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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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Business

Slight growth in GDP as economy battles return

28th July 2021
Peggy-Serame

Botswana’s economy showed slight growth signs in the first quarter of 2021, following a devastating year in 2020.

During 2020, the entire second quarter was on zero economic activity as the country went on total lockdown in an effort to curb the spread of the virus.

Diamond trade plummeted to record low levels as global travel restrictions halted movement of both goods and people and muted trade.

The end result was a significant decline for the local economy, at an estimated 7 percent contraction, just marginally below the 2008/09 global financial crises.

According to figures released by Statics Botswana this week, the country’s nominal Gross Domestic Product for the first quarter of 2021 was P47.739 billion compared to a revised P45.630 billion registered during the previous quarter.

This represents a quarterly increase of 4.6 percent in nominal terms between the two periods.

During the quarter, Public Administration and Defence became the major contributor to GDP by 18.4 percent, followed by Wholesale & Retail by 11.4 percent. The contribution of other sectors was below 6.0 percent, with Water and Electricity Supply being the lowest at 1.6 percent.

Real GDP for the first quarter of 2021 increased by 0.7 percent compared to a contraction of 4.6 percent registered in the previous quarter.

The improvement in the first quarter 2021 GDP reflected continued efforts to reopen businesses and resume activities that were postponed or restricted due to the COVID-19 pandemic.

The real GDP increased by 0.7 percent during the period under review, compared to an increase of 1.2 percent in the same quarter of 2020.

The recovery in the domestic economy was observed across majority of industries except Accommodation & Food Services, Mining & Quarrying, Manufacturing, Construction, Other Services and Agriculture, Forestry & Fishing.

The overall slow performance of the economy was mainly due to the impact of measures that were put in place to combat the spread of the COVID-19 pandemic.

The Non-mining GDP increased by 4.1 percent in the first quarter of 2021 compared to 4.0 percent increase registered in the same quarter of the previous year.

Agriculture, Forestry and Fishing industry decreased by 2.0 percent in real value added during the first quarter of 2021, relative to a contraction of 5.2 percent registered during the same quarter of 2020.

The main driver of the unfavorable performance stems from a decrease in real value added of Livestock farming by 3.0 percent.

Mining and Quarrying registered a decrease 11.4 percent in the real value added, this was mainly influenced by the drop in the Gold and Diamond real value added by 17.5 and 12.5 percent respectively.

Diamond production in carats went down by 12.1 percent while the tonnage of Gold produced went down by 17.5 percent.

The poor performance of the diamond sub-industry is attributed to the reduction in production due to a lower grade feed to the plant at Orapa in response to heavy rainfall and operational issues, including continued power supply disruptions.

With regard to Gold is due to diminishing resource base which affect production.

The Manufacturing industry recorded a decline of 7.4 percent in real value added during the first quarter of 2021, compared to a decrease of 2.3 percent registered in the corresponding quarter of 2020.

The deep low performance in the industry is observed in the two major sub-industries of Beverages & tobacco and Diamond cutting, polishing and setting by 57.0 and 38.5 percent respectively.

The reduction in Beverages is attributed to alcohol sale ban imposed during the quarter under review in order to reduce the spread of the COVID-19 virus. On the other hand, exports of polished diamonds went down by 24.9 percent compared to a decrease of 11.5 percent registered in the same quarter of the previous year.

The construction industry recorded a decline of 4.8 percent compared to an increase of 4.3 percent realized in the corresponding quarter in 2020.

This industry comprises of buildings construction, civil engineering and specialized construction activities. The industry is still showing signs of the consequences of COVID-19 pandemic. The industry recorded a negative growth of 7.4 percent in the previous quarter.

Water and Electricity Water and Electricity value added at constant 2016 prices for the first quarter of 2021 was P506.2 million compared to P378.2 million registered in the same quarter of 2020, recording a growth of 33.8 percent.

In the first quarter of 2021, Electricity recorded a significant growth of 62.4 percent compared to a decrease of 67.6 percent recorded in the corresponding quarter of 2020.

The local electricity production increased by 22.4 percent while Electricity imports decreased by 33.3 percent during quarter under review. The water industry recorded a value added of P231.3 million compared to P209.0 million registered in the same quarter of the previous year, registering an increase of 10.7 percent.

Wholesale and Retail Trade real value added increased by 11.4 percent in the first quarter of 2021 compared to an increase of 5.5 percent registered in the same quarter of the previous year. The industry deals with sales of fast moving consumer goods.

Diamond Traders recorded a significant growth of 112.7 percent as opposed to a decline of 22.7 percent recorded in the corresponding quarter last year. The positive growth is due to improved demand of diamonds from the global market.

