Ten Years On, ICBC Standard Deal Starts to Show its Worth
7 November, 2017
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Palapye is a classic crossroads town, where the main north-south and east-west highways of Botswana intersect. It is filled with southern African fast-food chains such as Steers and Debonairs Pizza and with hotels with names like The Majestic Five for people who are passing through rather than visiting the place.
The view to the east of the town is dominated by the Morupule power station and its Morupule B expansion where four red and white-topped smoke stacks reach into the sky from otherwise flat terrain. And Morupule B is the project that executives from both Standard Bank and ICBC tend to highlight when asked for an example of a landmark project they financed together.
The expansion financing dates from 2008 and was therefore the first headline-grabbing deal the two completed. It involved $825 million of debt, with ICBC providing the funds in a 20-year loan guaranteed first by Sinosure and then the World Bank, and Standard Bank providing a cross-currency swap to convert the dollar funding into fixed-rate synthetic Botswana Pula funding, minimizing the Botswana Power Corporation’s exposure to forex and interest-rate movements.
The point of the whole thing was to improve Botswana’s energy independence, in particular from neighbouring South Africa.
From a financing point of view it was an important and successful deal, showing the two institutions working together to provide what Standard Bank today calls “a one-stop funding solution to the client, almost unheard of in the lending climate at the time”.
However, operationally it has not been as smooth, which tells its own story about the role of Chinese capital in Africa.
In November 2008, the Botswana government signed an agreement thought to be worth close to $970 million with China National Electric Equipment Corporation and other Chinese entities to construct Morupule B. The plant was commissioned, broadly on time, in 2012.
That is where the good news ends. It has broken down frequently, putting reliance back on imports from South Africa. A year ago Botswana Power Corporation chief executive Stefan Schwarzfischer said he would put the 600 megawatt plant up for sale, citing “construction defects rendering the plant unreliable.” Sources close to the plant say it has often struggled to deliver even half of its planned baseload.
In July this year, the Botswanan news source Mmegi quoted China’s ambassador Lin Songtian, who is secretary general of a follow-up committee on the Forum on China-Africa Cooperation, with some comments on Morupule B that were extraordinary by the usually staid standards of Chinese state announcements.
He said he had reprimanded the Chinese contractor, saying: “It is not fair for Botswana to pay $1 billion for nothing… This company did something bad in Botswana and, because of this project, the people of Botswana are not happy about China. “That company nearly destroyed the cooperation foundation and mutual trust between our people.”
What does this tell us?
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