SENGWA POWER STATION (PVT) LTD

Transcription

1 SENGWA POWER STATION (PVT) LTD SENGWA POWER STATION PROJECT ( SPS ) SPS PROJECT AS A CASE STUDY FOR IPP PROJECTS IN ZIMBABWE By Dr Sydney Zikuzo Gata SPS IS A GENERATION, TRANSMISSION AND RETAIL SUPPLY BUSINESS

2 GOKWE NORTH POWER STATION NATIONAL POWER FEASIBILITY STUDY HIGHLIGHTS (1997) GNPS 1997 (1 400 MW PPP PROJECT) Commercial ORIGINAL Parameters DEVELOPERS: Financial Structure (USD Million) National Power (UK) Plc Total Rio EPC Tinto Cost (UK) Plc 1135 Capital Structure 70/30 Financing ZESA (Zimbabwe Cost Electricity 440 Supply NP/ZESA Utility) Equity 80/20 Share FEASIBILITY AND ESIA STUDY RESULTS: Total CAPEX 1575 Import Duties on Nil Technically and Environmentally Capital Feasible Items Installed Economically Cost/kWViable1125 Taxation Rate: Local Commercially Content Attractive 25% First 5 years 10% Price Financeable (Levelized) USc -Thereafter 35% 4.63/kWh 2

3 Financial Structure NATIONAL POWER FEASIBILITY STUDY HIGHLIGHTS (1997) Commercial Parameters (USD Million) Financial Structure Total EPCCost 1135 Capital Structure 70/30 Financing Cost 440 NP/ZESA Equity 80/20 Share Total CAPEX 1575 Import Duties on Nil Capital Items Installed Cost/kW 1125 Taxation Rate: Local Content 25% First 5 years 10% Price (Levelized) USc 4.63/kWh -Thereafter 35% 3

4 Financial Plan GOKWE NORTH PROJECT SOURCE AND APPLICATION OF FUNDS Sources of Funds (US$m) Uses of Funds (US$m) Equity 510 Turnkey EPC 1030 Contract Cost ECA Covered Debt 650 Owner s Costs 210 MLAs/Development 520- Agencies 420 Commercial Debt Total Sources of Funds Financing Costs Total Uses of Funds

5 DEVELOPMENTS POST 1997 GOKWE GNPS NORTH POST PROJECT SOURCE THE SENGWA AND APPLICATION POWER STATION OF FUNDS ( IPP ) PROJECT Sources of Funds (USD-Mln) Uses of Funds (USD-Mln) GNPS Target Legal and Financial Closure (End 1999) Project Suspended in Resumed by Riozim in 2010 Government Approval for an IPP Project Granted, Plus:- National -Generation Power License for MW Turnkey EPC 1030 Equity -Independent Transmission License Contract Cost ECGD -Retail Covered Supply Debt License 650 Owner s Costs 210 Rights to Sell Direct to End-Customers via ZESA Network Rights to Import and Export Power in SAPP Markets Development 520- Agencies /IBRD 420 Commercial Debt Total Sources of Funds Financing Costs 440 FINANCIAL CLOSURE NOW SEEMS POSSIBLE - 2 YEARS POST PROJECT APPROVAL. BUT WHAT HAS BEEN THE EXPERIENCE? Total Uses of Funds 5

6 PROJECT PROMOTION RioZim (50%) (50%) EMC Mine Development Fuel Supply Business SPS Power Station Development Generation Business Network Development Transmission and Trading Business 6

