AIM-listed company Ncondezi Energy has entered into a binding joint development agreement (JDA) with China’s Shanghai Electric Power Company (SEP) to develop the Ncondezi coal mine and thermal power station project in Mozambique, in the province of Tete. The deal results in SEP becoming a strategic investor in the Mozambique project.
As a result of the agreement, a holding company will be set up which will hold 100% of the project; this will be the Ncondezi Power Company (NPC – currently, Ncondezi Energy directly owns 100% of the project). SEP will own 60% of the NPC. In return, SEP is investing up to $25.5-million in the development of the project up to the point of financial close. This will be paid, in agreed instalments, between January 1 and financial close. The first instalment will be paid when the JDA becomes effective and certain SEP conditions are met. Following the financial close of the project, the NPC will pay Ncondezi Energy another $35-million.
The Ncondezi project involves the development of a thermal coal mine in the coal-rich Mozambican province. This will be used to feed a thermal power station that will generate electricity for the country’s domestic market. The power plant will be built in phases, with Phase 1 having a capacity of 300 MW. Each subsequent phase will add another 300 MW until the project reaches its planned maximum capacity of 1 800 MW.
The Ncondezi Joint Ore Reserves Committee-compliant coal resource comes to 4.7-billion tons, permitting both a large sized and long lived operation. The Phase 1 power plant will use Mozambique’s present transmission network, reinforced, to carry its output to consumers. At the moment, only about 20% of the country is electrified and the acceleration and expansion of electrification is a policy of government.
The deal between Ncondezi Energy and SEP also sees a change in the technology to be used by the power plant. Originally, the British company planned to use circulating fluidised bed (CFB) technology but now the power plant will employ pulverised coal (PC) technology. This is because of SEP’s expertise in coal-fired power stations. This change is founded upon a revised feasibility study carried out by the Chinese company. “The PC technology feasibility study demonstrates comparable economic returns to the CFB solution and supports the existing tariff envelope agreement with EDM [the Mozambique electricity utility],” said Ncondezi Energy in a press release. (One of SEP’s investment conditions is that EDM approves the change to PC technology and confirms its existing commercial agreement with Ncondezi.)
Once SEP’s investment conditions have been met – or have been waived by the company – it will take effective control of the project. “Appropriate corporate governance and minority protections will be incorporated into a detailed shareholders agreement,” assured Ncondezi Energy. “SEP has undertaken to use reasonable endeavours to procure the best possible commercial terms from Chinese financiers for the proposed debt financing facilities for the power project on a nonrecourse basis to Ncondezi.” Further, SEP will take the lead in concluding engineering, procurement and construction contracts and operations and maintenance agreements.
SEP is listed on the Shanghai Stock Exchange, with the State Power Investment Corporation being its majority shareholder. The corporation has an installed capacity of more than 100 000 MW and is one of the biggest generation companies in China. Before the JDA can be implemented, SEP must obtain the approval of its parent company as well as that of the Chinese regulators.