Energy & Mining

Stronger Currents

The Electricity Deficit

With the majority of the population living off the grid, the government is looking to foreign investment, new regulations, and low-cost tariff strategies to develop energy sustainability.

Mozambique, Africa’s second largest investment market, is rich with untapped coal, natural gas, hydropower, and bio-fuels. The growing international attention has been tempered by strategic and regulatory inefficiencies in the electrical power infrastructure. In February 2015, The United States Agency for International Development (USAID) attributed Mozambique’s acute energy shortage to administration, transmission, and distribution losses, which totaled 32% of gross power generated.

According to current World Bank estimates, 15% of Mozambique’s population has access to the electricity grid. Cahora Bassa Hydroelectric facility accounts for 90% of the country’s 2.392 GW capacity. According to “Post-Stabilization Economics in Sub-Saharan Africa: Lessons from Mozambique,” the key to the sustainable development is to distribute the energy with foreign investments, new regulations, and low-cost tariff strategies of the Electricidade de Mozambique (EDM).

January’s torrential rainfall and flooding ravaged the country leading to 170 deaths, 80,000 homeless, damaging roads and bridges, and leaving the north without power. Mozambique’s economic activities were stopped during four weeks of blackouts, which paralyzed the energy corridor of South African Development Community (SADC), the South African Power Pool (SARP) and Zizabona Transmission project.

Based on the recent natural disaster, “the government’s debt levels will continue rising,” states Moody’s Investor Services. “General government debt has risen by more than a third and will now likely exceed our forecast of 58.3% of GDP this year as a result of the higher budget deficit and lower GDP growth figure. At this level, Mozambique’s general government indebtedness is high relative to many regional and rating peers.”

According to Maccauhub, Tokyo Electric Power Services Co. (TEPSCO) and Oriental Consultants Japan Co. (Oriconsul) have provided a loan of 17.26 million yen with a 10-year grace period and a maturity of 40 years to Electricidade de Mozambique. The loan will fund a natural gas power plant with 100MW capacity in Maputo, the capital of Mozambique, by 2018. The Chairman of EDM, Gildo Sibumbe, expects the thermal power plant to “strengthen the supply of electricity so that more people have access to it.”

Ncondezi Energy, a London-traded company, is moving forward with the development of a Thermal Power plant for the Electricidade de Mozambique in the Tete Province. Construction expenses are expected to reach $500 to $600 million. According to the Ncondezi press release, “This large scale project will be developed in phases, starting with a 300MW integrated mine and power plant (“300MW Project”), expanding ultimately to an 1800MW power plant.”

New Delhi-based International Coal Ventures Pvt Ltd plans to construct another power plant in the Tete Province. ICVL recently purchased the coal mining assets of Rio Tinto Group for $50 million in 2014. According to Ajay Mathur, chief executive officer of ICVL, they will use “some of the thermal coal and waste product to generate power locally.” The Rio Tinto Group had purchased the coal assets for $4 billion back in 2011.

Business Monitor International’s Mozambique Power Report estimates power generation to increase 6.5% in 1Q2015 to 25.3TWh, growing to 35.8TWh in 2023. International donors are expected to elevate energy consumption levels to 31.2TWh by 2023.

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