The Transport and Storage value added increased by 0.6 percent in the first quarter of 2021, compared to a 2.4 percent increase recorded in the same quarter of the previous year.

The slight improved performance of the industry was mainly attributed to the increase in real value added of Road Transport and Post & Courier Services by 4.3 and 2.1 percent respectively.

The slow growth was influenced by a significant reduction in Air Transport services of 69.7 percent due to reduced number of passengers carried. Rail goods traffic in tonnes went down by 6.4 percent and passenger rail transport was not operating during the quarter under review.

Accommodation and Food Services Accommodation and Food Services real value added declined by 31.7 percent in the first quarter of 2021 compared to a decrease of 4.4 percent registered in the same quarter of the previous year. The reduction is largely attributed to a decrease of 42.1 percent in real value added of the Accommodation activities subindustry.

The suspension of air travel occasioned by Covid-19 containment measures impacted on the number of tourists entering the borders of the country and hence affecting the output of Hotels and Restaurants industry. COVID-19 restriction measures resulted in reduced demand for leisure and conferencing activities, as conferences are largely held through virtual platforms.

Finance, Insurance and Pension Funding industry registered a positive growth of 8.3 percent due to the favorable performance from monetary intermediation and Central Banking Services by 16.4 and 5.4 percent respectively during quarter under review.

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Business

Chobe Holdings secures P16 million for dark days

28th July 2021
Chobe Holdings

It is still tough in the tourism industry — big players in this sleeping giant are not having it easy, but options are being explored to keep the once vibrant multibillion Pula sector alive until the world gets back to normalcy.

One of the primary measures against the spread of Covid-19 is to stay home; this widely pronounced precaution against the global contagion that has claimed over 4 million lives across the world is however a thorn in the flesh of one of the major industries in the global economy — the tourism sector .

This sector is underpinned by travel – an act which is the virus‘ number one mode of spread, especially across borders.

Chobe Holdings Limited, one of Botswana’s leading high end eco-tourism giants said its survival strategies are underpinned by well-crafted stakeholder engagements in the mist of these unprecedented times of muted trading activity.

“Throughout the COVID-19 pandemic, Chobe continued to invest in and strengthen its relationships with key stakeholders in both its traditional markets and the SADC region,” the company directors updated shareholders this week.

To keep the business afloat, the company which owns and operates some of the exquisite tourism destinations along the banks of the mighty Chobe said it has triggered its existing available debt financing avenues.

Chobe revealed that its current overdraft of BWP 25 million has been extended on favourable terms.

The company shared that it has negotiated a further USD 1.5 million (over P16 million) standby loan with a flexible settlement terms and preferable cost implications to the bottom line.

“We are confident that the Group has sufficient cash inflows, cash reserves and un-utilized prearranged borrowing in place to settle any liabilities falling due and support the smooth recovery of operations in the short and medium term,” the company directors said, noting that they will retain the flexibility to vary operations should market conditions change.

Early this year, Chobe announced that the ongoing crisis in the tourism industry forced the company to draw from its prearranged overdraft facility of P25 million to the extent of P11.6 million.

Last year Chobe’s occupancy levels around its lodges and hotels went down 89 percent. This resulted in unprecedented revenue decline of 93% to P27.78 million from the P373.94 million in the previous year ended February 2020.

Operating profits went down 159% with profit after tax down 170%, mirroring a loss of over P67 million.

Chobe management said during the last half of the financial year they have done all they could to contain costs across the company’s operations.

During the last half of the year Chobe’s marketing and reservations teams continued to pursue the “don’t cancel but defer policy”.

“We thus continue to hold advance travel receipts, to the value of about P34 million at the financial year end,” the company revealed early this year.

Chobe said it continues to engage Government, through HATAB and BTO to prioritize the vaccination of workers in the tourism sector.

“Throughout the pandemic we have ensured that employees are trained in and comply with COVID-19 infection mitigation protocols as well as ensuring that all visitors to our remote camps and lodges as well as our staff and contractors are tested for COVID-19 before reaching the camp or lodges,” the company said.

However, the company said vaccinating the tourism staff will provide the best way to ensure that both employees and guests are protected from the virus.

“We continue to manage our cashflow through stringent cost control measures, balanced against the protection of the Group’s physical assets and the wellbeing and retention of its people,” the company said.

Chobe has successfully retained its top management through the pandemic.  To this end the company directors continue to closely monitor the Group’s recovery from COVID-19 and adjust salary reductions to support operations and aid retention.

