Blackout-Prone South Africa State Lethargy Slows Power Plan

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Ayanda Bam
Ayanda Bam, 55, started his career as a mining operations analyst for BHP Billiton during the apartheid era. Photographer: Paul Burkhardt/Bloomberg

It has taken Ayanda Bam a decade to convince South Africa’s state development agencies to back his black-owned company’s plan to build and own a power plant even after the country’s president welcomed the idea.

Ten years ago he wrote to then South African president Thabo Mbeki proposing that he build and own a power plant next to his company’s coal mines: Mbeki approved of the plan and referred it to the energy minister.

This year he convinced state agencies and banks that a black-owned company could lead a power business. South Africa is short of electricity and government’s stated aim is to boost black participation in the economy.

Policy indecision and regulations that hindered private companies from selling electricity have contributed to a shortage of power that’s curbing economic growth and job creation. At the same time laws that compel businesses to sell stakes in assets to black investors have been criticized by labor unions for creating a wealthy black elite that exercises little control over the companies.

“South Africans need to get up, but when you get up it’s very annoying when you go to institutions you fund and they won’t listen to your approach,” Bam, a slight 55-year-old dressed in a gray polo shirt, said in an interview in Bloomberg’s Johannesburg offices on May 5. “We want to be at the center of the development of our economy.”

Turned Away

Backing from state institutions is now enabling his Kuyasa Mining Ltd. to bid for the right to build a 600-megawatt power plant at an estimated cost of $1.7 billion in a tender to be held by government this year, following an initial request for proposals in December. He said he has approached the government’s Industrial Development Corp., Development Bank of Southern Africa and the Public Investment Corp. as well as commercial banks.

They “are no longer kicking us to the curb,” said Bam, who started his career as a mining operations analyst for BHP Billiton during the apartheid era.

“The Public Investment Corporation has seen the KiPower project proposal along with a number of other project proposals” and all will be subjected to an internal investment process, PIC CEO Daniel Matjila said in an e-mailed response to questions.

Calls to the DBSA weren’t answered while e-mails to the IDC and the country’s Department of Energy weren’t immediately responded to.

Regular Blackouts

Indecision over whether to build new power plants more than 10 years ago has left factories in Africa’s most industrialized economy facing power rationing while residential areas have regular blackouts. Eskom plans to cut national supply by 2,000 megawatts on Thursday from 5 p.m. local time until 10 p.m.

With about 95 percent of its electricity generated by state-owned Eskom Holdings SOC Ltd. the government says it’s now keen for private companies to enter the industry and it wants the program to be an opportunity to boost black participation in the economy.

South Africa will contract 2,500 megawatts of coal-fired projects from Independent Power Producers, or IPPs, the Department of Energy said in an April 16 statement. The first bid window for the coal projects, which must be 51 percent owned by South Africans, opened last year and the announcement of preferred bidders is expected before the end of this year.

The government is also looking at private investment in Eskom, Phumza Macanda, a spokeswoman for the National Treasury, said in an e-mail Wednesday.

‘Big Brother’

Kuyasa decided in 2003 that it should build a power plant to create a market for its coal, which is of too poor quality to export, Bam said. Black & Veatch, a Kansas-based engineering firm, has designed a plant that can be run using low-quality coal from Kuyasa’s mine near Delmas, east of Johannesburg. The company owns two coal mines and produces about 2 million metric tons of the fuel a year.

While lenders including Standard Bank Group Ltd. and Nedbank Group Ltd. have been top lenders for renewable IPPs, Kuyasa’s KiPower unit struggled to get financing.

“All commercial banks approached made it very clear that KiPower will need a big partner who has done this many times around the world with very deep pockets.” he said before winning the backing for the financing. “The fact of the matter is, whatever big brother you get is going to be an outside company.”

Kuyasa, which was formed by a group who worked at BHP mines, has funded investigation of the power project to this point with its own money, Bam said.

Completed Project

A plant like the one being envisioned could cost at least 15 billion rand ($1.24 billion) and would require a company “with experience in developing similar projects” who would take a stake, said Keith Webb, an investment banker for Rand Merchant Bank, commenting on general requirements needed by banks, not specifically the KiPower project.

Banks need to ensure that the project has sufficient backing to get completed, he said.

Bam said KiPower could have a date in June for when construction of the plant may begin.

Kuyasa wants to fund the project with 30 percent equity and 70 percent debt, Bam said.

Since the end of apartheid in 1994, South Africans have been missing an opportunity to build the country’s infrastructure, he said.

‘Filthy Rich’

“We’re all looking at somebody to do it. Somebody is going to arrive here from some country and actually do all these things,” Bam said. “The South Africans, unfortunately, they are waiting to be beneficiaries of that, all of us.”

The country’s Black Economic Empowerment program requires companies take on black-owned partners to bridge disparities formed under apartheid. Bam says many of them play little active role in the companies in which they have stakes.

“There are filthy rich people out there and they have no role to play in the economy,” he said. “And now people are chasing that dream.”

Under Kuyasa’s plan, the 600 megawatt plant would be the first stage of a project that could be expanded to use coal from other poor-quality seams around Delmas, creating jobs and economic opportunities for black-owned companies, he said.

“We don’t want to be beneficiaries, don’t give us anything, really,” Bam said. “Here’s a chance and we’re asking government to give us that opportunity. Open up. Make things possible.”

He still has the reply sent to him by Mbeki, he says.

“President Mbeki wishes him luck,” Mukoni Ratshitanga, a spokesman for the former South African president, who served from 1999 to 2008, said.

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