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RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHTO #1051/01 3151534
ZNR UUUUU ZZH
R 101534Z NOV 08
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 9524
INFO RUEHZO/AFRICAN UNION COLLECTIVE
RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHBJ/AMEMBASSY BEIJING 0233
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RUEHBY/AMEMBASSY CANBERRA 0132
RUEHLI/AMEMBASSY LISBON 1294
RUEHLO/AMEMBASSY LONDON 0275
RUEHMO/AMEMBASSY MOSCOW 0063
RUEHOT/AMEMBASSY OTTAWA 0455
RUEHFR/AMEMBASSY PARIS 0159
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UNCLAS SECTION 01 OF 04 MAPUTO 001051
SENSITIVE
SIPDIS
STATE PLEASE PASS USAID
STATE PLEASE PASS USGS
STATE PLEASE PASS DOE FOR SPEARL AND PERSON
DEPT FOR AF/S, AF/EPS, AND EEB/ESC AND CBA
E.O. 12958: N/A
TAGS: ENRG EPET EMIN EINV ETRD SENV MZ SF
SUBJECT: MOZAMBIQUE EYES MEGA-PROJECTS IN ENERGY AND MINING
REF: A. MAPUTO 1018
B. MAPUTO 972
1. (U) This cable is part of a series in an innovative
collaboration in energy/resource reporting and commercial
advocacy between Embassies Maputo and Pretoria. Embassy
Pretoria Minerals/Energy Officer and Maputo
Political/Economic officer visited energy/minerals projects
in northern Tete Province and met relevant government and
private officials in Maputo October 13-17, 2008.
2. (SBU) Summary: Mozambique is seeking to develop an
ambitious list of mega-projects that would expand its energy
exporter status and develop its relatively untapped minerals
potential. Mozambique has remarkable hydroelectric potential
symbolized by the formidable 2075 MW Cahora Bassa dam in the
north, which exports to South Africa, Zimbabwe, and Botswana
(Ref A). The country seeks to expand coal and gas potential
for both export and power generation. The Ministry of Energy
has hired Norwegian firm Norconsult to do a far-reaching
feasibility study of Mozambique's power generation options,
preliminary findings of which were presented on October 24.
Realizing significant electricity generation and transmission
projects will require an extraordinary level of cooperation
between South Africa, its state power utility Eskom,
different institutions within Mozambique, and potential
financiers. There is a buzz of new investment surrounding a
variety of oil/gas (septel) and mining projects, but not all
of these will be developed over the near term. The Embassy
team visited hydroelectric and coal projects in Tete Province
October 13-14. End Summary.
-----------------------------------------
Zambezi Basin and Hydroelectric Potential
-----------------------------------------
3. (SBU) Based on the assumption that both the domestic and
regional market for electricity will continue to grow, the
Ministry of Energy hired Norconsult, a Norwegian consulting
firm, to complete a Generation Master Plan for Mozambique to
identify least-cost generation solutions earlier this year.
Domestically, Mozambique has seen a 250 percent increase in
the number of electrified houses since 2002, and expects to
see continued growth in commercial electricity consumption,
which has increased at a rate of 8 percent since 2004.
Norconsult contacts told Poloff that they estimate commercial
demand for electricity will increase by 200 percent by 2020
(not including the Mozal aluminum smelter or its planned
expansion projects). Regionally, projected economic growth
for the SADC region means that demand will continue to
increase, and that growth will likely be based on both the
future price and availability of electricity in the region.
4. (SBU) Mozambique has long claimed to have 14,000 MW of
hydroelectric potential, mostly on the Zambezi River,
including the existing 2,075 MW Cahora Bassa dam and power
generation facility. A senior Electricity of Mozambique
(EDM) team briefed Emboffs on the state power utility's
vision for new power generation and transmission to feed both
domestic and regional growth. The EDM team touted 12,000 MW
of available hydroelectric potential. First, the existing
Cahora Bassa hydroelectric (HCB) project could be expanded by
850 to 1245 MW with new facilities on the north bank, using
the existing dam. Parastatals EDM and HCB would sponsor this
potential $800 million-plus investment. The most advance
greenfield hydroelectric project is Mphanda Nkuwa, 60
kilometers downstream from Cahora Bassa on the Zambezi and
targeting 1500 to 2000 MW of power generation capacity at an
investment of $2.5 billion. The project developers EDM,
Brazilian group Camaro Correia, and Mozambican company
Energia Capital have completed an early feasibility study.
