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LNG-to-Power IPP Procurement Programme Information Memorandum released

Donovan Brown
October 12, 2016

Posted in Oil and gas Power Southern Africa

An information memorandum on the liquefied natural gas (LNG) to power independent power producers (IPP) procurement programme (the Programme) was published by South Africa’s Department of Energy (DoE) on 5 October 2016.  The memo describes the scope of the LNG-to-power IPP Programme for prospective and interested bidders and highlights the opportunities the programme presents to the bidders and to the South African economy. 

The procurement policy framework

Whilst the memo is not a procurement document, it does outline the policy context and general framework for the establishment of a procurement process.

The LNG IPP Programme finds its roots in several policy frameworks, including the National Development Plan, the draft Integrated Energy Plan and the Integrated Resources Plan 2010‑2030, all of which identify the need for natural gas and its role in South Africa’s energy mix.  It is in this context that various determinations made by the Minster of Energy culminated in the DoE’s intention to procure 3 726MW of gas fired power. Of this, 3000MW will be allocated to the Programme, 600MW to a gas-fired power plant and the remaining 126MW to a Domestic Gas-to-Power Programme.

General features of the Programme

The primary objectives of the Programme are to:

  • develop a gas economy in South Africa, including gas exploration and production from indigenous resources;
  • encourage the use of imports from adjacent sources within the Southern African Development Community (SADC); and
  • develop the use of gas in the industrial, commercial, transport and residential sectors.

Pursuant to various studies undertaken by the DoE, Nqgura (Coega) (Eastern Cape Province) and Richards Bay l (KwaZulu-Natal Province) have been identified as the two feasible sites to develop LNG projects for the first phase.  These ports have been earmarked for their potential for operating LNG import facilities, the current grid infrastructure, and the availability of potentially suitable sites for power generation facilities.  A separate procurement process under the Programme will be carried out for each site, with 1000MW being allocated to Nqgura and 2000MW to Richards Bay.  A third site, Saldanha Bay (Western Cape Province), has been earmarked for development at a later stage.

Initially, a two stage process is envisaged.  The first stage is a request for qualifications (RFQ) followed by a request for proposal (RFP), in which only the short-listed preferred bidders from the RFQ may participate.  The RFQ will benchmark core competencies across the full project chain which proposed participants must demonstrate in order to proceed to the RFP stage. The project chain includes procurement and supply of LNG, provision of a floating storage and re-gasification facility (or equivalent), development and operation of port infrastructure for the receipt and transmission of gas, and development and operation of a CCGT/OCGT power plant under a 20 year power purchase agreement with national utility Eskom.

A further notable feature is the requirement to provide excess capacity for the power plant gas requirements, to enable third-party offtake of both additional LNG and additional re-gasified product, and to facilitate development of a South African gas economy.

Potential benefits to the South African economy

Over and above serving as an anchor for gas infrastructure required for the establishment of a gas market in South Africa, the programme will provide for the exploitation of natural gas reserves within the SADC region. The indigenous gas within South Africa represents a significant opportunity to boost economic growth, employment and investment in the sector. 

It is anticipated that the RFQ will be published in November 2016 with submissions due in February 2017, to be followed by a first draft of the RFP in April 2017 for engagement purposes.  The final RFP is anticipated in August 2017.

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