Botswana's giant Mmamabula energy project is in danger of being scrapped or down-sized as costs soar to almost triple the initial estimate, Moody's rating agency said on Thursday.
The project, led by Canada's CIC Energy Corp and which includes a coal mine and two 2,500 megawatt power stations, is situated in southeast Botswana and was initially slated to cost about $6 billion.
Kristin Lindow, Moody's senior vice president and Botswana sovereign analyst, told Reuters costs were now seen at about $16 billion.
The huge Mmamabula project is in trouble, she said, referring to rising construction, equipment and project management costs.
It was estimated orginally at 6 (billion dollars) two years ago, it went up to 9 and now is at $16 billion.
Asked if there was a risk of it being scrapped due to the soaring costs, Lindow added: I think there is a definite possibility, they are working tooth and nail to prevent that from happening.
An African Development Bank official earlier this month predicted the cost had risen to more than $10 billion.
Lindow said the future of the project depended partly on developments in neighbouring South Africa, which was expected to be a big customer for the electricity produced.
If South African tariffs are not going to be high enough to warrant the cost of producing the electricity on their (Botswana) side, then they will scale back the project to just produce enough for the medium to longer term domestic needs, she said.
South African electricity tariffs remain the lowest in the world, despite the country's energy regulator announcing a 27.5 percent increase on Wednesday, effective from July 1.
Prices are likely to keep rising sharply over the next few years as power utility Eskom scrambles to meet rising coal prices and to fund a massive capital spending programme to boost flagging capacity.
CIC Energy said in a statement last month costs for the energy project were expected to rise in line with industry trends and warned that strong demand in the engineering, procurement and construction sector had led to changes in risk allocations.
Russian miner Norilsk Mickel announced this month it had postponed a project to refine nickel in Botswana as costs had escalated beyond an earlier estimate.
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