African Energy (AFR) will press ahead with the development of three large scale power projects in Botswana following satisfactory findings that point to strong regional power demand in Southern Africa which is linked to population growth and increased standards of living.
African Energy has built a portfolio comprising over 8.5 billion tonnes of thermal coal in three projects in Botswana, the biggest project being Sese JV has 5 billion tonnes of coal deposits, Mmamabula West with 2.4 billion tonnes and Mmamantswe has about 1.2 billion tonnes of coal.
All three projects are being developed as 300-600MW fully integrated power projects to supply the chronically power starved SADC region. The three projects are to be funded to investment decision point by development partners, with minimal cash required from AFR.
In a previous research carried out by the company early this year, it was revealed that South Africa has the largest power deficit of 21000 MW, followed by Zambia with 1200MW; Zimbabwe has a power deficit of 950MW, while Botswana and Namibia will need 600MW to meet up power demands.
The power shortages in Southern Africa have been due to several challenges which vary per country. South Africa’s power woes came as a result of the state utility Eskom’s inefficiencies; new Eskom mega-stations are beyond schedule and over budget, renewable energy projects are not enough to meet the supply shortfall prompting the South African government to commission tenders from Independent Power Providers’ for coal based-load projects up to 600MW.
In Zambia and Zimbabwe the power shortages have been made worse by the El Niño phenomenon which has caused droughts. The two countries’ over-reliance on hydro schemes has been massively impacted by the current drought resulting in major supply side constraints. Zambia is currently importing power and using diesel.
The supply constraints in Zambia are expected to get better in 2020. Namibia continues to face power challenges as well with the Kudu gas project delayed again due to cost concerns. Further compounding the matter is the 250MW gas project that is yet to be finalised. The country is a net importer of power, creating an opportunity for cross-border IPP sales from new supply.
In the latest company update regarding the power projects, AFR says regional power demand will increase based on Sub Saharan Africa’s forecast population growth, which is the highest globally. Population is forecast to double between 2010 and 2050, with energy consumption forecast to double in same period as well. With no clear strategies on sight regarding the use of clean alternative energy, the coal miner is counting on countries turning to coal as a source of energy. As a result, AFR has positioned itself to focus on regional power demand. The company has a well developed regional interconnected transmission grid which allows wheeling of power throughout the region via SAPP (Southern Africa Power Pool), with a number of key upgrades already planned.
The energy company has also announced that regional demand for new power supply remains strong on the back of industrial demand, creating long-term regional market for new power generation. AFR says the limited competition for new base load supply puts them in a good position to capture the market.
“Zambian hydro-electric projects (comprising ~80% of Zambia’s installed base load capacity) are struggling during droughts, very limited alternative fuels for base load power, currently importing expensive diesel generated power. South Africa is formally seeking 3,750MW via cross-border, coal-fired, for its IPP procurement program. AFR is well placed to supply these markets due to geographic proximity and abundant low-cost coal which provides fuel security,” the company said.
To tackle the power demand in the region, AFR will turn to their three projects: Sese Integrated Power, Mmamabula and Mmamantswe. The Sese JV advanced project has an approved Environmental Impact Assessment (EIA) for 300MW.
The company hopes to complete coal supply agreement and submit a mining license application covering enough coal for the initial Sese Integrated Power Project and potential future expansions. AFR has already laid the foundation with the approval of water allocation and lease agreement signed giving Surface Rights for 50 years.
The Mmamabula West project has indicated deposits of good quality thermal coal suitable for power generation and export. The company is in discussions with potential project development partners for mine-mouth power generation opportunities.
There is ongoing amendment of the Environmental and Social Impact Assessment (ESIA) and Environmental Management Plan (EMP) to include 300MW plus 300MW of power generation plus grid connection. The project is being developed for submission in RSA coal-fired IPP procurement program.
With the Mmamantswe Power Project with an approved EIA of 2000MW, AFR will assist TM Consulting prepare the work programmes to deliver a formal submission in response to South Africa’s coal-fired, cross-border IPP procurement programme. AFR has agreed to sell project for $20 million to the consortium if project bid is shortlisted and/or project is taken to financial close.
African Energy Resources Limited is an Australian Securities Exchange (ASX) listed energy company focussed on developing the Sese Coal Project in eastern Botswana. The 100% owned project is located 50km to the south of the mining hub of Francistown, and is immediately west of the existing rail, road and power corridor which runs the length of eastern Botswana, and which connects through into neighbouring Zimbabwe and South Africa and on into nearby Zambia and Mozambique. AFR trades on the Botswana Stock Exchange’s foreign equity counter under venture capital market board. The stock is currently trading at P0.53 thebe after losing 8.62% in year to date returns.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.