CIC Energy to shed equity in MEP
source: Mmegi
THATO MOSEKI
Correspondent
CIC Energy, the principal equity holder in the multi-billion pula Mmamabula Energy Project (MEP), plans to shed its shareholding in the project to allow investors to pump in funds needed to bring the coal-fired export power station to commercial production.
The Canadian company has already signed off 35 percent equity in the project to International Power Limited, its partner in MEPs development. This 35 percent shareholding is in CIC Energy’s wholly owned subsidiary, Meepong Resources, through which CIC is developing the MEP. Meepong Resources owns Mmamabula East and Mmamabula South, which are the resource areas for the MEP’s coal mine and power station.CIC Energy is expected to sell off another portion from its 100 percent shareholding in Meepong as part of a slew of [continue reading]
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24 August, 2009 at 5:54 pm
This project is a pipe dream. Its totally dependent on PPAs from Eskom and BPC, which are in the value subtraction business ie their tariffs are below their marginal cost of incremental production. Eskom and even more BPC have the lowest retail tariffs in the world and until these are raised so that cash flows are positive after paying the PPAs there is no case for IPPs. Especially very expensive front loaded ones like CIC Energy. Press releases may fool Governments but not the markets, especially these days
26 August, 2009 at 10:12 pm
Cassam, read the papers. Eskom will be needing major tariff increases (probably doubling in next two years); IPPs dont have to price below the wholesale price (as Eskom dont otherwise they could never build Medupi and Kusile); By the way, CIC’s plant appears 30% cheaper than Eskom’s plant so not sure what you mean by “front loaded”. Agree though that the project cant be successful without an inept Eskom coming to the party
27 August, 2009 at 12:13 am
Brian
No doubt an IPP with a Chinese EPC can put up a plant cheaper than Eskom, that inefficient parastatal. The issue for Eskom and the Government is how best to acheive a positive cash flow to cover the future investment programme. Wholesale tariffs have to be raised system wide to cover Eskom’s cash costs including for those PPAs. As you will agree it would be inappropriate for theTreasury to bail out Eskom.
The current capex for coal fired plants run $2 million in the US. This includes all the bells and whistles needed to meet the environmnetal, social and other. Are the RSA rules as tough? Chinese plants are cheaper but do they give the same guarantees and warrantees?
The other cost is interest during construction, IDC. What are the Rand intererst rates for a $2-3 billion project dependent on Eskom’s PPA? And what is the cost of the mine?
I initiated the World Bank’s South Asia Private Power programme in the 90s. All the costs were in US$ and the IDC at 10% accounted for 30% of total cost of 5,000 MW of plants. The tariff for the 1300 MW Hub project was based on 19% ROE and the rest..OPEX, fuel and CAPEX… are passed through with no markup. Other formulae like a set tariff or compettive bidding are the smae basis. The issue is what ROE to give the investor.
Financiers like the World Bank and the OECD ECAs are not keen on funding coal plants and mines. The brightest option for South Africa and Bots is the coalbed methane in the Karoo basin.
27 August, 2009 at 9:59 pm
All very good points. Remmeber Eskom has IDC too. The point is IPPs are not more expensive than Eskom. See Eskom’s results today. Treasury is bailing them out. They have to do IPPs and coal fired ones. Chinese coal plant is now the cleanest in the world.