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Ministry of Minerals, Energy and Water Resources (MMEWR)
MORUPULE A REFURBISHMENT PROJECT
10/08/15
MORUPULE A REFURBISHMENT PROJECT
MINISTERIAL STATEMENT By The Minister of Minerals, Energy and Water Resources on MORUPULE A REFURBISHMENT PROJECT
Madam Speaker, I wish from the outset, to thank you most sincerely for allowing me, at short notice, to brief the Nation, through this Honourable House, on the refurbishment of Morupule A Power Station. Morupule A Power Station was developed in two phases:- i. Phase 1 - 3 X 33MW units brought in service in 1986; and ii. Phase 2 - 1 X 33MW Unit, brought in service in 1989; giving a total installed capacity of 132MW. 2.0 Madam Speaker, one of the Weekly papers carried a headline article entitled Controversy rocks Morupule A refurbishment tender. I, therefore, felt obliged to brief the Nation, through this August House, on the facts surrounding the refurbishment of Morupule A Project. 3.0 Madam Speaker, in 2008 the Ministry of Minerals, Energy and Water Resources (MMEWR) and Botswana Power Corporation (BPC) entered into an agreement with Japan International Cooperation Agency (JICA) to fund the following projects, through Japan’s Official Development Assistance’s, Cool Earth Partnership Grant Facility:- 3.1 development of a Pilot 1.3MW photovoltaic power plant; and 3.2 undertake a study to bring the emissions in a refurbished Morupule A Power Station within the Statutory Limits and improve plant availability to over 80% and increase the life of the plant to not less than 15 years 4.0 Madam Speaker, in November 2011, JICA submitted a final report to the Ministry entitled “The Preparatory Survey on the Project for Morupule “A” Power Station Rehabilitation and Pollution Abatement In the Republic of Botswana” and in August 2012 the Phakalane 1.3MW Pilot Photovoltaic Plant was commissioned. 4.1 The JICA report, Madam Speaker, gave detailed estimates of the rehabilitation costs that were later used as the reference price, by BPC, in the evaluation of the bids. The JICA’s estimate was thus used as a hurdle rate for assessing the bids. 4.2 Madam Speaker, BPC looked at two options of undertaking the refurbishment works namely:- i. Off balance sheet – where a preferred bidder, selected through and open competitive bidding process by BPC, was expected to refurbish the power plant and recoup its investment by selling power to BPC, through a Power Purchase Agreement; and ii. On balance sheet – GoB/BPC funding the project and refurbishment works being undertaken by a contractor selected through and open competitive bidding process, by BPC. 4.3 Madam Speaker, BPC went through a prequalification process for the two options and shortlisted the following firms:- ON BALANCE SHEET OFF BALANCE SHEET Daewoo International Korean Electrical Power & Doosan Shanghai Electric Group Daewoo International Flour SA Cennergi Power Korea South East Power Co&Daemyoung GEC Co PPN Power Generating Hitachi Power Europe Services ACWA Power Steag Consortium Jeffer Engineering &Technology Co. and Guangdong Power Korea South East Power Co. &DaeMyoung GEC Co Alstom Power Service 4.4 Madam Speaker, in view of the complexity of balance sheet financing, a decision was made to refurbish the power plant on balance sheet. The Ministry sought permission from JICA and it was granted, to make the report part of the tender documentation with all the prices excised.The JICA estimate was used as a basis to seek funding through the Domestic Development Fund and during 2013/14 financial year and this Honourable House approved the release of P160million to BPC to fund upfront work. 4.5 BPC, Madam Speaker, selected Lahmeyer International, through an open bidding process, as their Owner’s Engineer, on 18/10/13, which then prepared a Request for Proposal for the rehabilitation works. 4.6 Madam Speaker, Tenders ran from 17/02/14 to 27/06/15. The pre-Tender Clarification Meeting and Plant Inspection by Tenderers being from 18/03/14 to 18/04/14. In other words, Tenderers, Madam Speaker, were given one month to inspect the power plant and there were no restrictions on which parts of the plant to access. At tender closing four (4) bids were received and only one (1) was found to be technically compliant. 4.7 Only one (1) financial Offer, Madam Speaker, was opened on 28/07/14. Unfortunately, the financial offer failed to satisfy the evaluation criteria. The offer was more than 2.5 times the budgetary estimate. 4.8 Madam Speaker, the project was repackaged by BPC, which entailed some scope change and reallocation of project risks in an effort to enhance chances of getting bids within the project budget. This included allocating some of the works to BPC. The tender was restricted to those firms that submitted bids to the original tender, to save on time for tendering. 4.9 The re-packaged tender, Madam Speaker, was released on 18/10/14 and closed on 23/01/15. Financial offers were opened on 10/02/15. The financial offer by the lowest bidder was more than P1billion above estimated total for rehabilitation, including works allocated to BPC. Therefore, none of the bids were accepted. The tendering process, therefore, ran its course and appropriate governance structures, in BPC, made the decisions based on recommendations by their Owner’s Engineers.
