Pierre Nicolas, CEO and Thembani Mhambi, Public Relations Officer, PER Lusulu Power

Lusulu coalfields to add 2000 megawatts of power in Zimbabwe.

PER-Lusulu-Power-BLOGSince 2010 the Zimbabwe Energy Regulatory Authority has issued 16 licenses to private players, including PER, to generate 5000 megawatts (MW) of power in the country. Can you tell us more about the requirements of the 2000-MW project in the Lusulu coalfields?

Pierre Nicolas (PN): PER Lusulu Power was awarded an Independent Power Producer (IPP) license in 2010. The most crucial factor for electricity production in Zimbabwe is that it needs to be produced at a significantly low price, as it is one of the cheapest regions in the world in terms of electricity production. The average selling price for electricity in the Southern African Development Community region is $8.43/kilowatt-hour (kWh), whereas in Europe, it is two to three times higher. In order to be economically viable, an IPP has to be able to produce electricity off-plant at a selling price of $7/kWh instead of around $11/kWh, which is what we see in countries such as South Africa.

PER Lusulu Power is pro-environment and did significant research before starting this project, which included looking at renewable energies. However, for the time being and without subsidy, solar energy is too expensive ($20 to $25 per kWh) to undertake. For the same reason, wind energy is also impossible. While hydro-electricity is a viable option, it is a very long-term investment and Lusulu Power is too small to invest in such a long-term project. In our opinion, coal and gas will remain the major power options for Africa for the long-term.

Lusulu Power came in contact with a European company, EDF, which was selling their coal-fired power plants. We saw the opportunity to buy these plants and will be transporting and rebuilding them in Zimbabwe. PER Lusulu Power realized that refurbishing of the plants would bring in another 250,000 hours of electricity production. We have set up a financial model and finished our feasibility study and discovered that with the EDF plants, it is possible to produce electricity from $7/kWh. Lusulu Power can enter the market at this price and are, for the time being, the only IPP that can do it.

Can you tell us more about the logistics and timeline for the project?

PN: The site of the Lusulu power station is located next to the south side of Lake Kariba, as water will be used for cooling the plant. Transportation of the coal will be done from adjacent coalmines by road-trains, similar to those used in Australia and in Zimbabwe for platinum ore. Spare parts are also an important factor in a project like this and PER Lusulu Power has already secured the necessary components. Transferring the equipment and rebuilding the plant will cost about $700 million for each phase, and we will start laying foundations in May 2015. The first 500-MW phase will take 32 to 36 months to complete and we will start the second phase about six months after the start of the first phase and then another phase every year after that.

How and where will PER Lusulu Power be sourcing coal for the power plant?

PN: Each 550-MW unit is going to use 1.8 million metric tons (mt) of coal per year. Today, the largest coalmine in Zimbabwe produces about 30,000 mt per month. For each phase PER Lusulu Power is going to need five times more than that and will meet that demand from surrounding mines that are now going to start. PER Lusulu Power will hold a minority stake in the mines as we have to be sure that the coal supply and price remain adequate. The coal will be the biggest operating expense.

How would you describe the ease of doing business in Zimbabwe and what have been your main challenges in setting up operations in Zimbabwe?

PN: PER Lusulu Power had a very positive experience working in Zimbabwe. People working in Zimbabwe have fantastic training and are very dedicated and hardworking. We are still a very small company with around 10 people in Zimbabwe and 10 in Europe, where the plants are. During the project in Zimbabwe, PER Lusulu Power never had serious difficulties. The licenses application process was very fast and only took about two or three months. PER Lusulu Power has a generation license as well as an independent transmission license, which enables the company to set its own power lines, although it does not have distribution rights. One of the key challenges was that PER Lusulu Power had to guarantee that necessary performances would be achieved, and for that the company did a study on what the performance of the French plants would be in Zimbabwean conditions. Plants work differently according to temperatures, pressure and how you cool the plant down. Through the study it was discovered that the plants work about the same in Zimbabwe as they do in France.

How will the Lusulu power plant affect job creation in the region?

PN: In terms of employment, we will need about 250 employees for each phase of the project making a total of about 1,000 employees. Employees and their families will represent about 4,000 people, which is enough to make up a town. In a community, people need supporting businesses and PER Lusulu power has to promote the building of a town of approximately 10,000 people.

Will the 2000 MW added to the Zimbabwean grid create an excess of supply and are you allowed, as an IPP, to sell electricity directly to the mines?

PN: There is a great demand for power in Zimbabwe and the region. Lusulu Power cannot anticipate with accuracy how much power will be used in the future, but there is a possibility of an exponential growth when the economy recovers. Increased electricity production stimulates an increase in demand for electricity. Currently the mining sector is the largest user of power in Zimbabwe and PER Lusulu Power is allowed to sell power directly to the mines through the Zimbabwe Electricity Transmission & Distribution Company (ZETDC).

What does the medium-term future look like for Lusulu Power in Zimbabwe?

PN: In Zimbabwe a number of parties want the selling price of electricity to be raised dramatically in order to make projects viable. This would make Zimbabwe the most expensive country for electricity in the region. Although increased tariffs would benefit PER Lusulu Power as well, the purpose of the company is to enter the local and regional market in the best possible conditions. PER Lusulu Power aims at producing at a reasonable price, target the long-term, produce regularly and keep a very high availability factor. We are currently 9 months away from financial close. In terms of equity we have very little from inside Zimbabwe and would like to enhance that. At this stage the PER Lusulu Power it is a fully private venture, but we are looking at the possibility of going public in the future.

This interview was part of the research being conducted by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2015. To participate in this report, please contact Sharon Saylor at ssaylor@gbreports.com.

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