Date: Thursday, 08 October 2020
Australian potash producer Danakali has contracted British energy services firm Aggreko to set up a 12 MegaWatt heavy fuel oil (HFO) power plant at its Colluli sulphate of potash mine project in Eritrea.
Aggreko will provide full scope of support services for the supply, commissioning, and maintenance of the power plant, then transfer to Colluli Mining Share Company, under five-year Buy Own Operate Transfer, or BOOT contract.
Moreover, Aggreko will provide the funding for the power solution which provides certainty over delivery of this preferred solution.
According to Aggreko Africa MD John Lewis, Aggreko has extensive experience in Eritrea and knowledge of the local market making it ideally placed to provide a solution that meets the specific needs of Danakali and deliver a reliable power supply for this project.
The agreement is a BOOT contract, as the equipment is available now and does not need to be built, and de-risks the project development schedule. The equipment can therefore be mobilised at short notice as required during the development of the project.
The costs of the power solution provided by Aggreko over the five-year contract period is lower than the FEED study results. Aggreko is funding the capex required for the power plant an all equipment will be transferred to CMSC at no extra cost at the end of the contract period. This power solution is scalable and can increase/decrease according to CMSC’s needs.
The agreement with Aggreko is subject to the conclusion of ongoing negotiations to optimise the scope of works, contract pricing and execution; and board approval of the final investment decision.
“With 55 years of experience in delivering high-quality, reliable service to a large number of projects we are very pleased to appoint Aggreko as our single power provider and are confident they have the capabilities to provide our power needs for Colluli,” says Danakali CEO Niels Wage.
“At the early stages of the project development, the HFO solution will provide us with flexibility and reliability, and as confirmed by the social and environmental impact assessment, Colluli will have a relatively small impact on the environment. Going forward, once project development is in more of a steady state we will look to diversify our energy sources towards renewables available in the Danakil region, as per our commitment to sustainable and environmentally friendly solutions,” Wage notes.
Colluli at a glance
The Colluli project is located in the Danakil Depression region of Eritrea, East Africa, and is ~75km from the Red Sea coast, making it one of the most accessible potash deposits globally.
The company has completed a front-end engineering design for the production of potassium sulphate, otherwise known as sulphate of potash or SOP. SOP is a chloride free, specialty fertiliser, which carries a substantial price premium relative to the more common potash type; potassium chloride (or MOP).
A binding take-or-pay offtake agreement has been confirmed with EuroChem for up to 100% (minimum 87%) of Colluli Module I SOP production.
Development Finance Institutions, Africa Finance Corporation and African Export Import Bank (Afreximbank), have obtained formal credit approval to provide CMSC with US$200 million in senior debt finance. The credit documentation was executed in December 2019, allowing drawdown of CMSC senior debt on satisfaction of customary conditions precedent.
This represents the majority of funding required for the development and construction of the Colluli. AFC has also executed a subscription agreement to make a US$50 million strategic equity investment in Danakali. The receipt of the first tranche of US$21.5 million allowed commencement of the development.
Project execution has commenced, and SOP production is expected during 2022.
The company’s vision is to bring Colluli into production using the principles of risk management, resource utilisation and modularity, using the starting module (Module I) as a growth platform to develop the resource to its full potential.