IPSA faces administration risk as it struggles to pay creditors

Johannesburg – Listed independent power producer IPSA Group yesterday flagged the possibility of going into administration as it continues to trade at the mercy of creditors, including turbine services group Ethos Energy Italia.

IPSA, which is listed on the AltX and London’s Alternative Investment Market (AIM), has been battling for survival and last month the group sold the operations of Newcastle Cogeneration, which is South Africa’s first gas-fired independent power project.

IPSA chairman Richard Linnell said the interim results released yesterday would be the last to include Newcastle Cogeneration, which was its sole operating asset and which it sold for £1.86 million (R40.78m) to Sloane – a private company owned and operated by Peter Earl, a former director who left IPSA in July.

The sale has now rendered the company a cash shell, thus requiring it to make an acquisition within six months to constitute a reverse takeover under AIM rules.

“The company is now focusing its attention on the sale of the balance of plant equipment held for sale in Italy in order to seek to settle outstanding creditors and in finding a suitable reverse merger partner to maintain the quotations in London and Johannesburg,” Linnell said.

In the six months to the end of September, IPSA’s revenue declined marginally from £1.9m in the corresponding period in 2014 to £1.8m.

Its loss after tax for the period narrowed from a previous £750 000 to £260 000. Loss per ordinary share also improved from 0.69 pence per share to 0.23 pence per share.

Linnell said the company was committed to settling its debt with Ethos, which was expected to be met in part through receipt of the remaining funds due from Rurelec, a power generation company that bought IPSA’s gas turbines in 2009.

“While these negotiations are ongoing, there can be no guarantee of success. The company remains dependent not only on receipts due from Rurelec and the sale of the balance of plant but also on the continuing forbearance of Ethos and its other creditors to continue trading and as a consequence there remains a risk that the company may be put into administration,” Linnell said.

When it became clear that South Africa was heading for an electricity supply shortage, the company sought to supply power to Eskom but the power utility did not commit to a long-term power contract, much to IPSA’s frustration.

Johan Muller, the programme manager for energy and environment at Frost & Sullivan, said yesterday: “Sometimes there is a high return associated with ‘first mover advantage’, but in this instance the benefit of acting first was not realised by IPSA.

“IPSA is not entirely to blame, and a couple of market factors are at play, namely, the initial location choice was not viable, the inability to secure a long-term power purchase agreement with Eskom, and also the lack of the Gas Utilisation Master Plan has caused the gas economy to struggle to get out of the starting blocks.”

Ironically, the government has announced plans to purchase gas power from independent power producers (IPPs) under an IPP procurement programme.

But Muller said it was too little too late for IPSA. “The IPSA plant was designed to provide both electricity and steam. Currently it is not producing steam – and the new owners have plans to transform the plant’s capacity, increase the output, and also to provide steam to the industrial off-takers,” he said.

“It seems that while it might be too late for IPSA as a company, the plant will continue to operate under new management and a revised business model – and hopefully gain momentum when the South African government and Eskom integrate their planning with private sector players willing to enter into risk-laden agreements.”