Bloomberg News

Vale May Sell Power From Mozambique to South Africa

October 05, 2006

Cia. Vale do Rio Doce, the world's biggest iron-ore producer, may sell electricity from a coal-fired power plant it plans to build near the Moatize deposit in northern Mozambique to South Africa's Eskom Holdings Ltd.

While Eskom declined an offer to buy a stake in the project, it wants to buy power, said Eskom Chief Executive Officer Thulani Gcabashe. The company will continue talks with Rio de Janeiro-based Vale and state-owned utility Electricidade de Mocambique, he said.

``We've talked to CVRD directly on this issue,'' Gcabashe said today in an interview in Johannesburg, without giving details. ``They opened the possibility of equity, but our view is that we'd rather'' buy the power, he said.

Eskom wants to buy electricity after power cuts earlier this year in Johannesburg and Cape Town, South Africa's largest cities, shut oil refineries, halted textile mills and plunged millions of homes into darkness. Vale is seeking to expand outside Brazil, and Moatize will allow it to export coal to steelmakers and generate power for sale to Eskom.

Vale's Chief Executive Officer Roger Agnelli confirmed the companies are in talks and that the Brazilian company hopes to sell power to Eskom. Vale expects to build a power station to burn thermal coal and coal dust, which it can't sell for a profit or transport from the mine, Agnelli told reporters at the company's Brucutu mine in Sao Goncalo do Rio Abaixo, Brazil.

``To increase our efficiency we need to burn this coal on site and hope to sell the electricity to clients in Mozambique or via a transmission line to South Africa,'' Agnelli said.

Contract

Vale, which has yet to complete its study into the viability of the project, has already awarded the contract for the design of the mine's plant to Johannesburg-based Semane Consulting Engineers. Moatize will produce 21 million metric tons of coal a year, making it the southern Hemisphere's largest coal mine, Semane Chairman Joel Mokgohlwa said on Aug. 17.

Vale is ``practically ready'' to move ahead with the mine project, Claudio Scliar, secretary of geology, mining and mineral manufacturing at Brazil's Mining Ministry, said in an interview.

Scliar, who spoke at the Brucutu iron ore mine in Brazil's central highlands, and Vale officials toured the proposed Mozambique mine site and met with government officials last month.

The Brazilian company plans to start producing coal at Moatize next year and export about 9 million tons, Abdul Razak Noormahomed, Mozambique's deputy mines minister, said Feb. 7.

Coal Plants

Eskom supplies 95 percent of South Africa's power, equivalent to half of all the power consumed in Africa. More than 90 percent of its production comes from coal-fired power plants, most of which are built on South Africa's coal-fields, east of Johannesburg.

The state-owned utility this year started a 97 billion-rand ($12 billion) project to build new power stations over the next five years in a bid to keep pace with the expansion of Africa's largest economy. Growth accelerated to a 21-year high of 4.9 percent in 2005 with the expansion of the world's biggest platinum industry helping to fuel demand for power.

The Moatize power plant and another being built in Botswana by Toronto-based CIC Energy Corp., feature in Eskom's future capacity plans, Gcabashe said. Neither will be viable unless they sell power to South Africa, he added.

To contact the reporter on this story: Stewart Bailey in Johannesburg sbailey7@bloomberg.net

To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net


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