Group Five in talks about private coal power stations

17-04-2014
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Moneyweb
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Construction company Group Five has been active in the energy sector for more than seven years and licking its lips for projects to build privately owned coal-fired power stations.

Group Five has a good track record and valuable experience that will position it well to participate in the projects, CEO Mike Upton told Moneyweb.

The group is talking to all the international groups who have shown interest in bidding for a portion of the 2 500MW coal-fired generation capacity the department of energy will procure, Upton said. Ben Martins, minister of energy, this week announced that the procurement of this capacity as well as a further 800MW of co-generation will start before the end of May. Both programs are expected to consist of various smaller projects.

Group Five has acted as turnkey contractor for at least seven smaller power plants using different technologies including diesel, gas, solar and wind and has a nuclear capability through its partnership in Lesedi Nuclear Services. “We obviously haven’t built any coal-fired power stations on a turnkey basis, but we are doing the civils at Eskom’s Kusile project”, he said.

The coal projects are expected to be too big for any single construction group to act as turn-key contractor, he said. Group Five would rather act as a contractor for various pockets of work that will be spread over different disciplines.

He expects other local construction companies to also participate in the program that may see investments of more than R50 billion.

He believes the local industry has the capacity to execute all the projects and said the timing could actually be good as work at Eskom’s Medupi and Kusile will start winding down. Those two stations are each almost double the size of the proposed coal pojects, he said. The civil works at Medupi is nearing completion and a year later Kusile, where Group Five holds the civil contract in joint venture with Basil Read, Stefanutti Stocks and WBHO Construction, will reach the same stage.

While the proposed coal projects are very welcome, they won’t make up for the lack of government infrastructure spending on other fronts, Upton said.

The local construction industry participated enthusiastically in the department of energy’s renewable power programme that started in 2011. By November last year a total of 64 projects have been signed at an estimated total value of more than R100 million. Upton estimates that up to 30% of that has flowed to the construction industry, taking out the high cost of equipment.

Group Five itself is developing two solar plants and two wind farms. “We have built a whole business around the renewables.” Group Five’s Engineering and Construction (E+C) business had an order book of R2,5 billion at 31 December, 78% of it in South Africa.

He said the cost per project on coal-fired power stations will be higher than in the case of renewables with a typical 600MW plant at more than R600 million.

He said the challenge for bidders might be to get project finance. The right tariff and a secure power purchase agreement will be vital. The local banks were however prepared to take very little risk on the renewable energy projects and it remains to be seen whether the technology partners that will most probably be from the east and bankers with a Western orientation will be able to make the deals work, Upton said.