7 SCHEMATIC OF PROJECT DEVELOPMENT STRUCTURE 2. RioZim/EMC/IPP Investor (Equity) 1. GoZ (GIA, Consents, Permits etc) Sengwa Power Station (Pvt) Ltd (SPS) 3. Lenders (Debt) 4. EMC Continental (Zimbabwe) Pvt Ltd (EMC) 4. Riozim Limited (Riozim) 13.Bulk Energy Markets Generation, Transmission and Retail-Supply Licenses Market Development PPA, TUOS, TWA Contracts 14. Transmission and Trading System Planning and Design Financial Modelling OEM, EPC and O&M Contracts 8. Business Dev. and Project Finance Bankable Feasibility Study and (IP) Business Plan, Project Information Memorandum, Investor and Lender Syndication and Financial Closure 9. Boiler-Turbine-Generator Main Plant and Ancilliary Equipment 10. Engineering, Balance of Plant and Local Infrastructure 5. Other Government Approvals 6. Fuel Supply Arrangements 7. Community Services 15. Electricity Markets Operation Distribution Services, Bilateral and SAPP Markets Operations Customer Relations Management 11. Environmental and Social Impacts Assessments 12. Legal and Financial Services 7

8 Schematic of Investment Structure SPS is Established by a Shareholders Agreement, and a Joint-Project Development Agreement Between Riozim and EMC for BFS and IP EMC 50% Funded by Nominal Share Budget:- To Cover the Feasibility Study Updates, EIA, SIA, Regulatory Permits, Consents, Licenses: -Towards a Bankable Feasibility Study (BFS and IP) 50% Riozim 50% THE DEVCO (SPS) SPS Project Steering Committee To Produce the (BFS + IP) Sengwa Colliery Company 50% Rio Tinto Plc Principal Investor/ Developer/Operator THE GENCO (SPC ) SPS Project Once the BFS is completed the DEVCO is sold to the SPC (the new GENCO). Riozim And EMC to have a carried interest in the IPP Company to be determined via an independent valuation. Can be public, Possibly Listed to Enable Raising of Capital -Bonds, etc. 8

9 BUSINESS MODEL SAPP (Gen & Trans) $ EMO (Electricity Markets Operator) $ $ $ RIOZIM (SH and Fuel Supplier) $ SPS (Gen, Trans, RS) Business ZESA GRID (G, T, D) ELECTRICITY MARKETS (Zimbabwe - SAPP) EMC (SH, Gen, Trans Infrastructure) (EPCM - OMT - TTC) 9

10 REGIONAL MARKET POTENTIAL Energy and GDP: (World Fastest Growing Economies) (GDP Estimate) (GDP Forecast) Angola (*) 11.1 China 9.5 China 10.5 India 8.2 Myanmar 10.3 Ethiopia (+) 8.1 Nigeria Zimbabwe GDP Mozambique(*) Ethiopia(+) 8.4 Tanzania (*)(+) 7.2 Kazakhstan GDP (US$ Billion) Vietnam8.9 (10) 7.2 Chad 7.9 Congo (*)(+) 7.0 Growth (%) Mozambique (*) 7.9 Ghana 7.0 Cambodia 7.7 Zambia (*) 6.9 Inflation (%) Rwanda (+) 7.6 Nigeria 6.8 Excludes Countries with Population Less than 10 Million (e.g. Botswana, Namibia, Lesotho) Source: The Economist and The IMF (March 2011) (+) East African Power Pool Member (*) Southern African Power Pool Member

11 SPS PROJECT MARKETS Zimbabwe PPA Market (1 200 MW) Commercial, Industrial and Mining Consumers ( ) SAPP and EAPP Markets (1 200 MW) East African Power Pool ( MW) ( ) Namibia ( MW) ( ) South Africa ( MW) ( ) Mozambique ( MW) ( ) Malawi ( MW) ( ) Tanzania ( MW) ( ) DRC - Katanga ( MW) ( ) Angola ( MW) (?) SAPP Day Ahead Market (DAM) and Other Bilateral Contract Markets( ) 11

12 SPS Transmission Requirements Zambia ZIZABONA (SYSTEM) Victoria Falls Botswana (Polokwane) Botswana KaribaNorth SENGWA (GOKWE NORTH) Hwange Insukamini Botswana (Francistown) South Africa (Matimba) CHAKARI Kariba Alaska SHERWOOD KweKwe Chertsey Gweru Marvel Bulawayo South Africa NGEZI (ESKOM NORTHERN SYSTEM) Beitbridge Bindura HARARE Warren DEMA Triangle Orange Grove Mutare Zimbabwe SONGO, CAHORA BASSA Mozambique Phase 1a Enhance Imports Strengthen Grid 2 nd SA Zimbabwe Inter-connector at 400 kv or 500 kv Via Triangle/B.Bridge Phase 1b 9 x Mining Companies MW Demand 2 Lines x 400 kv to x 4 Substations Phase 2 5 x Regional Utilities MW Capacity 2 x Inter-connectors at 400 kv to ZIZABONA System & SONGO Substations 12

