Chapter 6 : Mozambique

Chapter 6

Manipulating gas in Mozambique

By Ruth Castel-Branco

This chapter profiles two separate but related CDM projects: the South African synthetic oil company Sasol’s gas pipeline CDM and the Cimentos de Mocambique-Matola Gas Company (MGC) fuel-switch project. Both projects are connected to the expanding natural gas industry in Mozambique. Both were submitted for approval to the UNFCCC Executive Board around the same time.

Gas has always been controversial, not least because it is still a fossil fuel (albeit less destructive than burning coal), and in some instances, such as the fracking-based extraction proposed in several South African and other African settings, likely to do far more environmental damage given the associated water despoliation and use of chemicals. In 2008 and 2009 respectively, Sasol and the MGC applied to register their gas projects under the UNFCCC CDM, in both cases arguing they qualified under amendments to the Kyoto Protocol made in Bonn in 2001 (which required a construction cut-off date of after 1 January 2000), allowing CDM funding for gas development.

But both applications were, for different reasons, rejected. By profiling these projects together, we can understand the ways in which some of the world’s worst polluters attempt to manipulate the Kyoto Protocol to expand production and maximize profit. These two projects also call attention to the important role of the environmental justice movement in challenging corporations and winning victories.

The exploding Mozambican gas industry

 

The commercial production of gas is relatively new to Mozambique. While gas was first discovered in Pande in 1961, its exploration is recent, and has been driven primarily by South Africa’s energy needs. As early as 1998, the South African energy and mining giant Sasol proposed a pipeline from the gas field of Pande and Temane in the province of Inhambane, to their petrochemical plants in South Africa. In the early 2000s, after purchasing the gas exploration rights from ENRON, Sasol formed a partnership with Mozambique’s Empresa Nacional de Hydrocarbonetas (ENH), private investors, and the Government of the Republic of South Africa, to invest US$ 2,1 billion in the production, processing and transportation of gas via a 865 km pipeline to South Africa.

In exchange for favourable macro-economic conditions, Sasol guaranteed a market for the natural gas produced in Pande and Temane for a period of 25 years. As part of the investment, a Central Processing Facility, operated by Sasol, was developed in Temane. As its operator, Sasol has a 70 percent share, Mozambique’s public ENH maintains a 25 percent share, and the International Finance Corporation (IFC) got a 5 percent share in the two fields. Meanwhile for the pipeline, Sasol maintained a 50 percent share, while the government of South Africa got a 25 percent share. In order to be able to take advantage of natural gas imports, Sasol converted its petrochemical plants from coal to gas at Sasolburg, and supplemented the coal feedstock with gas at Sasol’s larger facility in Secunda. The first gas arrived in Sasol’ Secunda plant in February 2004. Figure 6.1 illustrates the route of the pipeline.

Fig 6.1 Mozambique gas fields

 

Source: Pesa News, http://www.pesa.com.au

 

      The fields of Pande and Temane currently produce 147 million gigajoules[1] of natural gas a year. This is well above the estimated 120 million. The vast majority of this natural gas is exported to South Africa. Currently a plant is being developed in Ressano Garcia, on the border with South Africa, to convert gas into electricity. The contract between the state and Sasol stipulates that Mozambique has the right to 5 percent of production. Despite attempts by the IFC to identify local markets for natural gas, Mozambique currently consumes 3 million gigajoules a year – less than half its allotted share. Local consumption is limited to a small number of industries, as well as 20 natural gas-run busses in Mozambique’s capital city of Maputo.[2] Ironically, the country is entirely reliant on imports of cooking gas from South Africa.

The transportation of natural gas to local industries is done via the Matola Gas Company (MGC). MGC was set up in 2004 as a joint venture between the Mozambican government and private investors. It buys gas from the main pipeline at Ressano Garcia and pipes it to Matola, an industrial suburb of Maputo. The primary recipient is the aluminium smelter Mozal, but the gas is piped to smaller industrial enterprises, including Cimentos de Mocambique.

6.2 Mozambique smelter

Source: groundWork

Sasol’s CDM scam

In 2008, Sasol, one of the biggest corporate carbon emitters in South Africa, and the world, applied to the UNFCCC for the right to produce and sell carbon credits. The company claimed that it needed a new source of fuels and had the option of choosing between opening a new coalmine and building a pipeline. Ultimately it decided to invest in producing, transporting and processing gas from the Pande and Temane gas fields in Mozambique, to its coal-to-liquids plant in Secunda, South Africa. Sasol argued that without the option of selling carbon credits, it would not have built a pipeline. Estimated emission reductions hovered around 6,4 Mt of greenhouse gases a year. The value of the carbon credits is around R1.1 billion a year[3][4] – a considerable amount, given that Sasol has the world’s single worst carbon emissions site, at Secunda.

