Mozal needs efficiency at the port

: ALUMINIUM by Victor Mallet: Aluminium 'mega-project' provides boost to the economy, but its backers want harbour improvements before another phase

The Dollars 1.34bn Mozal aluminium smelter under construction near Maputo would be a big project for any country, but for Mozambique its economic significance is enormous: when it is producing aluminium at its full capacity of 250,000 tonnes a year, Mozal will use twice as much electricity as the whole of Mozambique consumes today.

Mozal, the first of a series of planned "mega-projects", is the linchpin of the country's strategy for attracting foreign investment and a drawcard for the cross-border Maputo Development Corridor linking the South African industries around Johannesburg with Maputo, their nearest port.

The plant, occupying an area equivalent to 300 soccer pitches carved out of the bush, is more than half-finished and is expected to be producing aluminium for export by late next year. So far it is ahead of schedule and below budget.

The advantages of this for shareholders and lenders are clear. Billiton, the London-listed natural resources group, has 47 per cent of the equity, with Japan's Mitsubishi holding 25 per cent, South Africa's Industrial Development Corporation 24 per cent, and the Mozambique government 4 per cent in preference shares. Sources of finance include export credit agencies and the International Finance Corporation, the private sector lending arm of the World Bank.

Mozal's investors negotiated a good package of incentives for the plant and are keen to reap the benefits as soon as possible. Electricity, the main cost in aluminium production, is cheap and plentiful in southern Africa. As for tax, Mozal will pay just 1 per cent of its turnover to the government for the life of the project.

But the success of Mozal is even more critical for Mozambique itself, which is emerging from years of poverty and civil war, and now is one of the world's fastest-growing economies.

"Mozal is serving as a catalyst," President Joaquim Chissano said at a recent summit of southern African leaders, "because it is an example which the whole world can see, and therefore believe that it is possible to venture large sums in Mozambique."

The project has already produced tangible benefits for Mozambique. At present, the peak of the construction effort, there are almost 9,000 workers at Mozal, 70 per cent of them Mozambicans. More than 5,000 people have been trained in basic building skills. When the plant is operational it will employ 800 staff, 700 of them local.

Mozal, furthermore, is to be the core of a new industrial park and is spending Dollars 50m (some of which it will later recoup from the state and from harbour dues) on developing infrastructure such as roads and a dedicated quay at the port of Matola, in the estuary a few kilometres upstream of Maputo.

The company and the government are seeking to help Mozambican contractors - which have had only a modest input in the rapid construction of the plant - to supply Mozal with quality goods and services. "Mozal has a huge buying power during construction and will have a huge buying power during operations," says Rob Barbour, Mozal chairman. "Local industry," he says, "will have to get up to speed to be world competitive." There are also opportunities for investors from Mauritius and elsewhere to use some of Mozal's output to make aluminium products.

If all goes well Mozal may double the size of the plant to produce an annual 500,000 tonnes, and the construction has been planned with that possibility in mind.

But Mozal's shareholders have made no secret of their desire to see the efficiency of the state-run Maputo port improved before they take such a momentous investment decision.

Proximity to a good port is vital to the viability of the smelter. Alumina is shipped from western Australia to Billiton's operations in Richards Bay, South Africa, and will soon be going to Mozal too. The aluminium then has to be shipped out. Maputo has never been an ideal harbour - it is shallow, prone to silting and needs to be dredged - but it can operate much more efficiently than it does at present.

"Many of the facilities are run-down - the cranes, the tugs," says Mr Barbour. "I don't think there are any pilot boats . . . in the longer term we are very concerned that this harbour is privatised to make sure that it can operate efficiently." He adds: "The problem is that they are in a state of limbo because they know it's going to be privatised - but it's not privatised."

Another unexpectedly severe problem for Mozal has been the high incidence of malaria. No fewer than 3,500 cases have been recorded at the company's clinic, and six people have died. "That is a lot of malaria," says Mr Barbour. "In the long term if we are to do business in this country we have to do something about reducing malaria."

Mozal also faced obstacles in securing land for staff housing and resettling people moved from what is now the construction site. And there have been occasional strikes and protests by Mozambican workers.

The real challenge, however, remains the harbour, where a proposed management deal for Mersey Docks, of the UK, has been delayed for more than a year. In the short term, big ships will probably offload part of their cargo of Australian alumina at the deep-water port of Richards Bay before steaming up the coast and - thus lightened - delivering the rest to Mozal.

In the longer term, improvements to Maputo port are essential, especially if the Mozal expansion is to proceed. "When we double up, the desire to bring big ships directly here gets greater and greater," says Mr Barbour.