Australia’s South32 considers the energy tariff proposed for the Mozal aluminum smelter to be “totally unsustainable,” thus justifying its closure on March 15, without ruling out reactivating Mozambique’s largest industry if conditions change.
In a recent call with Australian investors, the transcript of which Lusa had access to on Friday, March 6, involving the presentation of the latest results of the group that leads Mozal and other smelters, South32 CEO Graham Kerr explained that the “only formal offer” for energy supply by South Africa’s Eskom was almost $100 per megawatt-hour (MWh), when “outside China, less than 1%” of smelters have contracts above $50 per MWh.
He acknowledged that the proposal made the operation in Maputo, one of the largest smelters in Africa, “totally unsustainable,” since energy represents “one-third of Mozal’s cost structure.” This smelter needs 950 MWh to operate 24 hours a day, which is still guaranteed by Cahora-Bassa Hydroelectric (HCB), through South Africa’s Eskom, whose supply contract ends this month.
The maximum price accepted by South32 was $51 per MWh: “For us, that was the limit. Eskom cannot match that and has never come close.”
According to the Australian group, the government’s official explanation is the drought that has left the Cahora-Bassa reservoir in Tete, in the center of the country, with reduced water storage.
“Around this time last year, they started telling us that after two years of severe drought, they didn’t have the capacity to supply Mozal’s energy needs. It would probably take at least two years for the reservoir to refill, and then they still have some maintenance they need to do, which means we probably won’t have full power for the next two to four years,” Graham Kerr explained.
“We would not consider moving toward a total shutdown until HCB’s energy contract and its future were clarified, because when they return to full operation, they will have a lot of energy and few customers. Therefore, this may become viable again in the future.”
Graham Kerr – Chief Executive Officer of South32
For this reason, he stressed, the plant will be suspended, with only maintenance, from March 15, which represents a cost of $5 million per year. “The estimate for closure and rehabilitation is about $119 million,” he also said, adding that the company has always worked “closely” with the government.
“We would not consider moving forward with a total closure until HCB’s energy contract and its future were clarified because, when they return to full operation, they will have a lot of energy and few customers. Therefore, this may become viable again in the future,” Graham Kerr acknowledged, while admitting that the ‘challenge’ of “restarting a smelter” is “very difficult.”
In the current scenario, South32’s chief executive admits the “major impact” on people: “Approximately four to five thousand depend on this, including contractors, our workers, and another indirect impact on about 20,000 people. That’s almost one in three jobs in Maputo. It probably represents 3.9% of the country’s Gross Domestic Product (GDP).
“A significant loss” for Mozambique, he admitted, in a scenario where the suspension from March 15 was already inevitable in February, even if a new energy supply contract were to be signed immediately, because it had stopped buying raw materials since December.
An outcome that, according to the director of South32, comes after about 80 “interactions” in recent months with companies and governments in South Africa and Mozambique, admitting that this is the phase of “running the factory to the end of its useful life” and “managing” the workers, who are the target of collective dismissal.
Graham Kerr pointed out that South32 has been working on the new energy contract for five years: “I think there is still a perception that you can easily turn an aluminum smelter on and off, and it’s not like that at all.”
Still on the possibility of resumption, in addition to the technical difficulties and the slowness of the process of reactivating a smelter, in this case with 576 vats, Kerr questions what energy contract would make it possible to do so.
“Clearly, what Eskom has available to sell today is not economically viable. I think we can expect the Cahora Bassa reservoir to return to the necessary levels, but they have indicated to us that they would only be able to supply low levels of energy for the next two, maybe four years. That would be a long time for Mozal to be out of operation and then try to restart it,” explained the manager.
