UK independent power producer Ipsa has agreed a power purchase agreement with South African state utility Eskom from its Newcastle gas fired combined heat and power plant.
According to the Southern African newspaper Business Day, other than for a short period during the World Cup when Eskom agreed to buy Ipsa’s power on a short-term basis, the UK-based company’s power plant in Newcastle, KwaZulu Natal has been forced to stand idle.
Ipsa said on Friday it had managed to raise GBP1m ($1.6m) by placing GBP12.5m new shares at GBP0.08 each, increasing its shares in issue by 11.6 per cent.
The funds will be used to restart Ipsa’s subsidiary Newcastle Cogeneration (NewCogen), which suffered first from Eskom’s refusal to buy its electricity, then by Sasol slapping it with a GBP4m "take or pay" penalty for the gas it was unable to consume.
Ipsa said in December that any further legal action from Sasol Gas "will be vigorously defended". Friday’s Stock Exchange News Service release said no further action had been taken to date.
NewCogen appears to have now overcome the two main obstacles preventing it becoming a going concern. In August, Eskom signed a medium-term power purchase agreement. On Wednesday, it announced it had secured a gas supply from Spring Lights Gas with a 60-day notice period.
"We were very pleased indeed to have reached terms with our new gas provider, Spring Lights, and now, as a result of this support of our shareholders, we expect to be in a position to commence operations within the coming weeks," said chairman Richard Linnell.
While the GBP1m raised last week provides NewCogen with working capital to meet its contractual obligations to Eskom, Ipsa’s overall financial position remains precarious.
Ipsa also planned to build a power plant at Coega, but is now selling the turbines it planned to use. It cancelled the coal contracts for this proposed plant in October.
Friday’s statement said outstanding debt, accrued interest and other creditors amounted to GBP37m, of which GBP31m was subject to a standstill agreement with Standard Bank and Turbocare following execution of an agreement on March 5 2010, which expired on February 21.
Ipsa said it was in discussions with the bank and Turbocare regarding repayment time scales for these amounts.
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