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The Income Electrix/GoSL Exchange on Electricity Provision to Sierra Leone Capital
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Oct 16, 2008, 17:00
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IEL/GoSL Arguing on Electricity Provision For Bring Affordable Light Nor Easy Oh!!!
APPENDIX OF IELíS LETTER TO ACC

Clause Number 1

CONCERN RAISED

The contract is for the provision of 25MW of continuous power to be delivered at two sites designated by NPA.

GOVT. COMMITTEE POSITION: Govt. of Sierra Leone (GoSL) cannot afford 25MW. The 25MW should be stepped down to 10MW currently running. The Provincial 11.1MW should be on hold. Govt. is looking for a different timeline and its project execution will still depend on affordability.

IELíS REACTION:

We can not step down the capacity from 25MW to 10MW as the entire contract capacity of 25MW is already in Freetown. As a matter of fact, 34MW capacity to produce 25MW continuous is already on ground in SL. 13MW already installed and working. 21MW yet to be installed because of issues with the land at Imatt and also the inability of the NPA/GoSL to honour her performance obligation. These machines were acquired with borrowed funds, which already are accruing huge interest charges. The systems were configured and custom built to meet the requirements of SL. NPA/GoSL should therefore be thinking of constructive solutions to address the problem. The issues are really improvement of transport capacity to be able to convey the entire generated power to the consumers; improvement in revenue collection, by putting in place an appropriate revenue cycle management strategy; the implementation of an appropriate cost recoverable tariff, etc. There could also be discussions on concessions and specific target customer segments. Please look for appropriate solution. Stepping down 10MW would mean killing Income Electrix Ltd which is not the only available solution.

Clause Number 1

The GOSL is liable for any default in payments by NPA to IEL

GOVT. COMMITTEE POSITION: GoSL cannot guaranty any default by NPA. IMF has prohibited the GoSL from entering into certain financial or commercial dealings like this one.

IELíS REACTION:
The contract signed by NPA and GoSL says that GoSL will guarantee the performance obligations of NPA. However, IEL is open to GoSL transferring her performance obligations to a third party, if the third party has the capacity.

Clause Number 2.1.3

CONCERN RAISED

The Date of Commissioning the plant is defined as the date when the power station is connected to the NPA system.

GOVT. COMMITTEE POSITION: GoSL wants the date of commissioning which was given as 12/02/08. They want to know whether there was formal notification to NPA and certification by NPA.

IELíS REACTION:
Yes that is the date of commissioning. Notification and certification by NPA was not a provision in the contract. However, NPA was duly notified before the plant was commissioned by the President.

Clause Number 2.3

CONCERN RAISED

The contract is for a period of three years. If the contract is terminated for any reason the capacity charges is payable for the entire period of the contract.

GOVT. COMMITTEE POSITION: GoSL wants to have the right to terminate the contract at anytime based on affordability.

IELíS REACTION: GoSL cannot terminate the contract at anytime, as there is a minimum period for the contract to be worthwhile to us. The equipments are brand new, built specifically for SL. We need to recover at least a reasonable amount of the investment. The contract could however only be terminated due to non performance of IEL. Clauses for the reasonable termination can however be inserted in the contract.

Clause Number 2.5

CONCERN RAISED

The Capacity Charge (the flat charge for the rental of the generating plant) is levied "irrespective of the operational status of the Plant" and is payable from "the day that the equipment is delivered to Freetown Port".

GOVT. COMMITTEE POSITION: The capacity charge should not be based on the phrase "irrespective of the operational status of the Plant" and is payable from "the day that the equipment is delivered to Freetown Port". And payable should be as from the commissioning date and NOT from "the day that the equipment is delivered to Freetown Port".

IELíS REACTION: Yes, if any non-operational status is due to no fault of IEL. The capacity charge should commence from date of equipment delivery to Freetown. In the case of the 10MW we can accept it to be the date of commissioning. For the 15MW, the equipments have been on ground yet none of the obligations of NPA has been met. The site of the 15MW is yet to be officially handed over to us. So the capacity charge has to commence from the date equipments are delivered at the storage location.