13 SAPP GRID SCHEMATIC / SPS Potential Markets / Threshold Min. Transfer Limits ENE ANGOLA PD=535MW 400MW 200 MW 600 MW (KOLWEZI +EAPP) 200 MW SNEL DRC PD=1 075MW 260MW ZESCO ZAMBIA PD=1 468MW ZESA ZIMBABWE PD=1 758MW 350MW 600MW 1 400MW 400 MW (EAPP) 500MW 300MW 750 MW TANESCO TANZANIA PD=653MW ESCOM MALAWI PD=240MW 100MW HCB/EDM MOZAMBIQUE PD=365MW 200 MW 200 MW NAMPOWER NAMIBIA PD=449MW 500MW 250MW 150MW BPC BOTSWANA PD=496MW 650MW ESKOM SOUTH AFRICA PD=36 513MW 450 MW 250MW 2000MW 150MW 1450MW 1450MW SEB SWAZILAND PD=196MW LEC LESOTHO PD= 109MW 13 13

14 SAPP: Committed Generation Projects in the Medium Term ( ) (Latest Report) No Country COMMITTED GENERATION CAPACITY, MW TOTAL 1 Angola Botswana DRC Lesotho Malawi Mozambique Namibia RSA ,091 2,961 2,239 12,316 9 Swaziland Tanzania Zambia ,089 2, Zimbabwe (*) TOTAL 1,951 1,256 7,501 3,411 3,568 17,687 (*) Made up of Non-Firm Co-generation and Really Very Old Thermals (1949*) 14

15 SAPP: Transmission Projects to Interconnect Non-Operating Members (SAPP Priority) No. Project Name Countries Capacity [MW] Expected Date 1 Zambia-Tanzania (*) Zambia, Tanzania Mozambique-Malawi(*) Malawi, Mozambique Namibia-Angola Angola, Namibia DRC-Angola Angola, DRC (*) Phase 2 of SPS Project has the Threshold Minimum Firm Capacity to Justify Investment in these Inter-connectors on a Long Term Basis. 15

16 SAPP: Transmission Projects Associated with New Generation (SAPP Priority) No. Project Name Countries Capacity [MW] Expected Date 1 2 Mozambique Backbone Transmission (CESUL) 2nd Mozambique- Zimbabwe (*) 3 2nd Zimbabwe-SA (*) Mozambique Mozambique, Zimbabwe South Africa, Zimbabwe nd DRC-Zambia DRC, Zambia (*) Phase 2 of SPS Project includes 2 nd Lines to SA and to Mozambique. 16

17 SAPP: Transmission Projects to Relieve Congestion (SAPP Critical) No. Project Name Countries Capacity [MW] Expected Date 1 ZIZABONA (*) Zimbabwe, Zambia, Botswana, Namibia Central Transmission Corridor (*) Zimbabwe Kafue-Livingstone Upgrade Zambia North West Upgrade Botswana (*) SPS Project can support funding of ZIZABONA and CTC Projects (BOT) 17

18 Project Rationale (1) Legal and Regulatory - Electricity Act 2002 Institutional Infrastructure - ZERC Electricity Pricing Principles - Tariff Code SAPP Regional Markets - Bilateral and DAM Government Letter of Project Approval (***) SPS: (IPP) Generation License (***) SPS: Independent Transmission License (***) EMC: Retail Supply / SAPP Registration (?) Zimbabwe Grid Code / SAPP Book of Rules 18

19 Project Rationale (2) Sengwa Concession / 50 Year Mining Title 535 MMT Minable Reserves Project Location and Market Access Public Policy and Economic Reforms (***) Improved Investment Incentives Economic Recovery and Power Demand Direct Interest in both PPAs and Equity from Mining Houses and Industrial Firms 19

