle off-taker, Eskom. At some point the banks will have to look at their bal­ance sheets and see how much Eskom risk they have,” he added.

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