Formal Power Tariff Submitted

RNS Number : 2818I

Ncondezi Energy Limited

31 March 2020

 

News Release  

Formal Power Tariff Submitted

31 March 2020: Ncondezi Energy Limited ("Ncondezi" or the "Company") (AIM: NCCL) is pleased to provide a general update on its power tariff finalisation and submission process for the integrated Ncondezi 300MW coal-fired power project and coal mine in Tete, Mozambique (the "Project").

Highlights :

· Material Project milestone achieved on time with the submission of a firm tariff proposal (the "Proposal") to the Mozambican Government and Electricidade de Moçambique ("EDM")

· Represents the last milestone to initiate formal tariff negotiations with EDM

· The Project targets the provision of 24 hour reliable, affordable and accessible power in northern Mozambique, a key growth region currently reliant on expensive emergency generation and exposed to the effects of prolonged droughts

· The Proposal targets an attractive energy solution that is competitive with existing gas power plants in Mozambique, and up to 60% cheaper than the emergency generation plants currently in use.

· The Proposal is supported by:

o  Executed Joint development ("JDA")

o  Detailed Engineering, Procurement and Construction ("EPC") and Operations and Maintenance ("O&M") proposals from China Machinery Engineering Corporation ("CMEC") and GE Energy Switzerland GmbH ("GE");

o  Indicative debt financing terms from a leading financial institution; and

o  A Letter of Interest from a leading export credit agency.

· The Project will be designed to use state of the art emission control technologies to seek to reduce local air pollutants, minimize the plant's impact on the environment and ensuring its compliance with the most stringent emission standards

· The Project is fully aligned with the Government's energy generation strategy for additional coal power into the generation mix from 2023

Ncondezi Chief Executive Officer, Hanno Pengilly said: "Finalisation and submission of the updated power tariff was a critical path item to unlocking the formal negotiation process with the Mozambican Government and EDM.Today's announcement marks a major milestone in the Project's development programme, arguably the most significant since signing the JDA with our Partners in July 2019. The Proposal is the culmination of work completed over the last 9 months to confirm the Project's commercial viability and the Company believes it to be strongest and most attractive proposal delivered to date.

This is a strategic project for Mozambique, targeting the provision of low cost, reliable and accessible electricity, contributing to both domestic and regional objectives to expand energy access and exports over the next 3 to 5 years. This is critical to promote economic transformation and social development in a region with some of the lowest electricity access rates in the world.  

The Project capex is expected to be US$1.1bn and once completed it will be one of the largest generation plants since the country commissioned the Cahora Bassa Hydropower plant ("HCB") in 1975. It is supported by two world-class partners and has attracted an international, reputable bank for debt financing.

The Proposal is in line with the 2018 indicative tariff offer which received in principle support at the time to progress to a formal offer. We believe the Proposal to be commercially attractive being competitive with existing gas power plants in Mozambique¹ and over 10% lower than our previously agreed EDM tariff in 2015.

The Proposal has been completed with environmental impact in mind, and the Project will be designed to use state of the art emission control systems to comply with the strictest standards.

In addition, the Project is expected to provide significant economic benefits to Mozambique. This includes tax and royalty income over the life of the project, the creation of approximately 3,000 construction jobs and 800 permanent jobs during operation, as well as generating cost savings of up to 60% through avoiding more expensive forms of emergency generation currently in use².

We look forward to engaging with the Government and EDM on tariff negotiations as part of the next phase to further de-risk the Project and unlock value. Although difficult to set firm commitments in the existing global climate and travel restrictions, the current target is to finalise the tariff negotiations by the end of Q2 2020. During April we are also targeting the finalisation of the updated Project development programme which will outline key deliverables over the next 3 to 6 months, including various work streams to be run in parallel with our Partners. Further updates on Project timelines will be provided to investors at the appropriate time as negotiations progress.

CMEC President, Fang Yanshui said: "We are very pleased to assist our partner, Ncondezi in submitting a formal tariff offer for the Project to the Mozambique Government and EDM. We believe the Proposal represents an attractive and competitive offer for a Project of this type and look forward to accelerating tariff negotiations with EDM, as well as other key work streams including the Power Purchase Agreement, EPC and O&M contracts.