20 Project Cost Benchmarks ESKOM-NERSA (IPP) Cost Benchmarks for 2008 Mid-Term Power Purchase Program(ESKOM LRMC PRICE FOR NEXT BASE-LOAD PLANT) Low Mid High Project Parameters Units Average Generation Range Range Range CAPEX Cost (Power Price) US$/kW Owners Development SAPP (DAM) Cost %Capex5.0 10% TBA12.5% 15% LevelizedCoal Price R/Ton ESKOM (NERSA) O&M Cost (+De-Sox) 6.0 R/MWh Discount SPS Rate (Financial Model) % 7.5 5% % 10% Future Average Power ZPC (Projections)(*) 6.0 Rc35 8.5Rc42.5 Rc50 Price [LRMC] Rc/Unit USc4.6 USc5.7 USc6.7 [NP=4.63USc/Unit(1997] 20

21 Investment Plan for SPS (IPP) Generation Phase 1: SPS to Build MW Capacity for the Local PPA Market by End-2014; Target Debt to Equity Ratio 70:30; (85:15) Estimated Capex: US$ 2.04Billion; Required Equity: US$ 612Million; (US$306M) IPP Syndicate to Fund Project Equity; DFIs and ECAs to fund Project Debt (*) 21

22 Local Content of Hwange Stage 2 Project Expenditures Contract Types % Local % Base Contract Price Mechanical Electrical + C&I Civil & Structural Transmission % Base (EPC) Contract Price 47.4 % Project Total

23 Financial Results of the Base Case Scenario Shareholder Equity Return (IRR%) Shareholder Equity Payback Period (Years) Debt Service Coverage Ratio (Minimum) SPS Project Base Case Scenario Africa Power Industry Best Practice Thresholds 23.69% >18% 6.13 < >

24 Sensitivity Analysis (1) Availability +/- 5% Interest Rate +/- 300bps EPC Costs -/+10% Fuel Cost -/+5US$/Mt O&M Cost -/+5% Capacity +/-5% Inflation Rate -/+10% Levelized Real Electricity Price (IRR) Tornado Change from Base Case Shareholder IRR of % Percentage Change, real -4.00% -3.00% -2.00% -1.00% 0.00% 1.00% 2.00% 3.00% 4.00% 24

25 Investor & Lender Due Diligence (Towards Investor Roundtable: 30 June 2012) Institution Riozim and EMC The DBSA (SA) (Lead Arranger) Scope of Interest (As Per LOI s) (1)Equity for Sponsorship (BFS and IP) (1)PPF Grant (USD ) (2)DBSA Loan (USD400 m) (3) Syndication (USD400 m) (4)Equity (Up to 30%) Conditions Of Engagement (1)Venture (2) Independent Valuation (1)Ind. Market Survey (2)PPA Risk Review + Rating (3)Ind. Legal Opinion (4)Financial Model + PIM (5)Independent Valuation 3 x Local Mining Houses Private Placement -Equity Awaiting Investor Roundtable Regional DFI s Co-Lenders (via DBSA) Terms and Conditions (tba) Standard Bank (China) Turnkey EPC/Buyers Credit PRC Sinosure Risk Cover (***) ICBC Bank (China) Turnkey EPC/Buyers Credit PRC Sinosure Risk Cover (***) Bank of China Turnkey EPC/Buyers Credit PRC Sinosure Risk Cover (***)

26 Project-Quality & Performance Permitting Consents and Approvals Political Force Majeure Changes in Law Inflation and Monetary Policy Interest Rate Currency Exchange and Repatriation Policy Industry Restructuring Market and Trading System Legal and Regulatory Risk Construction Period Risk Construction Cost Over-run Risk Completion Risk Program Over-run Risk Risk Matrix Market Demand And Power Price Operation and Maintenance Cost Business and Economic Risk Operation Risk O&M Cost Escalation O&M Performance Transmission and Trading Cost Fuel Supply Reliability Fuel Price Escalation Interest Rates and Exchange Rates Permits and Licences Load Factor Force Majeure Events Environmental And Emissions Compliance Plant and Equipment Breakdown 26

