Brian Benza
4 November 2009
Botswana Stock Exchange-listed Aviva Corporation plans to place its Mmamantswe Integrated Coal and Power Project on care and maintenance pending the outcome of Independent Power Producers' (IPPs) decision from Eskom of South Africa.
The future of the Mmamantswe project, along with many other IPPs such as CIC's Mmamabula Energy Project (MEP), hangs in the balance because Eskom, which is supposed to be the projects' off taker, is yet to commit to any agreements to purchase power from them.
Eskom has highlighted the need to finalise its internal funding mechanism before dealing with IPPs. Avivaplans to develop an initial 1 000-MW power station using four-and-a-half million tonnes of coal per annum.
In a third quarter report, Aviva CEO, Lindsay Reed, says although there could be positive signals emanating from South Africa for the future of IPPs, they do not expect anything to materialise until 2011.
"As part of the funding arrangement, Eskom has applied to the regulator for 45 percent tariff increases over the next three years.
An increase in whole or part is generally conceded as necessary by most organs of state in South Africa.
"However, it is unlikely that National Energy Regulator of South Africa (NERSA) will rule on increases until the first half of next year. As such we believe the procurement process for IPPs will not be established until late 2010.
"In this context Aviva will complete some technical studies and then place the Mmamantswe Project on hold pending resolution of the procurement process with South Africa," says the report.
"At the same time Aviva says it will reconsider its own options for Mmamantswe in light of recent developments at its other Coolimba project in Australia.
A clearer picture on the company's strategy will be presented at the AGM," says Reed.
Mmamantswe sits near the Mmamabula resource area in eastern Botswana and the two developers, Aviva and CIC Energy, are exploring synergies to contain the costs of transmission.
Both companies hope to link to the South African Power Pool network and to integrate their transmission into Botswana Power Corporation and Eskom lines.
After the July stalemate in which Eskom said it could neither "accept nor reject" the offer to buy power from the Mmamabula project, CIC president Greg Kinross said they were now hoping to sign the PPA by the end of March 2010 after the financial year-end of Eskom.
But now, according to Eskom, the tariff application is part of this process and all IPP discussions have to be frozen until end of June 2010.
This means the IPPs will now only have a chance to sign a PPA with Eskom from July 2010.
CIC had planned to bring the first generating set at its proposed 1,200MW Mmamabula station on line during 2013, but to meet that target, it would have to have signed a PPA with Eskom by the end of September this year.
The continued delays are likely to affect Botswana's power plans, which had factored in supply from the project in its efforts to satisfy local demand following gradual supply reductions from Eskom since January 2008.
Botswana was to consume 25 percent of the 1200MW to be produced from the initial phase of MEP.
According to initial plans, construction of the plant should have begun in the last quarter of last year, while commercial operations were to commence in late 2012.
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