The Southern African country of Mozambique is home to around 31 million people, of which only a quarter have access to energy, mainly in urban areas. Lack of basic amenities such as access to electricity continues to hamper the nation’s progress towards its development goals, which is reflected in a very low Human Development Index ranking of 181 out of 189 countries and territories in 2019.
The electricity sector in Mozambique faces several challenges such as an underdeveloped and poorly connected power distribution network; lack of private sector investment in the transmission and distribution (T&D) sectors; very low electricity tariffs, which reduce the overall profitability of the sector, thereby negatively impacting the power utilities’ financial statements; and the inability of people to afford electricity despite such low tariffs. The country therefore plans to focus on expanding access to reliable and affordable power in order to boost its primary, secondary and tertiary sectors. To pave the way for the country’s growth, Mozambique’s government, under its Energy for All programme, targets to achieve 58 per cent electricity access by 2023 and providing electricity to all citizens of the country by 2030.
Mozambique’s dominant power utility, Electricidade de Moçambique (EDM) is set to play a major role in facilitating this transition. To this end, EDM has formulated a five-year (2020-24) business plan, with the aim of implementing projects to reinforce the electricity grid and rural electrification ensuring universal access by 2030, reducing energy losses and interruptions that occur in the T&D supply chain. Under the plan, EDM has earmarked $1.2 billion for the execution of 17 key projects/programmes directed towards developing the transmission infrastructure, increasing rural electrification and building cross-border interconnections. The majority of the investment will be sourced through various donor agencies such as the World Bank, Germany’s KfW Development Bank, the European Investment Bank (EIB), Norwegian Trust Fund, the Development Bank of Southern Africa (DBSA), and the Government of Mozambique (GoM).
EDM plans to increase private participation in the energy sector by implementing generation and transmission projects via the public-private partnership (PPP) route. The country has enormous power potential, which, combined with Mozambique’s privileged geographical location – it borders six countries (Tanzania, Malawi, Zambia, Zimbabwe, South Africa and Eswatini – places it in a favourable position to become a power hub in southern Africa.
Mozambique’s industry structure
EDM is the national power utility of Mozambique and is wholly owned by the government. It participates in all parts of the electricity supply chain, including generation (although it is not the primary generator in the country), transmission, distribution and consumer connection, supply and billing. EDM, along with state-owned power utilities Eskom of South Africa and Swaziland Electricity Company of Swaziland, jointly own the Mozambique Transmission Company (MOTRACO), an independent transmission company. MOTRACO is responsible for transmitting power from South Africa to the Maputo-based Mozambique Aluminium Smelter (Mozal) plant and undertakes wheeling of power to EDM in Mozambique and to the Swaziland Electricity Company in Swaziland. An important generator is Hidroeléctrica de Cahora Bassa, owned by the government (92.5 per cent), Companhia Eléctrica do Zambeze (7.5 per cent) and Redes Energéticas Moçambique Nacionais (7.5 per cent). Ministério dos Recursos Minerais e Energia, or the Ministry of Energy and Mineral Resources, is responsible for policymaking related to the sector and supervising the sector. Conselho Nacional de Electricidade, or the National Electricity Council, is the national regulatory board, and National Energy Fund is mainly involved with off-grid electrification.
Existing power infrastructure
As per the latest data available, the country’s installed capacity stands at 3 GW, of which 70 per cent (2.1 GW) is hydro based, around 29 per cent is thermal based and only 1 per cent is renewable based. During 2019, the 40 MW Mocuba solar plant was commissioned, adding the first renewable plant to the country’s generation capacity.
Mozambique’s national grid comprises three systems – the national grid, mini-grids and independent systems. As of the end of 2019, Mozambique’s transmission network comprised about 8,310 km of line length and 77 substations between the 66 kV to ±533 kV high voltage direct current (HVDC) levels. 110 kV and 220 kV lines account for a 40.8 per cent and 23.8 per cent share respectively in the line length. Of the total line length, 67.7 per cent or 5,630 km is owned by EDM and the remaining 32.3 per cent or 2,680 km of lines are owned by MOTRACO. Mozambique has cross-border interconnections with South Africa, Zimbabwe and Swaziland. The interconnections with South Africa are established via ±533 kV HVDC, 400 kV, 275 kV and 110 kV lines. In the distribution segment, EDM owns 19,495 km of medium voltage lines, 24,311 km of low voltage lines and 12,277 transformer stations.
