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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.

Contradiction

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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Debswana Jwaneng underground project to cost P65 billion

27th April 2021
Debswana

Jwaneng Mine— by far the world’s richest diamond mine is not about stop any time soon — plans are underway to ensure more gem stones are birthed from the Prince of mines.

Owners and operators of the mine, Debswana, a 50-50 De Beers- Botswana Government joint venture intends to spend over P65 billion to breathe life into the mine beyond the current Cut 9 project. Cut 9, which is currently transitioning from outsourced contractor to in-house operation, will take Jwaneng to 2036.

Debswana, by far one of world’s leading rough diamond producer revealed in a media briefing on Friday morning that an ambitious project to transition Jwaneng from open pit mining to underground is on the cards.

The company top brass noted that studies are underway to guide this massive project. These entail desktop studies of available geoscience information, hydrogeological surveys to appreciate the underground stratigraphy, water table levels, geotechnical composition and of course kimberlites geology.

Lynette Armstrong, Debswana Acting Managing Director said the company will invest all the necessary resources required for prefeasibility studies to determine the best model for undertaking the multibillion Pula Project. “This is a complex project that will require high capital investment over a period of years, advanced skills and cutting edge technological advancements,” she said.

Armstrong stated that underground mining projects have been undertaken and successful delivered before. “It will not be a completely new thing, we will  benchmark from other operations and learn how they have done it, we have a database of former BCL employees who worked for that underground mine , we will source skills locally,  where there are no required skills in country we will source from outside,” Armstrong indicated.

The Acting MD further explained that the company is getting ready for the highly anticipated mega project in different key aspects required for the successful implementation. “We have seconded some of our employees and top talents to benchmark in our sister operations within De Beers Group, to prepare and ready our workforce mind-sets and also acquire the necessary skills,” she said.
In terms of funding, Lynnette Armstrong revealed that Debswana would look into available options to fully resource the project.

“We have been discussing and exploring other available avenues that we could use to fund our life expansion projects, debt financing is one of them, it will obviously have to go through all our governance structures, internally and all the way to the board for approval,” she said.

Debswana Head of Projects revealed that an estimated cost of P65 billion would be required for the entire project from feasibility studies, engineering and scope development, construction, to drilling, sinking of shafts and all the way to transitioning, extracting the ore and feeding the processing plants. Meanwhile the process of transitioning Jwaneng Cut 9 project from Majwe Mining contract to an in-house hybrid model is underway.

The General Manager of Jwaneng Mine, Koolatotse Koolatotse, revealed that Debswana would not necessarily absorb all employees of the former CUT 9 contractor Majwe Mining. Speaking at the same virtual media briefing, Koolatotse said: “Debswana did not commit to absorbing Majwe Mining employees”

Majwe was in 2019 awarded the multi billon Pula contract to deliver the Jwaneng Cut 9 project, a significant investment by Debswana that intends to extend the life of Jwaneng Mine. The contract was however terminated due to “internal reasons.”

“Our contract with Majwe allowed for such termination , where one party on reasons best known to them could walk away from the contract without necessarily stating to the other party why it’s necessary to terminate.” Koolatotse further explained that Debswana has no obligation to re-hire Majwe Mining employees.

“In recruiting new skills for our new hybrid model we are publicly floating requests for expression of interest , that is to say anyone who has the skills we require for our new in-house model is welcome, it will not be based on whether you worked for Majwe or not,” he said.

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Leading global funders jump into Botswana-Namibia mega solar project

27th April 2021
Mega Solar Project

Top development funding institutions amongst them World Bank investment arms have jumped into the much anticipated Botswana-Namibia Mega Solar Project. The multibillion dollar massive project was confirmed by authorities of the two countries late August last year.

The Southern African sovereigns, both of which enjoy massive natural solar exposure, have partnered with Power Africa- a United States government entity to deliver what will be one of the world’s largest solar power plants. The project will see installations built across both countries and the power produced will be exported to the Southern African region.

This week, information emerged that The African Development Bank, The International Finance Corporation and The International Bank for Reconstruction and Development have signed a Memorandum of Intent to open talks for financing the project.

