---

---

Mozambique: Cahora Bassa, a Year After the Takeover

Paul Fauvet

28 November 2008

---

Songo — A year after the Mozambican state took control of the Cahora Bassa dam on the Zambezi, the dam is operating close to its maximum potential, the banks who financed the takeover are being paid on time, and Cahora Bassa is contributing substantially to the state budget.

"Everything is going as expected, under the terms of the final agreement", declared Energy Minister Salvador Namburete on Thursday, "We are satisfied and the banks are satisfied".

He was talking to reporters at the dam town of Songo, at ceremonies held to mark the first anniversary of Mozambique taking control of Cahora Bassa, which is the second largest dam in Africa (surpassed only by the Aswan dam in Egypt).

Up until last year, the dam operating company, Hidroelectrica de Cahora Bassa (HCB), was effectively run from Lisbon. The Portuguese state owned 82 per cent of the shares, and the Mozambican state just 18 per cent. Under the original plans drawn up at the time of Mozambican independence in 1975, shares in HCB were to be gradually transferred from Portugal to Mozambique as the debt incurred in building the dam was paid off. Three years after the debt was cleared, the dam was to come fully into Mozambican ownership.

But no such transfer ever happened. The South African apartheid regime, quite happy to collaborate with the Portuguese colonial government over Cahora Bassa, was determined that an independent Mozambique should draw no benefit from the dam. And so apartheid's proxy army in Mozambique, the Renamo rebels, received instructions to destroy the HCB transmission lines. In the early 1980s over 1,000 pylons were destroyed.

The lines could only be rebuilt once apartheid had fallen and the war in Mozambique was over. By then the debt had ballooned, and it was claimed that HCB owed the Portuguese treasury some 2.5 billion US dollars.

For years Mozambique negotiated with successive Portuguese governments. Under the final deal, signed on 27 November 2007, the Mozambican government purchased two thirds of the HCB shares from Portugal, for 700 million US dollars. A separate payment of 250 million dollars from HCB's own funds settled the debt to the Portuguese treasury (a write down of 90 per cent). The new HCB shareholding structure was that Mozambique held 85 per cent of the equity and Portugal 15 per cent.

For the first time there was a Mozambican chairperson of the HCB Board of Directors (a former transport minister, Paulo Muxanga), and Mozambique enjoyed a majority on the board (seven of the nine members were appointed by the Mozambican government).

Mozambique found the 700 million dollars for the share by contracting a loan from a consortium formed by the French bank CA Lyon and the Portuguese Investment Bank (BPI). The loan is being repaid out of HCB's sales of electricity.

According to Muchanga, so far three instalments have been paid. He told reporters that, in all repayments so far amounted to 720 million rands (72.6 million US dollars). HCB works with the South African currency, because its largest client is the South African electricity company, Eskom.

Muchanga was confident that the debt will be paid off ahead of schedule, but he declined to reveal details of the interest charged by the banking consortium. However, over a year ago the independent weekly "Savana" confidently stated that the rate is LIBOR (London Inter-Bank Offered Rate) plus two per cent, and this has never been denied. The repayment period has also not been made public but is thought to be ten years.

Under Portuguese control, HCB lived in a tax paradise and never paid a cent to the Mozambican state. That has all changed. "HCB is now under the same tax regime as any other Mozambican company", stressed Namburete

In particular, that means it must pay corporation tax on its profits (calculated at the end of the calendar year), and a concession fee (since HCB does not own the dam, but merely operates it). The concession fee is ten per cent of gross revenue, and for 2008 Namburete estimated that revenue would be between 270 and 300 million dollars.

Although the dam is only viable because its sells 1,300 megawatts of its 2,075 megawatt capacity to Eskom, for the Mozambican government it is the local sales that are key to HCB's role in the country's development. The amount of HCB power sold to the Mozambican electricity company, EDM, has risen from 300 to 400 megawatts, and it is this power which, little by little, is electrifying the Mozambican countryside.

"We electrified a further ten district capitals this year", said Namburete, "and other places within districts where the capital was already receiving HCB power. This year there are more than 100,000 new consumers of electricity".

But the coverage rate remains low. Namburete said that today rather more than 13 per cent of the Mozambican population have access to electricity in their homes. Although that figure may sound shocking, it means that the coverage rate has almost doubled in the past five years. Namburete said that in 2003 only seven per cent of the population had electricity.

After Eskom and EDM, HCB's most important customer is the Zimbabwean power utility, ZESA. ZESA can buy 200 megawatts - but, according to Namburete, in recent months the figure has fluctuated, sometimes dropping as low as 50 megawatts.

This is essentially due to Zimbabwe's financial crisis, and the determination of the Mozambican authorities not to allow the Zimbabwean debt to HCB to run out of control (as had happened when Portugal ran the dam). In early January, HCB cut off power supplies to ZESA for ten days for non-payment.

Since then, ZESA has been paying. Namburete said "the general regime for Zimbabwean payment does not allow them to run up huge debts as in the past".

Muxanga told reporters that HCB was now operating close to its maximum possible production of 2,075 megawatts. At any given time there was spare capacity of no more than 50 megawatts. That meant that if Malawi or Tanzania (both of whom have expressed an interest in acquiring Mozambican electricity) were to approach HCB, "we would have to say no".

For Muxanga, the solution is to build a second Cahora Bassa power station, on the north bank of the Zambezi. This would add a further 1,000 megawatts to the dam's output. Muxanga put the cost of a second power station at 800 million dollars, and believed it would not be difficult to find investors.

The government, however, has expressed more interest in building a new, 1,500 megawatt dam at Mepanda Nkua. 60 kilometres downstream from Cahora Bassa. It has been argued that there are technical reasons for building Mepanda Nkua before Cahora Bassa North - however, Muxanga dismisses such claims, arguing that the two projects are independent of each other.

Muxanga also insisted that, under Mozambican ownership, HCB is committed to flood control. Over the past two rainy seasons there have been major floods on the lower Zambezi, causing mass displacement of people and destruction of crops.

HCB hopes to play a significant role in avoiding any such disaster this rainy season, by holding as much water as possible from upstream (from Zambia and Zimbabwe) in the Cahora Bassa lake. To achieve this, it is releasing water from the lake now. Much more water than is needed simply to maintain the river can be seen pouring from the Cahora Bassa sluices. Muxanga said the company is thus creating storage capacity in the lake, so that, if there is another upstream deluge, the need to open the dam's floodgates will be reduced.

Be the first to Write a Comment!

---