will deal be ditched?

Robert Laing

Robert Laing

The United States power company, AES, is said to have ditched its proposed investment in South African power stations.

The Sowetan was informed yesterday that the conditions AES had set for its proposed investment in South Africa's electricity generation market had not been met. And now the corporation is walking away from the deal.

In August a consortium called Khanya, led by AES, was named the winner of the minerals and energy department's offer to allow an independent power producer to build peak-demand generators in KwaZulu-Natal and Eastern Cape.

Other members of the Khanya consortium, however, said the deal was not dead yet.

The department of minerals and energy said that "complicated negotiations" were under way and it would provide further details today.

Mark Pickering of Mbane Power, a black economic empowerment member of Khanya, said: "There are issues that need to be resolved. I don't care to comment further than that."

The Khanya consortium also includes Rand Merchant Bank.

Werner van Oudenhove, Rand Merchant Bank's head of project and infrastructure finance, said: "It is still work in progress as far as I'm concerned."

If AES withdraws it will be the second time it has backed away from an attempt to open South Africa's electricity market to private sector competition.

The United States company bought the Kelvin power station from the Johannesburg municipality in 2001. It later divested from all investments outside the US following the energy market crisis caused by Enron's collapse.

Though the Kelvin power station is still privately owned, mainly by lenders Investec and Nedbank, it is managed by wholly state-owned Eskom.

A small private sector beachhead against Eskom's monopoly has recently been created by AltX and AIM-listed, Ipsa, which operates a co-generation plant in Newcastle and is building a peak-demand power station at Coega.

Ipsa chief executive Peter Earl said he had refused to bid for the deal because the specifications of the power stations were dictated by Eskom.

The deal was rigged so that the state-owned monopoly got to hobble its potential private sector competitor with uncompetitive technology, according to Earl.

Pickering, however, claims that Ipsa did not contest the bid because it did not meet government's size and experience requirements.