This is not only a strategic project for realising EDM's energy strategy but also a strategic project that is aligned with the Country's priorities to improve energy access, promote economic growth and alleviate poverty. The Project also draws great attention and obtains great support from both the Chinese and Mozambican Governments.

As a practitioner to implement "The Belt Road Initiative" and a reputable EPC service provider and strategic partner, CMEC has always valued the philosophy "increase the welfare and bring a happier life to the host country residents". Continuing CMEC's 40 year footprint in Africa, we are confident we will deliver an efficient, environmental-friendly and economically viable integrated coal and power project successfully ".

Formal Tariff Proposal

The Company has been working with its Partners to submit an updated formal tariff proposal for the past 9 months. The process has centered around updating of the Project Financial Model ("FM") which drives the tariff calculation. Key to updating the FM has been the receipt of technical, commercial, tax and financial information, including:

· Detailed EPC and O&M proposals from CMEC and GE for the power plant, mine and transmission line;

· Indicative debt financing terms from a leading financing institution;

· Letter of Interest from a leading export credit agency to provide Buyer's Credit insurance ; and

· Tax opinion from reputable international accounting firm.

Following receipt of the above information, the Company and its Partners updated, reviewed and discussed the FM ahead of submission. 

Next Steps

The Proposal submission was the final milestone required to initiate tariff negotiations with EDM and the Mozambican Government. The Company and its Partners will now look to actively engage with both parties to finalise the Project tariff. The Project timetable targets completion of tariff negotiations during Q2 2020, and the Company expects to provide an update on this timing once the initial tariff negotiations have started. The Company expects other key workstreams to be implemented in parallel to the tariff negotiation process, further information on this will be provided in the coming weeks as the Company and its Partners update the Project work programme.

The above timetable and programme doesn't take into account any potential impact that may occur due to the COVID-19 virus in Mozambique or elsewhere. Any related updates will be communicated to investors as the situation develops.

Project Rational

Promotes economic and social development in Mozambique

The Project will promote greater access and reliability of electricity in Mozambique, both of which are critical to improving health and educational services as well as improving productivity, expanding businesses and regional trade. This will further aid in job creation, economic growth and poverty reduction.  

The stable supply of power will have a multiplier effect on the key sectors along the northern grid, particularly the rapidly growing mining, transport and agricultural sectors.

Increases energy security

A diversified energy generation mix is crucial to ensure a reliable supply of electricity. The northern grid in Mozambique is heavily reliant on power from hydro generation (HCB), making energy supply vulnerable to the effects of drought. The Project being coal-fired is not as exposed to drought effects, providing greater energy security for the region.

Cost competitive source of power

The updated tariff as per the Proposal is competitive compared with the existing gas plants in Mozambique¹ and over 10% lower than the previously approved EDM tariff in 2015.

Ensures future electricity demand and exports can be met

Electricity demand in Mozambique has grown at a compounded annual rate of 11% between 2005 and 2016. Although the growth flattened during 2017 and 2018 as a result of the economic slowdown, a conservative growth rate of only 5% per year from 2019 onwards would imply an electricity supply deficit as soon as 2023². The Project will supply additional generation capacity mitigating against a situation where Mozambique cannot meet future domestic needs or increased exports.  

Aligned with national and regional goals & timing for new power generation

In October 2018, the President of Mozambique launched the "National Electricity Program for All", targeting expansion of energy access rates in Mozambique from 31% in 2018 to 62% in 2024 and 100% by 2030². The program specifies that up to 650MW of new coal power generation is to come online from 2023 3 . 

The Project also supports the initiatives of the Southern African Power Pool to increase generation capacity in the region.

Catering to the energy needs of the north of Mozambique

The Project addresses power supply and reliability issues in the north. To date, new projects (namely gas fired) have been concentrated in the south of Mozambique where there is no grid interconnection with the north.  

Job creation and skill development during construction and operation

The Project not only creates jobs for up to 3,000 people of Mozambique during construction and 800 people during operation but would also help in developing their skills for any future similar project which can be undertaken in Mozambique.

World-class partners with the track record to deliver the Project

Both CMEC and GE have significant experience in developing, constructing and operating power plants around the world, especially in Africa and Mozambique. It is the intention that CMEC will act as the lead development partner and main EPC and O&M contractor for the Project, whilst GE will act as the main technology provider for the power project.

