Coal
Friday, 20 March 2009 12:14

Problems mount at giant coal mine

The giant Mmamabula Energy Project in Botswana has suffered a major setback that is likely to result in even further delays.
The problems emanate from the difficulties the developers of the project are facing in reaching an engineering, procurement and construction (EPC) contract.

TSX- and BSE-listed CIC Energy, which is progressing the Mmamabula project as a 50:50 venture with International Power Plc, is warning that the global EPC market is tight and contractors are demanding different terms that are likely to delay the fast progression of the first phase of the project.

The project includes a coal mine, two 2,500-megawatt power stations, a coal export unit and coal-to-hydrocarbons plant at Mmamabula, in southeast Botswana on the border with South Africa.

CIC Energy says the project’s sponsors have concluded that it will be difficult to enter into a turnkey EPC contract for the project on terms and conditions that, until recently, were accepted by EPC contractors and “would have enabled this project to be financed on a non-recourse project finance basis”, according to a statement posted on the Botswana and Toronto bourses.

“Strong demand in the EPC market for steam turbines has resulted in EPC contractors insisting on terms and conditions for project-financed projects of the scale of the Mmamabula Energy Project that we don’t believe will be acceptable to lenders without changes to risk allocations,” stated Gregory Kinross, President of CIC Energy.

CIC has since turned to its off-takers, South Africa’s power utility Eskom and the Botswana Power Corporation, to see if they will assume the construction and capital cost risks required to fund the project in the debt markets. The company is also bracing itself for further increases in the costs of developing the gigantic Mmamabula Energy Complex.

See http://www.mineweb.com/ to which full acknowledgement and thanks are given.