EDM’s business plan, 2020-24
As per EDM’s projections, electricity demand in the country will increase by 50 per cent over the next 10 years from the current 7,089 GWh. To meet the rising demand, the country, which has abundance of resources (natural gas, solar and hydro), plans to add more generation capacity and diversify its hydro-dominant energy mix. As per the Electricity Master Plan 2018-2043, the country targets to add around 7 GW of new generation capacity by 2027, of which almost 51 per cent will be based on thermal, 48 per cent on hydro and the remaining 1 per cent on RE. The private sector will play a major role in meeting this target. Hence, it is now important for EDM to back up the upcoming capacity with a robust and resilient grid network, and also increase the electricity distribution network in both urban and rural areas. To this end, EDM has formulated a five-year business plan (2020-24), under which the company will undertake $1,162 million in investment for the implementation of various T&D projects and commercialisation of electrical energy. The majority of the projects and initiatives planned under the business plan are being funded by international donors, along with some funding from the GoM.
The plan takes into account the impact of the Covid-19 pandemic on the country’s energy sector. Over the next five years, EDM will extensively work on reducing energy losses. The loss reduction will have a substantial impact on the company’s operating margins and operating results. Of the total planned capital expenditure of $1,162 million, $405 million (35 per cent) will be invested in key transmission projects, $417 million (36 per cent) will be utilised for executing various electricity distribution and commercialisation initiatives/programmes, and the remaining USD340 million (29 per cent) will be spent on an electrification programme funded by the national government.
Short-Term Investment Programme Phase 1: It entails executing five urgent network projects in EDM’s southern grid and will be co-funded by the EIB (Via a concessional loan), KfW Entwicklungsbank (KfW Bank; through a grant), the Government of Norway (by way of a grant, and EDM.
World Bank Power Efficiency and Reliability Improvement Project (PERIP): The first component of the project will be executed over the next five years. Overall, PERIP seeks to upgrade and reinforce the existing transmission network. The project supports three components, the first of which is aimed at the rehabilitation and upgrade of the existing T&D network to improve the security and reliability of electricity supply. PERIP funding comes in the form of a grant from the International Development Association.
400 kV Chimuara-Nacala transmission line project: The project involves the construction of the 368 km, 400 kV Chimuara Alto Molocue line (Phase I); the 266 km, 400 kV Alto Molocue-Namialo line (Phase II); the 90 km, 220 kV Namialo-Nampula line; and the 100 km, 220 kV Namialo-Nacala Velha line (Phase III). Phase I of the project is being funded by the Islamic Development Bank (IsDB). It is currently under implementation and is expected to be completed by 2022. The second and third phases are cumulatively valued at $400 million and mobilisation of funds is under way.
Emergency projects (rehabilitation and strengthening of the Maputo City electricity grid and installation of a compensation station in Pemba): The project aims to improve the distribution network of Maputo via rehabilitation of stations and installation of new interconnection cables. It also aims to increase the stability of the northern system via installation of a compensation station in Pemba. The DBSA will finance the first phase of the initiative, valued at $81 million.
New power connections under the National Electrification Programme (Obrigatory Supply Areas): As per the national electrification programme, EDM is expected to finance commercial connections for approximately 130,000 customers per year at an estimated average cost of $500 per new connection. These new commercial connections will be self-financed by EDM.
Social electrification projects agreed with the government: Due to the rural nature of the electrification programme, the average cost per new connection is estimated to be roughly $750. However, a gradual reduction to $650 is expected by 2024, due to economies of scale and use of more innovative design solutions. In June 2019, the development finance institutions (DFIs) contributed $228 million to the programme, sufficient to cover the expected investment needs up to 2021. Additional funding will be required to meet planned investments beyond 2021.
Rehabilitation and strengthening power projects of distribution networks of Quelimane and Mocuba: Negotiations are taking place with the Export-Import (Exim) Bank of India to finance the more than $96 million required for the project.
400 kV Mozambique-Malawi Transmission Interconnection Project (MOMA): The project includes the construction of the 218 km long, 400 kV transmission line connecting the Matambo substation in the western Mozambican province of Tete and the Phombeya substation in Malawi. The $127 million regional interconnection project is being jointly funded by the World Bank, KfW and the Government of Norway. Construction works are expected to begin in the first half of 2021 and the project is to be commissioned by the first half of 2023.
