Financial Mail - 07 November 1997


Eskom holds whip hand in tariff negotiations

Glitch in talks as 20-year-old agreement comes back to haunt Portuguese government

The Portuguese government, as owner of Hidro-electrica De Cahora Bassa (HCB), which controls Mozambique's Cahora Bassa hydropower plant, is in a difficult position in trying to negotiate a favourable tariff deal with Eskom.

Eskom is the only major buyer of Cahora Bassa power, and with 5000MW surplus generating capacity and contractual access to a further 450MW from Cahora Bassa, the SA utility can decide the terms on which to do business.

Under the existing contract between the parties, Eskom has offered to pay US$0,2c/kWh - but the Portuguese want substantially more. The tariff agreement was struck in 1974, with no clause allowing for inflation adjustment.

Eskom and HCB's current discussions relate to the tariff Eskom is prepared to pay for the 750MW of Cahora Bassa's capacity that should soon start flowing into SA's grid. About 200MW of the dam's total generating capacity will flow to Mozambique. Zimbabwe has contracted to buy 500MW till 2003, when this will also revert to Eskom - and SA.

HCB's asking price for the 20-year-old dam and hydropower station, with transmission lines to SA, is another issue. The Portuguese government is working towards meeting European Monetary Union entry requirements and has raised the possibility of selling Cahora Bassa.

Built in the Seventies for about US$500m and jointly owned by the Portuguese government, with 82% of the equity, and the Mozambican government, with 18%, Cahora Bassa is now on the market for $3bn. But Eskom is not interested in paying a tariff based on that price.

"Eskom is the world's cheapest power generator and is selling its power to the local market at about US2,5c/kWh on average. Anybody trying to sell us power at above this rate is knocking on the wrong door.

"Nor are we buying the argument that the owners of the Cahora Bassa project are entitled to recover interest at 8%/year since dam completion, together with $30m/year ‘upkeep costs,' leading to a $3bn price tag," says Eskom corporate energy adviser Bain McIntyre.

There seems no reason Eskom should pay $1500/kW for a 20-year-old, 2000MW power station when it has the choice of paying only $1000/kW for a brand new station at Mepanda Uncua on the Zambezi below Cahora Bassa, which, consultants say, could be up and running by 2001.

But at this stage "Eskom needs additional generating capacity like it needs a hole in the head," says McIntyre, adding that it projects surplus capacity will last until about 2006-2010.

It already has a potential choice between a number of far cheaper, competing power generation options in the subcontinent. "Apart from Mepanda Uncua, the Democratic Republic of Congo (DRC)'s Inga project could provide hydropower at even cheaper rates."

Though the talk is tough and Eskom appears to hold all the aces, work is continuing with recommissioning and linking up the 1432km, 533kV HVDC powerline from Cahora Bassa with the SA grid. "We are yet to settle the tariff issue, but the $125m line commissioning - paid for by the Portuguese government - should be completed within a few months," says McIntyre.

With or without Cahora Bassa, Eskom evidently has sufficient power "on tap" to meet the 450MW demands of the first phase of Alusaf's planned Mozal aluminium smelter at Maputo, due to be launched by early 1998. But with a second phase for Mozal (also 450MW) in the offing, and the Industrial Development Corp planning to build a linked iron and steel plant at Maputo needing an additional 850MW, Mepanda Uncua's projected 2000MW might well be absorbed by future industrial growth in Mozambique alone. "Maputo and Beira also need about 100MW each, and JCI's planned iron plant and harbour project at Beira could also get power from this project initially," says McIntyre.

The only cloud darkening the scene could be the equity and currency market upheavals in Asia, which have already affected the JSE, European bourses and the Dow Jones. Expectations of sharply reduced growth are also beginning to affect metal commodity markets - which could arguably put a number of regional projects on hold.

By: Arnold van Huyssteen

Financial Mail - 11 December 1997


'Will be viable only if SA pays more'

MAPUTO - The top executive of the Cahora Bassa Dam company in Mozambique said yesterday the project would be financially viable only if SA agreed to pay substantially more for the dam's power.

Manuel da Costa Bras, Portuguese chairman of the dam's operating company, Hidroelectrica de Cahora Bassa (HCB), was speaking in an interview with the Beira newspaper Diario de Mocambique, published yesterday.

He said the price agreements "were established at a completely different time with quite different characteristics from those of today".

The last price adjustment was in 1988, setting a price of 2c a Watt for the sale of Cahora Bassa energy to Eskom.

The price was purely theoretical since at the time no power was flowing southwards because of sabotage of the transmission lines by rebels in Mozambique.

