Portugal-Mozambique agreement on Cahora Bassa dam depends on Eurostat

24 July 2006

Maputo, Mozambique, 24 July – Mozambique’s taking over control of the Cahor Bassa hydroelectric dam will only go ahead once Eurostat has assessed the impact the deal will have on Portuguese state accounts and decides that it is compatible with Portugal’s commitments, officials have said.

The agreement between the Portuguese and Mozambican states on the dam dates back to November 2, 2005. Via that agreement Portugal would change its shareholding in the dam from 82 percent to 15 percent and Mozambique would control the remaining 85 percent share of the infrastructure. Mozambique would have to hand over US$950 million to the Portuguese state to seal the deal.

However, as the president of the European Commission, José Manuel Barroso, told Mozambican president, Armando Guebuza, Eurostat, the European Union’s statistics organization, is trying to determine if the deal is compatible with Portuguese plans to reduce its budget deficit.

Barroso also told Guebuza that the Portuguese government had informed the European Commission of its efforts to transfer control of the dam to Mozambique, but that the Cahora Bassa agreement could have an impact on Portugal’s state accounts, which Eurostat is now looking into.

In order to be part of the Euro zone, a member-country of the European Union (EU) must respect a number of economic targets, namely that the budget deficit can not exceed 3 percent of the Gross Domestic Product (GDP), a condition which the Portuguese government has had difficulty keeping to.

On the face of it Cahora Bassa would seem to be a good deal for Portugal as it would receive US$950 million from the Mozambican state. But Portugal has insisted that its should receive US$2.5 billion for Cahora Bassa, which would mean that November’s agreement would represent a 62 percent pardon of the debt that would be accounted as a capital transfer, which would, in theory, increase the budget deficit.

When Guebuza was in Bissau to take part in the Summit of Heads of State and Government of the Community of Portuguese-speaking Countries, the Mozambican press reported that he had demanded the quick conclusion of the agreement between Portugal and Mozambique on the Cahora Bassa dam.

Speaking to journalists, Guebuza made it clear that he was disappointed with the fact that Portugal was not keeping to its commitments, and said that he had negotiated with Portugal and not with the European Union.

But, after the meeting ion Brussels with Barroso, Guebuza said in a joint press conference that Cahora Bassa was a “technically complex” issue and would take “some time to be resolved.”

The Cahora Bassa dam, which is one of Africa’s largest hydroelectric projects, was built on the Zambezi River and created a reservoir covering some 230 kilometers, in the West of Mozambique.

Construction of the dam began in 1969, and it went into operation in 1978. (macauhub)