Why did the World Bank put up almost $200m to help Sasol offload its stake in the Ressano Garcia power plant?
World Bank Group guarantees worth almost $200 million have allowed Sasol to offload its stake in the gas-fired Central Termica de Ressano Garcia (CTRG) power plant, in southern Mozambique close to the border with South Africa, into the hands of Azura Power, the owner of a similar power project in Nigeria accused of being “a huge suction pipe set up to siphon millions of tax-free dollars.”
Sasol completed the sale of its stake in CTRG to Azura in May 2022. To support the transaction, the World Bank’s Multilateral Investment Guarantee Agency (MIGA) issued $149.85m worth of guarantees to Azura for its equity and loans into CTRG, and to cover $36.5m in loans to the plant. This support likely boosted the value of the CTRG sale for Sasol, one of the largest green-house gas emitters in Africa.
The sale means that Azura Power is now the controlling stakeholder in CTRG. Previously, Mozambique’s electricity utility EDM had a 51% stake, with Sasol holding the remaining 49%. But EDM has transferred 5% of its stake back to CTRG to hold in treasury, meaning the state-owned utility now holds 46%, to Azura’s 49%. The 5% transfer was unpublicised by EDM, and the terms of the transaction are unknown. MIGA’s support was not conditional on the transfer taking place, but a MIGA spokesperson said “it was a transfer that MIGA supports and believes is in the best interests of EDM and the country.”
EDM did not respond to questions as to why it made the transfer, but it now means that the Mozambican state has ceded majority control of its largest operating gas-fired power plant to a private company with a controversial history in the sector.
Azura may not have seemed an obvious choice to take over CTRG given the controversy surrounding its only other operating gas power plant in Africa. Azura’s biggest project to date is the 461 MW Azura-Edo open cycle gas-fired (OCGT) power plant which started operations in Edo state, Nigeria in 2018. The project received over $895 million in World Bank finance, but analysis by the World Bank itself found that the plant was extraordinarily expensive, even by the standards of Nigerian power plants.
“The cost of the OCGT Azura project was almost double the OECD benchmark for gas turbine power plants [$978 per kW],” a 2021 report by the World Bank found. “Furthermore, comparing the [project]to other gas turbine plants in Nigeria itself, the cost of capacity for the Azura plant was still an outlier for Nigeria as well,” the report added.
The Azura power plant has become a major burden on the government’s finances. In August, Nigeria’s House of Representatives Committee on Finance expressed concern over the $33 million paid every month to Azura Power — even if Nigeria doesn’t buy power from the plant. Failure to make these payments, which are partially covered by a World Bank guarantee, would put Nigeria at risk of sovereign default.
Even before starting operations in 2018, the project had come under scrutiny. A 2017 investigation into Azura by a Nigerian newspaper and the International Consortium of Investigative Journalists described the project as “a huge suction pipe set up to siphon millions of tax-free dollars through a network of Mauritius-incorporated offshore shell companies to a number of trusts and private equity firms”.
MIGA provided guarantees of almost half a billion dollars for the Azura power plant at the time, alongside a $155m International Finance Corporation loan, and $245 million in further World Bank guarantees.
“It is very difficult to make sense out of why the World Bank, IFC, and MIGA would all put in so much funding – more than double the $350 million given for the whole World Bank solar rural electrification project – to support one gas-to-power plant when Nigeria already has several gas power plants that are running significantly below installed capacity due to gas supply issues and transmission inadequacies,” Heike Mainhardt, a senior adviser for campaigns on multilateral financial institutions at environmental and human rights organisation Urgewald, told Zitamar.
Zitamar asked Azura whether it accepted that its Edo plant was exceptionally expensive, and what were the reasons behind that; the company said that it “does not comment on these matters as a matter of policy.”
But despite local criticism of the Azura Edo IPP, the World Bank is comfortable partnering with Azura again. “We have worked with Azura and its majority shareholder [British private equity investor] Actis on a number of energy projects in Africa (including, with Actis, several renewable energy projects) and are very comfortable with their track record, both in working with government utilities and in supporting sustainable energy solutions,” a MIGA spokesperson told Zitamar.
A bad deal for Mozambique?
Gas for the CTRG power plant is supplied from Sasol’s Pande and Temane gas fields in Inhambane. EDM and Azura are keeping the terms of both the gas supply agreement, and the power purchase agreement (PPA), confidential; a poor precedent for transparency and lower power prices in Mozambique. “If governments want competitive prices, pricing needs to be transparent,” Todd Moss, executive director of the development thinktank, Energy for Growth Hub, told Zitamar.
Despite the benefits of transparency in power contracting, the World Bank has refused to disclose the terms of the PPAs for any of the power projects its institutions have supported in Mozambique.
