US investor Globeleq throws in the towel due to "technical
issues"
South Africa's first serious attempt to privatise a power station has flopped, with the pullout of powerful US electricity group Globeleq from Johannesburg's Kelvin power station.
Globeleq's abrupt departure leaves Johannesburg residents vulnerable to rolling power blackouts as winter hits. Kelvin provides about 20% of the city's power needs and its future is now uncertain.Globeleq vice-president Stephen Morisseau said on Friday that technical problems had prevented the US company from restoring the struggling power facility to its original output of 600MW. "The Kelvin plant was unable to reach and maintain the generation levels necessary to sustain the business under the existing financial structure, owing to technical issues beyond the scope of the refurbishment programme," Morisseau said. The US group's withdrawal hints at deeper problems at one of Johannesburg's key power stations.
Banks now in control of key power plant, which is running at
25% capacity
Globeleq has now handed control of the power station over to Nedbank and Investec, which refinanced the power station to the tune of about R370m just three years ago. The failure of the Kelvin power project is likely to put pressure on Eskom at a time when SA faces looming power shortages. Government had hoped to entice the private sector into the market to help build new power stationsto ward off a national crisis. But there are fears that Kelvin's failure will send a damaging message to the international community.
Withdrawal of Joburg power station's chief shareholder may mean more power outages for Johannesburg suburbs
The future of SA's first independent power project, Johannesburg's Kelvin power station, hangs in the balance after controlling US shareholder Globeleq abandoned the project last month. The move comes at a time when parts of Johannesburg, which sources up to 20% of its power from Kelvin, are experiencing black outs even before power usage rises to its winter peak. The withdrawal of Globeleq, which is a four-year-old company, coincides with government's efforts to attract foreign investment through the establishment of new independent power producers as part of the national power generation capacity expansion progamme.
The move comes just two years after AES Corporation, another US company, gave up on the Kelvin power station after AES ran into financial trouble and sold its stake to Globeleq in 2003. Globeleq controlled 95% of Kelvin, while Empowerment company Global African Power owns the balance. Globeleq vice-president Stephen Morisseau said on Friday that technical problems had prevented the company from restoring the struggling power facility to its original output of 600MW. Morisseau, who was speaking from his office in the US, declined to elaborate on the nature of the technical problems. "The Kelvin plant was unable to reach and maintain the generation levels necessary to sustain the business under the existing financial structure owing to technical issues beyond the scope of the refurbishment programme," Morisseau said.
The power station, located in the east of Johannesburg, has been operating at only a quarter of its capacity for some years. Globeleq has handed control of the power station over to Nedbank and Investec, which refinanced the power station for about R370m when Globeleq purchased the facility. Nedbank declined to comment yesterday. The funds were used mainly to refurbish and upgrade the station, which was built in the 1960s. A large portion of the funds had been allocated to making the facility more environmentally friendly. Globeleq said in a shareholders report in 2004 that it had completed a three-year, $25m refurbishment programme at Kelvin. "This extensive refurbishment increased the plant's capacity and significantly improved its environmental performance."
Globeleq said it had been working "with other stakeholders in Kelvin Power" to seek a new investor for the company. The company would provide commercial and operational support "for a limited period of time", it said in a notice on its website. John Dolan, commercial manager at Kelvin Power Station, said the company was in sensitive commercial discussions at the moment. He declined to comment on the future of the facility. City Power, Which sources power for Johannesburg from Eskom and Kelvin, could not be reached for comment about potential concerns over the security of supply.
AES and Globeleq's aim had been to provide power at prices below those at which utility Eskom sold electricity. The utility's tariffs are among the lowest in the world. Kelvin's sale by the greater Johannesburg Metropolitan Council to AES five years ago marked the establishment of the first substantial independent power producer in the country. The first commercially driven independent producer was licensed by the national regulator in December, but this was a small, 17,5MW station near Durban.
It was hoped the rise of independent power producers would introduce some competition in the electricity sector.
Kelvin's sale to AES was reported to have stemmed from increasing difficulties that the city had experienced in operating the power station at tariffs that could compete with Eskom's comparatively cheap electricity tariffs. This was said to be due largely to the fact that no maintenance had been carried out at Kelvin for several years. The sale also formed part of Johannesburg's divestiture of assets at the time. Globeleq, formerly known as CDC Globeleq, bought Kelvin shortly after its establishment in 2002. The company said at the time that deals in SA and Tanzania were the first stage of a strategy to acquire, develop and operate power businesses in the developing world. It said that sweeping changes in the global power industry had resulted in great opportunities as many international power companies looked to exit emerging markets.
The company says that it owns and operates 2 700MW of electric power generation in the emerging markets of Africa, the Americas and Asia and one national electric distribution system in Africa. The company claims to have investments in electricity projects with a total of 2 800MW of generation capacity, of which it directly manages 75%. Bob Hart, president and CEO of Globeleq, which claims to be the only power company that is solely focused on emerging markets, was quoted in the Financial Times last year as saying that the difficulties of working in emerging markets were "clearly numerous". "But I'll go head to head right now against the domestic utilities of western Europe and North America on the yield of our investments, the quality of our investments and the quality of the contracts that support those investments," the newspaper quoted Hart as saying.
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