Exclusive: Malawi’s shocking energy gap

It is supposed to be Malawi’s next best thing, but can it be? While government has issued hundreds of mining licences and is touting the sector as its foreign exchange knight in shining armour to rescue a negatively imbalanced current account, it all sounds like a big joke as The Nation exposes the devil in the detail—a shocking energy gap currently constraining mining projects from taking off.

Picture this: According to a recent paper by the Ministry of Natural Resources, Energy and Mining, the mining industry alone currently needs 752 megawatts (MW) of energy to operate, yet at normal running, Escom produces just 350MW for nationwide use.

Consequently, several multi-billion kwacha mining projects are failing to start in earnest due to inadequate energy as the country’s derisory capacity to generate electricity frustrates firms’ investments, strategic and operational goals.

One such project is the heavy mineral sands mining venture and processing that needs 500MW—with 300MW demanded at Makanjira in Mangochi and 200MW wanted at a site in Salima.

Bauxite mining and processing is delaying to start due to power supply shortage as it requires 150MW.

The same challenge has paralysed niobium mining and processing, which requires 15MW that is not just coming while rare earth mining and processing’s demand of 20MW cannot just be met.

The story of uranium mining and processing by Paladin in Karonga is well documented. They need 12MW and when they saw that it would not be coming any time soon, they launched the project using diesel, which raised operating costs, although the company points out that that was not one of the reasons for the indefinite closure. It insists the plunging price of uranium was the chief factor.

Besides, the country needs 70MW more for general economic development, which is currently being suppressed due to the energy gap, according to the ministry’s paper.

What this means is that Malawi’s proven mineral wealth that could potentially transform its economic fortunes and sharply cut poverty remains deeply buried in the ground simply because the country cannot produce enough electricity to power sustainable extraction of the metals.

Not only that, the lack of ready electricity to enable investors to operate mines has greatly weakened government’s ability to negotiate for a better deal as operators use the energy gap to extract painful and expensive concessions from Capital Hill, including ridiculous tax-breaks that cost government billions of kwacha.

Geologists are worried

President of Geologists Association of Malawi, Hilton Banda, confirmed in an interview that apart from affecting the operations of the mines, the country’s low energy levels disables the country’s negotiation powers when it comes to product sharing as most of the mining companies cite energy as their problem in mining in Malawi.

“In negotiating mining licences, a country needs to have three essential things. These include exploration information, energy and experts in that field. Without these three, it is difficult for a country to come out with a better deal,” he said.

Banda said in case of Malawi, the country has archaic information of the minerals presence the country is endowed with, lacks enough experts in mining and has too little energy to drive the mining sector.

“Most of the mining information in the country is outdated. It will improve with the exploration exercise that took place early this year. The country has moved in to train a lot of people in mining engineering and production. However, our challenge still is with the energy sector,” he said.

Industry players cannot hide their frustrations

Paladin Energy Malawi general manager Greg Walker said his company has always wanted to have Kayelekera Uranium Mine connected to the Escom national power grid—without success.

He said: “This would be good for Escom, Kayelekera and Malawi. It would reduce operating costs at Kayelekera; provide Escom with a major new industrial [base-load] customer, save foreign exchange by substituting locally produced hydro-electric power for [imported] diesel generation and reduce greenhouse gas emissions.”

Walker said the absence of grid power has necessitated the generation of electricity at Kayelekera Mine using diesel-powered generators.

“This has increased the operating cost structure of Kayelekera Mine by $4-$5/lb. This was, however, not a factor in the company’s decision to suspend production at Kayelekera Mine and to place the operation on care and maintenance. This decision was based on the low prevailing uranium price, which meant that Kayelekera was a loss-making operation,” he said.

Secretary for Energy and Mining Ben Botolo admits—almost resignedly—that it is difficult to pursue mining with the current level of electricity the country is producing.

He said the energy issue ranks highly on all mining negotiations. The mining venture becomes financially unviable if you use diesel as the main source of energy in a mining undertaking, he said.

Said Botolo: “It is with this reason that government is looking at different ways of enhancing our electricity generation capacity. Government is looking at hydro, thermal, wind and solar as other means of enhancing generation capacity.”

He said government is doing feasibility studies at Fufu on South Rukuru River with potential capacity of about 120MW, Mpatamanga Gorge with a capacity of 300MW, Kholombidzo Falls with capacity of 150MW, Chimugonda with a capacity of 60MW, Kammwamba thermal power plant with capacity of 300MW.

He said there are also independent power producers (IPP) such as Intra Energy with a capacity of 120MW.

In total, Malawi has potential to produce over 2 100MW—enough to drive the mining sector and support other industries such as manufacturing and large-scale farming.

The problem, according to a Ministry of Energy official who spoke on condition of anonymity, is that feasibility studies have taken too long to be completed. He added that there is precious little political will to push the energy agenda forward.

Botolo, however, claimed government might meet the energy needs of the mining industry as most companies are, as of now, still at the prospecting and exploration stages.

He claimed: “It is only Paladin that is involved in actual mining. However, there is need to enhance our sources of power since there will be extra pressure from mining companies after release of the airborne survey sometime in January-February 2015,” he said.

Former Minister of Energy and Mining Grain Malunga said it is time Escom stopped relying on government since it is selling electricity at commercial tariffs.

“At the state Escom is in, it cannot support the mining sector, they do not have transmission capacity,” he said.

In his maiden State of the Nation Address mid this year, President Peter Mutharika touted mining as one of the major pillars of his administration’s economic plan that includes sharply cutting reliance on agriculture, which contributes over 30 percent of gross domestic product (GDP).

Mutharika said Malawi was richly endowed with high value mineral resources that constitute an important source of wealth for development and foreign exchange for Malawi.

Mining’s contribution to the country’s GDP rose from three percent in 2009 to 10 percent as at 2013, largely thanks to the Kayelekera project.

However, the President said the sector’s contribution has the potential to rise to 20 percent by 2016 due to Malawi’s unique mineral potential; hence, his government would support its growth.