However, according to the Mozambican government, Sasol had been considering building a profitable pipeline since 1998, well before the UNFCCC rule changes that would have allowed it. Sasol’s annual report from 1999 corroborates this:

Sasol has progressed significantly with the planned project to bring natural gas from Mozambique to South Africa. The pre-feasibility study for the transmission pipeline has been concluded, while route engineering and environmental impact assessments are continuing. The envisaged project would entail a 925-kilometer pipeline, measuring 71 centimetres (28 inches in diameter, with free-flow capacity of 120 million gigajoule per year… The gas purchase agreement with Arco for gas from the Temane field in central Mozambique are progressing well. (1999, 70)[5]

In fact Sasol was considering building the pipeline before the option of selling carbon credits was even on the table. Sasol had already costed the operation and found it acceptable. According to the UNFCCC guidelines, CDM approval can only be applied retroactively for projects that were developed after January 1, 2000. The company claimed that its operations in 2001 indicated it was attempting to factor in CDM credits.

Yet Sasol had to prove additionality, by which a project would be funded for CDMs only if it provided the additional reduction in carbon emissions (obviously something Sasol could not do, as it had already built the pipeline). Sasol’s Gas Supply Manager Peter Geef was interviewed by Graham Erion, from the Center for Civil Society, Durban, in 2005:

Yes we are indeed trying to get some carbon finance for this pipeline…(But) we have this problem of additionality; we think there’s a case to be made for that, we’re in discussion with the South African government now and we’re trying to make the case for it…The biggest issue is additionality; we would have done this project anyway.

When asked why they were applying for carbon credits they were not eligible for, Geef admitted, ‘mainly financial reasons; you get a lot of payback in term of dollars per tonne.’[6]

When environmental justice organizations heard about Sasol’s application, they immediately began to mobilize. In mid-February 2009, Members of the Vaal Environmental Justice Alliance (VEJA), Earthlife Africa, waste-pickers and other activists gathered outside Sasol’s office while Sasol officials presented their Environmental Roadmap, to demand that the company withdraw its application.

Soon after, Earthlife Africa Johannesburg and the South Durban Community Environmental Alliance submitted a formal objection with the UNFCCC to Sasol’s application for CDM credits. According to Tristen Taylor, Energy Policy Officer with Earthlife Africa[7]:

A highly carbon intensive petrochemical giant, with a CTL (coal to liquid) plant that is the world’s highest single point emitter of carbon dioxide, not only receives funding under CDM but is aiming to use the CDM mechanism to generate cash to be reinvested in more CTL plants… In effect, Sasol is being paid to pollute. If the fate of the entire planet wasn’t in the balance, the absurdity of this distortion of the Kyoto Protocol would make fine comedy.[8]

Pointing out Sasol’s ‘questionable credibility after price-fixing scandals in Europe and South Africa,’ Taylor further explained, in the Earthlife Africa submission to the UNFCCC, that local community activism was central to the 1990s shift from coal to gas: ‘there was strong local opposition to a proposed new coal mine for the Secunda plant, and Sasol’s other option of trucking in coal from Sasolburg to Secunda was proving to be unprofitable.’

At the time, Sasol was in the process of building an additional three coal to liquid plants in Indonesia, China and South Africa. In early 2009, the UNFCCC’s methodology panel recommended that the project be rejected. The reasons for rejection were poor organization of the proposal, miscalculation of the emission reductions, and the lack of a plan for leakages. Environmental justice organizations had hoped for a stronger statement against companies that were patently manipulating the CDM system.

Fig 6.3 Gas CDM in Mozambique: Pipeline

Source: MacauHub

Fuel switching by Cimentos de Mocambique-Matola Gas Company

 

In 2009, six months after the Sasol project was rejected, Cimentos de Mocambique-Matola Gas Company applied with the UNFCCC for the right to produce and sell carbon credits under the CDM. Two years earlier, Cimentos de Mocambique had signed an agreement with the Matola Gas Company (MGC) to fuel the clinker kiln with natural gas, rather than coal. MGC argued that at current production levels, the fuel switch project would reduce emissions by 37,153 tonnes of CO2 a year.

