JOHANNESBURG (miningweekly.com) – After over six months of negotiations between Aim-listed Ncondezi Energy, the Mozambique Department of Energy (DoE) and Mozambique State-owned power utility Electricidade de Moçambique (EDM), the coal asset developer said on Monday that it had reached a commercial deal with EDM on the sale of electricity from the Ncondezi power project.

Ncondezi was establishing the 300 MW integrated thermal coal mine and power plant project in northern Mozambique.

The deal included the range for the starting electricity tariff to be paid by EDM, which would then be subject to adjustments during the 25-year operational life of the project.

The EDM board had approved the deal and conditions precedent and endorsed continued negotiations between the parties with a view to concluding the key project agreements by the end of the year.

Negotiations between the parties had centred on matters critical to the project's viability, including the structure and content of key project agreements – in particular the power purchase agreement (PPA), the power concession agreement (PCA), the PPA tariff and the terms of credit support to be provided for the project.

The PPA and PCA were both expected to be finalised in conjunction with the engineering, procurement and construction (EPC) contract and operations and maintenance (O&M) operator arrangements and, once approved, were expected to be initialled by EDM and DoE and would be executed at financial close, targeted for the first half of 2015.

“This is a significant milestone for Ncondezi and the culmination of all our hard work over the last two years. We would like to thank EDM and the DoE for their ongoing support and we look forward to continuing to work with them as we move towards financial close and construction, which is expected to begin in the second half of 2015,” commented Ncodezi CEO Paul Venter.

The agreement remained subject to a number of conditions precedent to be satisfied by the end of the year, including the introduction of a strategic investor acceptable to EDM; confirmation of the availability of political and commercial risk cover; a bankable EPC contract; bankable and acceptable O&M operator arrangements; and agreeing a timetable for the substantial completion of all key project agreements involving EDM.

Commenting on the announcement, fund adviser Liberum said the signing was a key step for Ncondezi as it highlighted that the company was “on the same page” as government regarding commercial terms.

“We think EDM is unlikely to have agreed a tariff without the key issues around the PPA and the PCA being worked out.

“While there are specific quantitative takeaways from today's announcement, Ncondezi had previously flagged a Phase 1 net present value of $200-million and an internal rate of return in the realm of 18%, so we wouldn't expect the economics to have diverged too drastically from these numbers,” it noted.