Newsletter - Power Station Update

31st July 2009

Kalahari Energy

News Update

Introduction

In July 2008, Karoo Sustainable Energy (KSE), a consortium consisting of Kalahari Energy and their Turkish partners called TUTEN, were awarded the tender for the 250MW mid-merit/peaking IPP project by the Botswana Power Corporation (BPC). Tuten is a power consultancy and services development company who have been at the forefront of the industrial cogeneration and IPP market in Turkey and who have implemented successful projects in Turkey, Pakistan, Bulgaria, Russia and now Southern Africa. Kalahari Energy is now a 50% shareholder in the project.

KSE Project Overview

The project is based on a 270MW simple cycle vertically integrated project consisting of coal bed methane (“CBM”) production as the ultimate fuel source. Power Generation will be at two separate sites, one located in Orapa (90MW) and consisting of 2 GE gas turbine generator packages and one located in Mmashoro (180MW) consisting of 4 GE gas turbine packages. The project is being implemented in phases to help bridge the electricity shortfall from Eskom while providing time to build pipelines and complete CBM production.

The first phase (PHASE 1) of the project will be split into two stages. PHASE 1-A is the commissioning of the 2 GE gas turbine generator packages at the Orapa site using diesel fuel as the fuel source. PHASE 1-B is developing and quantifying recoverable CBM resource to achieve supply security criteria to be established together with US Ex-Im, costs of CBM extraction and completion of a 110 km pipeline from the gas-site to the Orapa site. PHASE 2 is the commissioning of the 4 GE turbine gas generator packages at the Mmashoro site using CBM as the fuel source and building out the required CBM wells.

Financial Closure

KSE is now in the final stages of addressing the Financial Closure for the project and to this end, the US Ex-Im Bank was in Botswana (Week 29) in order to meet the various stakeholders and to perform their required project Due Diligence. The US Ex-Im Bank will be providing the debt finance required during the various phases of the IPP project. US Ex-Im is here to meet with the Ministry of Minerals, Energy and Water Resources, Botswana Power Corporation as well as Debswana who have enabled a significant part of Phase 1-A’s construction cost via a bridge loan facility and who are also the provider of the Liquid fuel for the initial stages. Botswana Power Corporation is finalizing the Power Purchase Agreement (PPA) which will be concluded imminently.

This project is one of the first Independent Power Production facilities in Sub Saharan Africa since before the 2^nd World War. Getting to this stage has not been easy given the complexity of the project. There are no recent African precedents. We are excited at the ongoing progress and grateful to all who have participated. It is a major event in Africa and we are especially delighted to see Botswana in the vanguard bringing new energy to Southern Africa.

We will keep you posted.

J D Best

Chairman

Kalahari Energy

Gaborone

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