This fuel switch project is so far the only registered CDM in Mozambique. International Financial Institutions (IFIs) and donor states have been actively marketing the CDM framework. According to a recent UNDP report, Mozambique has a limited capacity to engage with carbon markets. Obstacles include the fact that carbon emissions are low to begin with because energy production is based on hydroelectric power, South Africa and Mozambique operate as a single grid, installations are too small so the revenue from CERs do not offset investments, there is limited awareness regarding CDMs, and there is a lack of trained personnel and the absence of financing upfront.

Fuel-switch projects have been heavily marketed by IFIs as a way to achieve energy security, reduce fuel costs and lower carbon emissions. Companies receive financing to switch from less efficient fuels such as coal, to greener alternatives like natural gas. In exchange, financiers receive Certified Emission Reduction Credits (CERs). According to the International Finance Corporation, fuel-switch projects are good for business. They open the doors to untapped markets, earn reputational capital with policy makers and consumers, and because of the savings incurred from greater energy efficiency, have the potential to finance themselves over time. Despite these apparent benefits, fuel-switch projects comprise only a tiny fraction of registered CDMs. Furthermore, the majority are concentrated in Brazil, Israel and India. Africa, for the most part, has been left behind.

In 2004 Mozambique ratified the Kyoto protocol and became the first Portuguese-speaking country to establish a Designated National Authority (DNA). The Minister of the Environment was appointed to lead the team and criteria were developed for CDM projects. The criteria included environmental, social and economic factors. Evaluation criteria however, have not been disclosed to the public. The government identified many potential CDMs including the Hulene Landfill Gas Capture in Maputo City, sugarcane ethanol production and the Nampula reforestation project by Green Resources[9]. However, so far only Cimentos de Mocambique-Matola Gas Company has been able to register.

The fuel-switch project should have come as music to residents’ ears. For years Matola’s residents suffered the consequences of air pollution caused by the cement factory, Cimentos de Mocambique. CM became a subsidiary of the Portuguese cement giant Cimentos de Portugal (CIMPOR) in the 1990s when the Mozambican state privatized its most profitable enterprises as part of the structural adjustment programs. With an output of roughly 240,000 tonnes of clinker, and 400,000 tonnes of cement per year, the Matola plant, located just a few kilometres from Mozambique’s capital city Maputo, is the largest cement producer in the country.

In 2000, the plant began to let out plumes of smoke, visible from kilometres away. This smoke caked surrounding neighbourhoods in a fine white dust, which penetrated every possible receptacle – from furniture and food, to the drinking water stored in tubs. According to Centro Terra Viva, residents lodged numerous complaints with the Ministry of the Environment (MICOA) and the Matola municipality. Despite clear evidence that the factory’s filters were not working properly, neither MICOA nor the Matola municipality took action.

Protests came not only from local communities and environmentalists, but also from neighbouring factories such as Mozambique’s food processor, Companhia Industrial da Matola (CIM). While Mozambicans joked that locally produced foods had a special cement ‘seasoning,’ for residents living in the area, the elevated levels of pollution were no joke. As a result of the fine dust particles, they often suffered from respiratory problems, coughs and frequent colds.

In July 2006, the environmental organization, Livaningo, organized a hearing on pollution in the area. At the hearing, Cimentos de Mocambique’s representative, Jorge Machado, acknowledged that the filters were not working. According to Machado, the national electricity company, Electricidade de Mocambique, was to blame: ‘We want to hold back all that dust but due to the constant oscillations in current, the electro-filters don’t last very long. This obliges the company to import spare parts and this has not been a very easy exercise.’

The community, who felt that the factory should close until spare parts could be sourced, met the remarks by Machado with outrage. Given that Cimentos de Mocambique is a subsidiary of CIMPOR, community leaders and activists further questioned whether such elevated levels of pollution would have been acceptable in Portugal. Furthermore, they called on the Mozambican government to develop adequate monitoring mechanisms to determine the impact of pollution on residents’ health.

In response, the former Minster of the Environment, Luciano de Castro, announced that the government would be closely monitoring the plant:

It’s been proven that Cimentos de Mocambique is polluting the environment, though they’ve tried to deny it. The particles the factory releases may not be toxic, but they can have an impact on people’s lungs and cause respiratory problems. Furthermore, that dust also damages the vegetation in the surrounding area. We think it’s pollution, and we are working with the factory management to repair the damage caused.

