Energy the ‘light at the end of the tunnel’

Mozambique’s energy sector, which includes major projects being launched by Chinese companies, offers the country the best prospects to overcome the current adverse economic period, analysts have indicated.

One recently launched project is the building of a coal-fired power plant in Tete province, a US$25.5 million investment involving Shanghai Electric Power and Ncondezi Energy. Another planned thermoelectric plant in Tete involves the governments of Mozambique and Zambia.

The most recent report on Mozambique by credit-rating agency Standard Poor’s calls attention to current economic and financial difficulties. It estimates real GDP growth of just 4 percent this year, one of the lowest in recent decades, though predicting that it will accelerate to 6 percent in 2017 and 7 percent in 2018, with gas sector investments on the rise, along with those in power and transportation networks.

Construction of most railway track linking ports in the north and centre of the country to new coal deposits should sustain higher coal production in 2016-2019 “provided international coal prices recover from the current low levels,” indicates the report received by Macauhub.

More significantly, S&P believes that the government and foreign partners in liquid natural gas (ENI and Anadarko Petroleum) will conclude negotiations on this year’s investment framework, allowing construction of facilities to begin in 2017-2018.

The Economist Intelligence Unit sees foreign investment staying low in the short term, though recovering slowly beyond 2017 if the government takes sufficient steps to re-establish the IMF programme, which would be a crucial sign to investors that authorities are responding to the economic crisis.

Privatisation of assets should attract some investment, while capital employed in the gas industry may recover in the middle term, it specifies, adding that given slow overall demand for Mozambique’s main exports there will be no promise of high returns to attract investors; the government will have to boost efforts to improve the business climate.

China should become one of the main clients for Mozambican natural gas, where it has already made its presence felt. The Chinese National Offshore Oil Corp has obtained the first long-term contract envisaging the annual purchase of from 2 million to 2.5 million tons of gas, a quarter of production capacity at the first liquefaction unit associated to Area 1 of the Rovuma Basin, where Anadarko Petroleum is the lead operator.

Chinese oil companies’ interest in Mozambican natural gas had already led Sinopec to buy from Italy’s ENI a 20 percent stake in Area 4, next to the one operated by Anadarko, for US$4.2 billion.

According to Standard Bank, natural gas exports will initially earn US$67 billion for Mozambique. With six liquefaction plants operational earnings will rise to US$212 billion.

The final decisions on Mozambique project investment by ENI and Anadarko are expected in coming months. ExxonMobil and Qatar Petroleum should also be involved, Reuters recently reported.

ENI envisages financing of US$11 billion, selling a 20 percent stake in the Mamba well to ExxonMobil, a deal which could result in US$1.3 billion in tax earnings for Mozambique. That sum would be equivalent to the ‘hidden’ debts whose discovery led to cancellation of support from the IMF and other partners.

China Petroleum Pipeline Bureau (China National Petroleum Group, stakeholder in Rovuma Basin Area 4) will conduct the feasibility study for the 2600 km Rovuma/Gauteng gas pipeline announced last March. Once the investment decision is made, Chinese financial institutions will take on 70 percent of the financing.

Chinese involvement means the project will be a triple winner, the analyst Aubrey Hruby of the Atlantic Council Africa Centre has stated.

“China gains because Chinese contractors get the business; South Africa and Mozambique gain because they secure the gas they need and Zimbabwe and Zambia gain because they also need energy,” said Hruby, cited by Interfax. (Macauhub/CN/MZ)