Grand Inga Treaty
4 November 2014
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Introduction
•
Purpose of the presentation
•
Background of the Grand Inga Project
•
The strategic importance of the Inga Project to RSA and
Africa
•
The tenets of the draft Grand Inga Treaty
•
Conclusion
Background on the Grand Inga Project
•
Westcor project terminated and certain lessons learnt from the failure
•
•
•
•
Win-win essential otherwise risk another termination
Meeting internal DRC energy requirements must be integral to the approach
“transit countries” come into serious play, otherwise no evacuation corridor
The Grand Inga MOU signed on 11 /11/ 2011 and provisions paved the
way for the development of the Grand Inga draft treaty
• Grand Inga Project phases are:
–
–
–
–
–
–
–
•
Phase 1
Phase 2
Phase 3
Phase 4
Phase 5
Phase 6
Phase 7
Inga 3 Low Head 4755 MW;
Inga 3 High Head 3030 MW;
Inga 4
about 7180 4200 MW;
Inga 5
about 6970 MW;
Inga 6
about 6680 MW;
Inga 7
about 6700 MW; and
Inga 8
about 6740 MW.
Interdepartmental team with DOE, NT, EDD, DIRCO, ESKOM, DEA, DOJCD,
DTI, DPE and SSA
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Description of the Grand Inga project
 The Grand Inga Project is a multi-phased hydro power station to be built on the Congo
River on the Inga site, with potential to generate approximately 40 000MW.
 The Inga dams are located in the western DRC 50km upstream of the mouth of the
Congo River and about 225km south west of Kinshasa.
 Associated with the Grand Inga are transmission lines to evacuate power from the
generators to the markets in the DRC and to export markets. It is foreseen that a new
transmission line to South Africa will be associated with the first phase of the Grand
Inga project.
 The transmission line will probably go through Zambia and Zimbabwe and Botswana.
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Strategic considerations
2030 Net (MW)
• 2011 SAPP dominate by SA support based in Mpumalaga
• Uncertainty of large new SAPP project implementation
• Significant reversal of power flow in SA over time.
• Reduced significance of Mpumalanga
• Large excess capacity in the Cape and Limpopo
Strategic considerations
•
RSA negotiating for
interconnection on two fronts: East
and West
•
Three key corridors Central, East &
West spanning DRC, Zambia,
Zimbabwe and Mozambique –
multilateral nature of the project
should not be missed
•
Inga on the West (~ 12 000MW) and
North Mozambique on the East (~
10 000MW) are key generation
centres
•
Important to diversify the risk if
RSA to depend on these crossborder sources
 Generation + Transmission
corridors ownership and
domination?
 Eskom/RSA Inc participation?
Strategic importance of the Grand Inga
Project
•
Potential to generate 40 000 MW of relatively cheap, clean energy, of
which RSA has potentially secured rights to import 12 000MW
•
Contribution to the universal energy access agenda and alleviation of
energy poverty on the African continent
•
Regional economic development and integration within SADC with
potential to stabilize DRC, a country strategic for African development
•
For South Africa - reduction of the carbon footprint, diversification of
energy risk, energy security, positive tariff impact – in line with IRP.
•
COP 17 legacy project.
Tenets of the Draft Grand Inga Treaty
• The purpose of the Treaty is to develop an enabling framework,
linking the DRC and South Africa into the Project, and allowing for
the two countries to jointly explore economically feasible options
for the development of the Project.
•
Provides for the establishment of certain institutional
arrangements (INGA Development Authority (ADEPI), Joint
Ministerial Committee, Joint Permanent Technical Committee) to
facilitate the development, operation and management of the
Project in the DRC, through concessionaires.
Governance of the Project - JPTC
•
The JPTC shall be established by the JMC. The composition of the
JPTC shall include RSA representatives and the DRC shall be
represented by the Agency.
•
The Agency representatives will interact with the JPTC and work
with the JPTC to prepare project documentation, structuring issues
as well as to conduct feasibility studies, financing arrangements,
generation, transportation and delivery of generated power.
•
The JPTC will report to the JMC which is responsible for providing
guidance on the project development where the RSA is involved.
•
JPTC makes recommendations to the Agency where there is
disagreement, the matter will be tabled to the JMC for resolution.
Governance of the project - JMC
• JMC shall consist of Ministers responsible for electricity from both
countries.
• The JMC shall ensure that implementation of the Project is
accordance with the provisions of the Treaty
• Consider reports and matters from the JPTC
• Shall meet at least twice a year or when necessary.
• Shall make decision by consensus.
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Commercial aspects of the Treaty
•
•
•
In the Treaty, if certain conditions are met, RSA commits to buy power
generated from Phase 1 and subsequent phases.
