The Business Year

Augusto de Sousa Fernando

MOZAMBIQUE - Energy & Mining

Grid Work

Chairman of the Board of Directors, Electricidade de Moçambique (EDM)

Bio

Augusto de Sousa Fernando has degrees in Electrical Engineering, Electrical Systems, and Electricity, and has held positions of seniority at various organizations. Previous positions include Team Leader of the Working Group Telecommunications at SAPP and Vice-President of the Mozambique Engineers’ Association.

TBY talks to Augusto de Sousa Fernando, Chairman of the Board of Directors at Electricidade de Mocambique (EDM), on the electricity supply in the country.

Nearly 100% of Mozambique’s electricity is provided by hydropower from Cahora Bassa. Energy exports made up 10.8% of the country’s total and were valued at $299.5 million in 2011, an increase of 8.3% on 2010. What impact will Mozambique’s growing energy demands have on its current export arrangements?

Mozambique is a country with huge potential in generation, and we will fund our projects for domestic supply and also to export out of the region. We have had many meetings and people that want to sign agreements with Mozambique. The experience we had with Cahora Bassa was a long-term contract with the South African energy company Eskom until 2029. We need to make sure that as the country grows, we keep up. In five years’ time, domestic consumption will grow so we will have to decrease our exports. This is something we will have to negotiate with our neighbors.

Will Mozambique’s power supply continue to rely solely on hydro in the future?

Today, we are almost 100% hydropower from Cahora Bassa, but there is a small power station using natural gas. We are working to diversify this because it is always good to diversify power sources. I am pushing for this and it is good for the system. From Cahora Bassa to Nacala, it is almost 1,500 kilometers. For that distance, we need something to support and improve the supply. We need to increase the development of electricity. Today for Cahora Bassa, the line from Cahora Bassa to Nampula can easily supply 800 MW for the first 200 kilometers, but that decreases as you go further, and by the end you cannot put in more than 150 MW, even with more lines. The only way to develop that is to build more pipelines so gas can play a special role. Coal is another option. There are two scenarios, but there are difficulties in transportation.

How important are public-private partnerships (PPPs) to boosting the supply gradient?

At Electricidade de Moçambique (EDM), we are not in a position to construct every project. The only way to do that is to have a partnership that will help to establish this. If I want to build a power plant, I would rather go for a PPP with a utility company because once it joins, it would remain there for the next 20-30 years, which is good. If I bring a company in to be part of the business that then leaves in 5-10 years, it may make its revenue in a short time but it has an impact on the tariff. We favor PPPs with utilities that last longer. It creates revenue that lasts for many years. Taking concessions from public companies like EDM leads to possibilities and is also good to do.

To what extent is EDM utilizing foreign loans to build power plants?

The way that the country is growing, most projects are funded by industrial development agencies, and are not commercial. Today, we know that it is not easy to get this kind of funding for projects. We are not going to be able to repay high-interest loans though the tariff because the tariff will depreciate with new clients. We are going to continue to employ cheaper financing, although we know it will get harder. Most projects require lending so we need to move to access project finance. It is also good to prevent more expensive projects. We also need some ways to export energy, but we need to make sure the tariff for export is high enough to compensate.

What targets do you have for distribution in the medium term?

We have managed to connect all of the provinces on the grid and the challenge we face now is that the market is growing and we need to reinforce the lines. For instance, there is only one line to Nacala. We desperately need to do something in the next three or four years. The second line is ongoing and will cost about $450 million to build.

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