IEEFA update: Marubeni pulls out of Botswana coal power project

Major Japanese conglomerate Marubeni Corporation has pulled out of the proposed 300 megawatt (MW) extension to the Morupule B coal-fired power plant in Botswana, the company announced today (4 October 2019).

This withdrawal follows news in August 2019 that Marubeni’s 1,300MW Akita coal power project in Japan has been delayed. The delay may be indefinite – Marubeni and its project partner Kansai Electric Power Corp. have given up their access rights to link the Akita project to the power grid.

Marubeni had been in a 50:50 joint venture with POSCO of South Korea to build the Morupule B extension consisting of two 150MW units.

The project had previously run into severe headwinds after the Botswana government decided against providing the proponents with a US$800m guarantee to protect them from a future default on power purchase payments.

Following this, it was reported that the Japanese export credit agencies Japan Bank for International Cooperation (JBIC) and Nippon Export and Investment Insurance (NEXI) had also decided against financing and insuring the project.

WITHOUT SUCH EXPORT CREDIT AGENCY SUPPORT, COAL POWER PROPOSALS WILL FIND IT DIFFICULT TO ATTRACT FINANCE in an era of increasingly cheaper renewable energy and the mounting number of financial institutions ruling out or moving away from coal financing.

Marubeni released a coal policy in September 2018 pledging to reduce its coal-fired power investments by half to 2030, to increase its renewable energy investment, and to avoid any new coal-fired power projects “as a general principle”.

IEEFA had previously warned that the loopholes and slow pace of commitment in the policy would cause problems for Marubeni. With some of its ongoing coal development projects suffering very slow progress, IEEFA noted the company could expect difficult questions from its investors as they become ever more sensitive to carbon and reputational risk. The Morupule B extension was one of the coal projects highlighted by IEEFA.

BOTSWANA ITSELF IS SITTING AT AN ENERGY CROSSROADS and there are increasing signs that it is going to take a fossil-free path forward.

The original Morupule B coal power plant has been a major headache for Botswana’s government. Currently the country’s only operating coal plant, Morupule B was completed at a cost of US1bn but has since been plagued by technical problems that have left it unable to operate anywhere near full capacity.

The lack of available capacity led Botswana Power Corporation to seek to refurbish and reopen the previously shut down Morupule A coal plant. However, the refurbishment of this plant has reportedly also been mired in issues, both technical and financial. The contractor carrying out the refurbishment is Doosan Heavy Industries and Construction of South Korea – a new IEEFA report finds that Doosan Heavy has its own major financial issues to deal with, caused in part by its high risk pipeline of fossil fuel projects both in South Korea and in developing markets such as Botswana.

Following its coal power misadventures, Botswana – which has the highest sovereign credit rating in sub-Saharan Africa – now seems to have its sights firmly set on solar.

In November 2018, the nation joined the International Solar Alliance and issued a tender for 12 new solar power projects. It also began the tendering process for another 100MW of solar in August 2019.

Then in September 2019, it was revealed that Botswana and Namibia are considering a huge 20-year 5GW solar development plan. With far more capacity than is needed to meet demand in Botswana and Namibia, the great majority of power generated would be for export around Africa.

African banks pulling out of coal

The news of Marubeni’s withdrawal from coal power in Botswana comes only a week after the African Development Bank (AfDB) stated that it will no longer finance coal projects.

AfDB president Akinwumi Adesina stated: “Coal is the past, renewable energy is the future. For us at the African Development Bank, we are getting out of coal.”

Meanwhile in South Africa, another of the nation’s big banks has released a new policy that distances them from coal. Following the policies of South Africa’s Nedbank and Standard Bank, FirstRand has released its August 2019-dated policy on thermal coal financing.

THIS ONLY PLACES FURTHER DOUBT ON MARUBENI’S OTHER SUB-SAHARAN COAL POWER PROJECT – the Thabametsi proposal in South Africa.

For this project, Marubeni is partnered with another South Korean company – state-owned power utility KEPCO, which is itself likely to be facing increased scrutiny from investors about its overseas fossil fuel projects following the planning rejection of its Bylong thermal coal mine proposal in Australia.

FirstRand had already publicly ruled out funding the Thabametsi proposal. The fact that FirstRand have now released a formal coal policy, following two of the other major South African banks, will only increase the pressure on another in the country – Absa (previously Barclays Africa) – to do the same.

Faced by a wave of cheap renewable energy projects, coal power proponents will increasingly find a lack of export credit agency and bank support for their proposals going forward.

Marubeni’s Botswana coal project has fallen over due to a lack of support from export credit agencies, banks and Botswana itself which is now turning towards renewables.

IEEFA predicts Marubeni will struggle to finance its Thabametsi proposal.

Simon Nicholas is an energy finance analyst with IEEFA.

Related links:

IEEFA Japan: Marubeni’s coal exit announcement a good first step but increased commitment needed

IEEFA report: Marubeni’s coal commitments are creating ‘needless reputational and financial risk’

IEEFA update: As Marubeni distances itself from coal, other industrial behemoths will follow