Phase 1 is associated with the following:
– costs due to the development of the Common Works;
– Costs due to the transmission line to Kolwezi (the Delivery Point);
– investment by South Africa in the construction of the transmission
infrastructure from the Delivery Point to South Africa,
– the commitment to off-take 2500 MW by RSA and 2300 MW by
DRC and assistance in the mobilisation of funding.
In return DRC agreed to give RSA the Right of First Refusal (ROFR)
for both equity and off-take in respect of any and all future Phases of
the Project or any related hydroelectric development of the Congo
River in and around the Inga complex, if South Africa proceeds with
Phase 1 (“lock-in”)
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The Right of first Refusal Off- Take
• RoFR (Off-Take) provides that South Africa:– is guaranteed a minimum of (20%) of generated power equal to 9 540 MW
and a maximum of 13 060 MW; anything beyond this could still be negotiated.
• It is anticipated that the economics of the project will be more
favourable (due to common works completed and project
significantly de-risked) as more phases are added and generation
cost per megawatt will decline – critical that RSA has this RoFR.
• RSA will be guaranteed access to cheaper and cleaner power if
future project phases go ahead.
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Conditions for securing the ROFR Off
Take
•
RSA must commit to take 2500 MW from Phase 1 of the Project if the
feasibility and commercial terms are acceptable
•
US$ 10 million is payable into an escrow account by RSA as commitment
fee
– the governance protocol of the escrow account is to be developed in
terms of the Treaty under a separate protocol.
•
RSA will be charged the lowest possible tariff and no other off-taker can
receive better terms than RSA
•
ROFR shall take precedence over any other possible 3rd party agreement
or arrangement to be entered into by the DRC
•
May negotiate additional volumes of energy
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RoFR - EQUITY
• RoFR (Equity) provides for the following for South African entities
(public or private):– DRC to ensure that for each phase of the project, the developer
company will reserve at least 15 per cent of the available equity
to RSA, and RSA shall be the first to be offered such share
capital; and
• The mechanism, timetable and procedures to be followed on the
allocation and purchase of the equity shall be negotiated in a
separate protocol.
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Tariff Setting Principles
 Tariff setting shall be subject to negotiation and based on the
following principles:– Covers the cost, the return and fees imposed by the DRC
– Takes into account the price of energy that could be supplied by
alternative projects
 In the RSA case the alternative price is the cost of the generation
from coal.
 A tariff setting protocol will be negotiated.
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Challenges: time sensitivity of the project
•
The ADEPI Agency will take time to be established and it has been
proposed that an interim structure needs to be created and mandated
to execute the responsibilities of ADEPI
•
The Treaty might also take long to ratify by respective Parliaments
and it has been proposed that an Electricity Agreement be developed
and within it provide for the operation of working groups that will
advance the project.
•
Transmission line “transit countries”- The feasibility study did not
scope the transmission line from the delivery point to RSA. There is
urgent need for engagement of Zambia, Zimbabwe to initiate the
negotiation on the transmission lines.
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Challenges Continued
 Designated delivery point- at Kolwezi which is about 150 km from the
DRC/Zambia border. RSA will be responsible for the 150 km line
– DRC to either grant a concession to enable RSA to construct and operate that
protion of the line to the Zambian border, or
– To commit to develop it themselves.
 Any investment in a foreign country poses political and security risks
 Political risk- the DRC has not experienced political stability for years.
– RSA and other international partners have been assisting to stabilise the country
 Security risk- DRC has been unstable for years especially in the North
Eastern Region which is more than 2000km from the Inga site.
– Notwithstanding, the DRC has been trading with SADC countries for years
especially during civil war without interruption of transmission.
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Next Steps
Sign Grand
Inga Treaty
August 2014
Complete Tx
Integration
Concept –
Eskom and
utilities
Nov 2014
Engage DRC
and lenders on
the bankability
of concept based
on Tx proposal:
World Bank, EIB,
AfDB, etc
Jan 2015
Start offtake
negotiations with
preferred
consortium
identified by
DRC/
alternatively
provide offtake
conditions
(secure PFMA
and political
mandate)
Mar 2015
Enter into
supporting
agreements
with Zim, Zam
on Tx and
offtake
Conclude
offtake to
reach
financial
close
Oct 2016
Negotiate Tx
scheme with
Zim, Zam –
elevate from
utilities to
political
(Treaties)
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Way forward
• Treaty to be introduced to Parliament for ratification.
• Negotiations on the outstanding protocols on tariff setting,
management and operationalization of the Right of First Refusal,
terms of management of the escrow account.
• The negotiating with potential transit countries and the
commissioning of a feasibility study on transmission lines on critical
path