Shumba pow­ers up speaks to Mashale Phumaphi, man­ag­ing di­rec­tor at Shumba En­ergy, about plans for the com­pany’s $1bn Mabesekwa Ex­port IPP project in Botswana.

Fin­week

Finweek English Edition - - THE WEEK IN THE NEWS - Ed­i­to­rial@fin­week.co.za

five years ago, Mashale Phumaphi was an in­vest­ment banker, brav­ing the Lon­don freeze. On one oc­ca­sion, he was asked to run the rule over a cop­per de­vel­op­ment firm with am­bi­tions to build a mine in Botswana, the country of his birth. “They were drilling to depths of 900m look­ing for the per­fect ge­o­log­i­cal model. That’s what hap­pens when you get large min­ing com­pa­nies with a bud­get, but it’s very in­ef­fi­cient,” he said in an in­ter­view with fin­week.

Phumaphi’s com­pany – Mau­ri­tius-listed Shumba En­ergy – doesn’t go in for such ex­trav­a­gances. He and his co-founder, Thapelo Mokhathi, own up to 40% of the com­pany and they pre­fer to keep a close watch over the bank ac­count.

Soon, how­ever, they will have to di­lute if plans to de­velop their $1bn Mabesekwa Ex­port in­de­pen­dent power pro­ducer (IPP) project is to take off. Lo­cated about 60km south-west of Fran­cis­town in Botswana, the project is not a con­tin­u­a­tion of the Water­berg for which Botswanan coal is largely known.

“Coal fields in Botswana are as di­verse as you can get,” says Phumaphi. “The per­cep­tion that Botswana coal is one large con­tin­u­a­tion of the Water­berg is just un­true,” he adds.

Hav­ing said that, of the five ex­ist­ing coal prospects that are ac­tu­ally eco­nomic, three are in the Water­berg: Mmam­ab­ula, owned by Jin­dal Steel & Power; Sese and Mma­mantswe de­vel­oped by African En­ergy Re­sources; and Shumba En­ergy’s two projects, of which Mabesekwa is one.

The other is Sech­aba, a pre­dom­i­nantly ex­port-ded­i­cated re­source that needs rail in­fras­truc­ture be­fore Shumba can think about its de­vel­op­ment.

Phumaphi says re­cent meet­ings in Jo­han­nes­burg with po­ten­tial fi­nanciers were promis­ing. If all goes to plan, Mabesekwa will be 70% debt-fi­nanced, with the bal­ance funded through equity, pos­si­bly through de­vel­op­ment agen­cies such as the South African govern­ment-owned In­dus­trial De­vel­op­ment Cor­po­ra­tion (IDC) and the De­vel­op­ment Bank of South­ern Africa.

The in­ter­est in a Botswanan project fits the pan-African man­date of the South African govern­ment, but there’s also con­sid­er­able self-in­ter­est at stake. That’s be­cause Shumba’s pro­posal is for Mabesekwa to sup­ply be­tween 300MW and 600MW of elec­tric­ity to South Africa.

Says Phumaphi: “Pro­cure­ment can be through ten­der or di­rect ne­go­ti­a­tion, de­pend­ing on what the Na­tional En­ergy Reg­u­la­tor of South Africa (Nersa) de­cides. What is key at Mabesekwa is that we can meet any timeline Nersa wants to come up with”. He es­ti­mates the pro­cure­ment pe­riod will take 15 to 18 months to com­plete, with mine and power sta­tion con­struc­tion tak­ing about three-and-a-half years.

Ex­port­ing power to South Africa has not al­ways been easy. Toronto-listed CIC En­ergy strove for years to sell from its project – the Mmam­ab­ula project now owned by Jin­dal – to no avail. Phumaphi says the South African mind­set is much changed since power short­ages in 2008 saw mines in the country close for a week, with load-shed­ding a fea­ture of the econ­omy for years af­ter.

Th­ese days, the South African govern­ment has openly ac­knowl­edged it can’t alone build its own power, es­pe­cially as the Medupi and Kusile coal-fired power sta­tions are heav­ily de­layed and have run way over bud­get. As a re­sult, it es­tab­lished an IPP pro­gramme start­ing with re­new­able en­ergy bids and is now mov­ing on to coal-fired en­ergy for baseload sup­ply. The first win­dow for coal-fired IPPs has just closed but in or­der to source some 2 500MW of power, more are re­quired.

A power pur­chase agree­ment would be with a com­pany in which Shumba En­ergy is a share­holder, along with other equity in­vestors, such as the IDC, as well as Shumba’s en­ergy part­ner, Mulilo Group. Hand­ily, Mulilo Group has al­ready had bids to sup­ply some 420MW in re­new­able en­ergy ac­cepted by South Africa’s de­part­ment of en­ergy, says Phumaphi.

“We will fo­cus on the coal min­ing be­cause that’s what we know best,” says Phumaphi. “For a power project of about 600MW, the Mabesekwa project would have to mine in the re­gion of 3.2m tons a year (mtpa). But be­cause the re­source is so large […] we can scale up in a separately ring-fenced project and move from there,” he says.

Phumaphi says that in ad­di­tion to the fi­nanc­ing chal­lenge, the com­pany plans to take part in the next IPP bid process. With Sech­aba, how­ever, he is in the process of get­ting a strate­gic part­ner on board as well as get­ting a vi­able power so­lu­tion for mine de­vel­op­ment at the site. “Our pref­er­ence is to work with a strate­gic part­ner,” says Phumaphi. “The part­ner could take a num­ber of forms such as an ac­tual in­dus­try player, which is also a de­vel­oper such as Marubeni,” he says.

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