Cahora Bassa dam is the most valuable economic asset for Mozambique in 2006

9 January 2006

Maputo, Mozambique, 9 Jan – Mozambique enters 2006 in a relatively stable financial situation and is banking on its most valuable economic asset, the Cahora Bassa hydroelectric dam, to make the country one of southern Africa’s major energy players.

As details over the transfer of ownership of the huge River Zambezi dam from Lisbon to Maputo are being finalized ahead of a final accord in coming weeks, several international investors have already expressed an interest in joining Maputo as partners in the project.

Among potential investors is the Macau-based Geocapital investment company of casino tycoon Stanley Ho, which is already committed to funding a number of farming and mining projects in Mozambique’s Zambezi Valley development zone.

South Africa’s Eskom power utility, the main client of Cahora Bassa since its construction before Mozambican independence, is also keen to take a share in the dam, but the Maputo authorities appear reluctant to allow Eskom anything more than a token stake in the project.

Mozambican state electricity company EDM is also a strong candidate to become a shareholder in Cahora Bassa, the largest hydroelectric dam in southern Africa.

Media have reported that various other companies are preparing bids to take a stake in Cahora Bassa when its control passes from Lisbon to Maputo this year, particularly from China, India and Australia.

Whatever the final share structure of the dam, Maputo will retain a 51 percent controlling interest in the project.

Under the accord between Portugal and Mozambique reached last year after years of negotiations, Lisbon will reduce its current 82 percent stake in the plant to 15 percent to give Maputo a controlling 85 percent shareholding.

Under the terms of the two-way accord, Maputo has agreed to repay US$ 950 million to the Portuguese Treasury, claimed by Lisbon for the dam’s building and maintenance costs over the years, as a condition to take control of the venture.

Ownership of Cahora Bassa is only part of Maputo’s ambitious plan to become a major regional energy supplier, as the River Zambezi project will be expanded with a new generating station to have an annual production capacity of nearly 2,000 Gwatts.

Also planned is a new generating dam on the River Zambezi at Mpanda Unkwa, a project that has already received pledges of financial support from neighboring and European states.

The 229,000 square kilometer Zambezi Valley is southern Africa’s largest water reserve and is also blessed with major coal deposits and farming potential.

The region’s energy potential contrasts to the shortages of resources in the neighboring states of Malawi, Zimbabwe, Zambia and South Africa, which will allow Mozambique to use electricity as a major revenue generator after sufficient infrastructures are put in place.

Mozambique’s relatively rosy economic indicators offer a stark contrast to most African states and international financial institutions have praised the Maputo government’s track record in achieving economic growth and pulling in foreign investment.

The International Monetary Fund forecasts GDP growth of 7.4 percent for this year in Mozambique, a similar figure as registered in 2005.

The Maputo authorities are expected to peg inflation to single figures for the first time in 2006, a goal that would have been achieved a year earlier without international fuel price hikes.

Mozambique’s exports are set to increase modestly by 2 percent in 2006 compared to the 14 percent recorded last year and 44 percent in 2004, according to the IMF, resulting from completion of major industrial projects such as the Mozal aluminum smelter.

The IMF and World Bank announced significant financial support packages to Maputo last year, including the pardoning of Mozambique’s debt to the IMF of US$ 153 million.

The IMF said it was writing off Mozambique’s debt due to “recent satisfactory macroeconomic performance and progress in reducing poverty and improving management of state finances.”

However, the IMF warned last year that Mozambique’s economic growth rate could be curbed without more privatizations and a range of monetary and tax reforms.

Reform of Mozambique’s financial sector is due to get underway this year and is being assisted with a US$ 10 million package from the World Bank. (macauhub)