Clause Number 2.7

CONCERN RAISED

The Energy Charge (to cover the cost of maintenance, etc.) is based on the actual energy consumed or the minimum daily off-take, which is defined as the full contracted amount of electricity (that is the plant running at full capacity for 24 hours per day for the contract period), whichever is greater.

GOVT. COMMITTEE POSITION: Energy charge should be based on actual power taken.

IELíS REACTION: Yes Ė the minimum off-take is the contract capacity. The installed capacity is higher than the contract capacity. The inability of NPA to off-take the contract capacity cannot be to the charge of IEL.

Clause Number 5.1.5

CONCERN RAISED

The cost of mobilization and installation of the two plants, which must be met by NPA, is US$ 2.45 million.

GOVT. COMMITTEE POSITION: They want justifications for this figure and the reason why air freighting did not meet the intention, commissioning was done almost two months after air freighting.

IELíS REACTION:It was agreed between IEL and NPA that 10MW be air freighted to meet the Presidentís pronounced date of 20th Dec. 2007. Actual freight cost about $3.5Million dollars, IEL subsidized the air freight with $1Million. Late commissioning was due to NPA/GoSL not meeting their performance obligations. No fault of IEL.

Clause Number 5.1.6

CONCERN RAISED

The demobilization and removal charges, which must be met by NPA, are US$275,000 "or the current market price".

GOVT. COMMITTEE POSITION: It should be stated which one takes precedence. And the definition of market price.

IELíS REACTION:The market price takes precedence. Market price is actual cost of land transport, sea freight and clearing charges + duties at new destination.

Clause Number 5.1.7

CONCERN RAISED

The cost of site preparation, which must be met by NPA, is US$179,000 metering is undertaken by IEL alone.

GOVT. COMMITTEE POSITION: There should be justification for the civil cost.

IELíS REACTION:
Civil cost much higher than $179,000. If you require breakdown, it can be provided.

Clause Number 5.1.18

CONCERN RAISED

Metering is undertaken by IEL alone.

GOVT. COMMITTEE POSITION: There should be provision for check meters by NPA and reconciliation.

IELíS REACTION:
Metering is done by NPA and IEL and not IEL alone; check meters can be provided for a cost, if it is needed.

Clause Number 6.8

CONCERN RAISED

All duties, taxes, fees and charges and "any legislative modification with financial implications on the contract shall be waived by NPA/GoSL"

GOVT. COMMITTEE POSITION: These go beyond what GoSL can offer. GoSL will provide what is affordable.

IEL'S REACTION:
The contract says the project shall be free of all duties. However, if you require these to be paid, it shall reflect on the rates. It is just a billing strategy; these could be buried in the rates.

Clause Number 6.10

CONCERN RAISED

This clause provides that "Supply of fuel been separately charged and is stipulated in table 2, "The clause also specifies the "the price of fuel is subject to fluctuation"

GOVT. COMMITTEE POSITION: More explanations are required for table 2 (fuel charge computation table. Global Trading Group of Kingtom Power Plant has a computation of three pages which ca be made available to IEL. Fuel charge is the biggest billing item to GoSL and should be explained in details.

IELíS REACTION:
The number of pages of computation is irrelevant. Please lets have your issues here. The fuel computation is in table 2.

Clause Number 7.9

CONCERN RAISED

NPA is required to take "minimum energy Ö. Which is 100% load of the continuous power being supplied."

GOVT. COMMITTEE POSITION: Again, affordability is the main issue. There is the need for flexibility.

IELíS REACTION:
Minimum energy is 100% of contract capacity, not installed capacity. Less than that will result in gross loss for IEL.

Clause Number 7.10

CONCERN RAISED

This clause provides that "NPA shall provide logistic charges for fuel storage and transportation chargesÖ"

GOVT. COMMITTEE POSITION: There seems to be double billing. Logistics is included in fuel charge computation.

IELíS REACTION:
There is only one fuel logistics charge; that is the fuel computation.

