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RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHTO #1051/01 3151534
ZNR UUUUU ZZH
R 101534Z NOV 08
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 9524
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RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
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RUEHMO/AMEMBASSY MOSCOW 0063
RUEHOT/AMEMBASSY OTTAWA 0455
RUEHFR/AMEMBASSY PARIS 0159
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UNCLAS SECTION 01 OF 04 MAPUTO 001051 
 
SENSITIVE 
SIPDIS 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
STATE PLEASE PASS DOE FOR SPEARL AND PERSON 
DEPT FOR AF/S, AF/EPS, AND EEB/ESC AND CBA 
 
E.O. 12958: N/A 
TAGS: ENRG EPET EMIN EINV ETRD SENV MZ SF
SUBJECT: MOZAMBIQUE EYES MEGA-PROJECTS IN ENERGY AND MINING 
 
REF: A. MAPUTO 1018 
     ¶B. MAPUTO 972 
 
¶1.  (U)  This cable is part of a series in an innovative 
collaboration in energy/resource reporting and commercial 
advocacy between Embassies Maputo and Pretoria.  Embassy 
Pretoria Minerals/Energy Officer and Maputo 
Political/Economic officer visited energy/minerals projects 
in northern Tete Province and met relevant government and 
private officials in Maputo October 13-17, 2008. 
 
¶2.  (SBU)  Summary: Mozambique is seeking to develop an 
ambitious list of mega-projects that would expand its energy 
exporter status and develop its relatively untapped minerals 
potential.  Mozambique has remarkable hydroelectric potential 
symbolized by the formidable 2075 MW Cahora Bassa dam in the 
north, which exports to South Africa, Zimbabwe, and Botswana 
(Ref A).  The country seeks to expand coal and gas potential 
for both export and power generation.  The Ministry of Energy 
has hired Norwegian firm Norconsult to do a far-reaching 
feasibility study of Mozambique's power generation options, 
preliminary findings of which were presented on October 24. 
Realizing significant electricity generation and transmission 
projects will require an extraordinary level of cooperation 
between South Africa, its state power utility Eskom, 
different institutions within Mozambique, and potential 
financiers.  There is a buzz of new investment surrounding a 
variety of oil/gas (septel) and mining projects, but not all 
of these will be developed over the near term.  The Embassy 
team visited hydroelectric and coal projects in Tete Province 
October 13-14.  End Summary. 
 
----------------------------------------- 
Zambezi Basin and Hydroelectric Potential 
----------------------------------------- 
 
¶3.  (SBU)  Based on the assumption that both the domestic and 
regional market for electricity will continue to grow, the 
Ministry of Energy hired Norconsult, a Norwegian consulting 
firm, to complete a Generation Master Plan for Mozambique to 
identify least-cost generation solutions earlier this year. 
Domestically, Mozambique has seen a 250 percent increase in 
the number of electrified houses since 2002, and expects to 
see continued growth in commercial electricity consumption, 
which has increased at a rate of 8 percent since 2004. 
Norconsult contacts told Poloff that they estimate commercial 
demand for electricity will increase by 200 percent by 2020 
(not including the Mozal aluminum smelter or its planned 
expansion projects).  Regionally, projected economic growth 
for the SADC region means that demand will continue to 
increase, and that growth will likely be based on both the 
future price and availability of electricity in the region. 
 
¶4.  (SBU)  Mozambique has long claimed to have 14,000 MW of 
hydroelectric potential, mostly on the Zambezi River, 
including the existing 2,075 MW Cahora Bassa dam and power 
generation facility.  A senior Electricity of Mozambique 
(EDM) team briefed Emboffs on the state power utility's 
vision for new power generation and transmission to feed both 
domestic and regional growth.  The EDM team touted 12,000 MW 
of available hydroelectric potential.  First, the existing 
Cahora Bassa hydroelectric (HCB) project could be expanded by 
850 to 1245 MW with new facilities on the north bank, using 
the existing dam.  Parastatals EDM and HCB would sponsor this 
potential $800 million-plus investment.  The most advance 
greenfield hydroelectric project is Mphanda Nkuwa, 60 
kilometers downstream from Cahora Bassa on the Zambezi and 
targeting 1500 to 2000 MW of power generation capacity at an 
investment of $2.5 billion.  The project developers EDM, 
Brazilian group Camaro Correia, and Mozambican company 
Energia Capital have completed an early feasibility study. 
 
¶5.  (SBU)  Based on their feasibility study of 16 viable 
hydro-electric projects in Mozambique, Norconsult's interim 
 
MAPUTO 00001051  002 OF 004 
 
 
findings conclude that developing the North Bank project at 
Cahora Bassa (HCB) represents the least-cost option for 
increasing generation in terms of hydrology, geology, 
environmental impact, construction costs, and financing 
risks.  Mphanda Nkuwa represents a second higher-cost option 
in terms of construction and transmission costs.  The EDM 
team separately emphasized the importance of 12-15 
small-medium sized (25-200 MW) hydroelectric projects on 
Zambezi tributaries.  Norconsult will look further into the 
viability of these projects, which will likely have higher 
associated transmission costs.  These projects would be more 
conducive to being established to service domestic power 
demand and economic growth.  The EDM team hoped that the USG 
could support development of these smaller scale projects, 
noting that they had previously made a detailed presentation 
to USTDA. 
 
