Mozambique: Power sector’s ‘new normal’

30 Jun 2017 | 5 minute read

Following management changes and an upturn in its financing, Electricidade de Moçambique (EDM) was “redefined” as a more commercial and efficient organisation in 2016, the state utility’s chairman and chief executive Mateus Magala told the Africa Energy Forum (AEF) on 7 June. EDM has added 350MW generation capacity in the last two years, according to board member Carlos Youm – and expects to add 950MW in the next five years, providing the government approves further reforms, including cost-reflective tariffs. With the utility on a firmer footing, it will take “two years to establish the new normal”, Magala said.

Mozambique could move from emergency power dependency – which is being tackled with a $227m emergency investment programme – to become a regional supply hub within five to ten years, with gas and renewables supplying a new generation of independent power projects (IPPs), Magala said. Expansion plans in the 2018-21 period are costed at around $2.4bn, after which some $5.1bn has been estimated for a five- to ten-year period in which Mozambique – with the help of gas export and increased regional electricity sales receipts – would confirm its long-term leadership status in the regional energy industry.

Gas-to-power will play an important role in a diversified fuel mix (AE 320/6). Export potential has been signalled by projects such as the 175MW Central Térmica de Ressano Garcia unit, built by Sasol (49%) and EDM (51%) on the border between South Africa and Mozambique. Magala said studies have been completed for the 400MW Temane combined-cycle gas turbine (CCGT) and associated transmission scheme, taking feedstock from Sasol Petroleum Mozambique’s offshore gas field. EDM now expects work on this to start by end-2018 and for the scheme to come online by 2022. Work is also under way to obtain financing to build a Temane-Maputo transmission line.

Also serving the capital, the 100MW Central Térmica de Maputo CCGT scheme received support from the Japan International Co-operation Agency and is expected online by 2018.

There is hydroelectric power potential around the country. Even that most elusive project, the Mphanda Nkuwa scheme, is to be relaunched under EDM’s management “in one or two months”, Magala said. Mphanda Nkuwa has been planned for 13 years, but various options to develop the scheme have failed – for financial and governance reasons. Magala said that, having taken over the scheme, EDM would “terminate existing arrangements” and then offer the project anew.

Meanwhile, refurbishment is adding to capacity. Work at the Mavuzi and Chicamba hydro plants was completed in April, adding 88MW to capacity and an extra 40 years of operation (AE 344/7).

EDM and associated private investors have been developing at least 930MW of new coal-fired generation capacity, including 300MW at Moatize and 300MW at the Ncondezi integrated thermal coal mine and power plant scheme (AE 320/6). However, there was no coal in EDM’s internal supply side plans through to 2027, Magala said. Coal-fired schemes in the pipeline are privately financed IPPs, developed off EDM’s balance sheet, and could be focused on export.

London AIM-listed Ncondezi Energy says it is targeting domestic consumption in Mozambique, though the project suffered a blow in May when Ncondezi suspended talks with partner Shanghai Electric Power, saying the Chinese company had not come up with funding for the project (AE 347/1). Ncondezi said on 23 June it had raised another $582,000 from existing lenders and senior management to fund a new partner search and provide working capital.

Renewable technologies new to Mozambique are emerging. Scatec Solar’s Roberto Berardo told the AEF in Copenhagen that his company’s 41MW Mocuba solar project had reached financial close, in a first for the country (AE 348/12). The Private Infrastructure Development Group’s Emerging Africa Infrastructure Fund has signed a participation agreement with the International Finance Corporation (IFC) to provide a $16.9m B-loan to private sector developer Central Solar de Mocuba (Cesom) and is providing a $7m viability gap funding grant. The $75m plant is due for completion in mid-2018 by Cesom’s owners Scatec Solar, Norfund and EDM.

Magala expected another solar PV IPP, at Metoro in Cabo Delgado Province’s Ancuabe District, to reach financial close this year. Financing has been committed to this 41MW unit (according to EDM; earlier reports put it at 30MW) by the French government through Agence Française de Développement and its Proparco arm. Developer is France’s Neoen.

Tough environment

These projects point to considerable potential. EDM turned over $385m in 2015 and $460m in 2016, but believes this can reach nearly $4bn by 2025. Increased exports, which earned $95m in 2015 and $198m in 2016, could rise very significantly if new gas and hydro capacity is used to supply more electricity to regional markets.

But for all the positivity, EDM and other parastatals have to operate in a difficult business environment. Johannesburg-based IFC principal investment officer Marcel Bruhwiler told the AEF that the move towards financial close for Cesom “could have been even quicker without the [country’s] debt and currency crises, which posed a big problem for a $75m project”. This included renegotiating the power purchase agreement, with added insurance coming from the ring-fencing of EDM export revenues to cover payments. The project “has a lot of buffers from sponsor groups”, Bruhwiler said – otherwise it would be impossible to raise debt with the 17-year tenor Cesom has achieved.

Scatec Solar’s Berardo was complimentary about EDM. “We found a very competent customer,” he said, noting that the solar project was first discussed with EDM only in June 2015. Other sources have pointed to improved performance under the utility’s new management (AE 329/6). Magala underlined changes, including the appointment of a renewable energy director, the publication of timely financial statements (with a closing of accounts on a monthly basis) and the introduction of a code of ethics. To strengthen its capacity, for the first time EDM is recruiting outside the company to provide greater competition for senior posts, with external selection of directors and managers.

The government in May finally approved the creation of a national sector regulator. By August, EDM expects to have completed its much-anticipated rural electrification strategy and should unveil its integrated master plan in October.

But Magala reiterated EDM’s hopes for deeper reforms, which would include, inevitably, further progress on achieving cost-reflective tariffs and a separation of EDM’s grid power and electrification businesses. The need to move the business onto a stronger commercial footing is central to EDM becoming a more stable partner for IPPs. Meanwhile, the utility has been lobbying government to split off its “social” operations, bringing access to the majority of the population via subsidised developments.

Youm – one of EDM’s most respected figures – has been drawing up plans and costing investments. However, he was clear that plans for the utility to add 950MW in the next five years “can’t be done under the current legislation… EDM is stressed and needs reforms” to be implemented. This is a strong argument industry professionals are using to persuade the government to accelerate moves towards tariff and other investment-friendly reforms.

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