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Congo nears Eskom power-supply contract to boost copper output

24th April 2017

By: Bloomberg

  

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LUBUMBASHI – The Democratic Republic of Congo (DRC) signed a provisional agreement to import power from South Africa that could boost copper production this year by as much as 20%, according to the country’s chamber of mines.

State-owned power company SNEL proposed importing 200 MW from South African utility Eskom Holdings at meetings in Johannesburg on April 20 and April 21, said Ben Munanga, chairperson of the energy commission at the chamber.

Eskom has 1 000 MW available for export for as long as ten years, but only 200 MW can be delivered to the DRC because of grid constraints in the transmission network between the two countries, Munanga said Saturday in an interview in the DRC capital, Kinshasa. Still, that could help to boost Congo’s copper output by as much as 200 000 metric tons, Munanga estimated.

“There’s a deficit so any effort to bridge the gap is very welcome,” said Munanga, who attended the first day of the meetings.

The DRC, Africa’s biggest copper producer, has installed power-generating capacity of 2 442 MW, but only about half of that is operational after years of mismanagement and under-investment. SNEL estimates that demand from copper miners outstrips supply by 750 MW, a shortfall that has been one of the biggest constraints on output growth in the past three years. The DRC produced a record 1.03-million tons in 2014, but output has been little changed since then, falling to 995 805 t in 2015 before climbing back to 1.02-million tons last year.

TERM SHEET
SNEL confirmed that the utility signed a term sheet with Eskom outlining the main points for a 200 MW contract, with a view to concluding a renewable, five-year power-supply agreement soon.

“We still have a few years to go before we have new hydropower capacity on our network so if we have such an opportunity to buy we are going to take it,” SNEL spokesperson Medard Kitakani said by phone from Kinshasa on Monday, adding that the offer from Eskom was unexpected.

Eskom said a deal may be signed next month.

“We are in discussions,” Eskom spokesperson Khulu Phasiwe said by phone. “If they go well, we will be signing the deal before the beginning of June.”

Eskom will sell the power to SNEL, which will add mark-up and transit fees, before redistributing to the miners. This could increase the unit cost to mining companies by as much as 27%, but it’s still preferable to the alternatives, Munanga said.

'NO-BRAINER'
“If you compare the cost of imported power to the cost of diesel it’s a no-brainer,” he said.

Mining companies including Glencore’s Mutanda Mining and China Minmetals Corp have installed diesel generators to top up power supply for copper production, which can increase costs by as much as $1 000/t, according to the chamber of mines. Copper traded 0.7% at $5 660/t on the London Metal Exchange at 7:32 a.m.

Kitakani said SNEL’s mark-up and transit fees would be negotiated with the miners and defended the utility’s right to make a margin on the power contracts.

Eskom is ready to export the power as soon as June 1, but the negotiation of amended power-purchase agreements between SNEL and the mining companies is expected to take longer, Munanga said. SNEL’s failure to deliver on previous power contracts has damaged trust between the utility and the miners, who will be reluctant to finance SNEL acquiring the electricity from Eskom without guarantees that onward delivery to each mining project will be respected.

“If SNEL was a healthy organization that could import power itself and then redistribute it wouldn’t be as difficult,” said Munanga. “We think two months is the minimum.”

Edited by Bloomberg

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