Ncondezi plans to develop Mozambique’s first coal fired power plant on the Ncondezi Project area in the Tete Province. This follows the conclusion of both a Mine and Power DFS which confirmed that a large scale, long life, open pit thermal coal mine and integrated power plant is technically and economically viable.
This large scale project will be developed in phases, starting with a 300MW integrated mine and power plant (“300MW Project”), expanding ultimately to an 1800MW power plant. The Power DFS was conducted by Parsons Brinckerhoff and independently reviewed by STEAG, one of Germany’s largest electricity producers, from an operator’s perspective.
The 300MW Project, the first phase of Ncondezi Project, will see the development of an open pit mining producing 1.2 million tonnes per annum of coal for consumption by a 300MW base load thermal coal fired power plant, which will be adjacent to the mine. The power plant will use a modern and proven Circulating Fluidised Bed (“CFB”) technology, which has low emissions and will comply with the Government of Mozambique’s requirements for air quality.
The power plant will be located about 90kms away from the local transmission network. Construction is planned for 2015, with the power plant targeting commissioning in H2 2017 and commercial operations in H1 2018.
Ncondezi’s power project has a unique advantage over other potential power projects in the region because it is entirely focused on supplying Mozambique’s growing energy demands over the short to medium term, it can be delivered in a reasonably short time frame and the power plant can be scaled up in 300MW units.
Mozambique is one of the largest generators and exporters of electricity in sub-Saharan Africa and is strategically well positioned, with existing transmission infrastructure, to meet the shortfalls in energy supply domestically and in the broader Southern African Power Pool, especially South Africa, Zimbabwe, Botswana, Malawi and Namibia. The 300MW Project is closely aligned to the Mozambican Government’s stated objective of accelerating the electrification of the country and expanding access to electricity. Currently only 20% of the country is electrified. The power plant will help Mozambique maximise the potential of its resources in country and will be an important contributor to Mozambique’s future development.
Power Plant Project Economics
Indicative non-binding bids from engineering, procurement and construction (“EPC”) contractors, received in June 2013, for the construction and commissioning of the 300MW power plant, have given the Company sufficient comfort on the power plant economics. Estimated annual revenues are over US$200 million per annum with average EBITDA margins over 50%. The Company is targeting a nominal equity IRR of between 18%-20%, which the Directors believe will give an estimated power plant NPV at financial close of in excess of US$200 million and estimated net equity cash flows of in excess of US$2 billion over the life of the power plant. These estimates are based on a debt to equity ratio of 70:30 and a nominal post tax WACC of 12%.
Four EPC firms have submitted fixed price lump sum turnkey contracts, the winning EPC bid will be announced in Q3 2014.. The binding bid will play a key role in completing the Final Form Power Purchase Agreement negotiations during Q2 2014 as the recovery of the final binding capital cost will be included in the tariff rate agreed with EdM, the state owned utility company.
Roadmap to Implementation
The Ncondezi Project has made significant progress since signing the Power Framework Agreement with the Government of Mozambique in April 2013. The Mining Concession has been granted, the power plant Environmental Social Impact Assessment has been approved and the Coal Supply Agreement Heads of Terms and the Power Purchase and Transmission Agreement Heads of Terms have been signed. Following signing of the Power Purchase and Transmission Heads of Terms, Ncondezi has agreed a timetable with EdM and the Mozambican Government to complete the Final Form Power Purchase Agreement by the end of Q2 2014. Project financial close is targeted by the end of 2014, followed by construction in 2015, commissioning of the power plant in H2 2017 and commencing commercial operations in H1 2018.