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IPP prepares final coal tender bid

COAL TO POWER The DoE’s request for proposals indicated the aim to procure 1 600 MW of independently produced coal powered capacity

Photo by Duane Daws

AYANDA BAM It is more important for the company to gain experience in power procurement than simply to receive money in its bank account

Photo by Duane Daws

31st July 2015

By: Dylan Stewart

Creamer Media Reporter

  

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South African independent power producer (IPP) KiPower is preparing to submit a bid in response to a tender from the Department of Energy (DoE) under its Coal Baseload IPP Procurement Programme to supply coal-powered electricity to State-owned power producer Eskom, says KiPower chairperson Ayanda Bam.

KiPower, a subsidiary of coal miner Kuyasa Mining, is bidding to supply Eskom with 600 MW from its KiPower mine-mouth operation, in Mpumalanga.

The DoE’s request for proposals (RFP) for the tender, issued in December last year, indicated its aim to procure 1 600 MW, of which 1 000 MW must be generated domestically and 600 MW from the rest of the Southern Africa region. The maximum generating capacity for any project is 600 MW.

Originally, the final submission deadline was June 8, but this has since been extended to August 28.

“After the proposals are submitted, we hope that the DoE will take about six months to announce its approval of the project, after which financing will need to be generated to build the power plant,” says Bam. Therefore, it is expected that it will take another 8 to 12 months to financial close and for construction of the plant to begin.

KiPower estimates the total cost of the project to be $1.4-billion, he says, which will probably be funded at a 30:70 equity to debt ratio.

Bam explains that the price cap set by the RFP is 82c/kWh and states that KiPower will be able to produce electricity below this price.

KiPower will attempt, firstly, to source funding locally, as the 82c tariff paid by government is in local currency, exposing foreign companies to foreign exchange risk.

“There is not a healthy appetite from foreign banks to fund this project,” Bam states, adding that finding funding is, hence, more difficult because of the limited scope of investors that the tariff invites. He suggests that government should perhaps consider paying the tariff partly in foreign exchange to attract foreign investment.

Bam emphasises the opportunity that South Africa has to embark on a ‘new chapter of industrialisation’ and notes the importance of making this a sustainable project by generating local skills and local business.

There is an opportunity to develop a local skills base and manufacture components locally, because, currently, about 60% of the components will have to be imported, he adds.

The RFP stipulates that South Africans own 51% of the project company set up to develop the power stations, including 30% black economic–empowerment participation.

In terms of skills development, there is a challenge when working with overseas companies who might form up to 49% of the project company. They tend to sideline local companies when the actual work is done, which means there is no significant skills transfer. Bam stresses that it is more important for the company to gain experience in power procurement than simply to “receive money in its bank account”.

He points out that it would not have made sense for the DoE to stipulate that previous experience in power procurement is required because this would have excluded all South African bidders.

South Africa has the capability to undertake this sort of project – there just needs to be more confidence, and financial institutions, parastatals and government need to rid themselves of rigid mindsets, which restrict entrepreneurship and curtail real opportunities, he argues.

“We had seen an imminent excess demand for electricity, which prepared us long before this coal baseload tender was put out,” Bam tells Mining Weekly.

While KiPower was previously willing to supply electricity to private companies, there was not sufficient demand to make this project feasible.

Owing to the guaranteed offtake that it offers, government is a strong customer, he notes.

“As far as I know, we are the only South African company bidding as an independent coal-power generator,” he adds.

“In our favour, we are in close proximity to a railway siding,” Bam explains.

Further, the circulating fluidised-bed combustion boiler will remove sulphur from the low-quality coal that Kuyasa mines using limestone, making the coal suitable for power generation.

This technology will also enable Kuyasa Mining to further mine the low-quality reserves in the Delmas region and, if needed, KiPower could expand its generating capacity to up to 2 000 MW.

Kuyasa Mining is continuing with its operations as it has done before, explains Bam, currently producing about 2.4-million tons a year of run-of-mine coal from its adjacent Delmas and iKhwezi mines, in Mpumalanga, all of which will be used for power generation.

The focus of Kuyasa Mining and KiPower is to become an IPP and, if all goes well, Kuyasa Mining will not need a new market for 35 years, Bam concludes.

Edited by Leandi Kolver
Creamer Media Deputy Editor

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