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Other Articles from The Villager

NamPower opens up on Xaris

Mon, 9 February 2015 06:30
by Tiri Masawi and Charmaine Ngatjiheue t
News Flash

The Villager had a one on interview with the NamPower management. The following are incepts of the interview
The Villager: Is it possible for Xaris to deliver power by July 2016, which were the critical condition of the tender and a matter of disqualification?
NamPower: The Request for Proposals ("RFP") in respect of the 250MW power project (the "Project") required bidders to confirm that they would be able to deliver power by July 2016 in order to qualify.  Both the Preferred and the Reserve Bidder indicated in their submission that they could meet this target, and NamPower has proceeded on the basis of this representation by the bidders.
The Villager: How can NamPower be proposing a cabinet submission for the 250MW project when Xaris does not even have a generation licence? Does NamPower plan to bully the ECB in issuing a Licence for a project that is NOT in the approved National Integrated Resource plan by getting first a Cabinet approval?
NamPower: NamPower will make a cabinet submission and take a final investment decision in relation to the Project when appropriate, having regard to the due diligence of its advisory team and the progress of the Project.  Xaris does have a generation licence which licence was submitted with its response to the RFP (the existence of which your next question appears to acknowledge).  As referred to in question 3 below, the licence is currently for 200MW and is valid until the earlier of 1 April 2044 or 25 years after the date of commencement of commercial operations for the plant.  Xaris has submitted an application to the ECB to amend its licence in accordance with proper procedure, which procedure as described in the next response is in these circumstances a very straightforward process.  No "bullying" of the ECB is required and none would be tolerated.  Finally, we note that on similar power projects in the SADC region and elsewhere it is not uncommon for the generation licence to be granted at a much later stage in the project development, and as such it is not a critical issue at this early stage of the project.
The Villager: How can Xaris be a ‘Preferred Bidder’ when they do not have a 250MW licence but only a 200MW licence?
NamPower: Xaris qualified as preferred bidder under the terms of the RFP.  This assessment would not be materially affected by capacity stated in (or the status of) the generation licence, as the amendment of a previously granted generation licence in the SADC region is straightforward where the basis for the amendment can be demonstrated.  In this case, the basis for increasing the capacity of the facility covered by the licence is easily demonstrated and supported.
The Villager: NamPower is saying that the Xaris power is cheap. The rental of the Floating storage and regasification unit (FSRU) in the bay costs USD 120.000 per day which is USD 43 million per year (N$500 million per year).
NamPower: Has NamPower made any statements about the cost of the power?  If not, this should be stated, i.e. NamPower has not made any formal statement in relation to the cost of the proposal submitted by Xaris and it is unclear where this information has come from.]  NamPower has stated that the Xaris proposal is the most cost effective taking into consideration all factors, not that the power was "cheap".  The RFP response submitted by Xaris offered a lower tariff than other qualifying bidder(s), including the Reserve Bidder.  This tariff included the cost of the FSRU.  A lower tariff results in lower costs to the end user and this is of significant concern to NamPower in addressing the current supply gap.
The Villager: Why are we renting this equipment?
NamPower: Namibia is not renting the FSRU, Xaris as an independent power producer with private investors will rent the FSRU as part of the proposed project and the cost of such rental is already included in the tariff.  There are only approximately 15 FSRU's in existence, all of which are owned by a small group of experienced FSRU operating companies which rent the units out; it is more expensive, time consuming and impractical for Namibia to purchase, own, operate and maintain its own FSRU.  It is standard practice to charter such vessels by way of a time charter party agreement.
The Villager: Renting the FSRU will aid in avoiding the risks associated with owning and operating a non-core business asset. Are we planning to give the equipment back?
NamPower: As noted above, the equipment is not owned by Namibia.  Xaris proposes to charter the FSRU for a period of time commensurate with the term of the power purchase agreement it will enter into with NamPower, which is also equivalent to the estimated operating life of the plant (25 years).
The Villager: If we give it back then what do we do with power plant that might be stranded behind a dune with no gas?
The proposed time charter party for the FSRU is for a length of time commensurate with the life expectancy of the power plant.  Therefore, the plant will likely be ready for decommissioning at the time the FSRU is withdrawn.  Even if the life of the power plant can be extended beyond that time, it is not difficult to extend the term of an FSRU charter party or to lease a different FSRU, and if that option is for some reason not available there will be more than 25 years to plan alternate solutions.     
The Villager: Where the rental is cost hidden?
NamPower:The rental cost is not hidden, costs of the FSRU are built into the tariff forming part of the bid submission made by Xaris. This is no different than the capital costs for plant and equipment which are built into the tariffs of the Reserved Bidder and the other unsuccessful bidders.
The Villager: Where is the cost of the pipeline rental hidden?
NamPower: The costs related to pipeline construction are not hidden, all costs are built into the tariff forming part of the bid submission made by Xaris.  This is no different than the capital costs for plant and equipment which are built into the tariffs of the Reserved Bidder and the other unsuccessful bidders.

