By Nomsa Dlamini
Developing climate-smart solutions to address issues in the power sector involves navigating an uncertain and ever-changing landscape, at a time when reliable, affordable and sustainable power has become more important for the country than ever. Mr Muzi Siyaya, the Managing Director of Ubombo Sugar Limited (USL) has a front-row seat to the evolving energy sector in eSwatini.
Eswatini Financial Times: As MD of Ubombo Sugar Limited (USL), it’s clear that you are keen on pursuing and strengthening downstream investments to enhance and diversify future revenue streams.
Siyaya: We are pursuing energy efficiency projects and power co-generation as part of our business strategy not only to drive efficiencies and diversification in our own business but also as a direct contribution to the country’s efforts to achieve energy security. For context, USL has a first-mover advantage in biomass energy production in the country, so we are ready to assist by leveraging the experience we have accumulated over the years in running the existing co-generation business.
Markedly, we were the first independent power producer in the country to supply power using bio-renewable resources to the national grid on a commercial basis. This was made possible through a major factory expansion and power co-generation project which was commissioned in April 2011 and cost about E1,2 billion.
Our co-generation business allows the business to produce sufficient co-generated electricity from renewable resources to cater for its own operations and export power to the national grid on a commercial basis. Currently, we produce about 165 gigawatt hours (GWh) of electricity annually of which about 60 GWh is supplied to the Eswatini Electricity Company (EEC).
EFT: One of the first executives you met when you assumed office was the MD of EEC. This displays the importance you attach to the co-generation agreement Ubombo has with EEC.
Siyaya: Mr Ernest Mkhonta [EEC MD] and his team are doing a tremendous job of running a complex organisation in a rapidly evolving energy sector. In our engagements, I was impressed with the EEC’s vision to ensure a sustainable power supply for the Kingdom.
So, what lies on the horizon is that we as Ubombo see an immediate opportunity in the current Power Purchase Agreement (PPA) to expand our electricity exports to the national grid in response to the call from the Minister of Commerce, Trade, and Industry for private sector led energy solutions.
We already deliver substantial power to the grid and therefore believe that our first mover advantage gives us the edge to deliver a quick solution to the government faster than any parallel processes currently being undertaken or investigated to mitigate the prevailing energy security risk in the country.
This will obviously require substantial capital investment on our part, so the business case must be bankable for both parties, and the numbers must ultimately make sense. Consequently, we will be commencing discussions with EEC and ESERA (the regulator) in this respect. I must also hasten to add that our relationship with EEC as the off-taker in the current PPA has been nothing short of fantastic and this will augur well for future negotiations.
In terms of profits, I am sure you will appreciate that this is privileged information, but I can point out that energy is becoming an important diversification strategy although our core business is sugar manufacturing and that will be the case for many years to come.
Notwithstanding, it must be noted that renewable energy projects are capital-intensive by nature and require a solid business case to justify the investment. Globally, Regulators and Power Utilities are constantly applying pressure on IPPs for lower tariffs, sometimes to unsustainable levels. In the case of biomass as a renewable technology, it offers a degree of baseload power (the minimum amount of power needed to be supplied to the electrical grid at any given time) which is not necessarily a given with the other weather-based renewable technologies such as solar and wind technologies.
However, our biomass potential as a country is limited by the availability of feedstock. At present, the sugar industry has the potential to offer large-scale biomass solutions to the government because of the bagasse co-generation. However, in poor harvesting seasons or when we experience No Cane stops due to adverse weather, for example, wood chips are often used as an alternative.
Therefore, Montigny and other timber producers are vital in the ongoing energy discussion. You certainly can’t invest in a biomass plant without a predictable supply of feedstock. Alternative feedstock such as paper and waste are not sufficiently available in the country.
EFT: Do you find that the country prioritises renewable energy as part of its energy mix?
Siyaya: I think there is sufficient political will based on my recent stakeholder engagements which included wide consultations with cabinet ministers and industry executives. The legislative environment is also well developed in my opinion but not mature yet simply because we haven’t implemented a single large-scale public-private partnership renewable project to test its practicality.
The Energy Master plan presents a roadmap on how the country must proceed in terms of procuring new power generation capacity up to 2034. Within the Energy Master Plan itself, a five-year Short-Term Generation Expansion Plan (SGEP) prioritising 40 MW solar, and 40 MW biomass power generation was developed three years ago and this is where I think we could have moved quicker as a country amid the impending expiry of our supply contract with Eskom.
It is encouraging to note however, that the government through ESERA has taken the lead in engaging the private sector (including potential funders) through Eswatini Business to investigate collaboration opportunities in the renewable energy space. This signals a willingness to indeed promote private-sector investment. As indicated, what we really need is agility and bold and incisive decisions.
EFT: Do you find there is policy consistency and clarity around the energy sector?
Siyaya: Yes, I believe so. Our energy policy environment is consistent with best practices but there is always room for improvement. For example, in the biomass sub-sector, perhaps there is a need for further regulation to protect investors from drastic price fluctuations which can render projects unbankable.
At the moment, we have a concentrated supply of wood chips which is the only viable option in the absence of other feedstock options which render biomass projects unbankable. I am also happy to see that in the first and second tranches of the ongoing solicited energy procurement programme, ESERA has stipulated local participation thresholds for equity, debt, construction, and Operations and Maintenance (O&M). This will ensure that emaSwati are active participants in the procurement of renewable energy projects.
EFT: How will you navigate the global energy transition, and balance the equation between environmental sustainability and long-term profitability and shareholder value?
Siyaya: Balancing the equation between environmental sustainability and long-term profitability is an ongoing exercise in the Illovo Sugar Group that is closely managed. As you may know, our parent company ABF Sugar is part of a larger group, ABF Foods that is listed on the London Stock Exchange.
All the Africa operations including Ubombo Sugar Limited are managed through Illovo Sugar Africa, an AB Sugar company in a centralised group structure. The entire group, therefore, has a well-defined ESG strategy with environmental commitments that are focused on reducing our carbon intensity across all six African operations.
At Ubombo, we have a clear understanding of our carbon footprint and have identified projects focused on waste management, the sustainable use of water, energy efficiency, optimisation, and substitution. In addition to the biomass co-generation project, we have implemented projects such as drip water irrigation in our agriculture operations to reduce water usage whilst optimising our irrigation efficiency. We have further identified projects with high potential GHG impact that are still to be implemented.