Power development company Ncondezi Energy tells Mining Weekly it is making steady progress towards financial close in 2017 for its 300 MW power plant and integrated openpit thermal coal mine project in Mozambique.

A three-year construction programme will start once financial close is reached, with commercial operations expected to begin in 2020.

“The project is one of the most advanced development-stage coal independent power projects in Africa and continues to be derisked, as Ncondezi works through key milestones to reach financial closure in the second half of next year,” says Ncondezi chief development officer Hanno Pengilly.

Located near Tete, in the north of the country, the $1-billion project will be Mozambique’s first coal-fired independent power producer, supplying reliable and cost-effective power to meet the country’s current energy demands and future growth needs.

“The development of the project brings with it challenges that require strong local and national government engagement and support, as well as the development of solutions to various developmental, operational and financing hurdles,” Pengilly adds.

Since the launch of the project in 2012, Ncondezi has focused on developing constructive dialogue and stable working relationships with the Mozambique government and local power utility Electricidade de Moçambique (EDM).

“The strength of this relationship has assisted in moving the project forward and has resulted in a number of critical development milestones to date, including the granting of a mining concession and the signing of a power framework agreement.”

The project was originally conceptualised as part of a larger export mining operation that was scaled back to meet Ncondezi’s power strategy, owing to declining seaborne coal prices and delays in building coal export rail and port infrastructure.

The current life-of-mine is 25 years, with the coal production requirement for the power plant estimated at 1.1-million tons a year. However, Ncondezi has defined a Joint Ore Reserves Committee-compliant coal resource of 4.1-billion tons, cementing the potential for the mine to support an expanded power project in the future.

Pengilly highlights that, together with internationally recognised technical consultants, Ncondezi has completed technical studies on all key elements of the project, including mine and power plant feasibility studies and environmental- and social-impact assessment studies.

The first phase of the project will target the supply of 300 MW of power; however, the project will ultimately be scaled up to 1 800 MW.

EDM will be the 100% offtaker of the first 300 MW for 25 years. Ncondezi has also signed a joint development agreement (JDA) with Chinese power generation group Shanghai Electric Power (SEP) for a 60% equity stake in the power project. SEP will co-develop, fund and operate the project.

“In SEP, Ncondezi has identified a partner that has the power development and operational expertise to deliver the project alongside our team, which is experienced in power and mining development and financing, as well as a pathway to funding, which is a material milestone in further derisking power delivery,” says Pengilly.

He adds that Ncondezi also benefits from strong shareholder support and expertise, particularly from infrastructure development and finance institution Africa Finance Corporation (AFC), which is its largest shareholder.

In August, Mining Weekly reported that AFC committed a $3-million loan facility to Ncondezi for ongoing project development costs not covered in the JDA between Ncondezi and SEP. The loan will be paid in two tranches: the first tranche of $1-million is repayable in 2017, while the second tranche of $2-million has a 24-month term from first drawdown and is conditional on the completion of the JDA with SEP, providing an appropriate security package.

“The project will be well placed to move our strategy forward to further expand the power plant to its 1 800 MW capacity. The potential for increased investment interest will also be stronger as the project moves forward into a lower-risk operational phase of its life cycle, attracting strategic and yield-focused investors looking for an annuity income stream.”

Pengilly highlights that, in addition to providing secure and affordable electricity for Mozambique using proven and reliable technology, the project will promote regional economic development in the northern part of the country – an area with significant potential that is, however, constrained by a lack of reliable or affordable energy supply.

“The project will create jobs, stimulate skills development and increase government revenues from taxes and levies. Ncondezi has contributed to the community on all levels since the inception of the project through several successful projects, with a successful training and development programme and a direct community skills upliftment programme already implemented. All these initiatives have been undertaken with the approval and support of the Mozambique government on a local, provincial and national level.”