Congo Nears Eskom Power-Supply Deal to Boost Copper Output

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

Congolese state-owned power company SNEL proposed importing 200 megawatts from South African utility Eskom Holdings SOC Ltd. at meetings in Johannesburg on April 20 and April 21, said Ben Munanga, chairman of the energy commission at the chamber.

Eskom has 1,000 megawatts available for export for as long as 10 years, but only 200 megawatts can be delivered to Congo because of grid constraints in the transmission network between the two countries, Munanga said Saturday in an interview in the Congolese 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.

Congo, Africa's biggest copper producer, has installed power-generating capacity of 2,442 megawatts, 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 megawatts, a shortfall that has been one of the biggest constraints on output growth in the past three years. Congo produced a record 1.03 million tons in 2014, but output has been little changed since then, falling to 995,805 tons in 2015 before climbing back to 1.02 million tons last year.

Term Sheet

SNEL confirmed that that the utility signed a term sheet with Eskom outlining the main points for a 200-megawatt 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 spokesman 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,” spokesman 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 percent, 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 Plc's Mutanda Mining Sarl and China Minmetals Corp.'s MMG Ltd. have installed diesel generators to top up power-supply for copper production, which can increase costs by as much as $1,000 per ton, according to the chamber of mines. Copper traded as much as 1.1 percent higher at $5,686.50 on the London Metal Exchange by 1:29 p.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.”

Negotiations will begin this week between SNEL and the mining companies, who must decide how much power they are each prepared to take, according to SNEL.

“We have been very transparent with these mining companies by inviting them to join the meetings in South Africa,” Kitakani said. “The timing of an agreement will now depend on them.”

--With assistance from Aarti Bhana

To contact the reporter on this story: Tom Wilson in Lubumbashi at twilson128@bloomberg.net.

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Michael Gunn