26 May 2014

Mozambique: HCB Paying Off Its Debt in Advance

Maputo — The debt of 700 million US dollars incurred when the Mozambican state purchased a majority holding in Hidroelectrica de Cahora Bassa (HCB) is being paid off in advance, and the payment will probably conclude a full year ahead of schedule, according to the chairperson of the HCB board, Paulo Muxanga.

Up until 2007, the Portuguese state owned 82 per cent of the shares in HCB, and the Mozambican state only 18 per cent. Under the deal on transfer of ownership signed in 2007, Mozambique acquired most of the Portuguese shares. With the purchase, the Mozambican holding rose to 85 per cent and Portugal's declined to 15 per cent. Subsequently, the Mozambican holding rose to 92.5 per cent.

To finance the purchase, the Mozambican government borrowed 700 million dollars from a banking consortium formed by the French bank CA Lyon and the Portuguese Investment Bank (BPI). The money was to be repaid out of HCB's profits.

Speaking to reporters, Muxanga said the repayment period was ten years, but the agreement with the banks allows the debt to be liquidated in advance. So far, HCB has paid 139 million dollars in advance, and the company expects the entire debt to be paid by 2016, a year early. To date 59.6 per cent of the debt has been paid.

The interest rate charged on the loan is worked out as an average of the interest rates of the banks quoted on the Johannesburg stock exchange, plus a premium, which Muxanga did not specify.

When the dam was under Portuguese control, HCB paid no taxes. But today HCB has become a major taxpayer. Outlining the current fiscal arrangements, Max Tonela, of the HCB Board, said the company is not only subject to normal corporate taxes and fees, but must also pay 10 per cent of its gross revenue as the concession fee.

The concession fee is paid in South African rands, since that is the currency of HCB's main client, the South African electricity company Eskom. From 2008 to 2013, HCB paid 1.49 billion rands in concession fees (about 144 million US dollars, at current exchange rates).

HCB paid corporation tax for the first time in 2013 - the sum was 60.1 million meticais (about two million dollars). But this year it will pay 586 million meticais.

HCB has also been paying dividends to its shareholders.

Since 2011, it has paid an average dividend of 25 million dollars a year to the Mozambican state.

There are three main purchasers of HCB power - Eskom, the Zimbabwean electricity company ZESA, and Mozambique's own electricity company, EDM. There used to be serious problems with ZESA paying the bills from HCB, but Muxanga insisted that ZESA's debt has now been paid and the Zimbabwean company is now “a good client”.

That was after HCB threatened to cut it off. The line to Zimbabwe could carry 400 megawatts - but when it was built, in 1992, South Africa had spare power capacity, and so Eskom did not need to buy all the power from HCB to which it was theoretically entitled. That situation has now changed dramatically, and HCB is only selling 50 megawatts to ZESA. That can rise to 150 megawatts, when the power is available and if ZESA wants it.

The client with serious payment problems today is EDM.

Muxanga said this is because EDM has been unable to raise its prices - its tariffs have been frozen since 2007. EDM's own chairperson, Augusto de Sousa Fernando, has warned that the current tariffs are “unsustainable”.

Muxanga said that EDM is “making an effort to meet its responsibilities”. It has paid off all its bills from HCB for 2013, but that still leaves an accumulated debt from previous years. He said that HCB is discussing the problem with EDM and with the government.

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