Chinese and Mozambique Government support

The Project has been selected as a priority infrastructure project in the context of cooperation between Mozambique and China, agreed under the Second Forum Road and Belt, held in China during April 2019.

Reliable source of power

The Project utilises proven Circulating Fluidized Bed ("CFB") boiler technology.

The Project also owns 100% of its fuel source including a 50% coal supply contingency to ensure security of fuel supply during the full term of the power offtake.

Compliance with the strictest emission controls

The Project will use state of the art emission control systems, targeting particulates, SOx and NOx emissions at 50%, 76% and 61% below the current IFC and World Bank standards respectively⁴. The project will also be compliant with the latest OECD guidelines and equator principles.

Substitution of more expensive and dirtier sources of energy

The Project will supply power into the Mozambican northern grid and replace the need to utilise expensive emergency generator ships that burn diesel or heavy fuel oil. The per kWh savings are estimated to be up to 60% when compared to existing emergency power sources, thereby lowering the cost of power in Mozambique.

In addition, greater energy access and affordability will promote the replacement of dirtier fuels such as kerosene, diesel and charcoal in cooking and heating, thus providing significant health benefits to the population of Mozambique.

Low cost grid integration

The Project is strategically located to supply power into the existing EDM grid without significant infrastructure investment. It is also situated close to future transmission expansion projects such as the Mozambique-Malawi interconnector and northern grid upgrade projects.

Enables greater renewable energy penetration

By providing a reliable and stable baseload power supply, the Project will mitigate the negative effects of intermittent power supplies such as solar and wind. This will enable deeper renewables penetration in the energy mix.

Taxes, Royalties and Concession fee income for the State of Mozambique

The state of Mozambique will receive projected economic benefits in the form of taxes, royalty income from the mine and concession fees over the life of the Project.

Improved foreign exchange earnings potential  

The Project will support greater export of power from Mozambique to neighbouring countries, further contributing to foreign exchange revenues.

[1] EDM, 2018. Mozambique - "EDM Strategy 2018-2028"

2  World Bank. 2019. Mozambique - "Temane Regional Electricity Project (English)"

3 MIREME, 2018. Mozambique - "Integrated Master Plan Mozambique Power System Development"

4 Emission reductions based on current World Bank standards based on 2008 Promulgated standards for non-degraded air shed

Enquiries

For further information please visit www.ncondezienergy.com or contact:

Ncondezi Energy	Hanno Pengilly	[phone]
Liberum Capital Limited NOMAD & Joint Broker	Andrew Godber, Edward Thomas, Kane Collings	[phone]
Novum Securities Limited Joint Broker	Colin Rowbury	[phone]
Pimlico Advisory Ltd Investor Relations	Elizabeth Johnson	[phone]

Note:

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation ("MAR"). Upon the publication of this announcement via Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain. If you have any queries on this, then please contact Hanno Pengilly, Chief Executive Officer of the Company (responsible for arranging release of this announcement) on [phone].

About Ncondezi Energy

Ncondezi is an African power development company with an advanced staged, integrated 300MW thermal coal power plant and mine project located in the Tete Province, Northern Mozambique.

The Company is focused on providing reliable, affordable and accessible baseload energy to Mozambique and secure against the effects of water drought and intermittency of new renewables. This project supports Mozambique's energy strategy of universal electricity access by 2030. According to the World Bank, only 30% of the Mozambican population had access to energy in 2017. The Ncondezi Project would provide 300MW of reliable and available power helping to close the infrastructure gap of the region and serving as a catalyst for economic development.

The power plant will be designed to be equipped with state-of-the-art emissions controls technologies that will reduce local air pollutants, minimizing the plant's impact on the environment and ensuring its compliance with the most stringent emission standards

In April 2019 the Company announced a proposed Joint Venture with GridX Africa Power Development to enter into the Commercial and Industrial ("C&I") renewable and battery storage sector and in October 2019 announced their first investment in an off grid solar battery project. The move into the C&I solar and battery storage sector offers a significant opportunity for the Company to complement the existing large-scale baseload power project and access near-term low-risk annuity income streams which have significant growth potential.

 

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