-------------------------------- 
Moatize Coal for Export or Power 
-------------------------------- 
 
¶6.  (SBU)  Brazilian mining company Vale's (formerly CVRD) 
management team presented its vision to Emboffs on October 13 
for coal development at Moatize in the northern Tete 
Province.  Vale has commenced its three-year development of 
its 25-year, $1.6 billion investment to exploit 1.8 to 2.4 
billion tons of coal resources.  The Vale officials stated 
that the project would employ approximately 4750 Mozambicans, 
and would produce both high-quality low ash coking coal for 
export and lower-quality thermal coal for power generation. 
Vale is currently developing its drilling program and intends 
to break ground in 2010 for "box-cut" mining of its coal 
seams, targeting first export in 2011.  There will be a three 
kilometer conveyor belt to the crushing and separation 
processing facility.  Egress of the 8.5 million tons of 
export coal remains an issue.  The favored plan includes 
using the existing railway spur covering the 600 kilometers 
to the port at Beira, but that port requires frequent 
dredging and may possibly include using smaller vessels to 
transfer loads to larger vessels offshore.  In addition, Vale 
has not completed negotiations with the Indian company Rites 
and Ircon, who won the concession to rehabilitate and operate 
the line.  The "plan B" would be to build a short connector 
across Malawi into the rail corridor to the deepwater port at 
Nacala. 
 
¶7.  (SBU)  The companion to the Moatize coal project would be 
the phased 600-2400 MW coal-fired power generation plant with 
potential investment of $2.5 billion.  U.S. firm AES is 
identified as the lead developer with Vale, Eskom, EDM, and 
Mozambican investment group Whatana.  (Note: Mission has had 
limited recent contact with AES to confirm its level of 
commitment to the project.  AES failed to complete a contract 
after being designated preferred bidder for two 500 MW 
gas-fired earlier this year in South Africa.  End Note.) 
Vale and GOM officials said that AES had won the GOM tender 
and had signed a framework memorandum of understanding for 
the project. 
 
¶8.  (SBU)  Australia's Riversdale Mining is evaluating 
development of a competing coal project at nearby Benga. 
Riversdale has submitted a mining study in support of its 
mining license application to the GOM citing 20 million tons 
a year of prime hard coking coal and based on a 1.94 billion 
ton coal resource.  Indian steel giant Tata is the 35 percent 
partner for the mining project.  Riversdale has also proposed 
a phased 450-2000 MW power plant with an initial investment 
of $900 million.  Riversdale is still looking for a strategic 
partner, but it has involved Elgas, EDM, and Eskom in 
feasibility discussions.  U.S. firm Peabody has confirmed to 
Emboffs that they are in ongoing negotiations with Vale 
related to extraction as well as coal-fired generation 
projects in Tete.  Irish mining company Kenmare Resources and 
Indian companies are also investigating coal opportunities in 
 
MAPUTO 00001051  003 OF 004 
 
 
Tete Province.  Mozambique's Center for Promotion of 
Investment Deputy Director Mussa Usman told Emboffs that all 
mining licenses had been taken in Tete, so companies were 
starting to look in other provinces, such as Nyassa.  He 
noted that egress and power remained near-term challenges. 
 
----------------------- 
Transmission Challenges 
----------------------- 
 
¶9.  (SBU)  EDM and other GRM officials support realization of 
a "back-bone" mega-transmission project to provide coherence, 
independence, and capacity to its domestic grid, now 
dependent on the Cahora Bassa/Eskom transmission to power the 
Mozal Aluminum Smelter, Maputo, and southern Mozambique.  The 
Norconsult feasibility team is comparing scenarios for a 
400kV AC grid, a 765kV (and possibly HVDC), or a three 400 kV 
line transmission system from the Zambezi valley south to the 
Maputo area to supply domestic demand and free southern 
Mozambique from a reliance on South African transmission 
lines.  EDM officials called for a phased approach to 
feasibility, permitting, financing, and development of this 
important transmission project, which could ultimately cost 
upwards of $2.5 billion.  Officials noted that many of the 
upcoming mega-projects cannot reach full phased development 
without parallel development of the new backbone transmission 
line, indicating that the current transmission grid could 
only support one additional major power project.  For 
example, development of the Mphanda Nkuwa hydroelectric 
project would be entirely dependent on development of the 
backbone to handle expanded generation because the lumpy 
nature of hydroelectric infrastructure precludes plants from 
phased-construction.  Moreover, gaining power purchase 
commitments from Eskom would ultimately be necessary to 
secure private financing for new power mega-projects.  CPI's 
Usman said that EDM was promoting generation by offering a 
minority stake to private investors, but EDM would have to be 
the prime developer and share-holder for the backbone 
transmission project. 
 