The International Bank for Reconstruction and Development, and The International Finance Corporation are World Bank private Investment agencies that seek to support private sector growth across developing economies of its member States. According to sources, the Memorandum of Intent would support the pre-feasibility and related studies required to advance the project.

Botswana authorities revealed recently that the capital raising campaign involving the three mentioned financing organisations would help fund the studies and could be involved in supporting the actual project’s development. It is anticipated, based on previous experience on similar projects, that the feasibility study could cost up to P20 million.

Plans for the 5 GW solar energy capacity to be developed over the next 2 decades for both the African nations, Namibia and Botswana, were first formulated and shared by the World Economic Forum’s (WEF) Global Future Council on Energy and the US led Power Africa initiative, in August 2019.

There will be a multi-phased solar procurement program to help these countries get access to secure, reliable, inexpensive solar power at scale.  Under phase 1, the idea would be to procure 300 MW to 500 MW capacity to cover future domestic demand only, phase 2 will see 500 MW to 1 GW capacity to be procured to cover regional demand within the South African Power Pool (SAPP) or through bilateral agreements.

Under phase 3, between 1 GW to 3 GW capacity will be procured to meet demand in SAPP and Eastern Africa Power Pool (EAPP), as per the plans shared last year. All this capacity will be developed through a competitive procurement process.

Botswana and Namibia were specifically chosen for this mega solar project because of their solar irradiation potential, large open spaces and low population density, strong legal and regulatory environment, and low-cost, efficient and smart power-trading potential to meet high regional demand.

“Southern Africa may have as much as 24,000 MW of unmet demand for power by 2040. The market for electricity produced by the mega-solar projects in Botswana and Namibia includes 12 other countries in the region that could be connected via new and/or upgraded transmission infrastructure. As battery storage technology advances and costs of solar storage drop below $0.10 per kilowatt hour, solar power becomes an even more cost-competitive solution,” the World Economic Forum said in 2019.

While the 5 GW capacity will help both the nations diversify their energy mix, it will also help bring down their dependence on South African national electricity utility, Eskom, which has problems of its own in financial and operational terms. Namibia and Botswana will be able to save their resources spent otherwise spent on energy import.

According to the Global Market Outlook for Solar Power 2020-2024 of Solar Power Europe (SPE), Namibia was among the few countries in Sub-Saharan Africa to have installed over 100 MW on-grid PV in 2019, with 130 MW added. The 5 GW project with Botswana, if realized, will help the country in its renewable energy target of 70% for its energy mix to be achieved by 2030.

Botswana and Namibia offer the potential to capture around 10 hours of strong sunlight per day for 300 days per year and have some of the highest solar irradiance potential of any country in Africa, which translates to highly productive concentrated solar power (CSP) and photovoltaic (PV) installations.

Both countries have sizeable areas of flat, uninhabited land not currently used for productive economic activity, which is conducive to building land-intensive solar PV and CSP installations. According to World Economic Forum (WEF) key investment challenge for power projects across sub-Saharan Africa is limited availability of foreign currency to permit repatriation of proceeds.

“Given the active diamond and mining industries in both countries, there should be sufficient foreign exchange available to facilitate outside investment,” a WEF report said in 2019. Botswana and Namibia are also working on conceptualisation of the ambitious ocean water distillation project to supply both counties with drinking water.

“We are happy with the prospects presented by this project, because we need water. However, our ministers and technocrats need to determine what is best for us keeping in mind our governance procedures,’’ aid President Masisi Masisi in one of his working visits to Namibia early this year.

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‘Sub-Saharan Africa records slowest growth in 2021’

27th April 2021

An International Monetary Fund (IMF) report on the Regional Economic Outlook on Sub-Saharan Africa has revealed that the region will be the world’s slowest growing region in 2021, and risks falling further behind as the global economy rebounds.

Speaking at a virtual press briefing on the Regional Economic Outlook recently, Abebe Aemro Selassie, Director of the African Department of the IMF, highlighted that although the outlook of the Sub-Saharan Africa region has improved since October 2020, the -1.9% contraction in 2020 remains the worst performance on record.

