Stunted Morupule B weighs down on GDP, BPC and coal
The ever on and off Morupule B Power Station is, according to latest research and statistical reports, almost short circuiting this country’s economy as its operational woes are infecting the country’s GDP, coal production and Botswana Power Corporation(BPC) credit rating.
Recently, when assigning a rating to power utility BPC, internationally respected credited rating agency, Moody's Investors Service gave the corporation a Baa2 rating but not without taking out from the good credit. What dented BPC’s good marks was Morupule B, which is said to be delayed in construction and will not be fully available to supply this country’s growing electricity demand. Botswana will remain less electricity sufficient until 2023, as it is the year which the works of Morupule B is expected to fully complete. Morupule B is currently undergoing remediation programme on its boilers.
“Moody's assessment of very high support for the company were revised downwards. In addition, severe delays or uncertainty around the remediation programme of Morupule B plant could also put downward pressure on the rating,” said Moody’s recent report on BPC highlighting operational challenges facing BPC.
Because of Morupule B woes, Moody’s expects upward rating pressure is unlikely to be in the medium term. According to Moody’s, its rating also reflects the company's significant asset concentration and poor asset quality, with multiple design and construction issues affecting output from BPC's coal fired plants. The poor reliability of its power plants increases Botswana's reliance on electricity imports reducing visibility over the company's internally generated cash flows, says Moody’s.
“While the Morupule A power plant (132 megawatt (MW) is expected to come back fully online this year, the remediation programme for the larger Morupule B power plant (600 MW), has only started and there is uncertainty around the improvement in the plant's availability once the works have been completed in 2023, as per the current schedule,” said Moody’s.
Moody’s assessment comes after the third quarter of 2019, when the 600MW Morupule B was said to be “fully operational” and this was for the first time since its seven years of woes. There was much hope after BPC injected a P1.2 billion overhaul on Morupule B. Since its inception in 2012, as an expansionary projection to Morupule A, Morupule B lived on four years and had a documented exposure of it failing to launch due to poor design.
After coming with much fanfare from as an answer to Botswana’s growing power demand, this country was left to go back to the drawing board of reliance on its insufficient 120MW, Morupule A plant and two emergency diesel plants with output of 195MW. Botswana was left to starve for electricity as South Africa’s Eskom became increasingly unreliable and was slowly pulling out the socket that supplies Botswana.
Adding to depression of BPC crediting by Moody’s pointing a finger towards Morupule B, is the latest Statistics Botswana Gross Domestic Product (GDP) report for the quarter under review (Q3) released in December which says the plant was not operating at full capacity.
The report showed a decrease in the Electricity real value added which attributed to a decline in the local electricity production by 39.6 percent. Furthermore, imports of Electricity went up by 119.6 percent during the quarter under review (Q3).
Statistics Botswana said the significant decrease in local Electricity production were largely due to reduced performance of the Morupule B Power Station which was not operating at full capacity. Another report which shows Morupule B to be hampering Botswana’s economy is the Index of the Physical Volume of Mining Production by Statistics Botswana, which also lays all the blame on the same plant for sabotaging coal production. The report says the decline in coal production is mainly as a result of low uptake by Morupule B Power station.
“Coal production dropped by 28.6 percent during the third quarter of 2019, compared to production registered during the same quarter of the previous year, the decline is mainly as a result of low uptake by Morupule B Power station which has resumed remedial works on the boilers. Although production fell, it is important to note that there was no shortfall in supply of coal due to stockpiling undertaken during the previous months. The quarter-on-quarter comparison, likewise, reflects a decrease of 23.5 percent when compared to the preceding quarter,” said the Index of the Physical Volume of Mining Production.
However, a report contradicting assessment and statistical information which paints a gloomy picture and far-fetched hope on Morupule B progress was also released recently. The recent Electricity Generation and Distribution Q3 2019 report which acknowledges the plant’s major contribution on domestic electricity production saying it eases Botswana’s over-reliance on electricity imports.
According to the Electricity Generation and Distribution Q3, when looking at the quarter-on-quarter comparison being Q2 versus Q3, it shows an increase of 16.0 percent, from 96.0 during the second quarter of 2019 to 111.3 during the current quarter. According to Statistics Botswana, the Index of Electricity Generation stood at 111.3 during the third quarter of 2019, reflecting a year-on-year decrease of 39.6 percent compared to 184.3 recorded during the corresponding quarter in 2018.
According to the national statistics, the quarter-on-quarter perspective shows that local electricity generation increased by 16.0 percent from 403, 576 MWH during the second quarter of 2019 to 467, 974 MWH during the period under review. The 16.0 percent increase is said to emanate from improved performance of power generators at the Morupule B power station during the current quarter.
When comparing the corresponding quarters, the Q3 of 2018 and 2019, the physical volume of electricity generated decreased by 39.6 percent, from 774,822 MWH during the third quarter of 2018 to 467,974 MWH during the current quarter. Morupule B also became the MVP of the quarter under review as it helped Botswana to import less electricity from South Africa’s less sufficient Eskom. In Q3 of 2019 Eskom was the main source of imported electricity at 58.5 percent of total electricity imports.
After a new power deal signed last year, Electricidade de Mozambique supplied 20.7 percent while 14.9 percent, 4.5 percent and 1.4 percent were sourced from the Southern African Power Pool (SAPP), Cross-border markets and Namibia’s Nampower respectively. When looking at the quarter-on-quarter comparison, there is a decrease of 3.4 percent (17,906 MWH), from 522,021 MWH during the second quarter of 2019 to 504,115 MWH during the period under review.
This decrease in imported electricity is attributed to improvement in local generation, jumpstarted by improvement of Morupule B. However the physical volume of imported electricity increased by 119.7 percent (274,688 MWH), from 229,427 MWH during the third quarter of 2018 to 504,115 MWH during the current quarter.Contribution of Electricity Generation to Distribution
According to Statistics Botswana electricity generated locally contributed 48.1 percent to electricity distributed during the third quarter of 2019, compared to a contribution of 77.2 percent during the same quarter in 2018. This gives a decrease of 29.1 percentage points.
On the other hand, said the National Electricity Statistics, a quarter-on-quarter comparison shows that the contribution of electricity generated to electricity distributed during the current quarter increased by 4.5 percentage points compared to the 43.6 percent contribution of locally generated electricity during the second quarter of 2019.
Most of Botswana’s electricity has been imported from South Africa’s power utility, Eskom, but in 2008 South Africa’s electricity demand started to exceed its supply resulting in the country restricting power exports. For more than a decade Botswana has been struggling with electricity imported from South Africa, as dependency on the country’s electricity import became increasingly unreliable, hence government efforts to increase local generation of electricity at Morupule Power Station. The Morupule Power A plant has a capacity of 132 MWH and was augmented with Morupule Power B, which is to have a capacity of 600 MWH upon completion. but has been dogged with scandals and lack of or slow progress.
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Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.
Food import bill slightly declines
The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.
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