5. (SBU) Based on their feasibility study of 16 viable
hydro-electric projects in Mozambique, Norconsult's interim
MAPUTO 00001051 002 OF 004
findings conclude that developing the North Bank project at
Cahora Bassa (HCB) represents the least-cost option for
increasing generation in terms of hydrology, geology,
environmental impact, construction costs, and financing
risks. Mphanda Nkuwa represents a second higher-cost option
in terms of construction and transmission costs. The EDM
team separately emphasized the importance of 12-15
small-medium sized (25-200 MW) hydroelectric projects on
Zambezi tributaries. Norconsult will look further into the
viability of these projects, which will likely have higher
associated transmission costs. These projects would be more
conducive to being established to service domestic power
demand and economic growth. The EDM team hoped that the USG
could support development of these smaller scale projects,
noting that they had previously made a detailed presentation
to USTDA.
--------------------------------
Moatize Coal for Export or Power
--------------------------------
6. (SBU) Brazilian mining company Vale's (formerly CVRD)
management team presented its vision to Emboffs on October 13
for coal development at Moatize in the northern Tete
Province. Vale has commenced its three-year development of
its 25-year, $1.6 billion investment to exploit 1.8 to 2.4
billion tons of coal resources. The Vale officials stated
that the project would employ approximately 4750 Mozambicans,
and would produce both high-quality low ash coking coal for
export and lower-quality thermal coal for power generation.
Vale is currently developing its drilling program and intends
to break ground in 2010 for "box-cut" mining of its coal
seams, targeting first export in 2011. There will be a three
kilometer conveyor belt to the crushing and separation
processing facility. Egress of the 8.5 million tons of
export coal remains an issue. The favored plan includes
using the existing railway spur covering the 600 kilometers
to the port at Beira, but that port requires frequent
dredging and may possibly include using smaller vessels to
transfer loads to larger vessels offshore. In addition, Vale
has not completed negotiations with the Indian company Rites
and Ircon, who won the concession to rehabilitate and operate
the line. The "plan B" would be to build a short connector
across Malawi into the rail corridor to the deepwater port at
Nacala.
7. (SBU) The companion to the Moatize coal project would be
the phased 600-2400 MW coal-fired power generation plant with
potential investment of $2.5 billion. U.S. firm AES is
identified as the lead developer with Vale, Eskom, EDM, and
Mozambican investment group Whatana. (Note: Mission has had
limited recent contact with AES to confirm its level of
commitment to the project. AES failed to complete a contract
after being designated preferred bidder for two 500 MW
gas-fired earlier this year in South Africa. End Note.)
Vale and GOM officials said that AES had won the GOM tender
and had signed a framework memorandum of understanding for
the project.
8. (SBU) Australia's Riversdale Mining is evaluating
development of a competing coal project at nearby Benga.
Riversdale has submitted a mining study in support of its
mining license application to the GOM citing 20 million tons
a year of prime hard coking coal and based on a 1.94 billion
ton coal resource. Indian steel giant Tata is the 35 percent
partner for the mining project. Riversdale has also proposed
a phased 450-2000 MW power plant with an initial investment
of $900 million. Riversdale is still looking for a strategic
partner, but it has involved Elgas, EDM, and Eskom in
feasibility discussions. U.S. firm Peabody has confirmed to
Emboffs that they are in ongoing negotiations with Vale
related to extraction as well as coal-fired generation
projects in Tete. Irish mining company Kenmare Resources and
Indian companies are also investigating coal opportunities in
MAPUTO 00001051 003 OF 004
Tete Province. Mozambique's Center for Promotion of
Investment Deputy Director Mussa Usman told Emboffs that all
mining licenses had been taken in Tete, so companies were
starting to look in other provinces, such as Nyassa. He
noted that egress and power remained near-term challenges.
-----------------------
Transmission Challenges
-----------------------
9. (SBU) EDM and other GRM officials support realization of
a "back-bone" mega-transmission project to provide coherence,
independence, and capacity to its domestic grid, now
dependent on the Cahora Bassa/Eskom transmission to power the
Mozal Aluminum Smelter, Maputo, and southern Mozambique. The
Norconsult feasibility team is comparing scenarios for a
400kV AC grid, a 765kV (and possibly HVDC), or a three 400 kV
line transmission system from the Zambezi valley south to the
Maputo area to supply domestic demand and free southern
Mozambique from a reliance on South African transmission
lines. EDM officials called for a phased approach to
feasibility, permitting, financing, and development of this
important transmission project, which could ultimately cost
upwards of $2.5 billion. Officials noted that many of the
upcoming mega-projects cannot reach full phased development
without parallel development of the new backbone transmission
line, indicating that the current transmission grid could
only support one additional major power project. For
example, development of the Mphanda Nkuwa hydroelectric
project would be entirely dependent on development of the
backbone to handle expanded generation because the lumpy
nature of hydroelectric infrastructure precludes plants from
phased-construction. Moreover, gaining power purchase
commitments from Eskom would ultimately be necessary to
secure private financing for new power mega-projects. CPI's
Usman said that EDM was promoting generation by offering a
minority stake to private investors, but EDM would have to be
the prime developer and share-holder for the backbone
transmission project.
