Morupule B P8bn contract dispute heads to Parly
Brian Benza | Friday May 26, 2017 18:00
Parliament is currently on recess and will only resume business in July. Japanese contractor, Marubeni and Co. was last year awarded the tender to expand Morupule B power plant by another 300MW (Unit 5&6), but, at the last minute, demanded a P8.5 billion ($804 million) surety upfront as security for any potential payment defaults by the Botswana Power Corporation (BPC).
Unit 5&6 is Botswana’s first Independent Power Producers (IPP) project where the contractor funds the construction of the power station and recoup their investment from selling the power to BPC.
The construction of the plant was supposed to have started in January this year but in what is likely to be a costly case of oversight by government officials and their legal advisors, it later emerged that a provision to award a sovereign guarantee to the contractor was erroneously included in the tender. This goes against government policy, which stipulates that Botswana does not offer such kind of security.
Minerals, Green Technology, and Energy Security minister Sadique Kebonang told Mmegi BusinessWeek on Wednesday that the July Parliament will now decide if government can grant Marubeni and Co. the P8.5 billion guarantee they are demanding to start construction of the power plant.
“The matter will now be decided by the July Parliament. The construction of the plant can only begin after Parliament resolves the issue,” he said.
Marubeni won the contract last year together with South Korea’s Posco Energy, which will carry-out the operations and maintenance of the plant. According to the PPA, the Asian firms will recover their costs by selling the power to the BPC through a 30-year power purchase agreement (PPA) at a cost of P812.56 per MegaWatt hour.
If the construction had started on schedule, the first power from the plant was envisaged to kick into the national grid by May 2020, lifting the national power generation to more than 1,000 MW.
Kebonang previously told Mmegi BusinessWeek that even if the matter was to go before Parliament there was no assurance that an approval for a guarantee of that magnitude would be granted.
“There are chances that Parliament can reject it as they would have to look at things such as how many jobs are going to be created by the project for us to commit such a large amount of money. Remember we could not find the P7 billion that was required to save BCL which employed over 5,000 people,” he told Mmegi BusinessWeek in April.
According to Kebonang, a sovereign guarantee would mean Botswana deposits $804 million into an independent escrow account which Marubeni can recall even after a month’s default by BPC.
Marubeni insistence that government pays the P8.5 billion sovereign guarantees could be driven by BPC’s precarious financial position.
Dogged by huge operational losses, BPC has been relying on government subsidies to operate as a going concern.
In the 2017/18 financial years, BPC got a P1.46 billion allocation, which was the first under the National Development Plan 11 that envisages pumping a total of P10 billion between April 2017 and March 2023 to the BPC for “operational support”.
For the financial year ended March 2015, the BPC received a subsidy of P2.33 billion and another of P2.32 billion for the year ended March 2016. For the year ending March 2017, the BPC was allocated P1.35 billion in February 2016 and received an additional P1.3 billion in a supplementary budget in December. But Kebonang insists that as a 100% shareholder of BPC, the government support agreement should be enough surety that any defaults would be catered for by the state.
It also emerged that Marubeni also needs the sovereign guarantee to secure funding from financial institutions, a situation that government says it was not aware of. “All along the understanding was that Marubeni already has the funds in place to start the project as soon as the PPA is signed. It now looks like they need the sovereign guarantee to secure funding,” said Kebonang.
When they won the tender early last year, Marubeni and Posco announced that $600 million will be financed by Export-Import Bank of Korea, Japan Bank for International Cooperation (JBIC) and an international commerce bank through project financing.