Tue, Oct 11, 2016 - Page 11 News List

Siemens considering bid for US$3.7bn South Africa natural gas power project

Bloomberg

Siemens AG said it is weighing a bid for a US$3.7 billion project as South Africa’s program to generate power from gas gains momentum.

“The process is moving now,” Siemens South Africa CEO Sabine Dall’Omo said in a telephone interview from Johannesburg. “South Africa is ready for foreign direct investment.”

Dall’Omo said Siemens has had “significant discussions” with potential partners about bidding for the contract to develop 3,000 megawatts of gas-fired generation at two ports on the east coast of South Africa.

The plan announced by the South African Department of Energy on Oct. 3 involves importing liquefied natural gas (LNG) to generate electricity sold under a 20-year power-purchase agreement with state-owned utility Eskom Holdings SOC Ltd.

South African Minister of Energy Tina Joemat-Pettersson declared gas power development a priority in August last year as the government tries to reduce the nation’s dependence on coal.

The program would create jobs and build generating capacity that consumes less water than existing coal-fired plants, Dalla’Omo said.

The bidding teams are next year to prequalify in April after making submissions in February, with a final request for proposals planned for August, according to the department.

Participants within a group may include the developer of the gas-fired plant, LNG supplier and fuel port and storage owner and operator.

“The timetable seems ambitious, given the complexity,” Tracy Lothian, vice president of LNG global market development for Exxon Mobil Corp, said last week at a conference in Cape Town.

Bidding consortia would need as much information as possible, she said.

Eskom CEO Brian Molefe created investor uncertainty in July when he questioned the need for procuring renewable electricity from private developers.

One month later, he refused to sign an agreement for a solar power plant that had already been approved by the government.

Siemens would require “certain clarity with regards to the role that Eskom will take” in the gas-to-power program, Dall’Omo said, adding that the utility is one of its customers.

While construction of the gas plants would be fairly standard, “the most complex and time-consuming portions will be the financing around the gas itself,” she said.

That includes hedging the foreign currency risk associated with purchasing LNG, which is priced in US dollars.

The project also requires third-party access to infrastructure so that LNG can be supplied to other power plants, as well as used in commercial, residential and transport applications, BMI Research said in a report on Thursday last week.

“We note upside risk to South African gas consumption forecasts, which are currently constrained by domestic production and pipeline imports,” BMI said.

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