via US$1bn mega fuel pipeline deal for Zim Sunday, 05 January 2014 by Munyaradzi Huni Sunday Mail
Government and some indigenous partners are set to get a 50 percent shareholding stake, without making any financial contribution, in an almost US$1 billion deal that will see South African-owned Mining, Oil and Gas Services Company (MOGS) construct a second 550km fuel pipeline from Beira to Harare, it has been established.
It is anticipated that six months from the signing of the agreement for the new pipeline that is expected to have a pumping capacity of 400 million litres per month, it would take between 18 to 24 months to complete the construction of the pipeline that will feed into the Mabvuku, Msasa and Feruka storage facilities that are currently estimated to be at 5 percent utilisation.
In addition to this mega deal, that is set to send shockwaves across the region, MOGS has undertaken to pay US$50 million soon after the signing of this deal as a pre-payment for the use of the overland and underground storage facilities.
The chairman of MOGS, Mr Errol Gregor, who is expected in the country with his team on Tuesday, wrote a letter to the Ministry of Energy and Power Development on September 4 2013 outlining the deal and giving the funding commitments.
He went further to reveal that his company, in a bid to make Zimbabwe a regional petroleum hub, had already started negotiations with the governments of Botswana, Zambia, Malawi and the DRC so that his company can construct connecting fuel pipelines to these countries from Harare.
In Mozambique, a company called COGS, which is jointly owned by MOGS and its Mozambican partners, has already been established with former president Joaquim Chissano said to be the chairman of this entity.
MOGS, which is a subsidiary of Royal Bafokeng Holdings with a net asset value of about US$5 billion, has also undertaken to build a gas pipeline from Beira to Mutare that will feed into a power station to be built in Mutare and would be able to generate an estimated 500 megawatts of power.
MOGS has also given a commitment that it will, together with its partners, meet the US$1,5 billion cost to build the pipeline and the power station.
The SA-based company has also said it has the capacity to be an infrastructure owner and operator for the proposed construction of a 2 200 megawatts gas-powered combined cycle power station in Bindura that will be powered by gas piped for about 1 500km from the gas fields in northern Mozambique.
Although efforts to get a comment from Energy and Power Development Minister Dzikamai Mavhaire regarding MOGS’ proposal proved fruitless yesterday, he was recently quoted as saying his ministry had received a number of proposals from companies seeking to build the second pipeline and his ministry was looking at the proposals.
So enticing is the MOGS deal that the Minister of Presidential Affairs, Cde Didymus Mutasa, on November 22 2013, wrote a letter to Mr Gregor saying the projects were of national significance and his office would facilitate that Government, through the relevant ministries, provide the necessary authorities to ensure their successful implementation.
On the other hand, the Ministry of Defence, which will have the task of providing security during the construction of the pipeline due to the Renamo disturbances in Mozambique, through its Permanent Secretary, Mr Martin Rushwaya, on December 5 2013, also wrote a letter to Mr Gregor expressing support for the projects.
In a seven-paged letter addressed to the Permanent Secretary in the Ministry of Energy and Power Development, Mr Partson Mbiriri, the MOGS chairman, Mr Gregor, said his company was proposing to be a partner with the governments of Zimbabwe and Mozambique in the development of the second fuel pipeline from Beira to Harare and into other Sadc countries.
“It is envisaged that MOGS will play the following roles:
“(1) provision of the funding for the new pipeline with an estimated capacity of 400 million litres per month expected to cost about US$700 million (US$795,62 million estimate price)
“(2) managing the construction of the pipeline; and
“(3) managing the operations of the pipeline once completed.
“The governments of the counties through which the pipelines will be constructed are expected to play the following roles:
“(1) provision of the land on which the pipelines will be built; and
“(2) facilitating all the relevant regulatory approvals.
“It is further proposed that the ownership structures be as follows:
“Mozambican side – 50 percent COGS — COGS is jointly owned by MOGS and its Mozambican partners and 50 percent — Mozambican government.
“Zimbabwean side — 50 percent Royal Bafokeng PZL — Royal Bafokeng PZL is a wholly owned subsidiary of MOGS; and 50 percent National Oil Company of Zimbabwe(NOIC)/Government of Zimbabwe,” wrote Mr Gregor.
Discussions in the Tuesday meeting between Mr Gregor and his team and the Government are set to centre on the time frame over which MOGS proposes to manage the operations of the pipeline as the company had proposed a 50 / 50 percent joint venture arrangement.
