Business

Baic’s Coega plant gets R428m cash injection

2019-07-09 11:25

The embattled and behind-schedule Beijing Automotive Industry Corporation (Baic) SA plant at the Coega special economic zone in Nelson Mandela Bay has received a cash injection of R428 million to cover higher construction costs and delays in the project.

Coega Development Corporation (CDC) spokesperson Ayanda Vilakazi confirmed the cash boost.

This means that the total project cost will rise to almost R11.5 billion. The cash injection is part of the 93 economic and trade cooperation agreements signed recently between China and South Africa.

The Baic SA project at Coega, just outside Port Elizabeth, is six-months behind schedule due to numerous work stoppages by contractors protesting non-payment for work done.

The project is a joint venture between South Africa’s Industrial Development Corporation (IDC) and Baic. Baic has a 65% share and the IDC the remaining 35%.

This means that the IDC will contribute R150 million to the extra cost.

IDC communications manager Mandla Mpangase said the overall budget for the project has provision for contingencies to cover unforeseen cost escalations.

Asked why there was a need for the additional equity injection of R428 million, Mpangase said: “This is because of delays encountered during construction. There has been inflationary price increases for certain construction materials. This has resulted in the need to tap into some of the contingency budget.”

Baic
Coega

Mpangase said, without giving an exact figure, “over two-thirds of the budget has been spent”. He said the IDC had contributed its fair share of the agreed amounts.

As a consequence of this, both shareholders – IDC and Baic – have now taken a more prudent approach by changing the original project financing model, he said.

“This means increasing shareholder equity contribution while reducing outside debt funding portion. The project budget will now be funded largely by shareholders equity and less debt.

“With reduced debt funding, there would be less pressure and obligation to service external debt. This will allow the management to focus more on ramping up production thereby creating more local jobs,” said Mpangase.

Asked whether car production would commence next month as per the revised schedule, he said a pilot line had been launched and the first unit had already gone through the South African quality standard verification and certification process.

“This process was successfully completed and certificates obtained in May. We are using this pilot line to upskill our technical staff so that they are ready for full commercial production once the plant shop, currently under construction, is completed,” Mpangase said.

Vilakazi said China remains South Africa’s strongest and strategic trading partner.

“Over the past 10 years, China has been South Africa’s largest trading partner and South Africa also remains China's largest trading partner in Africa. In 2018, two-way trade between the two countries totalled about R627 million,” said Vilakazi.

He said the Forum On China-Africa Cooperation was designed to reduce costs and increase the volume of trade between the continent and China, adding that it will stimulate infrastructure development and support Africa in terms of regional and continental integration.

“Foreign direct investment from China to South Africa reached R360 billion in accumulative terms, creating about 400 000 jobs. South Africa’s special economic zones along the Indian Ocean coast are prime targets for China’s FDI [foreign direct investment],” said Vilakazi.

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November 10 2019