-------------------------------------- 
Mozambique Can Help Solve Eskom's Woes 
-------------------------------------- 
 
¶10.  (SBU)  EDM was bullish on Mozambique's potential to help 
meet Eskom's and the region's electricity shortfalls as a 
"least cost" option.  The EDM management told Emboffs that 
there was a confluence of four important events: 
- - Cahora Bassa had completed its restructure, transferring 
ownership to the GOM, allowing for unlocking the huge 
potential of the Zambezi; 
- - Mozambique had attained crucial political and economic 
stability, after its years of civil war; 
- - The regional power crisis represented an important 
opportunity for Mozambique; 
- - President Armando Guebuza recognized the importance of 
energy and might serve as an "energy champion" to help 
nurture these challenging mega-projects. 
 
------------------- 
Other Mega-Projects 
------------------- 
 
¶11.  (SBU)  GAS: South African Sasol is aiming to increase 
Mozambique's exports of gas to South Africa to feed its own 
mega gas-to-liquids projects in South Africa.  Sasol is 
planning to invest $225 million to increase exploration and 
output in the Pande and Temane gas fields, which currently 
already feed a 865 kilometer pipeline to Secunda in South 
Africa.  Sasol is also engaged in on- and off-shore 
exploration elsewhere in Mozambique.  Ministry of Energy 
National Director Antonio Saide told Emboffs that the GOM is 
committed to increasing domestic consumption of natural gas 
for industry and transport.   GOM officials also mooted the 
 
MAPUTO 00001051  004 OF 004 
 
 
potential for a MW gas-fired power plant at Muamba, asserting 
that there were adequate reserves. 
 
¶12.  (SBU)  HEAVY SANDS: The GOM says investment in mining is 
booming.  Irish Kenmare Resources has started operations of 
the $450 million Moma titanium mine and smelter south of 
Nacala.  BHP Billiton is developing the $500 million Corridor 
Sands Titanium Project in Gaza Province in the south.  Both 
these projects have faced challenges and delays in assuring 
adequate power supply.  These projects will produce 
significant titanium ores: ilmenite, zircon, and rutile. 
 
¶13.  (SBU)  REFINERIES and more:  Interest in the oil and gas 
sector has made the U.S. the largest foreign investor in 
Mozambique.  U.S. firm Ayr Logistics is the major investor in 
the development of a $5 billion 300,000 barrel per day 
refinery near the deepwater port of Nacala in the north. 
South African Group Five is slotted to do the construction. 
U.S. firm Anadarko has made a significant commitment to 
hydrocarbon exploration in the north (septel).  The Mozal 
Aluminum Smelter is seeking to expand, but this would be 
dependent on adequate power.  South Africa has discovered 
that investment in aluminum smelters no longer makes sense 
without excess, cheap electricity.  Mozambique is hoping to 
insure that power-intensive investments are still attractive. 
  Mozambique is bullish on ports and associated transport 
corridors to the interior, working to expand the Maputo, 
Beira, and Nacala corridors.  There are particular hopes for 
development of the Nacala deepwater port. 
 
------------------------------------------ 
COMMENT: POWER GENERATION AND TRANSMISSION 
A NECESSARY STEP 
------------------------------------------ 
 
¶14.  (SBU)  The ambitious list of projects identified by the 
interlocutors will not all come to pass in the near-medium 
term or perhaps ever, but major expansion of generation and 
transmission capacity must occur over the next decade to feed 
domestic growth first, but also regional growth.  The GRM is 
clearly already focused on finding least-cost solutions as 
made evident by Norconsult's Generation Master Plan. 
Mozambique will face parallel challenges in putting the 
disparate pieces together, for example assuring financing and 
purchase agreements for electricity generation and 
transmission projects simultaneously; which will likely 
require strong support from international partners and 
donors.  Given international credit market contraction and 
Eskom's dicey internal financing, Mozambique's attractive 
power projects could potentially delay or crowd-out Eskom's 
aggressive nuclear and coal-fired power build plans if the 
backbone transmission project is realized.   If it makes 
progress on these ambitious objectives, Mozambique will reap 
the benefits of commercial and strategic leverage in the 
region as an energy exporter to power-hungry SADC neighbors, 
while at the same time ensuring its own economic growth 
thanks to continued availability of inexpensive electricity 
and relative energy independence.  Mozambique will not only 
make progress on rural electrification and biofuels 
(septels), but also provide for expansion in the 
manufacturing sector.  The USG should look at ways to use 
USTDA, USAID and other tools to contribute to Mozambique's 
generation and transmission plans.  End Comment. 
Chapman