--------------------------------------
Mozambique Can Help Solve Eskom's Woes
--------------------------------------
10. (SBU) EDM was bullish on Mozambique's potential to help
meet Eskom's and the region's electricity shortfalls as a
"least cost" option. The EDM management told Emboffs that
there was a confluence of four important events:
- - Cahora Bassa had completed its restructure, transferring
ownership to the GOM, allowing for unlocking the huge
potential of the Zambezi;
- - Mozambique had attained crucial political and economic
stability, after its years of civil war;
- - The regional power crisis represented an important
opportunity for Mozambique;
- - President Armando Guebuza recognized the importance of
energy and might serve as an "energy champion" to help
nurture these challenging mega-projects.
-------------------
Other Mega-Projects
-------------------
11. (SBU) GAS: South African Sasol is aiming to increase
Mozambique's exports of gas to South Africa to feed its own
mega gas-to-liquids projects in South Africa. Sasol is
planning to invest $225 million to increase exploration and
output in the Pande and Temane gas fields, which currently
already feed a 865 kilometer pipeline to Secunda in South
Africa. Sasol is also engaged in on- and off-shore
exploration elsewhere in Mozambique. Ministry of Energy
National Director Antonio Saide told Emboffs that the GOM is
committed to increasing domestic consumption of natural gas
for industry and transport. GOM officials also mooted the
MAPUTO 00001051 004 OF 004
potential for a MW gas-fired power plant at Muamba, asserting
that there were adequate reserves.
12. (SBU) HEAVY SANDS: The GOM says investment in mining is
booming. Irish Kenmare Resources has started operations of
the $450 million Moma titanium mine and smelter south of
Nacala. BHP Billiton is developing the $500 million Corridor
Sands Titanium Project in Gaza Province in the south. Both
these projects have faced challenges and delays in assuring
adequate power supply. These projects will produce
significant titanium ores: ilmenite, zircon, and rutile.
13. (SBU) REFINERIES and more: Interest in the oil and gas
sector has made the U.S. the largest foreign investor in
Mozambique. U.S. firm Ayr Logistics is the major investor in
the development of a $5 billion 300,000 barrel per day
refinery near the deepwater port of Nacala in the north.
South African Group Five is slotted to do the construction.
U.S. firm Anadarko has made a significant commitment to
hydrocarbon exploration in the north (septel). The Mozal
Aluminum Smelter is seeking to expand, but this would be
dependent on adequate power. South Africa has discovered
that investment in aluminum smelters no longer makes sense
without excess, cheap electricity. Mozambique is hoping to
insure that power-intensive investments are still attractive.
Mozambique is bullish on ports and associated transport
corridors to the interior, working to expand the Maputo,
Beira, and Nacala corridors. There are particular hopes for
development of the Nacala deepwater port.
------------------------------------------
COMMENT: POWER GENERATION AND TRANSMISSION
A NECESSARY STEP
------------------------------------------
14. (SBU) The ambitious list of projects identified by the
interlocutors will not all come to pass in the near-medium
term or perhaps ever, but major expansion of generation and
transmission capacity must occur over the next decade to feed
domestic growth first, but also regional growth. The GRM is
clearly already focused on finding least-cost solutions as
made evident by Norconsult's Generation Master Plan.
Mozambique will face parallel challenges in putting the
disparate pieces together, for example assuring financing and
purchase agreements for electricity generation and
transmission projects simultaneously; which will likely
require strong support from international partners and
donors. Given international credit market contraction and
Eskom's dicey internal financing, Mozambique's attractive
power projects could potentially delay or crowd-out Eskom's
aggressive nuclear and coal-fired power build plans if the
backbone transmission project is realized. If it makes
progress on these ambitious objectives, Mozambique will reap
the benefits of commercial and strategic leverage in the
region as an energy exporter to power-hungry SADC neighbors,
while at the same time ensuring its own economic growth
thanks to continued availability of inexpensive electricity
and relative energy independence. Mozambique will not only
make progress on rural electrification and biofuels
(septels), but also provide for expansion in the
manufacturing sector. The USG should look at ways to use
USTDA, USAID and other tools to contribute to Mozambique's
generation and transmission plans. End Comment.
Chapman