Africa-focused energy company Kibo Energy has signed a nonbinding power purchase term sheet (PPTS) and a nonbinding coal supply term sheet (CSTS) with coal miner Vale Mozambique for its 65%-owned Benga power plant project, in Mozambique.

Kibo is developing the 150 MW to 300 MW Benga coal-fired power plant, with coal to be sourced from local mines.

The signing of the PPTS and the CSTS paves the way for the parties to enter into the next phase of negotiations for a binding power purchase agreement (PPA) and a binding coal supply agreement (CSA).

The PPTS provides for the parties to negotiate the private offtake by Vale Mozambique of about 37% of the total available power production from the first 150 MW boiler unit to be developed at the Benga power plant.

Aim- and JSE-listed Kibo expects to conclude a final binding PPA with Vale Mozambique in the fourth quarter of this year.

Further, the CSTS provides a framework and the initial terms from which Kibo and Vale will seek to agree a final definitive CSA that will result in Vale supplying the full coal requirement of the Benga power plant project over its 25-year life-of-plant.

Kibo says a blend of varying quality bituminous coal can be procured from Vale, which will be fed to the power plant boiler.

Vale produces both metallurgical and thermal coal for the export market and aims to have a combined production rate of 20-million tonnes a year by 2021.

"This combination of scale and product diversity not only provides security of feed supply over the life-of-plant, but of critical importance, provides the Benga power plant with the rare strategic advantage of being able to rapidly adjust the optimal fuel quality requirements of the power plant to comply with the varying operational and technical requirements of the power plant.  

"This control is possible because of the certainty and diversity of feed supply specifications able to be delivered from the mine and is in contrast to many coal-fired power plants, especially integrated mine-mouth coal-fired plants, where there are very few, if any, options for materially varying the quality of fuel supply, which in turn denies them the ability to achieve and maintain optimal production, emission and cost efficiencies," Kibo points out. 

In addition to other optimisation opportunities being evaluated, this aspect is expected to afford the power plant the opportunity to operate well above the standard efficiency rates for coal-fired power plants, providing valuable economic benefits for the power plant project and clients alike.

Kibo notes that it has, thus far, negotiated a competitive coal price mechanism with Vale Mozambique, which includes the benefits of eliminating a substantial portion of coal transport and handling cost by virtue of the coal source being virtually co-located with the Benga power plant site.

"Finalisation of both a PPTS and a CSTS in such a short span of time after the completion of a base case definitive feasibility study and independent financial model clearly reflects the commercial robustness of the project, both representing key milestones in the development of our first pure energy project. Ultimately, this demonstrates the urgent need and fast-growing demand for electricity in a mineral and resource rich region, which will remain unexploited without access to reliable and affordable electricity," Kibo CEO Louis Coetzee says.

He adds that Kibo has also had further formal engagement with Electricidade de Moçambique, Mozambique's national utility, over the past week, as part of the ongoing process between the parties to develop and ultimately agree a PPA for the balance of the electricity that will be produced from the Benga power project and not sold to private offtakers.

"These very productive and technical discussions acknowledge the relevance of the declared corporate strategy of Kibo, whereby the Benga power project is gaining increasing recognition as a critical energy project in Mozambique, with a pivotal role to play in providing a comprehensive energy solution, rather than just being capacity to generate electricity.

"The success of energy projects in developing economies, and which is true for all of the company's utility-scale projects, will continue to depend on our ability to demonstrate a profound understanding, capacity and commitment to address the needs and requirements of all legitimate stakeholders," Coetzee states.