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Kibo announces reorganisation of MCIPP arrangements

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World Coal,

Kibo Energy PLC, the multi-asset, Africa focused, energy company, has signed a binding heads of agreement with Shumba Energy Ltd and various subsidiaries of each party to reorganise the arrangements for the Mabesekwa coal independent power project arrangements (MCIPP) and its associated coal asset in Botswana.

Kibo and Shumba hold 85% and 15% interests respectively in Kibo Energy Botswana (Pty) Ltd, the company currently holding the MCIPP, which consists of:

  • A 761 million t coal mineral resource held entirely within KEB, with KEB having right to a 303 million t subset (MCIPP KEB assets), and Shumba retaining rights over the balance (MCIPP retained assets).
  • studies investigating the construction of a 300 MW integrated power project at Mabesekwa.
  • Certain water and land use permits and environmental certification in place.

Under the reorganisation the MCIPP retained assets will be consolidated back into KEB and Kibo’s interest in KEB will be reduced to 35% to 40% to maintain Kibo’s look-through interest in the MCIPP resource and make sundry adjustments to recognise Kibo’s project expenditure. An additional joint venture to be incorporated between Kibo and Shumba (KP2) will enable continuation of the advancement and operation of the existing MCIPP energy projects in Botswana. Kibo, Shumba and their respective subsidiaries will retain their existing interests in the MCIPP (Kibo 85%) and the existing shareholder agreement between them to govern their joint venture and shareholder interests, including the protection of minority interests.

As part of this reorganisation the relationship between Kibo and Shumba will be expanded to include jointly managing and overseeing the development of a bespoke 300 MW power plant (KP1 power plant) through the incorporation of a new company to be held 35 - 40% by Kibo and the balance by Shumba. Shumba would provide the full development funding requirement for associated feasibility and technical studies. The KP1 power plant is in addition to the MCIPP and envisaged to provide power to a petrochemical plant (PCP) which will provide first Botswana, with up to 80% of its domestic liquid/gas fuel requirements, and later the Southern African market at large. Currently, all of Botswana’s liquid/gas fuel is imported. It has been agreed that the consolidated MCIPP resource will supply the PCP, the KP1 power plant and the MCIPP power plant with coal. The following commercial off take agreements will be signed to enable the above arrangements:

  • Coal sale agreements with KEB to establish the MCIPP resource as a secure and exclusive feedstock supply of coal for:
    • The PCP for 100% of its feedstock requirements (on the back of a binding coal supply agreement already put in place by Shumba).
    • The KP1 power plant for 100% of its fuel needs.
    • The MCIPP power plant for 100% of its fuel needs.
  • Power purchase agreement between the PCP and the KP1 power plant for exclusive supply of the necessary 300 MW of electricity to the PCP.
  • Power purchase agreements between MCIPP power plant and future commercial off takers.

A variety of shareholders’ and joint development agreements will govern the management of the various joint ventures, including minority interest protections, with details of Kibo’s final interests in the various entities and the MCIPP resource to be advised upon completion of the reorganisation.

The agreement is conditional on a variety of commercial and technical conditions precedent such as the signing of a definitive agreement within ten business days, execution of the above commercial offtake agreements, and a longstop date of 20 March 2020.

Petrochemical plant

For further background and to put the reorganisation into context, Shumba recently acquired 80% of Coal Petroleum Ltd (CP). CP is a company that has been focused on the development of a commercial scale liquid fuels production facility in Botswana. CP has partnered with PowerChina International Group Limited and Wison Group, both leading Chinese EPC companies with a proven track record and recent experience in the coal-based power and coal-to-liquid technologies (CTL) for the execution of the bankable feasibility study. PowerChina International is the world’s largest hydropower, electricity and infrastructure construction group and Wison is China's leading technical solution provider in energy sector, specialising in technologies and engineering construction services, including petrochemical, refinery, C1 chemical, central processing facility and LNG and power generation. The technical aspects of a bankable feasibility study for the PCP, which will be built at Mabesekwa, will be undertaken in conjunction with the two Chinese conglomerates and is nearing completion, with project financing discussions advanced.

Lock up provisions

Under the agreement, and for a period of 12 months, Shumba and related parties may not sell or otherwise dispose of more than 5% of the total shares that it holds in Kibo at the date the agreement is signed in any subsequent calendar month.

Louis Coetzee, CEO of Kibo, commented: “This reorganisation enables us to more fully leverage and de-risk the MCIPP Resource by pursuing three different potential revenue streams, including a further 250 - 300 MW power plant in addition to the existing MCIPP 300 MW plant currently being advanced and significant exposure to a large PCP to be planned for development and supported by two major Chinese conglomerates (Botswana is described by the World Bank one of the world’s fastest growing economies, averaging 5% per annum over the past decade). With the strong local and international support, and supply agreements already in place, we are exposed to a much larger opportunity in addition to what we are already developing in Botswana, further strengthening our existing relationship with Shumba.

“Recent emphasis has been on our major other projects, including the MCPP in Tanzania, Benga in Mozambique, and Mast Energy in the UK, where notable advances have been made. Now the spotlight is on Mabesekwa; this is a tipping point for the project, which we believe offers a significant value – lift to shareholders. We look forward to updating shareholders as the projects advance.”

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