IPSA Group PLC (AIM: IPSA), the developer, owner and operator of power generation capacity in southern Africa, today announces that, as part of its further expansion plans, its Newcastle Cogeneration subsidiary ("NewCogen") has entered into a contract to acquire two high efficiency Jenbacher 616 gas engines of 2 MW capacity each which, allowing for de-rating due to site conditions in Newcastle, KZN, will provide an additional 3.8 MW of capacity for selling power under NewCogen's existing MTPPP power contract with Eskom.
The gas engines are being acquired from Independent Power Corporation PLC, a subsidiary of Rurelec PLC, for a total purchase price of £1.2 million. The consideration will be satisfied as to the sum of £1 million by an offset of approximately US$1.6 million against the debt of US $ 6.5 million still owed by Rurelec to the Company arising from the conditional agreement to dispose of the Company's two Siemens Westinghouse 701 DU gas turbines announced on 10 June 2103. The balance of £0.2 million will be paid in cash when the engines enter into commercial operations at the Company's site in Newcastle, which is expected to be in March 2014.
The purchase of the engines constitutes a related party transaction under Rule 13 of the AIM Rules for Companies because (i) Sterling Trust is a Substantial Shareholder (for the purposes of the AIM Rules) in both Rurelec PLC and IPSA; and (ii) Peter Earl and Elizabeth Shaw are each directors of both Rurelec PLC and IPSA.
The independent directors of IPSA (being Richard Linnell and Neil Bryson) having consulted with the Company's nominated advisor, W.H. Ireland, consider that the terms of the transaction are fair and reasonable insofar as IPSA's shareholders are concerned. The Company has obtained an independent valuation of the two Jenbacher engines.
IPSA further announces that the 1.3 MW Deutz TBG 620k gas engine purchased in August 2013 has completed testing and is now being shipped to South Africa. The engine is expected to be installed and commissioned before year end.
With the installation of these three gas engines, the Newcastle plant will generate at the full 14.3 MW capacity contracted under the PPA with ESKOM. This is significantly higher than the average 10 MW which is being achieved at the present time.
Commenting on the acquisition, CEO, Phil Metcalf said: "The new capacity, which will operate at a significantly higher efficiency than that of the current plant, will enable IPSA to maximise the commercial potential of its existing MTPPP contract with Eskom. It will also allow us to supply greater capacity under whatever new PPA arrangements are put in place when the current MTPPP programme comes to an end in 2015 and the Department of Energy's replacement PPA programme comes into effect. With little additional operating costs required to support these new gas engines, we are expecting a marked improvement in margins at the Newcastle plant."