Mozambique - Cahora Bassa Dam Agreement Signed

UNCLAS MAPUTO 001409

SIPDIS

SIPDIS

AF/S FOR HTREGER AND JMALONEY
JOHANNESBURG FSC FOR RDONOVAN
JOHANNESBURG TDA FOR DSHUSTER
USDOC FOR RTELCHIN
MCC FOR SGAULL
USAID FOR AA/AFR AND AFR/SA

E.O. 12958: N/A
TAGS: EFIN EINV ENRG PO CH MZ
SUBJECT: Mozambique - Cahora Bassa Dam Agreement Signed

Ref: 05 Maputo 1449


1. On October 31, in Maputo, Portuguese Prime Minister Jose
Socrates and President Armando Guebuza signed an agreement
under which Mozambique will acquire from Portugal an
additional 67 percent of the shares of the Cahora Bassa dam
operating company, Hidroelectrica de Cahora Bassa (HCB).
Mozambique will own the shares once the GRM pays Portugal
$950 million, which the agreement stipulates Mozambique must
do within a year. Portugal currently holds 82 percent of
the shares of HCB and Mozambique 18 percent; after the sale,
Mozambique will own 85 percent.


2. The agreement comes almost exactly one year after
officials from the two governments signed an MOU in Lisbon
on November 2, 2005, on transferring ownership (reftel).
Under the MOU, the transfer agreement was to have been
signed within two months. However the European Union's
statistical body, Eurostat, delayed the signing as it
carefully reviewed the MOU to see whether Portugal had
accounted properly for the transaction in a way that would
allow it to comply with its EU budget targets. In the end,
according to press reports, Eurostat chose to view the sale
as the privatization of a Portuguese asset rather than a
form of debt forgiveness to Mozambique. (Note - the
Portuguese orginally wanted $2 billion for the dam, but
later agreed to sell it for just $950 million. End note.)


3. According to press reports, Mozambique intends to pay the
$950 million to Portugal by borrowing against future
electricity sales. In 2004 Mozambique earned just over $100
million in electricity exports from the dam (more recent
figures are not yet available). More than half of the dam's
current generating capacity of approximately 1800 megawatts
goes to South Africa - 1100 megawatts. Zimbabwe purchases
another 450 megawatts. The remainder is used within
Mozambique.


4. Comment: President Guebuza declared the agreement
"removed the last redoubt of foreign domination" of the past
500 years, while at the same time praising the Portuguese
for their success in winning Eurostat flexibility. He also
pointed to the future, noting the agreement opened "great
perspectives for the national energy sector." Guebuza
doubtless was referring to plans to construct another dam 70
kilometers downstream on the Zambezi river at Mepanda Ncua,
with more than $2 billion in already promised Chinese
funding.

Raspolic