Siemens AG said it’s weighing a bid for a USD3.7 billion project as South Africa’s program to generate power from natural gas gains momentum.
“The process is moving now,” Siemens South Africa Chief Executive Officer Sabine Dall’Omo said in a phone 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 Department of Energy on Oct. 3 involves importing liquefied natural gas to generate electricity sold under a 20-year power-purchase agreement with state-owned utility Eskom Holdings SOC Ltd.
Energy Minister 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 will create jobs and build generating capacity that consumes less water than existing coal-fired plants, according to Dall’Omo.
The bidding teams will prequalify in April after making submissions in February, with a final request for proposals planned for August, according to the energy department. Participants within a group may include the developer of the gas-fired plant, the LNG supplier and the port and fuel-storage 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 groups will need as much information as possible, she said.
Eskom CEO Brian Molefe created investor uncertainty in the energy industry 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 will require “certain clarity with regards to the role that Eskom will take” in the gas-to-power program, Dall’Omo said, noting that the utility is one of its customers.
While construction of the gas plants will be fairly standard, the most complex elements will be the financing around the gas, she said. That includes hedging the foreign-currency risk associated with purchasing LNG, which is priced in dollars. The Department of Energy projects initial demand for the fuel to be 1.6 million metric tons a year.
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 last week.
“We note upside risk to South African gas consumption forecasts, which are currently constrained by domestic production and pipeline imports,” BMI said.
A successful South African project could also have positive effects on the wider region, which could tap the developing industry and expertise, according to Dall’Omo. “There’s massive influence into our neighboring countries,” she said. Paul Burkhardt, Bloomberg
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