CDC Globeleq invests in provision of reliable electricity for Tanzania and South Africa
17 December 2002
CDC GLOBELEQ INVESTS IN PROVISION OF RELIABLE ELECTRICITY FOR TANZANIA AND SOUTH AFRICA
CDC Globeleq, the recently established emerging market power business of CDC Group plc, is investing US$116m to acquire two major electricity generation assets in Africa from the AES Corporation.
In Tanzania, CDC Globeleq is increasing its existing minority share to take a controlling interest in the project company Songas Limited. The other shareholders are Tanzanian Development Finance Limited, the Tanzanian Petroleum Development Corporation and TANESCO, the Tanzania Electric Supply Company. The project will bring indigenous gas to Dar es Salaam and use it to produce clean, reliable power for the capital and for the Tanzanian national grid. The Songas project comprises the construction of a gas processing plant on Songo Songo Island; the laying of a 225km pipeline from the island to Dar es Salaam; and the acquisition and conversion, from oil to gas, of Ubungo power station, a 110MW power plant in Dar es Salaam. CDC Globeleq will assume responsibility for completing the project and operating the power plant. CDC Globeleq will also investigate the possibility of selling a share of the plant to local investors, since it believes this can prove an attractive long term holding for domestic savers.
In South Africa, CDC Globeleq is acquiring AES’s 95 per cent economic interest in Kelvin, a 600 megawatt coal-fired power station serving the city of Johannesburg. The other 5 per cent economic interest is held by Global African Power, a black empowerment partner. CDC Globeleq will complete the US$25 million investment being made to refurbish the plant, significantly improving its environmental performance and enhancing the supply of low price electricity to the 270,000 customers of City Power Johannesburg.
CDC Globeleq, 100% owned by CDC Group plc, was established earlier this year as a commercial power business for emerging markets. This transaction is the first stage of a strategy to acquire, develop and operate power companies in the developing world. CDC Globeleq expects to be announcing further acquisitions in the next few months.
Commenting on the acquisitions, Bob Hart, CEO of CDC Globeleq, said “The sweeping changes in the global power industry in the past eighteen months have resulted in huge opportunities and challenges. Our fast-growing team of professionals are ready for this exciting prospect, and we are making progress with respect to transactions in virtually every part of the emerging markets. Songas and Kelvin are good quality assets, and we are really looking forward to working with their excellent management teams to complete the development programmes and bring these power stations to their full potential”.
On behalf of the Government of Tanzania, Basil P. Mramba (MP), Minister for Finance, said: “The Government is totally committed to the success of the Songas project as it forms a key part of the Government’s strategy to create an efficient power sector, which will provide a reliable and adequate supply of electricity at least cost. The Government welcomes CDC taking on this long term commitment to our country. We also welcome CDC’s proposed initiative to attract local institutional investors into the Songas project as a means of broadening and deepening capital markets.”
In London CDC Group Chairman Lord Cairns said: ”This is the right time for CDC to invest in the electricity infrastructure of developing countries, as other international investors are withdrawing from these markets, creating a significant shortage of both capital and professional management focus and offering an excellent commercial opportunity. Our long term commitment to these countries, and our willingness to provide operating expertise and to become strategically involved in the development of the critical power industry, give us the opportunity to play an important developmental role while obtaining good financial returns”.
NOTES TO EDITORS
Background
CDC Globeleq was recently established by CDC Group plc, formerly the Commonwealth Development Corporation. CDC is owned 100% by the UK Government through its Department for International Development.
CDC has been a financial investor in emerging markets for over fifty years. Its mandate is to make private sector investments in support of sustainable businesses which operate to the highest socially responsible standards in developing countries around the world. Of its total investment portfolio of some US$ 1.5 billion, around US$ 300 million equity is in the power sector, reflecting the critical role that electricity plays in economic development.
CDC Globeleq
In Summer 2002, CDC took a major strategic step by setting up CDC Globeleq as its branded international power business. CDC Globeleq aims to become a leading emerging markets power business, creating value for its shareholder and co investors; serving the power needs of people and industry in the emerging markets; and helping to solve a critical constraint to economic development.
CDC Globeleq is actively engaged in acquiring and operating generation assets which are in or close to production. It will also invest in a wider range of projects, including greenfield developments and will work in partnership with relevant Government authorities to develop strategies for efficient ways of bringing badly needed power to consumers.
CDC Globeleq currently holds investments in 21 power assets in 15 developing countries, with a total generating capacity of 1200 MW, based on equity share. With these acquisitions CDC Globeleq will own 1900 MW of capacity in twenty countries.
Over the past several months, CDC Globeleq has emerged as an active international power business in the developing world. Earlier this year, CDC Globeleq acquired several assets in South America, including a 24% interest in Edegel S.A., the largest power generation company in Peru with almost 1 GW in hydro capacity. The professional staff of CDC Globeleq more than tripled in size during 2002, a period of significant downsizing for most international power companies. CDC Globeleq is vigorously pursuing new investments in South Asia, Central America and South America, when virtually all other international power companies are seeking to exit those markets. In addition to making further acquisitions in emerging markets, CDC Globeleq will work to mobilise third party capital at the project, regional and global level.
CDC Globeleq is led by an experienced management team. Its Chief Executive Officer is Bob Hart, who has spent the last twenty five years investing in, developing and operating power projects in emerging markets. From 1994 to 1999. Mr Hart was President and CEO of Coastal Power Company in Houston.
Further details on the deals
The goal of the World Bank-financed Songas project in Tanzania is to develop the gas industry and electricity sector of Tanzania by extracting local natural gas and converting it to a reliable source of clean, lower cost power. CDC has assisted in the development of this project since mid 1990s and committed US$ 18 million to it in 2001. Songas will provide electricity to the national utility, Tanesco, under a twenty year agreement when the pipeline is completed by mid-2004. The new Songas pipeline will supply natural gas to the Ubungo power plant, which will be converted to accept this fuel stock. It is intended that the pipeline will also supply industrial and commercial customers directly.
CDC Globeleq already owns a stake in the Tsavo Power Company in Kenya, offering the potential for regional synergies with Songas to help meet the need for electricity in the East Africa region. CDC Globeleq is also in advanced discussions with the Uganda Government about the privatisation of that country’s electricity distribution company UEDC.
The Kelvin power plant in South Africa had been operating at less than 25% of its design capacity when it was acquired in 2001 from the City of Johannesburg by AES Corporation with a commitment to modernise it and increase its output. The programme now under way involves the installation of bag filters to reduce dust emissions to within World Bank environmental standards and the refurbishment of the generating plant to restore its capacity to close to its designed capacity of 600 MW and allow it to compete effectively to meet around one-third of Johannesburg’s electricity demand.