MIGA said that CTRG provides a “stable and competitively priced source of power” for Mozambique. Local newsite A Verdade has reported that CTRG power costs EDM around US$¢8.5/kWh. This compares to ¢9.5-10/kWh from Gigawatt’s 120MW gas-fired power plant at Ressano Garcia, which also benefited from a MIGA guarantee, and ¢7.5-8.0/kWh from the Central Termoeléctrica a Gás de Kuvaninga, in Gaza province, according to sources at EDM interviewed by academics at Roskilde University, and the University of Eduardo Mondlane.
However, none of these power supply sources are competitive against supply from Mozambique’s Cahora Bassa Hydroelectric dam (Hidroeléctrica de Cahora Bassa, HCB). EDM pays around ¢1.5/kWh for the volumes of hydropower it has access to from HCB (300MW of firm supply, and 200MW of non-firm power), according to the company’s 2018-2028 Business Strategy.
However, rather than supplying low-cost power to Mozambican citizens, up to 70% of HCB’s power is sold to South Africa’s power utility, Eskom, the majority of which — 950MW — is then returned to Mozambique to supply the Mozal aluminium smelter. The power contract to supply Mozal expires in 2026, but the current owner, Australian mining company South32, is now negotiating for an extension. Mozal, the first major foreign investment in Mozambique after the end of the civil war in the 1990s, was also supported by MIGA and IFC funding — but the benefits it brings to Mozambique have also been repeatedly called into question, particularly given its exemption from paying tax on its profits.
Growing debt to gas-fired IPPs
The government’s refusal to publish the PPAs for any of the gas-fired power plants in Mozambique means the real financial burden of buying power from independent power projects (IPPs), such as CTRG, is unknown. EDM has not released company statements for the past two years, but previous financial disclosures have shown its finances are extremely weak and that the cost of buying power from gas-fired IPPs is a major source of its debt. The company’s debt to power suppliers stood at MZN26bn ($416m) in 2019, having grown 16-fold over the preceding decade according to the company’s 2020-2024 Business Plan.
EDM reported that most of this debt (MZN14,507m or $233m) is owed to gas-fired IPPs, like CTRG. This situation is likely to be exacerbated over the next few years. EDM expects the cost of energy supply from IPPs to almost treble between 2019 and 2024, from MZN16.7m to MZN48m. One source at EDM told Zitamar that EDM’s mounting debt to CTRG was one of the reasons Sasol wanted to sell out of the plant. Sasol told Zitamar the sale was “part of [Sasol’s] wider asset divestment programme, as announced in March 2020.”
Benefits to the private sector
For Claire O’Manique, public finance campaign analyst at research and advocacy organisation, Oil Change International, the CTRG deal is just another example of the World Bank prioritising the needs of private sector companies over those of the host country. “The World Bank’s recent involvement in gas sectors in Ghana, Senegal, and Mozambique has prioritised private multinationals’ profits over local energy access or domestic royalties, and this latest sale of CTRG does the same,” she said.
“Looking at the World Bank’s fossil fuel transactions between 2019-2021, the vast majority ($7.2 billion) went to fund the development of gas projects developed by the private sector — by companies like Eranove and Globeleq,” she continues. “This compares to $830 million that went to African governments — largely to provide technical support connected to the oil and gas sector.”
MIGA meanwhile defended its decision to facilitate the sale, saying it would benefit Mozambique. “There are frequently valuable benefits that accrue to a host country from bringing new investors or lenders into an operating project during its lifecycle,” a spokesperson told Zitamar, “and this is the case for the CTRG project.”
The benefits of bringing in a new investor in the plant, according to MIGA, include the fact that Azura is “willing to take measures to enhance the climate resilience of the project, so that it can withstand potential extreme weather events,” as well as to work with EDM to support its “ongoing efforts to reach financial sustainability and forge a pathway toward renewable energy options.” Sasol did not answer Zitamar’s question of whether and why it was unwilling to take those measures itself.
The World Bank Group is nevertheless still providing significant funds for Sasol to build a much larger gas-fired plant, the 450 MW Central Termica de Temane (CTT) gas-fired power plant now under construction in Inhambane. MIGA has provided up to $251.3m in political risk insurance for Sasol and Globeleq, the two private sector equity partners in the project.
According to MIGA executive vice president Hiroshi Matano, Azura’s acquisition of CTRG could “forge a pathway towards renewable energy options.” However, neither MIGA nor Azura would say how the transaction would advance Mozambique’s renewable energy plans. Mozambique’s only utility-scale renewables projects have been focused on the north and centre of the country, where they have been built without the existence of gas-fired power plants. HCB, Mozambique’s cheapest source of power, is connected to the southern grid, however.
Azura itself is not focused on green energy in Mozambique — but is developing two new gas-fired power plants in the country, in Gaza and Nampula provinces, both due to go operational in 2027.
Azura would not give a figure on how much it would invest to enhance the climate resilience of CTRG. So far, it has put in place a programme to monitor wildfires around the plant and has helped upgrade its fire-fighting system, a spokesperson told Zitamar. It did not say if it planned to make any other improvements.
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