The Villager: Xaris says the cost is low because it will sell gas to other clients. Where are these clients?
NamPower: Xaris did not state that the cost is low because it will sell gas to other clients, it stated that the cost could be reduced by selling gas to other clients.  [We will need to confirm exactly what was said to whom; we are assuming that Xaris did not make this statement as represented but instead stated what we have above].  The full cost of the FSRU was included in the bid submission made by Xaris, and the proposal was still the most cost-effective on that basis.  Any additional customers will bring an added benefit as the costs of the FSRU will be shared with additional customers, which will make the cost benefit of the Xaris solution even better when compared to the other bids.   However, as you would expect, such additional customers are unlikely to sign up to binding arrangements until FSRU capacity is available for their use so the exact nature of these arrangements cannot be known at this time.  It can be reasonably expected that a reliable source of a clean fossil fuel such as natural gas at a market price will be attractive to businesses and individuals in Namibia.
Even though the cost of the FSRU is significant, the cost of gas at the power plant will still be notably lower than the cost of the only real alternative which is heavy fuel oil. And fuel oil is also much worse for the environment.

The Villager: Does Xaris have an Environmental Impact Assessment (EIA)?
NamPower:nWe note that the bidding process did not require that any of the bidders provide an EIA. This process should not delay the process.
The Villager: An EIA process for and FSRU will take over one year to complete because of the controversial sea portion so how can Xaris promise to generate power by July 2016 which was critical condition of the tender and a matter of disqualification?
NamPower: As noted in the response to the previous question, the bidding process did not require that any of the bidders provide an EIA. Bidders were required to provide a status on the EIA process. This process should not delay the process. [Please note that both bidders provided an EIA status for the power stations and not for the FRSU or the HFO tanks and this was not requested. The logistics of the fuel supply was left to the innovation of the bidders, NamPower did not pre-empt any particular solution and thus did not request EIA for fuel infrastructure as the fuel logistics solution was not known at that stage].

The Villager: Nowhere is the world is there a 250MW LNG power plant such as planned because it is too small for the Liquefied Natural Gas (LNG). Are you planning to push this plant to 500MW and kill Kudu?
NamPower: Kudu will not be "killed"; the Xaris project has been designed to work in tandem with the Kudu Project, after supplying base load power prior the commencement of commercial operation of Kudu.  The project is not "too small for the LNG" and it is untrue that no other projects are being developed on the same basis; As a representative example, there is currently a slightly larger gas fired power project, utilising an FSRU, which is in an advanced stage of development on Malta.  This project is using a very similar structure to that being implemented for the Xaris project, and like the Namibian project is providing Malta with a cost-effective source of power.
The Villager: Do you know that the pipeline from the FSRU to the coat requires a 3.6 km Exclusion Zone? What can you say about this regarding the project?
NamPower: The pipeline will be designed, installed and operated in accordance with approved international standards.