Pipeline benefits Mozambique, South Africa

Pipeline carrying natural gas from Mozambique to South Africa: Regional project carries big benefits for both countries.

Photograph: Panos / Trygve Bolstad

There are some 3,000 bn cubic feet of natural gas in two Mozambican fields, but the country has no market for it. South Africa, across the western border, has a staggering annual demand for 120 mn gigajoules (gj) of electricity, but no gas to generate it.

In 2003, a partnership between the two countries and some $1.2 bn investment by Sasol, a South African synthetic fuel manufacturing company, brought the construction of an 865-kilometre pipeline. Since then, it has ferried gas from the Temane and Pande fields in Mozambique to a distribution network in Secunda, South Africa. It is a deal that benefits both countries.

Most African countries are small, both in population and in per capita income. Many cannot, by themselves, afford the exorbitant costs of setting up infrastructure for small domestic markets. Pooling resources, says the African Development Bank (ADB), 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.

“This pipeline is welcome,” says Arsenio Mabote, chairman of the Instituto Nacional de Petróleo, Mozambique’s petroleum and gas regulatory authority. “It will boost Mozambique’s efforts to fight poverty.” The partnership, he adds, allows both countries to generate revenue that can improve citizens’ lives.

The gas partnership is forecast to boost Mozambique’s gross domestic product significantly. The Mozambican government will receive some $2 bn in royalties and taxes over the project’s 25-year lifespan. The collaboration will provide South Africa with a steady stream of gas for a quarter of a century, based on projected production and consumption rates. Clean natural gas from Mozambique will not only help stimulate the South African economy, but will also help reduce pollution as the country seeks to clean up its dirty industries.

South African President Thabo Mbeki (left) and then Mozambican President Joaquim Chissano at the opening of the gas pipeline.

Photograph: Reuters / Juda Ngwenya

‘Charting a new path’

South African President Thabo Mbeki, one of NEPAD’s architects, emphasizes that the two countries, despite resource constraints, face a common challenge to attain development and prosperity for their citizens. “Through NEPAD,” Mr. 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.”

The partnership comes at an important phase in Mozambique’s history. A 16-year civil war turned the beautiful country into one of the poorest nations in the world. But since the war ended in 1992, Mozambique has had one of the world’s most rapidly growing economies, reports the African Economic Outlook 2005, an annual publication of the ADB and the Organization for Economic Cooperation and Development. Reconstruction aid and foreign investment in natural resource-based projects are driving the growth.

Overall, South Africa has invested about $4 bn in Mozambique, according to official South African government estimates. Fifty-seven per cent of Mozambique’s imports emanate from South Africa (and account for 18 per cent of South Africa’s total exports to Africa). About 26 per cent of Mozambique’s exports are destined for South Africa. South Africa is thus Mozambique’s largest foreign direct investor and trade partner.

Sasol is the sole investor in the pipeline. The two governments have an option to acquire a combined 50 per cent ownership, Johann van Rheede, Sasol’s media manager, told Africa Renewal. Initially, all the gas will be exported to South Africa. The Mozambican government is entitled to 1 mn gj of natural gas per year, but this will likely be provided in cash while the government develops uses for the gas.

Mozambique’s plans, says Mr. Mabote, focus on “projects that will improve the lives of people, so that they understand why gas is important in their lives.” Among other uses, the gas will be tapped to generate power for communities along the pipeline’s route. The country is also exploring opportunities to boost small rural businesses by providing them with gas for heating or lighting, or for processing their products. Gas will be used to feed smelting plants for aluminum and other minerals.

Some have expressed concern that the deal favours South Africa. Dismissing such criticisms, former Mozambican President Joaquim Chissano has argued, “The two leaderships are committed to African integration, so we are not afraid of hegemony and we take this to be the policy of the private sector in both countries. There is no spirit of hegemony, but one of partnership.”

Other concerns centre on the pattern and sustainability of Mozambique’s economic growth. Capital-intensive mega-projects, notes the African Economic Outlook, generate few spillover benefits for much of the rest of the economy. Despite the impressive growth rate, unemployment and poverty remain critical problems in Mozambique.

Benefits to people

“The venture, at peak, spawned 2,400 job opportunities in Mozambique,” says Mr. van Rheede. Mozambicans fill the bulk of the 238 current permanent jobs created by the project. Sasol, he adds, injected $5 mn towards community welfare along the pipeline route in Mozambique — drilling boreholes for clean water and refurbishing schools and clinics. The Industrial and Commercial School in Beira, Mozambique, was reopened in 2002 after $700,000 in renovations sponsored by Sasol.

Zefanias Tovela, who benefited from a programme to spray his cashew nut trees against insects, says contributions by Sasol will improve his family’s wellbeing and help him produce bigger crops. “I will have income to educate my children,” says the farmer, who has 15 children. “We have surplus maize and peanuts because it has rained well, and with the added support of Sasol, hunger is far away.”

The project is expected to boost Sasol’s annual sales as its customer base grows in both Mozambique and South Africa. Natural gas helps diversify the sources of energy the company uses in the production of synthetic fuels, at a time when South African industries are struggling to meet tighter global demands for a cleaner environment. Sasol is replacing about 5 mn tonnes of coal per year at its Sasolburg plant. But profit and support for “green” energy are not the only factors driving the company’s enthusiasm, says Mr. van Rheede. “Sasol is proud to contribute to the NEPAD vision.”