Contracted-Central Termica de Temane

Who is our client? 

The Borrower, a special purpose vehicle Central Termica de Temane (the “Project”) is a 450 MW combined cycle gas-fired power plant. The Project ownership consists of 85 percent by Mozambique Power Invest (“MPI”) and 15 percent by Sasol Africa Proprietary Limited (“Sasol Africa Limited”). MPI is owned 60.8 percent by Globeleq Africa Holdings Limited (“Globeleq”), 15.2 percent by EleQtra Limited (“EleQtra”) and 24 percent by Electricidade de Moçambique (EDM). 

Funding Objective 

FMO will provide long-term funding of up to USD 38.25 million that is not commercially available in Mozambique, for the construction and operation of the Project. FMO is providing a B-loan following IFC.

Why we fund this project.

The Project, together with the associated Temane Transmission Project, is expected to increase the supply of low-cost electricity in Mozambique which helps to meet the growing domestic demand. In addition, it supports the implementation of the country's ambitious electrification program, with important economy wide impacts. The Project also contributes to optimizing system power generation costs in Mozambique and will facilitate the addition of new renewable energy options in the medium- to long-term. At the regional level, the proposed investment will deepen the integration of the Southern African power market by increasing the supply of affordable and reliable energy. This can be deployed as either baseload or peaking power, and that will improve liquidity on the regional competitive market. 

Assessment against the transition criteria 

FMO believes the Project is consistent with our Position Statement on Phasing Out Fossil Fuels from Direct Investments in which FMO recognizes that as part of the energy transition from fossil fuel to renewable-based systems, some fossil fuel investments may still be required. This Project is consistent with the transition period’s intention to ensure flexible, dispatchable, non-intermittent power. It is core to building a reliable electricity sector and access to energy in Mozambique, where less than 35% of the population has access to electricity. FMO considers that the five transition criteria for gas-based power generation are met based on our review of publicly available information.

Mozambique is a Least Developed Country by the UN Classification of Least Developed Countries (LDCs) that also ranks as the country with the largest power generation potential in the 

Southern Africa region. Sources for this generation include coal, gas, wind, and solar photovoltaic energy, with hydropower currently dominating the energy generation in Mozambique (81%). 

Mozambique’s power sector faces key challenges, highlighted by the UNDP and UNCDF report in a 2021: (i) the lack of reliable and efficient electricity supply; (ii) the need for expansion of generation and transmission to meet future energy demand; and (iii) the provision of electricity to most of the population (overall electricity access rates standing at around 33% in 2019). Electricity demand is expected to grow over 7% per annum, further increasing the need for new reliable capacity to meet demand.  

The role of the Project in support of the Temane Transmission Project and in providing the potential for both baseload and peaking power cannot be fully met by alternative renewable generation sources today. The closest possibilities technically are reservoir hydropower and solar power together with storage. While additional reservoir hydropower will likely be constructed in the future, the addition of the Project today provides needed diversification of generation capacity, in particular making Mozambique’s grid more resilient to climate events such as drought, which is increasingly frequent in Mozambique and expected to further increase with climate change. Solar power plus storage would be an excessively expensive alternative approach to addressing baseload and grid flexibility needs at the scale required. This is given the excessive cost (per kilowatt-hour) of energy storage and the required infrastructure upgrades needed to accommodate large-scale integration of renewables into the grid.  

Mozambique is a signatory to the Paris Agreement. In 2018, Mozambique submitted its Intended Nationally Determined Contribution (INDC), where the country has formulated its intent to contribute to reduce GHG emissions by 2030. For energy, Mozambique references its Master Plan for Natural Gas (2014 -2030) as a policy measure to facilitate its transition to a lower carbon development pathway. The Project is a part of the overall energy strategy of Mozambique, providing additional baseload power and peaking power as required in the future. In the first years, the Project is expected to export power to the Southern African region through the Southern African Power Pool (SAPP) and bilateral agreements. This will provide additional export revenue to Mozambique’s power sector for further electrification efforts, and much needed additional baseload and peaking power to the region helping with the integration of additional renewable energy going forward.

The Project is also an integral part of the planning for the expansion of the national grid (the “Temane Regional Electricity Project”), the first of three parts of the major backbone infrastructure of the country to connect the southern part of the country to the northern. Mozambique is committed to expanding its renewable energy program in the future, recently commissioning two 40 MW solar plants with a third solar power plus storage project expected to commence in 2021. The Project provides ancillary services that will assist Mozambique with their continued ambitions to expand access to electricity and integrate renewables into the supply mix.

Combined-cycle gas turbine technology has a materially smaller carbon footprint (19%) than the closest alternative considered for the Project, being open-cycle gas technology, while still addressing the sector needs of system balancing, baseload and meeting peak demand. With the planned use of the plant (baseload plus peaking), this is the lowest emission gas generation technology that could be deployed. 

Environmental and social rationale 

This is a Category A project in consideration of potentially significant and diverse environmental and social risks related to the project construction and operations.

Key environmental and social considerations relate to (i) ensuring the contractors comply with the environmental and social management system and associated obligations and plans for construction including aspects related to occupational health and safety; (ii) contractor compliance with IFC Performance Standard 2: Labour and Working Conditions; (iii) air emissions, (iv) liquid effluent discharges, (v) community health safety and security, including emergency response for all project components; (vi) community health and safety impacts, (vii) operations are in accordance with good international industry practice (‘GIIP’), (viii) biodiversity, (ix) 10 barge deliveries over a 7-10 month period during construction, (x) population influx and (xi) limited involuntary resettlement.

The Project will be located within the long-established gas field area, adjacent to Sasol’s central processing facilities. The impacts and risks of the plant during normal operations are unlikely to pose significant risk to the surrounding environment or communities. The project will be managed in accordance with IFC Performance Standards 1-6. With regards to PS7 (Indigenous Peoples) and PS8 (Cultural Heritage) no Indigenous Peoples have been identified within the project area of influence and no impacts to cultural resources have been identified to date. The project’s EPC contractor is required to develop a chance finds procedure if archaeological/ cultural resources are identified during construction or operations.