Domestic and regional travel resumed during the second quarter of the 2020/21 financial year with the Group opening a strategic mix of camps and lodges.

A comprehensive domestic, regional and international marketing plan was put in place to support these openings.

International travel resumed in the first quarter of the 2021/22 financial year with occupancies forecast to steadily increase, albeit from a low base, through the second quarter.

The company is optimistic that forward bookings are strong for the 2022/23 financial year.

“There is pent-up demand from our traditional source markets to travel now, but this is tempered by uncertainty and access constraints,” the company stated.

“Both the domestic and international markets are sensitive to such uncertainty, and it is critical that both the private and public sector work together to develop and publish clear, authoritative and consistent travel information in order to build confidence”

Chobe entered the pandemic with the Shinde camp rebuild in progress — one of its high end camps and this was completed in the first half of the 2020/21 financial year accounting for the majority of the Group’s capital expenditure for that period.

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De Beers Q2 production jumps in response to strong rough diamond demand

28th July 2021
De-Beers -jwaneng-mine

De Beers Group, the world’s leading rough diamonds producer by value and Botswana’s partner in the diamond business, ramped up its production in the second quarter of 2021, in response to stronger demand for rough diamonds in the global markets.

The London headquartered diamond mining giant revealed in its production report this week that rough diamonds output  increased by 134% to 8.2 million carats in the three(3) months  of quarter 2 2021, “reflecting planned higher production to meet stronger demand for rough diamonds”.

This was against the backdrop of curtailed demand in the same quarter last year, mirroring the impact of Covid-19 lockdowns across southern Africa during that period.

In Botswana, where De Beers sources majority of its rough diamonds through partly government owned Debswana, production increased by 214% to 5.7 million carats. The percentage jump mirrored planned low production in the second quarter of 2020 where output was adjusted to market demands and implemented Covid-19 protocols.

Debswana operates four (4) Mines: Jwaneng Mine- being its flagship producer and largest revenue contributor. Jwaneng Mine which is the wealthiest diamond mine in the world by value is envisaged for multi-billion expansion to an underground operation in future to stretch its existence by few more decades.

The underground project which is anticipated to cost a whooping P65 billion will be the world‘s largest underground diamond mine.

The company which accounts for over 65 % of De Beers’s global production also operates Orapa Mine- one of the world’s largest by area, Letlhakane Mine currently a tailings treatment operation and Damtshaa Mine which is under care and maintenance following market shrink in 2020.

Namibia production decreased by 6% to 0.3 million carats, primarily due to planned maintenance of the Mafuta vessel which was completed in the quarter and another vessel remaining demobilized.  In Namibia De Beers sources diamonds both in land and marine through Namdeb and Debmarine respectfully.

In South Africa-the spiritual home ground of De Beers Group, production increased by 130% to 1.3 million carats, due to planned treatment of higher grade ore from the final cut of the Venetia open pit, as well as the impact of the Covid-19 lockdown in Q2 2020.

Production in Canada increased by 14% to 0.9 million carats, primarily reflecting the impact of the Covid-19 measures implemented in Q2 2020.

De Beers said consumer demand for polished diamonds continued to recover, leading to strong demand for rough diamonds from midstream cutting and polishing centers, despite the impact on capacity from the severe Covid-19 wave in India during April and May.

Rough diamond sales totaled 7.3 million carats (6.5 million carats on a consolidated basis), from two Sights, reflecting the impact of the reduced Indian midstream capacity on Sight 4, compared with 0.3 million carats (0.2 million carats on a consolidated basis) from two Sights in Q2 2020, and 13.5 million carats (12.7 million carats on a consolidated basis) from three Sights in Q1 2021.

The H1 2021 consolidated average realized price increased by 13% to $135/ct (H1 2020: $119/ct), driven by an increased proportion of higher value rough diamonds sold.

While the average price index remained broadly flat, the closing index increased by 14% compared to the start of 2021, reflecting tightness in inventories across the diamond value chain as well as positive consumer demand for polished diamonds.

Full Year Guidance Production guidance is tightened to 32–33 million carats (previously 32-34 million carats (100% bases)), subject to trading conditions and the extent of any further Covid-19 related disruptions.

When commenting to 2021 quarter 2 production figures, Mark Cutifani, Chief Executive of Anglo American- De Beers parent, said the entire Anglo American Group delivered a solid operational performance supported by comprehensive Covid-19 measures to help safeguard the lives and livelihoods of its workforce and host communities.

“We have generally maintained operating levels at approximately 95% of normal capacity and, as a consequence, production increased by 20% compared to Q2 of last year, with planned higher rough diamond production at De Beers” he said.

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