4.10 The tendering process, which started in earnest on 18/10/13, with the appointment of the Owner’s Engineer, has now been running for more than 18 months. Reducing an offer by about P1billion is unrealistic hence the need to explore other options. 5.0 Madam Speaker, Korea Electric Power Company and Doosan wanted to bid under the off balance sheet option. But this was not to be. 5.1 Madam Speaker, on 28th November 2014, Doosan approached my Ministry and made an offer. In their proposal Doosan undertook to, among other things, bring back to service 3 X 33MW within twelve months after finalisation of the Agreement. 5.2 This offer, Madam Speaker, was not ignored in the wake of the challenges being faced at the Morupule B Power Plant. It was decided that the Ministry was to handle further enquiries as the BPC was already involved in another procurement process and it was inimical to the BPC procurement process to allow a situation where BPC ran a parallel procurement process. 5.3 Madam Speaker, Doosan sought approval, and it was granted by the Ministry, to inspect the power plant, under the supervision of BPC. The offer was sent to BPC on receipt of a letter from the BPC that their evaluation process for the tender bids was completed and a decision made not to proceed with any of the offers. Doosan handed in their proposal on 18th February 2015 and sent to BPC on 24th March 2015. 5.4 Madam Speaker, it was agreed to use the same team that evaluated the BPC run tenders. BPC/Lahmeyer met Doosan for a clarification meeting in Gaborone from 27 to 30thApril 2015. It was decided that Doosan revise its proposal to address issues raised. In this regard, Doosan made a submission on the 29/06/15 and is currently the subject of an evaluation by BPC and its Owner’s Engineer. 6.0 Madam Speaker, even though it is generally against my Ministry’s ethics to disclose the contents of communication with its stakeholders, I feel obliged, in the Public Interest” to do so. 6.1 In my Ministry’s letter dated 5th December 2014, the letter read in part:- “As DHIC is aware, the Botswana Power Corporation (BPC) is running a tender process for the refurbishment of the Morupule A 132MW (Gross) coal fired power station. Should this process not yield an acceptable result, other options would then be considered to realize the return to service of Morupule A Power Station.” The letter then concluded by stating and I quote” It is our understanding that (i) all costs of the assessment will be borne by DHIC (ii) the Government of Botswana, in agreeing that DHIC undertake the assessment, does not thereby signify an intention to engage DHIC to carry out the refurbishment of the Power Station or enter into any agreement relating to the refurbishment of the Power Station (iii) the Government does not commit to favourably consider any proposal which DHIC may make following the carrying out of the assessment irrespective of its attractiveness or otherwise and; (iv) this arrangement does not preclude the Government of Botswana from entertaining proposals from other parties for refurbishment of the Morupule A Power Station” end of quote The Ministry has always communicated clearly that the Ministry or BPC was under no obligation to consider any proposal from DHIC and that any such proposal will only be considered after the BPC tender has run its course. Furthermore, the Ministry and BPC are at liberty to pursue other options to secure power for our economy. 6.2 From the foregoing, Madam Speaker, the Ministry was very much alive to the need to ensure that the procurement process by BPC ran its course, which it did. I do, however, concede by allowing Doosan to carry out an inspection whilst the BPC tender was running may be misconstrued to mean running a parallel procurement. The Ministry put measures in place to ensure that the Doosan offer never prejudiced the BPC tendering process. The proposal from Doosan was sealed and was only opened and handed over to BPC after the BPC tender did not result in a positive outcome. 6.3 In conclusion, Madam Speaker, I wish to assure the Nation, through this Honourable House, that whatever the Ministry did was aimed at bringing into service, through refurbishment, of Morupule A Power Station in as short a time as possible to mitigate the load shedding that is afflicting our country. 7.0 Madam Speaker, it will be amiss of me to conclude without saying a few words on the power supply situation, which of late had been going through some challenges. 7.1 The power supply situation has since 31/07/15 been very tenuous because of the loss of one of the three units that were operational at Morupule B which has been compounded by supply challenges from the region. Barring the unforeseen, the situation will improve within the next seven days when a third unit will be brought back into service at Morupule B. 7.2 Madam Speaker, I wish to thank you
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