The lines have been repaired and are undergoing final tests.

Costa Bras said his major problem was no longer technical, but financial.

He said he regarded the current price as "derisory" and warned that at such a price it would be impossible to overcome the huge burden of debt the company ran up during the 14 years it was almost totally paralysed.

The dam was built when Mozambique was a Portuguese colony and came on stream shortly after independence in 1975. The debt burden falls mainly on Portugal.

Discussions between Portugal, Mozambique and SA have so far failed to reach consensus over tariffs.

Costa Bras said the South Africans were refusing to budge and there was no sign the negotiations would resume in the near future. - Reuter.

HARARE - Imports of power from SA's Eskom were halved from Monday when Zimbabwe's Electricity Supply Authority (Zesa) commissioned its link with the Mozambican Cahora Bassa hydroelectric power station, a Zesa spokesman said yesterday.

The Z$850m Songo-Bindura-Dema interconnector became commercially operational on Monday, giving Zimbabwe long-awaited access to Cahora Bassa, and making it less dependent on the more expensive Eskom power. A 25-year delay was caused by the Mozambican independence war.

Imports from Zambia and Zaire became temporarily unnecessary while only 159MW was needed from the Insukamini-Matimba interconnector with Eskom, said the spokesman.

Imports from Zambia and Zaire would resume when necessary, said the Zesa spokesman, but more than half Zimbabwe's external electricity supplies would in future come via the 420kV link with Cahora Bassa, which has more than 2 000MW total capacity. Mozambique itself consumes less than 10% of the turbines' output.

The spokesman did not disclose the comparative costs of electricity from Eskom and from Cahora Bassa but said the Mozambican source should suffice for the country's expanding needs until rehabilitation of the Hwange thermal power station was complete.

A controversial Z$500m contract with Malaysia's YTL consortium led to the sacking of the entire Zesa board in September 1996 when they protested at "lack of transparency'' in the deal.

No start has yet been made by YTL which should upgrade Hwange by more than 660MW to 920MW and acquire a controlling interest in the plant currently valued at Z$6bn.

Meanwhile, Harare area manager for Zesa Stephen Pieron said the parastatal authority was owed Z$132m by customers in the capital alone. The Harare city council and the government had "reduced their debt considerably" but still owed more than Z$17m, he said.

Last year Zimbabwe's national parks were without electricity for months after Zesa cut them off for nonpayment of bills. Hospitals and government schools have also been disconnected. "We have really tightened the screws on debt collection," said Pieron.

13 July 1998 - Business Day

Cahora Bassa power to flow after 16 years

Robyn Chalmers

POWER will flow from Mozambique's Cahora Bassa dam to the southern African power grid for the first time in 16 years next month, under a new agreement between SA, Mozambique and Portugal.

This follows a lengthy dispute between the countries after SA's electricity utility, Eskom, refused to bow to pressure to pay substantially more for Cahora Bassa's power. Hydroelectrica de Cahora Bassa (HCB), the dam's operating company, hoped that increased tariffs for Eskom would help pay for the project's estimated $3,2bn debt.

Eskom said a large tariff hike on the 2c a kilowatt hour agreed to last year made little sense as SA could produce its own power more cheaply. It also had surplus capacity. While the new tariff structure was not outlined at the weekend, the parties indicated that a compromise had been reached. The agreement covers only the period from August 1 this year to December 31 1999.

"Due to the current instability of the financial markets, the agreement now reached should not prevail beyond 1999," said Eskom and HCB.

The deal was done by SA, Portuguese and Mozambican delegations represented at the permanent joint commission on Cahora Bassa, which met last week and still has to be endorsed by the three countries' governments. SA will chair the commission's next meeting in August.

A spokesman for the commission, whose tariff review subcommittee negotiated the tariff structure, said the new arrangement coincided with the activation of high voltage lines from Mozambique's Songo to SA's Apollo substation.

Eskom CE Allen Morgan said earlier that one of the main reasons for expanding the transmission grid into southern Africa was to exchange energy.

This ultimately would stimulate the development of hydro generation sites in Mozambique, Angola and the Democratic Republic of Congo as sources of renewable and inexpensive power.

Cahora Bassa has a capacity of 2 000MW - all of which Eskom can contractually buy. However, the contract between HCB and Eskom said Mozambican electricity supplier EDM could acquire 200MW and it had been agreed that Zimbabwe could get 500MW out of Eskom's allocation.

Eskom therefore had access to 1 300MW of which 400MW was considered unreliable, so the parastatal could realistically expect to get about 900MW uninterrupted power.

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