Power play in Mozambique - CNBC Africa

Power play in Mozambique


by Chris Bishop 0

As I write this column, generators are humming a few hundred kilometres away which should be music to Mozambican ears. PHOTO: Getty Images

The generator in question is one of 18 at a new power plant in Ressano Garcia near the Mozambique-South Africa border. The technicians fired up one of the generators to impress President Armando Guebuza during his brief visit. The plant will only start churning out electricity in October.

The 175 megawatt plant is good news for Mozambique and another step forward in the country’s dash towards becoming an energy rich nation. With the help of energy company Sasol, from South Africa, it will be another way that money is being made from Mozambique’s gas. Sasol is already running a profitable pipeline connection of the gas fields, off the coast of Mozambique, to the energy hungry industry of South Africa.

On the face of it, the future is bright. According to the analysts, Mozambique has a very real chance of becoming one of the world’s top ten energy players with the fourth largest energy reserves after Russia, Qatar and Iran. One of the biggest energy finds of 2013, according to FORBES magazine, six kilometres down in the Aghula field 80 kilometres off the coast. The Italian energy company that found it, ENI, says it has about five to seven trillion cubic feet of gas which is worth the equivalent of 700 million barrels of oil. That’s about two years’ worth of Nigeria’s oil production.

I began reporting from Mozambique 20 years ago in the days when it suffered under grinding post-war poverty. Then, it was a land full of soldiers, land mines, shattered buildings and little else. Anyone who has a heart would want to see its poor long suffering people rise on a tide of energy wealth.

But it is likely to prove a difficult bargain. Mozambique is considering a new energy bill that is unlikely to be finalised before the elections on 15 October. Under the bill, crude oil will be subject to 10 per cent production tax and for natural gas, six per cent. It stipulates that five per cent to 20 per cent of the capital of foreign companies be placed on the Mozambique Stock Exchange, within five years, for sale to locals.

Furthermore, investors must inform the state of discoveries within 24 hours and remit the proceeds of exports back to Mozambique within 90 days.

All the above could secure revenue to build the Mozambique economy into a powerhouse, or, at the very least ensure its people have roads, jobs, internet and electricity. Again, all of the above could cause foreign investors to think twice before sinking their cash into the energy of Mozambique.

It is a very thin line to walk, but Mozambique must walk it. For the energy boom to become more than a pipeline on a palm fringed white-sand beach, billions must pour in from the northern hemisphere. That is the cold reality.

How much? Put it this way, foreign investors have poured in more than 1 billion US dollars in Mozambique in return for very little gas. It is going to be a long and expensive walk to prosperity.