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FROM E900M TO E3.2BN

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mfanukhona@times.co.sz

MBABANE – The projected cost for the construction of the Strategic Oil Reserve Facility at Phuzumoya in the eastern part of Eswatini is now E3.2 billion. 

Initially, a private company styled Kantey & Templer Eswatini had been contracted by the Government of Eswatini to construct the fuel storage facility, at a cost of about E900 million. 

The current project estimated costs show an increase by 355.5 per cent. The Times SUNDAY can reveal that government has so far spent E54.89 million on the deferred project shrouded in controversy. The initial contractor, Kantey & Templer (Pty) LTD was ordered out of the project site in October 2017. 

It must be said that the company had been engaged in 2014 to construct the facility but its BOOT (Build Own Operate and Transfer) agreement with the Government of Eswatini, which could have facilitated access to loans, was signed on April 5, 2017.

This is according to documents seen by the Times SUNDAY. 

circumstances

Gates to the project site were locked in 2017 (October) under highly questionable circumstances as government felt the company’s contract had lapsed. In the current financial year, a request for E10 million by the Ministry of Natural Resources and Energy to commence construction of the strategic fuel depot was put on hold by Parliament. The money was put on Head 60 (suspension).

According to the Ministry of Natural Resources and Energy’s financials, the total estimated cost is E3 264 897 000.  One of the representatives of the initial contractor declined to comment on the matter, but hinted that they were still interested in undertaking the project at the same cost of E900 million. 

Senator Peter Bhembe, the Minister of Natural Resources and Energy, told this publication yesterday that it was possible the cost for the project would not reach E3.2 billion.

“The E3.2 billion is an estimated cost that we will try by all means to reduce to affordable levels. We are still to do designs and other fundamentals of the project, and the project cost will be less than E3.2 billion,” he said.

Bhembe said the Strategic Oil Reserve Facility had three components – blending, refinery and storage. He explained that government would start with blending, which has a budget of E100 million.

Energy experts say blending amounts of alternative fuel with conventional petrol/diesel is one way to conserve petroleum. Blends can also consist of two types of alternative fuels, such as hydrogen and compressed natural gas (HCNG).

Other experts say fuel blending involves mixing hazardous wastes or hazardous waste and commercial fuels to meet the specifications required by an incinerator, a cement kiln, or an industrial furnace.  

The minister of Natural Resources and Energy explained that blending would save the country a lot as there was also a good export market for the blended fuel.

He said government did not have a strong financial muscle to undertake the Strategic Oil Reserve Project at this point in time when COVID-19 has depleted and diverted resources. 

Senator Bhembe mentioned that his ministry would apply for loans to embark on this project. 

He announced that the Ministry of Natural Resources and Energy had two main projects - thermal power and the strategic oil reserve facility. 

opportunities

The minister disclosed that government has since decided to start with the thermal power project because of its urgency and potential to massive job opportunities for emaSwati. 

He pointed to the need for the country to attain energy self-sufficiency by 2025. 

“The country must be ready to generate its own electricity by 2025 when its power supply agreement with ESKOM ends. I’m not saying the agreement will not be renewed,” Senator Bhembe said.

He mentioned that the thermal power project would be undertaken at Lubhuku in the Lubombo Region. He said this project has two components – coal mining and power plant.

“We are looking to the future, hence we have to fast track the thermal power plant,” he said.

Mduduzi Gina, the Secretary General of the Trade Union Congress of Swaziland (TUCOSWA), expressed shock that estimated project costs stood at E3.2 billion. He said the project should be stopped because it was too expensive for the taxpayer.

Gina decried the fact that the taxpayer did not know who caused the delay in constructing the facility. He urged government to produce evidence that the country would suffer economic losses if it were to stall the project.

“The project could be too expensive for us now, it must be stopped,” Gina said.

The oil reserve project has been included in the Post COVID-19 Economic Recovery Plan as one of the drivers of economic growth.

The plan was launched by Prime Minister Ambrose Mandvulo Dlamini on Friday. 

The thermal power plant, which will cost E32.125 billion, has also been included in the plan to stimulate economic growth. 

According to the Post COVID-19 Economic Recovery Plan, a limited energy supply can adversely affect the development of a country.

If it is not taken into consideration, it is said that it can limit growth prospects of the different sectors of the economy. 

Energy is a key source of economic growth as many production and consumption activities involve energy as basic input, according to the plan. 

Government is of the view that the energy sector is one of the most important inputs for economic growth. 

“Since economic activity will be increasing in other sectors, a sustainable supply of energy is necessary,” reads the plan.

 The energy sector proposes nine projects worth E3.747 billion that will provide the much needed energy security to stimulate economic growth. 

These projects mainly consist of solar plants (varying in size), a biomass energy plant, refinery, and an oil reserve. In total, government says 750 jobs will be created through these energy projects.

resources

It must be said that the Strategic Oil Reserve Facility has also depleted financial resources for other companies.

Inyatsi Construction demanded payment of E6.1 million from Kantey & Templer for works done at Phuzumoya.

On the other hand, Kantey & Templer reported that it spent E4 million on environmental assessment work and engineering aspect of the project. Documents that were shown to this publication indicated that the Development Bank of Southern Africa (DBSA) had expressed interest in funding the project. 

The other one was the Vitol Group, whose representatives also came to the country about three years ago.  

Vitol Group is a Dutch energy and commodity trading company that was founded in Rotterdam in 1966 by Henk Viëtor and Jacques Detiger.

In its business profile, this company ships more than 350 million tonnes of crude oil per year and controls 250 super-tankers and other vessels to move it around the world.

However, many of the potential financiers, according to well-informed sources, were discouraged by a public statement issued by the Ministry of Natural Resources and Energy to the effect that the agreement had lapsed.

In a letter dated May 10, 2019, seen by this publication, indicating that another organisation known as the Africa Finance Corporation expressed its interest in funding the project.

“We write to inform you of Africa Finance Corporation’s (AFC) interest, in principle, to provide financing for the development of an 80 million-litre capacity fuel storage in Swaziland (Eswatini),” partly reads the letter, which was seen by this publication.

One of the conditions for the granting of the loans was a funding mix that would consist of 30 per cent equity and 70 per cent debt – meaning government was to pay back 70 per cent of the about E900 milion. 

facility

That would have effectively translated to about E630 million.

Since Kantey & Templer was contracted to operate the fuel storage facility for 20 years, the AFC, which is an E63 billion Pan-African multilateral infrastructure finance institution, required an equity share of 51 per cent.

After 20 years, documents indicate that the facility was to be transferred back to government for 100 per cent ownership.

Another potential financier was ISCM Foundation, whose mandate letter dated April 1, 2019 indicated that it was prepared to release E1.06 billion (US$76 million) for the project. 

In addition to the E1.06 billion as a credit line, ISCM expressed interest to make available an additional amount of money totalling E560 million (US$40 million) as a trade/debt funding. 

This money, according to classified papers, was to assist in charity work in Eswatini – projects related to education. 

It was reported that a company from Taiwan was to take over the construction of the facility but nothing has materialised so far. 

A government economist said the costs for the project could escalate further if it was delayed for a year or two. 

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