/ 1 November 2007

SA-Mozambique pipeline fuels regional growth

It was a problem with an obvious but expensive solution. Mozambique contained about 90-billion cubic metres of natural gas, but lacked the technical capacity and domestic market to exploit it. Energy-hungry South Africa, across the western border, faced soaring demand for electricity but had no gas with which to generate it.

The solution was found in 2003, when an agreement between the two countries and a $1,2-billion investment by Sasol, a South African synthetic-fuel manufacturing company, brought the construction of an 865km pipeline that links supply to demand in a deal that benefits both countries.

The pipeline is forecast to boost Mozambique’s already booming economy significantly, with the government slated to receive about $2-billion in royalties and taxes over the project’s 25-year lifespan. Despite the recent growth, unemployment and poverty rates remain high.

The collaboration will provide South Africa with a steady stream of cleaner energy and reduce pollution as the country seeks to clean up its dirty industries. Sasol estimates it would have to burn five million extra tonnes of coal per year were it not for Mozambique’s gas.

The company is the sole investor in the pipeline, although the two governments have an option to acquire a combined 50% ownership, says Johann van Rheede, Sasol’s media manager.

Initially, all the gas will be exported to South Africa. The Mozambican government is entitled to some of the gas, but this will likely be sold while the government develops uses for it. The gas can be tapped to generate power for communities along the pipeline’s route and possibilities include boosting rural businesses by providing them with gas for heating or lighting or for processing their products. Gas can also be used to fire smelting plants for aluminum and other minerals.

Short-term, long-term benefits

“This pipeline is welcome,” says Arsenio Mabote, chairperson of the Instituto Nacional de Petróleo, Mozambique’s petroleum and gas regulatory authority. “It will boost Mozambique’s efforts to fight poverty.”

“The venture, at peak, spawned 2 400 job opportunities in Mozambique,” says Van Rheede. Mozambicans also fill the bulk of the 238 permanent jobs created by the project. Sasol, he adds, injected $5-million towards community welfare along the pipeline route — drilling boreholes for clean water and refurbishing schools and clinics.

The pipeline also demonstrates the benefits of greater regional economic integration. Many countries cannot afford large infrastructure investments for their small domestic markets, says the African Development Bank.

Pooling resources enables countries to share costs for the benefit of all involved. African leaders in July 2001 adopted the New Partnership for Africa’s Development (Nepad) to provide a framework for countries to build strong ties with each other and accelerate economic growth.

South Africa’s President Thabo Mbeki, one of Nepad’s architects, emphasises that African countries face a common challenge to attain development and prosperity for their citizens.

“Through Nepad,” Mbeki asserts, “we are charting a new path for the regeneration of our continent, to ensure that we harness our skills, expertise, talents, resources and natural riches to bring a better life to all Africans.”

“Nepad helped bring the pipeline deal together,” notes Van Rheede. “Sasol is proud to contribute to the Nepad vision.”

Former Mozambican president Joaquim Chissano has dismissed concerns that the deal favours South Africa. “The two leaderships are committed to African integration … We take this to be the policy of the private sector in both countries. There is no spirit of hegemony, but one of partnership.”

The project comes at an important phase in Mozambique’s history. Sixteen years of war turned the country into one of the poorest nations in the world. But since the fighting ended in 1992, Mozambique has had one of the world’s most rapidly growing economies. Reconstruction aid and foreign investment in natural resource-based projects are driving the growth, much of it from South Africa.

Overall, South Africa has invested about $4-billion in Mozambique, according to official South African government estimates, and is Mozambique’s largest economic partner. Fifty-seven percent of Mozambique’s imports come from South Africa — 18% of the country’s total exports to Africa. About 26% of Mozambique’s exports are destined for South African consumers.

Reprinted from UN Africa Renewal