Eskom buys power from private producer

21 June 2010

London-listed power producer Ipsa has concluded a short-term agreement to sell electricity – generated at its plant in KwaZulu-Natal – to South African state company Eskom for the remainder of the month of June.

Ipsa, which is listed on London’s AIM and the JSE’s AltX markets, also announced the arrangement of a short-term loan facility of £300 000 (about R3.3-million) to restart generation at its gas-fired power plant in Newcastle, KwaZulu-Natal.

According to the company, the plant is expected to generate electricity for nine days toward the end of the month, subject to obtaining the necessary approvals for the loan.

“I am pleased that our Newcastle plant can be brought into operation so quickly in order to make a small contribution towards relieving the strain on the South African electricity system at this critical time,” Ipsa CEO Peter Earle said in a statement last week.

Integrated energy policy

The company’s Newcastle plant is the first Independent Power Producer (IPP) plant to be built in South Africa, but has been lying idle as Eskom had yet to finalise power purchase agreements with any independent producers.

In the meantime, the plant has continued to incur both direct costs of employing staff as well as rent, rates, rates and gas supply liabilities of a normal, fully constructed power plant.

“The last year was a period of continued difficulty in the South African power industry as Eskom struggled to re-arrange its finances and to meet its obligation to sign contracts with independent power producers for the provision of privately generated electricity,” said Ipsa chairman Richard Linnell.

“Now at last we seem to be sensing the first signs of an integrated energy policy for South Africa which includes IPPs at its heart.”

Local refinancing

The loan facility was secured from the Sterling Trust Limited, a UK-based private investment company, and is repayable within 90 days of drawdown. According to Ipsa, the loan will be repaid out of the revenues received at the Newcastle plant.

In addition, the Sterling Trust will also receive warrants to subscribe for 300 000 new ordinary shares at a price of 15 pence per share, exercisable within 24 months.

The company also revealed that it is in negotiations with potential South African lenders for a refinancing of up to US$20-million (about R148-million) of its own inter-company funding of the Newcastle plant.

SAinfo reporter

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