Calyon and Portugal’s Banco BPI have been mandated to arrange a 10-year US$800mn pre-financing by Hidroelectrica de Cahora Bassa (HCB), an electricity producer and distributor in Mozambique.


The financing is partly being raised to support the production of electricity at the Cahora Bassa dam on the south side of the Zambezi River, and its subsequent sale to South Africa.
It is also being raised to help support the company buy back shares held by Portugal. The current set-up of the company is that Portugal holds 82% of the shares, and the Mozambique government holds the remaining shares.

Under terms of an agreement reached in December 2006, the shareholder structure will change to allow Mozambique to hold 85% of the shares. Of the remaining 15%, Portugal will hold on to 10% and the remaining 5% has to be sold to a partner chosen by the Mozambique government.

The original agreement outlined that the Mozambique government would buy the shares in the company for US$950mn, of which US$250mn would be raised through HCB profits and the remainder would be financed through other means such as this commercial debt financing.
Ownership of HCB is a key issue for the Mozambique government as it is planning to build a US$1.7bn hydro-electric project on the Zambezi river. The project is waiting for government approval, but is set to be one of the biggest hydro-electric developments in Africa with a planned output of 1,300MW.
China Export-Import Bank is expected to provide financing to support the project.

All surplus energy from the project is intended to be exported to South Africa, and a transmission line will be constructed to transmit the power from the dam in the northern Tete province to Mozambique’s capital Maputo.

Reaching an agreement over the transfer of control from Portugal to Mozambique was a lengthy process. Initially a memorandum of understanding was signed in 2005, but the final decision took another 10 months to reach as it was almost vetoed by the European Union after Portugal said that HCB was in debt to the Portuguese treasury.
According to the Eurostat, the EU’s independent statistics agency, if Portugal sold its shares for less than the amount Mozambique owed, it would be listed on the books as transfer of capital and would worsen Portugal’s budget deficit.

However, eventually the Portuguese government managed to convincingly argue to the EU that the deal with HCB was a privatisation of a Portuguese state asset which would actually improve rather than worsen the country’s budget.