Clause Number 8.1

CONCERN RAISED

NPA is required to "establish two confirmed irrevocable letters of credit for the full amount payable to IEL annually with a reputable international bank acceptable to IEL.

GOVT. COMMITTEE POSITION: If letters of credit are opened, why is there need for Govt. guaranty since payment is in advance. GoSL cannot guaranty any default by NPA. IMF has prohibited the GoSL from entering into certain financial or commercial dealings like this one.

IELíS REACTION:
We require a back-up. However, GoSL can get a 3rd party to take over her obligation. This position can however be discussed.

Clause Number 8.2.6

CONCERN RAISED

The penalty for late payments by NPA is LIBOR plus 7.5%.

GOVT. COMMITTEE POSITION: The percentage is too high, when the Kingtom Global Trading Group power plant is only 1.5%. Why the delay penalty if irrevocable letters of credit are opened.

IELíS REACTION:
Global Trading Groupís Project is a World Bank project which should attract very low financing costs. Financing costs for a non-creditworthy client like NPA is much higher.

Clause Number 8.3

CONCERN RAISED

The capacity charges are paid monthly in advance and the Energy charge monthly in arrears. The fuel charge is paid monthly in advance but with two months being paid "at the inception of the contract,"

GOVT. COMMITTEE POSITION: If payment for fuel is advance, then at what price? Is it present price or projected price. This will require agreement on both parties to implement.

IELíS REACTION:
The extra one month charge is for strategic fuel reserve. The fuel cost is current platt price plus logistics. The modalities can be discussed.

Clause Number 8.4

CONCERN RAISED

In addition to the general guarantee provided by GOSL under clause 1 and the letters of credit established by NPA under clause 8.1, the Government is required to issue a bank guarantee to IEL to ensure payment of any amount unpaid by NPA and outstanding for more than 60 days.

GOVT. COMMITTEE POSITION: GoSL cannot guaranty any default by NPA. IMF has prohibited the GoSL from entering into certain financial or commercial dealings like this one.

IELíS REACTION:
GoSL can get a 3rd party to guarantee default by NPA.

Clause Number 8.5

CONCERN RAISED

NPA is granted a "moratorium" for five months after commissioning on all charges due to IEL except for fuel charges.

GOVT. COMMITTEE POSITION: They want to know if the five month moratorium is spread over 12 months which had an affirmative as answer.

IELíS REACTION:
Yes, the 5 months moratorium is spread over 12 months.

Clause Number 8.5

CONCERN RAISED

NPA is required to pay for insurance for IEL personnel and equipment. The estimated cost is US$250,000.

GOVT. COMMITTEE POSITION: The plant belongs to IEL which is being operated and maintained by them, why should GoSL be responsible for insurance.

IELíS REACTION:
Again, this is a billing technique. The insurance can be hidden in the charges or charged separately as we did.

Clause Number 14.3

CONCERN RAISED

If the contact is terminated for any reason, NPA must pay the capacity charge to IEL for the remainder of the contract.

GOVT. COMMITTEE POSITION: GoSL cannot afford this.

IELíS REACTION:
That is the case, so do not terminate contract arbitrarily unless due to non performance of IEL as there is a minimum for which IEL would not sustain huge losses.

Clause Number 14.1 - 14.17

CONCERN RAISED

NPA is allowed to terminate the contract only in the case of a delay in commissioning the plant in excess of 12 weeks after the plant is delivered to the site or in case of force majeure.

GOVT. COMMITTEE POSITION: GoSL should have the right to terminate anytime.

IELíS REACTION:
Yes that is the condition of the contract. However, if you have other specific conditions for which you think the contract can be terminated, these can be discussed.

Clause Number 19

CONCERN RAISED

IELís obligations under the contract are dependent on NPA obtaining approval from its board for the contract, confirmation that authorization to import all equipment has been obtained and the establishment of the two letters of credit under clause 8.1

GOVT. COMMITTEE POSITION: IEL should look at this clause carefully and its implications.

IELíS REACTION:
Yes, IEL obligations, not NPAís obligations; I also suggest you look at the clause carefully. It is for IEL protection, not NPAís.


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