Mozambique plans to end half a century of supplying hydroelectric power to South Africa's state-owned electricity company, increasing the risks for the continent's most industrialized economy and threatening the viability of Africa's second largest aluminium smelter.

In the country's energy transition strategy, yet to be published, a copy of which Bloomberg has had access to, Mozambique details the plan to guarantee the 1,150 megawatts of energy it sells to South Africa from its Cahora Bassa plant for its own use.

"The main short-term hydro priority is the repatriation of electricity from the Cabora Bassa Hydroelectric Plant currently exported to South Africa" when the contract ends on December 31, 2030, indicates the government document consulted by Bloomberg. Mozambique's energy ministry did not respond to a request for comment.

The decision creates a headache for both South Africa - which is struggling with power cuts that are holding back economic growth - and South32 Ltd, which operates the Mozal aluminum smelter near Mozambique's capital, Maputo, but uses electricity bought from the South African company Eskom Holdings SOC. Ltda.

Also according to Bloomberg, South32 needs around 900 megawatts of electricity to produce Mozal's aluminum, which the company markets as having been produced with clean energy.

As the Mozambican grid is not connected at national level, Mozal - which produced 345,000 tons last year - is unable to obtain a direct supply of energy from Cahora Bassa (HCB).

Instead, the 2,075 megawatt plant - Africa's third largest in terms of hydroelectric power - sends electricity along 1,400 kilometers (870 miles) of transmission lines to Eskom in South Africa, which then sells power to Mozal.

The sales agreement has been in force since 1979, when the last turbine was completed.

"HCB's electricity is cheap and clean," the government said in the strategy document. "Important decisions will have to be made regarding the final destination of HCB's clean energy trade.

However, Eskom said it was unaware of the desire not to renew the contract.

If the contract is not renewed, Eskom may have to buy energy elsewhere and South32 will have to find another source of electricity, preferably from renewable sources.

Thus, it will not be subject to EU taxes on exports under the bloc's carbon border adjustment mechanism, which levies duties on carbon-intensive goods such as fertilizers, cement, iron, steel and aluminium imported into the bloc.

South32's supply agreement with Eskom expires in 2026. The company has formed a working group with Eskom, HCB and the Mozambican government to extend the contract "as there are no viable alternative suppliers of renewable energy on the scale required," it said in its 2023 sustainable development report.

Although Mozal buys power from Eskom, which produces almost all of its energy from coal, there is no guarantee that it will be the same electricity transmitted from Cahora Bassa. South32 has also proposed to ring-fence power from South Africa's only nuclear power plant for its Hillside aluminum smelter in that country.

(Bloomberg).