AES Corporation, the US global energy group, announced today that its subsidiary, AES South Africa Holdings together with its South African empowerment partner, Global African Power (GAP), Limited, have entered into agreements to purchase the 600 MW (Gross) coal-fired Kelvin Power Station in the Republic of South Africa.

The plant is located just outside the metropolitan area of Johannesburg. AES will own 95 per cent of the joint venture that is buying the plant, with GAP having an option to increase its ownership to 13 per cent over five years. AES Kelvin Power will sell it’s entire output to City Power Johannesburg, (Proprietary) Limited, the distribution company for the City of Johannesburg under the terms of a 20 year power purchase agreement.

The purchase price for the Kelvin Station is approximately $23m, and is being acquired from the City of Johannesburg Metropolitan Municipality (“CJMM”), which will retain a 50 per cent interest in AES Kelvin with shareholder rights limited to protecting the employment of workers for three years. AES Kelvin will receive 100 per cent of distributions and have operating control of the plant.

In addition to the purchase price, AES has committed to invest about $15m in capital to refurbish the plant, including a new bag filtration system making it one of the cleanest plants in South Africa. It expects to spend another $11m for worker transition costs over the first three years of operation. AES expects to finance at least 50 per cent of this acquisition with debt from South African banks in local currency.

John Stanley-Miller, the AES Project Director, commented, “This is a good business for AES as we have a 20 year power purchase agreement with a fixed capacity payment, hedged against exchange rate risk and a pass-through on the energy cost. The structure of the contract means that AES does not take either heat rate or fuel price risk”.

Dennis W. Bakke, President and CEO of AES, stated, “Kelvin will be the first AES business in South Africa, which has a well developed, 38 000 MW electrical system. We are pleased to have this opportunity to make a difference in South Africa and improve the operations of a power facility based on our experience around the world with approximately 40 other AES operated coal-fired plants.”