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Intermediate Technology Consultants Ltd

The Mphanda Nkuwa Dam project: Is it the best option for Mozambique’s energy needs?

Final Report for WWF

June 2004

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Executive Summary

The proposed Mphanda Nkuwa hydropower scheme, 70 km down stream of the Cahora Bassa Dam in Mozambique is billed by the Government of Mozambique as one of the most competitive regional power projects in Southern Africa and a priority project for New Partnership for Africa's Development (NEPAD) . The Government of Mozambique is currently in the promotion phase of the project to attract potential investors from around the world.

Mphanda Nkuwa, selected from a range of several possible sites along the Zambezi is projected to generate 1300MW at a total cost of approximately $2.0 billion. The project was also selected on the basis of its low unit generation cost and its additional function to provide re-regulation for the Hydro Cahora Bassa (HCB). Development of Mphanda Nkuwa is supposed to enable Hydro Cahora Bassa to increase the value of the energy it produces by producing more during peak hours and less during low tariff periods. This is currently not possible due to the requirement to maintain a river level variation below a certain level.

The purpose of this report is to analyse the proposed Mphanda Nkuwa dam in terms of its technical, social, economic and environmental impacts and also in relation to alternative options for meeting Mozambique’s energy and development priorities.

Mozambique has very low per capita and absolute consumption of electricity with 78kWh per capita per year and national demand of 350MW excluding the consumption by the aluminium smelter Mozal (which consumes 900 MW). It is a net exporter of electricity with the bulk of the surplus being consumed by South Africa and to a lesser extent Zimbabwe. Yet, only 4.7% of the population in Mozambique has access to electricity with 50% of these households in Maputo. The government with assistance from major donors are involved in extensive investment in improving access to electricity and other energy forms.

The government's decision to promote Mphanda Nkuwa has been premised on hydropower generation as an export industry on the available potential in the country, projected electricity demand in the Southern African region and infrastructure investment to support an economic plan based on primary resource extraction in minerals and other natural resources. Current excess capacity on the Southern African Power Pool (SAPP) is projected to run out by 2007. South Africa alone will require an additional 3000MW by 2010 after re-commissioning its mothballed thermal power plants. In Mozambique, several mega projects in mineral extraction and processing are planned with a projected total demand of approximately 2000MW by the same time horizon. It is this future market that Mphanda Nkuwa is poised to serve.

Mphanda Nkuwa is promoted as a private sector investment with minimal (5%) government shareholding to mitigate political risk. Attracting foreign direct investment into the electricity sector is also viewed as aiding the image of Mozambique as a competitive destination for foreign direct investment in resource extraction industries. Uncertainty however, persists over the net benefit to fiscal revenues and national development of such mega investment which have up to now been negotiated on the basis of wide tax breaks and very light handed regulation. Current experiences with Hydro Cahora Bassa and Mozal cast doubt over the real contribution of such mega projects and whether this is indeed the best development path for Mozambique.

Specific to the project, several socio-economic considerations are still to be addressed. The feasibility study was conducted shortly before the publication of the World Commission on Dams (WCD) Report and does not conform to some of the best practice recommendations. There is no evidence of a wide national or even local consultation to gain public acceptance as recommended by the WCD report. The government on its part is wary of a high visibility programme to discuss the project due to the political pressure that may result due to raised expectations. The only respite lies in that any developer who would consider investing $2.0 billion dollars would want to undertake a thorough and more detailed feasibility study of their own which would include gaining public acceptance. In reality however, developers may invest in curtailing public rejection rather than gaining its acceptance.

The project is proposed in a context with regulatory institutions whose capacity to enforce compliance against the larger multinational energy companies who have the resources to invest in such projects puts to doubt the extent to which negative impacts will be mitigated. The following considerations in particular still need clarification:

  • The impact of hydropower operation on the shrimp industry in the Zambezi delta- Mphanda Nkuwa will perpetuate high base river flows and low seasonal variation which reduces shrimp populations and subsequent catch. The loss of income from Mphanda Nkuwa is estimated at $10 million per year.
  • The project also has a recommendation for river levels to be allowed to vary by 1.5 metres threatening many flood fields (and hence floodplain agriculture) that have been the source of livelihood for thousands for families in the lower reaches of the Zambezi in the districts of Mutarara, Caia, Marromeu, Chemba and Tete.
  • A framework for compensation for the 1400 people projected to be displaced by the project still remains hazy. The level of participation of the affected households given their low bargaining power needs the facilitation of external agencies especially civil society organizations and a strong regulator. Both are currently missing.
  • The project falls into the Zambezi Valley Authority and is eligible for wide ranging investment incentives. The level of local industry stimulation and the downstream benefits are still to be clearly spelt out.
  • Greater public discussion and debate on the project in view of the current high information asymmetries especially between a keen civil society and an over cautious government.
  • In view of the low prices being fetched on HCB exports to South Africa (US$) compared against a unit generation cost of $0.027/kWh, energy pricing levels within the SAPP are likely to be the eventual determinant on whether Mphanda Nkuwa goes ahead or not.
On the whole, Mphanda Nkuwa will not directly benefit most of the Mozambican people in the short term, but has the potential to do so in the medium to long term contingent on the above mentioned issues being addressed. However, if these issues are not addressed then the project could result in an unequal distribution of costs and benefits alongside heavy social and environmental impacts.

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