South Africa's State-owned Industrial Development Corporation (IDC) expects to become increasingly active in the energy milieu, both as a partner to independent power producers (IPPs), as well as a financier of mega transport fuel projects.

CEO Geoffrey Qhena tells Engineering News that its board has already approved the development finance institution's support for three IPP participants and that it is in discussions with several others on both renewable and conventional power projects.

Resource sectors divisional executive Ufikile Khumalo confirmed that the initial IPP approvals related to the now extensively delayed IPP tender that was spearheaded by the then Department of Minerals and Energy.

Envisaged are two new peaking power plants, one in the Eastern Cape and the other in KwaZulu-Natal. Negotiations with a consortium led by Suez Energy for the construction of the open-cycle gas-turbine plants were launched last year, after negotiations with the initial preferred bidder, the AES Consortium, were terminated in April, 2008.

But Khumalo tells Engineering News that the IDC is also receiving ongoing representations from other potential IPP investors, most of which were either bidding to supply South Africa through Eskom's ‘Multisite Baseload IPP' tender, or under the utility's so-called ‘Medium-Term Power Purchase Programme'.

It is understood that Eskom has received bids from about 30 bidders, involving upwards of 5 000 MW of possible capacity. But both processes have been delayed until the National Energy Regulator of South Africa (Nersa) finalises the cost recovery rules governing IPPs.

These rules will reportedly enable Eskom, which has been designated as South Africa's single buyer of IPP-generated power, to recover the costs associated with this higher-priced production, through annual tariff increases.

The cost recovery rules are likely to be released soon. But there is still significant anxiety being expressed by IPP bidders about the delays, with some even questioning whether Eskom truly remains committed to the acquisition of private power, especially in light of the fall-off in demand as the economy slowed.

The South Africa economy entered its first recession in 17 years in the first quarter and many analysts are forecasting that the economy will decline by between 1,5% and 2% for the year as a whole. Power demand, which is highly leveraged to the power-intensive resources sector, has fallen sharply - Statistics South Africa reported recently that electricity usage declined by 6,2% in April, while production dropped by 5,7%.

However, Eskom continues to stress that it remains committed to the processes it has initiated, arguing that its balance sheet and internal capacity is insufficient to meet South Africa's future energy demand, especially once the economy begins recovering.

Khumalo is equally sanguine, saying that the IDC still sees significant interest from the IPP sector, despite the delays.

He tells Engineering News that there is particularly strong interest from renewable-energy IPPs, especially since Nersa approval of the renewable-energy feed-in tariff, or Refit, earlier in the year.

The IDC has been approached to participate in a 500-MW wind farm, in the Western Cape; is considering a R1-billion participation in Eskom's R6-billion concentrating solar power project, which could be built in the northern Cape; is engaged with a smaller-scale solar-energy pilot project; has approve R74-million for a 7,5-MW wood biomass IPP in George, in the Western Cape; and has set aside R5-million for a project to capture and flare methane gas at one of the largest pig farms in Mpumalanga province.

On the conventional energy front, the IDC is looking to help finance CIC Energy's integrated coal mine and power-generation complex at Mmamabula, in southern Botswana - the project, which also hinges on the securing of a power-purchase agreement (PPA) with Eskom, and could cost about $3-billion and supply 1 200 MW.

Further, the IDC has been approached with requests for funding on a range of other IPPs (as many as ten), all of which will require PPAs with Eskom.

TRANSPORT FUELS

But, arguably the most ambitious energy-related megaproject currently on the IDC's radar is its joint study, with Sasol, of a new 80 000 bl/d coal-to-liquids (CTL) complex, which could be developed in the Limpopo province.

The IDC spent about R100-million to fund its portion of prefeasibility-study costs during its 2008/9 financial year, and expenses are expected to increase as the studies become more detailed.

Qhena indicates that, should the project proceed, the IDC's funding portion of the project, known as Mafutha, could be as high as R30-billion. Sasol has not given any indication as to the possible value of the project, but some have speculated that the capital costs could be as high as R200-billion.

In 2008, Sasol and the IDC signed a memorandum of understanding for the IDC's 49% participation in the new CTL facility. But, other funding partners are being sought and Qhena did not expect the IDC's equity position to exceed around 25%. Sasol, which is the world's largest CTL producer, will be the lead owner and operator.

Qhena only expects high levels of capital to be committed once all the project studies have been completed, which he indicates could still take between the next 18 months and 24 months.

In a recent update to shareholders, Sasol CFO Christine Ramon indicated that work on Mafutha's environmental-impact assessment would start in the third quarter of 2009, while exploratory work on the coal deposits was being pursued together with its black economic-empowerment partner Exxaro.

Interestingly, Qhena does not discount the possibility of the IDC also participating in a conventional crude-based refinery project, in the Eastern Cape, which is being pursued by State-owned oil group, PetroSA.

The project, known as Mthombo, is being studied for development in the Coega Industrial Development Zone and could have the capacity to produce 400 000-bl/d of refined products.

The cost of the project is currently estimated at $9-billion, and many observers have argued that it will make little sense to build both Mthombo and Mafutha.

But, Qhena argues that South Africa's long-term fuel-demand growth indicates that there is indeed scope for both projects and he says that there have, therefore, been some initial discussions about the IDC playing a role in funding the project.