110 kV Nampula-Angoche transmission line: Financing for the project, which entails the construction of more than 200 km of 110 kV transmission lines, is being negotiated with several multilateral agencies.
275 kV Beleluane-Salamanga transmission line: Financing for the $35.6 million project is under negotiation with multilateral agencies and involves the construction of a 120 km long, 274 kV transmission line to feed the Katembe, Bela-Vista and Ponta de Ouro areas in the province of Maputo.
400 kV Namialo-Metoro transmission line: Financing for the $132 million project is under negotiation. This is a priority project for EDM as it will evacuate power from the power plants at Nacala to the northern region.
National Control Centre: This is a priority project as the national centre will bring transparency to the monitoring of energy transit to and from the countries in the region. EDM is currently seeking financing for this important project, which is estimated at $60 million and will be implemented between 2022 and 2024.
Improvement of power supply quality of Maputo and Matola cities: The project comprises the expansion and modernisation of the T&D networks of Maputo and Matola. The $250 million project is being financed by the Exim Bank of India.
TREP mitigation projects: As part of the overall Temane Regional Electricity Project (TREP), complementary transmission projects have been defined to mitigate against potential delays in the implementation of the Temane Transmission Project (TTP). The first complementary project includes a 28 km, 110 kV integration between the new 110/33 kV substation at the Temaninho power plant and the new 400/110 kV Vilanculos substation (part of the TTP). Another complementary project entails a 60 km, 275 kV line between the Chibuto substation (part of the TTP) and an existing 275/110 kV substation at Dzimbene. Both these lines are estimated to cost $24 million and will be implemented between 2021 and 2022. Financing is under discussion with IsDB and OPEC Fund for International Development (OFID).
Loss reduction investment programme: The loss reduction assumptions indicated during the energy balance forecast are based on the implementation of an investment programme focused on loss reduction. The programme is currently estimated at $15 million. Discussions are ongoing between EDM and Agence Française de Développement (AFD) for obtaining a grant of $9 million to cover the initial part of the programme, with the balance to be self-financed by EDM. The programme will begin in 2021 and is expected to be completed in 2025.
In addition, a key priority transmission project (which is not part of EDM’s business plan 2020-24) currently under way is the TTP – the transmission component of the TREP. For this, EDM has created a special purpose vehicle (SPV), Sociedade Nacional de Transporte de Energia (SNTE). The funds for the $550 million project have already been secured through donations from the World Bank, Norwegian Trust Fund (NTF), AfDB, IsDB, OFID, DBSA in partnership with the European Union (EU).
Increasing role of the private sector
In the coming future, EDM plans to promote the development of generation and transmission infrastructure with support from the private sector. EDM has already planned generation projects worth $1,127 million to be executed via the PPP route. These projects will cumulatively add around 600 MW of new generation capacity, of which 200 MW will be RE based and 400 MW will be thermal based. A key generation project being developed via this route is the TREP, a 400 MW combined cycle, gas-to-power generation plant planned to be set up as an IPP project, valued at around $750 million. In general, TREP aims to harness large gas finds in Temane to meet the rising domestic demand and for regional exports, as well as to create an integrated transmission corridor within Mozambique.
Challenges and the way ahead
For years, Mozambique’s power sector has struggled due to obsolete network infrastructure, financial constraints, high electricity losses, lack of a national control centre required for maintaining demand and supply management, weak institutional framework, and floating demand at the national and regional levels. These challenges have resulted in low electricity access, which in turn has resulted in the low economic growth of the country. Given its struggling energy sector, Mozambique must diversify its generation mix and complement it with a strong transmission network to fully evacuate power from the existing and upcoming power plants, and further increase electrification rates in both urban and rural areas. To achieve the required growth in the power sector, Mozambique needs adequate funds, a regulatory framework and policies including the establishment of cost-reflective tariffs to maintain the financial viability of EDM’s operations. Though EDM has sourced a large part of its funding requirement via multilateral funding agencies, it is now crucial to attract private participation in the power sector to accelerate the development of projects.
It is now time for Mozambique to gear up for a major transition so as to ensure universal access to electricity by 2030 and establish itself as a regional power hub given the country’s strategic location, as well as to achieve economic growth.