Shortly afterwards, Cimentos de Mocambique agreed to install new filters. In interviews with Centro Terra Viva, residents said that pollution had improved as a result. Large plumes of white dust no longer bellowed from the plant’s chimneys on a regular basis. However, there was no data to show how much air quality had improved because the Mozambican state did not have mechanisms in place to measure air pollution. Furthermore, the company did not undergo a complete upgrade. Given that the kilns date back to the 1920s, a full rehabilitation would have closed the factory for an extended period of time. MICOA argued that this was not a viable option since Cimentos de Mocambique is the primary producer of cement in country, and preferred instead to negotiate a phased approach with the company.

In 2007, Cimentos de Mocambique signed an agreement with the Matola Gas Company (MGC) to fuel the clinker kiln with natural gas, rather than coal. The potential of a fuel switch project at Cimentos de Mocambique had been on the table since 2004 when the Matola Gas Company undertook a feasibility study, funded by the IFC, to determine the potential of fuelling clinker kilns with natural gas. However, the idea gained new traction in the context of rising coal prices. Between 2005 and 2007, the price of coal skyrocketed as the result of a volatile South African coal market. Cimentos de Mocambique experienced annual increases in the price of coal of 29 percent during this period. The fuel switch project therefore was not only a strategic way to create a market for the country’s booming gas industry, but also a way of reducing fuel costs.

The Matola Gas Company and Norway’s Carbon Limits were authorized by the UNFCCC to develop this project, but the project was rejected at the level of the UNFCCC Executive Board and is currently pending. The Norwegian DNV, one of the world’s biggest CDM auditors, is responsible for this project. In 2008 the UNFCCC Board suspended DNV after spot checks found there were flaws in the auditing process and that one individual in particular, had signed off reports on five separate projects without actually surveying them. Shortly after DNV was allowed back. The fuel switch project has yet to be registered and carbon credits have therefore not been issued – yet.

Nonetheless, Cimentos de Mocambique did go ahead with the fuel switch project. In addition, in 2009, the plant inaugurated a new filter to reduce emissions. The Minister of Industry and Trade, Antonio Fernando, congratulated the company on the measures to reduce emissions and held it up as a model for other companies in the country.

Levels of pollution are falling, and we encourage the company to continue along this line. What we want is that there should be no pollution, and a lot of production, while always protecting the environment. We want this example to be followed by other factories, since we know that if we do not take care of the environment, the water, the trees, and other natural resources will disappear, wrecking the future of generations yet to come.

However, it is unclear to what extent levels of pollution have fallen. While plumes of white dust no longer bellow out of the plant’s chimneys, a recent 3-week study by Groundwork and Justiça Ambiental/FOE in 3 different locations, found that pollution in the area is still well above the acceptable levels established by the World Health Organization (WHO). While according to the WHO, acceptable rates lie between 25ug/cm2 in 24 hours, particles reached more than 100 ug/cm2. This represents the highest registered concentration of pollution in the country. Cimentos de Mocambique is surrounded by other industries including the aluminium smelter, Mozal, Therefore, it is impossible to isolate one culprit. However in the study conducted by Groundwork and JA!, the site closest to Cimentos de Mocambique (Figure 6.2) registered the highest level of dust particles in the air. These particles are very small and have the potential to cause serious respiratory problems, especially among people with asthma and children.

The plant announced that it would be expanding its factories to double production. Mozambique’s construction boom has increased the demand for cement. In 2010, cement sales rose by 12,7 percent.

Fig 6.4 Gas CDM in Mozambique: Cimentos de Mocambique factory

Source: Insitec


[1]. Diario de Mocambique. Sáb, 20 de Agosto de 2011. Central eléctrica a gás natural constrói-se em Ressano Garcia

[2]. Diario de Mocambique. Moçambique poderá produzir gás doméstico a partir de 2013. Qui, 23 de Setembro de 2010. For comparison, energy consumption per capita (all sources) in the EU is about 150 GJ per person.

[3]. Climate change, development and energy problems is South Africa: another world is possible. Earthlife Africa Jo’burg

[4] 1 euro is equivalent to approximately 10 rand.

[5]. Sasol Annual report 1999

[6]. Erion, G. (2005) ‘Low-Hanging Fruit Always Rots First’, Centre for Civil Society, Durban and Earthlife Africa (2009), ‘Climate change, development and energy problems in South Africa: another world is possible’, Johannesburg.

[7]. Press Release: SASOL’s CDM and Greenwash Earthlife Africa Jhb 17th of February 2009

[8] Sasol & CDM: The Developed World Pays Sasol to Increase its Carbon Emissions

[9] Capacity building for CDM in Mozambique (2009) Econ Poyry

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