Also to be discussed are details to do with exit clauses or pre-emptive rights that will enable the Government to acquire MOGS shareholding subject to a minimum investment period. In its detailed project proposal, entitled “Setting up Harare as the Regional Product Supply Hub,” MOGS made the undertaking that the Government was not expected to outlay any funds for the project and was not expected to provide pipeline utilisation guarantees.
To protect the existing fuel pipeline which has the capacity to pump about 120 million litres per month, MOGS proposed an arrangement where fuel will only be routed to the second pipeline when the existing one is fully utilised. As for the problems regarding docking at the Beira Port, MOGS undertook to build a Single Buoy Mooring (SBM), an offshore offloading facility that will allow big vessels to offload large quantities of the product without having to dock in the usually congested port.
Regarding the gas pipelines and power plants, Mr Gregor wrote to Mr Mbiriri saying: “MOGS and its partners also propose to build a gas pipeline from Beira to Mutare. It is expected that this gas pipeline will feed into a power station to be built in Mutare that will generate an expected 500MW of power. The total cost of the pipeline and the power station, estimated at US$1,5 billion, will be borne by MOGS and its partners.
“MOGS is also in a position to be an infrastructure owner and operator (in the pipeline) for the proposed construction of a 2200MW gas-powered combined cycle power station at Bindura in Zimbabwe. The plant will be powered by gas piped for almost 1 500km from the gas fields in northern Mozambique . . . The power station is estimated to cost about US$2 billion and the pipeline cost will be established once regional off-take agreements are concluded.”
Mr Gregor said the gas pipeline from Buzi to Mutare and the construction of the power station would take about 18 months from signature of agreements. In his letter to Mr Gregor, Cde Mutasa said: “I refer to our recent meeting and discussions on the above matter (investment in the fuel pipeline) where you expressed your intentions to:
“Fund and build the second fuel pipeline alongside the existing one from Beira to Harare and cede 50 percent shareholding for free, to the Government of Zimbabwe and to a Pipeline Empowerment Consortium (PEC), an indigenous investment vehicle;
“Pay US$50 million as a pre-payment for the use of the overload and underground storage facilities; and
“Promote the construction of gas-fired power stations in Mutare and Bindura.
“These projects are of national significance and my office has taken a keen interest and will continue to facilitate that Government, through the relevant ministries, provide the necessary authorities to ensure their successful implementation. In the spirit of nurturing and fostering regional strategic business partnerships, promotion of the capacity utilisation of our national assets and the harnessing of foreign direct investment, I strongly believe that your ambitions will be realised in due course and the necessary clearances and licences will be obtained.
“In the meantime, I urge you to proceed with your other proposed investments in the areas you are already actively considering such as reprocessing of our mine dumps and investment in our banking sector.”
From the Ministry of Defence, Mr Rushwaya urged all the parties to adequately address all areas before signing the agreements. He wrote to Mr Gregor saying: “We sincerely hope that the proposed project will commence as soon as possible. In this regard, we eagerly await the seconding of your team to a steering committee which will drive the conclusion of the agreements.
On achieving the above, we anticipate that all parties will speedily and earnestly fulfil their commitments,” wrote Mr Rushwaya. Regarding the move to turn Harare into a regional fuel hub, MOGS contends that Zimbabwe is failing to use its geographical location to became a central player in the distribution of fuel across the region.
“Harare is ideally positioned to be developed as a regional refined petroleum product distribution hub . . . Within a 750km radius of Harare the following countries/regions can be cost effectively accessed — all areas of Zimbabwe (fuel requirements of 120 million litres per month), Limpopo province in South Africa (80 million litres), Botswana (80 million litres), Zambia (80 million litres), Southern DRC (40 million litres), Malawi (60 million litres), Tete province in Mozambique (20 million litres) and Namibia’s Caprivi Strip (20 million litres.)
Mr Gregor revealed in his letter that the government of Mozambique had already given its green light to the pipeline project and is waiting “anxiously” to hear the feedback from MOGS regarding discussions on the same subject with the Zimbabwean Government. Further, Mr Gregor said Mozambique had already agreed to allocate about 30 percent of the gas production at Palma and Buzi to fire the proposed power stations in Zimbabwe through COGS and MOGS.
“The government of Botswana has given MOGS the blessing for the construction of 100 million litres strategic storage and distribution facilities in northern Botswana. Botswana anxiously awaits the commissioning of Harare as the regional distribution hub of petroleum products and the construction of the pipeline from Harare to Botswana,” said Mr Gregor.
He said discussions on the fuel pipelines to Zambia, Malawi and the DRC from Harare had already commenced with the respective governments.