Mashale Phumaphi, Managing Director, Shumba Energy

MACIG Connect Series

“This region is in a power crisis, and we need to utilize that as a catalyst for enhancing the physical links between countries in terms of transmission and IPP development.”

What have been Shumba Energy’s major milestones since GBR saw you last year?

Mashale Phumaphi (MP): In April of 2015, Shumba Energy acquired the new Mabesekwa coal project with approximately 860 million metric tons of thermal coal. It is a very large open-pit operation, about 18 meters thick, which we hope to develop specifically for the South Africa and Botswana energy markets. Shumba has partnered with an experienced power developer in the Mulilo Group, which has around 420 megawatts (MW) of independent power producer (IPP) generation in South Africa, primarily using wind and solar.

The Mabesekwa project is also developing quickly, as Shumba is now finished with its coal studies and environmental work. We secured surface rights to the asset and are waiting on the water rights. Shumba’s flagship project, Sechaba, is also making good progress in being developed for the Southern African Development Community (SADC) power market.

The most significant change is Shumba Energy’s shift in attention towards the renewable space, where we have partnered with the Mulilo Group, Total, and Sun Power (the largest panel manufacturer in the world). We recently responded a request for information from the Botswana government to advance our efforts in that regard. Shumba also made a second submission for a concentrated solar plant (CSP) with Cobra, a power developer and EPC contractor that specializes in CSPs. Shumba strongly believes that solar is the future of power generation and complements its coal-based projects.

Where does Shumba Energy plan to build its solar plant?

MP: Our main target is Botswana. Shumba has already secured a 1,000-hectare site in the northwest of the country, and we are actively trying to secure more land. At this stage, our solar strategy is focused on enhancing the current coal-based generation. The cost of solar has decreased so significantly that it is now comparable with coal. The primary disadvantage with pure photovoltaic solar energy is that unless you have storage capacity, which adds cost, the availability of power generation is determined by the sun and not necessarily in sync with the related power demand. As a country, Botswana needs an energy mix. Base load energy is crucial because there is a steady power demand throughout the day; however, gas and hydro can be used for peak times while wind and solar can be used upon availability. I foresee more national investment in renewables coming to light in the coming five to ten years.

Was Shumba Energy’s shift towards achieving a more diversified energy mix the impetus behind changing the brand name from Shumba Coal?

MP: It is not only about the change of source, as we have been broadening our portfolio in many ways for the past couple of years. Shumba has conducted transmission studies, crafted power station design and instillation projects, and completed work on the Southern African Power Pool. Shumba has engaged with the coordinating center to determine the best strategic position for Botswana to disperse energy throughout the region and combat the ever-increasing energy shortage. The shortage is crippling and is problematic not just from a domestic perspective. There are estimations that growth in the region would have been double what it was last year if there had been sufficient power. In the SADC region, the current shortage measures up to 18,000 MW, which is about 35 times the base load generation capacity that Botswana has at the moment. This is a huge gap, which was caused by recent industrial and retail usage growth and needs to be filled, but which can only be combated through a combination of improved transmission infrastructure and significant new generation capacity across the region.

What is Shumba Energy’s strategy for securing funding for its power plant?

MP: The funding for the plant will come from a combination of development finance institutions—such as the African Development Bank—and from private banks—such as Standard Bank—in the form of both debt and equity. Right now we are fully funded to reach financial close, covering the feasibilities studies associated with the construction, infrastructure, necessary legal fees in preparing contracts, and reviewing the licensing and structuring of the whole project. In the last 12 months, Shumba Energy raised over $6 million, mostly from Botswana institutions. We are quite proud to have had so much local support, and we look forward to continuing to deliver results for our shareholders.

Shumba has managed a dual listing on the Botswana Stock Exchange and the Stock Exchange of Mauritius. Are there any plans to list on an international market?

MP: Shumba strategically listed its business on markets that understand the African business environment. Traditionally, London is seen as the target market for African operations, and from an international perspective we do have options. At the same time, due to the global financial crisis and the pursuant effects on the market and public perception, enthusiasm for investment in resource-based stocks abroad has seen a huge decline. At the moment, I think being an African company listed in Africa offers better value. From a market point of view, we have been very liquid in this past year, have been up as much as 27% since January with an excess of 30 million pula of shares traded in the past twelve months, which is quite substantial liquidity on the stock exchange for a company at our stage. Shumba is happy where it is in terms of listings, and we are even more pleased that our shareholders continue to support us.

Why is investment in power related infrastructure important for SADC regional development?

MP: This region is in a power crisis, and we need to utilize that as a catalyst for enhancing the physical links between countries in terms of transmission and IPP development. The various fuel sources for power generation are abundant. Demand for power is abundant. The issue lies in implementation in a bankable fashion. The private sector in conjunction with the regional governments need to focus on closing the gap between power supply and demand because without cheap, available electricity, regional growth will continue to be stifled. We need to sort out this critical issue, and it is not just for one country to address alone.

This interview was conducted as part of research by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2016. A pre-release report on the Central African Copperbelt was released in October 2015 and can be accessed here. To participate in this report, please contact Molly Concannon at mconcannon@gbreports.com or +244 940 514 806.

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