The IPSA Group, the AIM and AltX dual-listed independent power plant developer with operations in southern Africa, on Wednesday said it was selling one of its four turbines, originally purchased for the now delayed Coega Project, to repay debt and for working capital.
"While strict cost containment measures have been implemented, with no revenues currently being generated the company's working capital position remains extremely tight, with little visibility beyond the next few months unless further working capital can be raised in the intervening period," IPSA said in a statement to the JSE.
The company said it has entered into a conditional agreement with Independent Power Corporation (IPC), which is controlled by IPSA chief executive Peter Earl, and IPOL Bolivia Sucursal (IPOL), a branch office of a subsidiary of IPC, for the sale of one of its four Turbines for US$30 million.
IPSA has been actively seeking to sell one or more of its four Westinghouse 701 DU turbines for over a year.
The most advanced discussions had taken place with IPC and in the last few weeks, IPSA was informed that IPC has advanced an opportunity to develop a gas-fired power plant at Huaricana near La Paz, Bolivia.
This project would require one of the turbines, which will be acquired immediately.
Finance for the Huaricana project has been offered by local Bolivian banks and contractors with the Andean Development Corporation, Corporacion Andina de Fomento, having also expressed an interest in participating in the financing of the project.
Financial close and the commencement of construction are both expected at the end of the first quarter of 2010 but IPSA emphasised that completion of the development was dependent on, among other things, appropriate financing being available to IPC and on its obtaining appropriate approvals in the coming months from the Bolivian Electricity Control Authority to
install and develop the power plant.
"Given the difficulty of the Company's present working capital position, and after discussions with the company's bank, the directors of IPSA believe that entering into a contract to sell a Turbine to IPC for the purposes of the Huaricana power project is in the best interests of shareholders," IPSA said.
In terms of the agreement, IPSA will be paid a deposit of US$1 million with a further US$20 million payable within 90 days thereafter and the final US$9 million is due by the end of March 2011.
IPSA said the funds payable on completion would be used by the company to make a partial repayment of its senior debt facility secured on the turbines and a partial payment of the refurbishment costs.
It said the balance would be retained for working capital purposes.
"This agreement for the sale of a turbine for a fast track project in Bolivia confirms the belief of the board of IPSA that the best price will be realised for the company's Siemens Westinghouse turbines by selling them into a project rather than as commodity items," said Earl.
"There is a worldwide shortage of large gas turbines available for immediate delivery and we believe that the best return for IPSA shareholders comes from selling our turbines directly into power projects in emerging markets," Earl said.