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The biggest opportunity since diamonds?

World Coal,

Agreement over the Botswana energy project to generate power for South Africa is still the catalyst to an immediate go ahead for the development of Botswana’s coal industry.
South African power generator Eskom said in September that 'in the absence of clarity on its funding model' it was unable to sign the off-take agreement on which Mmamabula had been based. This came on top of three years of setbacks and delays to the project, but CIC Energy claims that the country can still make the project happen.
The balance of power
When, in 2008, the estimated US$ 6 billion cost of the core element of the project shot up to a reported US$ 16 billion, the reservation fees became too much for either country.1, 2 The 2 x 2500 MW phase project has now been downsized to 2 x 1200 MW phases with a price tag of US$ 3 billion and a financing plan that will not call for reservation fees, only agreements to buy the power.
Botswana is moving to energy self-sufficiency more quickly than South Africa. For both it is a balancing act: the scales can be tipped not only by the progress of the Mmamabula project but also by Eskom’s success in promoting more independent power producers (IPPs) in South Africa.
It is not just power
The CIC Mmamabula project not only offered energy for the home front, it promised to sell lots of it to South Africa. It then raised eyebrows by also suggesting coal exports and synfuel production for export. The project has since added a railway and a coal terminal to the port of Walvis Bay, which will provide serious economic diversification and energy security for many years.
CIC's hand
To get Mmamabula off the ground, CIC Energy chief executive, Greg Kinross, is banking on the favourable implementation of recent South African legislation that took the responsibility for approving energy demand forecasts and the projects necessary to satisfy them from Eskom and handed it to the Ministries of Energy and Finance.
Under the new regulations, Eskom’s strategic proposals will be channelled into a national resource plan, which, says Kinross, includes a policy of buying at least 30% of the power the country needs from IPPs who will fund their own power plants.
An optimistic phase
The security for CIC’s lenders would be the 30 year contract it wants Eskom to sign. Kinross says a shorter term would not make sense; there are no other credible buyers for 2500 MW of power in the southern Africa region. He was quoted in September as saying that CIC might be forced to downsize or postpone the project if a deal was not signed before March 2010, but in October insisted that "where we are now with Eskom is looking promising. We are in an optimistic phase. There is a lot of activity at Eskom."
1. BAXTER, B., 'Awakening a sleeping coal giant', World Coal, (August 2007), pp. 14 - 24.
2. BAXTER, B., 'Botswana's growing pains', World Coal, (September 2008), pp. 10 - 16.

Writen by Barry Baxter. To read the full version of this article, please refer to the November 2009 issue of World Coal magazine.

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