Johannesburg — FOR a company that seemed well placed to benefit from electricity supply shortages in SA, things have gone horribly wrong for AltX-listed independent power producer Ipsa.

When Ipsa burst on to the AltX scene in 2006, it stated as its goal the creation of a portfolio of power generation assets in southern Africa.

It got off to a good start. In 2007, the company was producing steam and heat power from its gas-fired power plant in Newcastle, KwaZulu-Natal.

There were plans to sell electricity to power utility Eskom for distribution nationally. Government policy was that independent power producers should produce about 30% of new-generation capacity.

By that time it was abundantly clear SA was heading for crunch time as electricity demand outstripped supply.

On the face of it, therefore, Ipsa's business case was solid. That the wheels would come off was inconceivable.

But, as Ipsa chairman Stephen Hargrave's statement last week shows, a lot of water has passed under the bridge since the days of optimism.

It has been a frustrating time for the group, and it is really hanging by a thread.

It is tempting to conclude that fate is conspiring against Ipsa.

First, and probably most importantly, the concluding of a power purchase agreement with Eskom has been delayed.

The government has designated Eskom as the single buyer of power from independent power producers.

So Ipsa has a facility that is producing power but cannot sell it to Eskom in the absence of a power purchase agreement.

Hargrave says the delay has affected cash flow.

In a frank statement, Hargrave said: "The company shares the frustration of shareholders that the agreement has taken so long to materialise.

"I can only assure shareholders that this is not the result of any lack of effort on the part of management, who have been working nonstop to finalise matters with Eskom.

"But it must be acknowledged that for Eskom the Newcastle (combined heat and power) project is much less important than it is for Ipsa".

Ipsa has learnt from the experience.

"We are now very hopeful of good news on the power purchase agreement in the near future -- but previous experience has taught us to be cautious about being too optimistic on timing," Hargrave says.

While the plant sits idle, Ipsa must honour a gas supply contract with Sasol .

So it is paying for gas that it is not consuming.

Eskom aside, Ipsa is not just a victim of circumstances.

As if Hargrave and his team did not have enough troubles, the economic downturn has worsened Ipsa's situation.

It has also taken investment decisions that have gone wrong.

In 2007 Ipsa bought four Fiat Avio 501 D turbines for a 521-MW Coega open-cycle gas-turbine project in Coega for £32,6m.

But when it became clear that the project would be delayed, the group decided to look for a buyer for the assets.

The timing was wrong, it seems.

Owing to the global economic downturn, finding a buyer for the assets has proven to be difficult.

The group is struggling to sell turbines for which it would have easily found a buyer in normal economic conditions.

He says there have been offers of interest for the turbines.

In depressed global market conditions, however, prospective buyers have found it difficult to raise the necessary finance.

In terms of a £15m loan agreement with Standard Bank , Ipsa must repay the loan in full by the end of September .

All these factors have turned Ipsa into a sorry sight.

It is being kept alive by money from Independent Power Corporation, a company controlled by Ipsa CEO Peter Earl. Hargrave says this support will not be there forever.

It is not a bottomless well, as he puts it.

"The company financial position, clearly, is difficult.

"We have some excellent and valuable assets in the Newcastle plant and the four Fiat Avio turbines," he says.