27 Legal-Regulatory-Environmental Risk (Investor-Lender Perceptions) Africa Country Risk Changes in Law (As and When) Changes in Policy (Ad Hoc and Frequently Retrogressive) Integrity of Administration of Public Policy (Rule of Law) Ad Hoc Pricing Interventions (Arbitrary Criteria & Measures) Weak Regulatory Infrastructure & Systems (Permitting Risk) Security of Property Rights (A Huge Concern) An Overhang of Expropriation and Nationalization Skewed Dispute Resolution and Compensation Systems Currency, Monetary and Exchange Policies (By Decrees) 27

28 Legal, Regulatory and Environmental Risk (LRE) (Mitigation) Africa Country Risk It is possible to Ring-fence and Quarantine SPS Project from the primary elements of legal and regulatory risk through a Special IPP Statutory Instrument that has the Authority of Parliament It is possible to design and develop a Dispute Resolution Process and Procedure that has clear provisions for realistic compensation, and that can be executed through a Neutral Jurisdiction. We agree on Allocation & Pricing of LRE Risk. There is a ONE STOP Investment Centre: It is possible to have a ONE STEP Statutory Instrument for IPP Investments. 28

29 Legal, Regulatory and Environmental Risk (LRE) (Mitigation) Africa Country Risk Proposed Special Statutory Instrument ( SSI ) CASE STUDY: THE KARIBA POWER STATIONS The Federal Power Board and Central African Power Corporation Acts ( ) Federal Power Board and CAPCO Board (Governance) ( ) ( ) Provisions for Capitalization (Balanced Joint & Several) ( ) (?) No Provisions for Re-Constitution or Dissolution (1986) (x) (?) Dispute Settlement Agreement (25 Yrs to 2011) (x) 29

30 Legal, Regulatory and Environmental Risk (LRE) (Case Example) Government Consents - Integrity - Capacity - Effectiveness (?) Regulatory Permits and Licenses - (Retail Supply License) (?) SAPP Registration - (Electricity Assets for Membership) (?)(2x) Integrity of Energy Sector Regulation : (Zimbabwe vs Zambia & Mozambique - Committed IPP s (MW)) Zimbabwe (IPP s) - Chisumbanje Cogen (90) [Total: (30+60) MW] Zambia (IPP s) - Ndola Energy (50), LHPC (6), Lunzua (15), EMCO (300), Maamba (300), Kabompo, (40), Lunsenfwa (250) [Total = 961 MW] + [CEC 850 MW Trans.] Mozambique (IPP s) -(Ressano Gracia (150), Gigawatt (115), Moatize (600), Benga (600) [Total = MW] 30

31 Project Risk Origination Investor Equity Dividends SPS Debt Lenders Loan Repayments PROJECT RISK EPC Cost Production O&M Cost Cost Revenue Receipts (*) 31

32 Market Risk: Customer Usage Load Factor and PPA Payment Risk Mitigation Mitigation Measures for Load Factor Risk: A Diligent Market Survey with an Independent PPA Risk Review (Identify Derivative Risks) Enforceable Take-or-Pay Clause in the PPA Arrange to Sell Unused Energy to ZESA Trade Excess Capacity on SAPP DAM Market Customer DSM and Energy Efficiency Services Procure PPA Payment Risk Insurance Cover 32

33 RISK (ii): Customer Usage Load Factor and PPA Risk Mitigation PPA TPC SPC: Generates and Sells Electricity to the Electricity Market Operator ( EMO ) Power Gen Tariff EMO: is the Bulk Power Purchaser; Transmission and Trading Company for Both the SPC Generation and the SAPP Imports. Power Retail Tariff Primary Markets: Large Commercial, Mining and Industrial Companies Secondary Markets: SAPP Markets and ZESA Capacity Deficit Market PPA Payment Risk Insurance Guarantee PPA Risk Prem -ium Insurance Underwriters 6 x Months Cash Cover Prime Bank Guarantees 33

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