Even during these unprecedented times of the pandemic, the IMF report reflects that the region will recover some ground this year and is projected to grow by 3.4 percent. On the other hand, per capita output is not expected to return to 2019 levels until after 2022.

“This economic hardship has caused significant social dislocation. In many countries, per capita incomes will not return to pre-pandemic levels until 2025. The number of people living in extreme poverty in sub-Saharan Africa is projected to have increased by more than 32 million. There has also been a tremendous ‘learning loss’ for young people. Students in the region have missed 67 days of instruction, more than four times the days missed by children in advanced economies,” said Selassie.

This is feared to risk reversing years of progress, and the region falling behind the rest of the world. The IMF report focusing on navigating a long pandemic has shown that financial stability indicators have displayed little change. But the longer the pandemic lingers, the more borrowers may find themselves compromised, with potentially significant implications for nonperforming loans (NPLs), bank solvency, and the triggering of public guarantees.

So far, financial soundness indicators do not point to any major deterioration in the financial system’s health, thanks, in part, to the exceptional policy support provided by local authorities.
Botswana’s supervisory authorities, according to the report, have allowed their banks to use their countercyclical capital buffers to help deal with the crisis, however, the full impact of the crisis is still to be felt with Regulatory Forbearance scheduled to end in 2021.

This has perhaps prevented a number of non-viable loans from being captured properly in existing financial soundness indicators, the report indicated. The outlook for sub-Saharan Africa is expected to diverge from the rest of the world, with constraints on policy space and vaccine rollout holding back the near-term recovery. While advanced economies have deployed extraordinary policy support that is now driving their recoveries, for most countries in sub-Saharan Africa this is not an option.

“As we have observed throughout the pandemic, the outlook is subject to greater-than-usual uncertainty. The main risk is that the region could face repeated COVID-19 episodes before vaccines become widely available. But there are a range of other factors—limited access to the external financing, political instability, domestic security, or climate events—that could jeopardize the recovery. More positively, faster‑than‑expected vaccine supply or rollout could boost the region’s near-term prospects,” the report stated.

The IMF has called out Sub-Saharan nations to focus on policies and the priorities for nurturing recovery; such as saving lives that will require more spending to strengthen local health systems and containment efforts, as well as to cover vaccine procurement and distribution.

Selassie underscored that: “the next priority is to reinforce the recovery and unlock Sub-Saharan Africa’s growth potential. Bold and transformative reforms are therefore more urgent than ever. These include reforms to strengthen social protection systems, promote digitalization, improve transparency and governance, and mitigate climate change.”

Delivering on these reforms, while overcoming the scarring from the crisis will require difficult policy choices, according to Selassie.  Countries will have to tighten their fiscal stance to address debt vulnerabilities and restore the health of public balance sheets—especially so for the seventeen countries in the region that are in debt distress or at high risk of it.

By pursuing actions to mobilize domestic revenue, prioritize essential spending, and more effectively manage public debt, policymakers can create the fiscal space needed to invest in the recovery.
‘‘The sub-Saharan region cannot do this alone; there is a crucial need for further support from the international community,’’ Selassie said.

Along with the international community, the IMF moved swiftly to help cover some of the region’s emergency funding requirements. This included support via emergency financing facilities, increased access under existing arrangements, and debt relief for the most vulnerable countries through the Catastrophe Containment and Relief Trust (CCRT).

“To boost spending on the pandemic response, to maintain adequate reserves, and to accelerate the recovery to where the income gap with the rest of the world is closing rather than getting wider. To do this, countries in sub-Saharan Africa will need additional external funding of around $425 billion over the next 5 years.

However, meeting the region’s total needs will require significant contributions from all potential sources: private capital inflows; international financial institutions; debt-neutral support via (Official Development Assistance) ODA; debt relief; and capacity development to help countries effectively scale up development spending,” said Selassie.
All these issues are expected to be discussed at the forthcoming High-Level International Summit on Financing for Africa in May.

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