Kudu gas project gets N$4.93b Govt guarantee

Government is set to give a N$4.9 billion guarantee for the Kudu Gas Project after deliberations in Cabinet, a leaked document from the Ministry of Mines in The Villager’s possession shows. 

The presentation confirms that Government will throw their weight behind the project, which has been hanging in the balance following recent contrasting submissions from the Ministry of Finance and the Ministry of Mines, who are key players in the project.

While Finance Minister Calle Schlettwein believes funding for the project needs to be heavily scrutinised because of its far-reaching financial implications on the economy, Mines’ Minister Oberth Kandjoze wants the project executed.

“Government’s support package has been approved by Cabinet for the amount of N$4.93 billion. This will support Nampower and Namcor[..],” reads the presentation in part. The guarantee will give Nampower and Namcor the green light to go ahead and source financial support from private entities to kickstart the project, which is expected to commence by 2019, with a generation of 884MW.

Recent calculations show that the muchtalked-about project is estimated at more than N$10 billion, in addition to providing a further N$32 billion in guarantees between now and 2020. Over the next three years, the project will also bump Government debt by about 20% to N$68.3b.

Schlettwein said he could not divulge any more information on the Kudu gas project, citing that he has said enough thus far regarding it. “I have said what I needed to say on the Kudu gas project. For now, all the decisions which we have taken will be discussed in the Midterm Review which will take place towards the end of October or early November,” Schlettwein noted.

It was reported that Treasury is now endorsing the suspended 250MW Xaris power plant since it regards it as a viable alternative to the Kudu gas power project, and would leave the necessary fiscal space for imperative programmes of poverty eradication, employmentcreation and infrastructural improvements.

According to a project review document on the Xaris gas-fired power project conducted earlier in the year and presented to the Ministry of Mines and Energy by New Energy consulting and Thunder Energy Solutions, the justification for NamPower’s equity in participating in the Xaris project is questionable, as a 30% equity stake in Xaris would need an additional N$400 millionm to N$450 million over the Kudu gas project.

The report reiterated that the 30% NamPower equity foreseen in both Xaris Energy and Walvis Bay Gasport is not clear. The report made a comparison between other power- solving alternatives, which are the Xaris power plant, including Kudu gas, or a Barge option including Kudu and an unconstrained plant which shows the type, quantity and timing of new generation capacity needed, assuming there are no constraints on how this can be called.

The report, however, added that this is not practical. “Kudu power is assumed to be available from 2019, but is only needed from 2021 onwards. There is no fixed 400MW export obligation, but it’s assumed that any unused Kudu power capacity and energy is exported. Load factors on Kudu Power remain high throughout (>80%), thereby providing ‘good’ Kudu power economics,” the report noted in part.  

The report said the Xaris power plant’s load factor never goes over 15%, thus leading to high unit costs because of the high fixed costs associated with the Xaris solution. The system would in turn rely largely on production from other sources. Meanwhile, the Barge load factor varied between 30% and 50% until the Kudu gas project is constructed.

“Kudu power’s load factor starts at a low 37% (on 884MW), growing to 57% over time, implying a significant need for Kudu power’s export. Due to a low load factor on Kudu power and the risk of exports, optimisation of Kudu power appears merited,” the report.

The report added that the Xaris power plant is estimated to add approximately N$6.3 billion (US$476) of discounted lifetime costs over the best alternative considered (which is the Barge option), translating into an increase of 11.99 Usc/kWh (0.90 Usc/kWh) in levelled costs.

Xaris’ high costs in comparison to the alternatives are because of the high fixed annual costs, the cost of imported fuel (natural gas imported as liquefied natural gas (LNG), which is potentially sourced from Angola), fixed continuous commitment for 25 years and finally the very low load factors following Kudu capacity on demand (COD).

The Xaris power plant structure is believed to have interface and implementation risks, and as the Environmental and Social Impact Assessment (ESIA) only focuses on meeting the Namibian requirements and not international best-practice compliance requirements necessary to secure financing, the project will pose environmental compliance risks.

The report further noted that the optimisation of the Kudu power plant delivers a total reduction of discounted costs for all the alternatives, for instance the Barge option delivers a lower cost solution of approximately N$2.9b (US$222), compared to the Xaris power plant.