Report No. 62h2- W

Swaziland: Issues and Optionsin the Energy Sector

February 1987

Report of the Joint UNDP/World Bank Energy Sector Assessment ProgramThis document has a restricted distribution. Its contents may not be disclosedwithout authorization from the Govemment, the UNDP or the World Bank.

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JOINT UNDP/tIORLD BANK 1JNE91GY SECTOR ASSESSMENT PROGRAMREPORTS ALREADY ISSUED

CountLry Date Numiber

Indornesia November 1981 3543-INDMauritius December 1981 3510-MASKenya May 1982 3800-KESri Lanka May 1982 3792-CEZimbabwe June 1982 3765-ZIMHaiti June 1982 3672-lAPapua New Guinea June 1982 3882-PNGBuiundi June 1982 3778-BURwanda June 1982 3779-RWMalawi August 1982 3903-MALBangladesh October 1982 3873-BDZambia January 1983 4110-ZATurkey Marchl 1983 3877-TUBolivia April 1983 4213-BO

1' iji June 1983 4462-FIJSolomon Islands June 1983 4404-SOLSenegal July 1983 4182-SESudan July 1983 4511-SUUganda July 1983 4453-UGNigeria August 1983 4440-UNINepal August 1983 4474-NEPGambia November 1983 4743-GMPeru January 1984 4677-PECosta Rica January 1984 4655-CRLesotho January 1984 4676-LSOSeychelles January 1984 4693-SEYMorocco Mlarclh 1984 4157-MORPortugal April 1984 4824-PONiger May 1984 4642-NIRi't ll.Jpi a Juily 1984 4741 -E'f,ape Verde Augtist 1984 5073-CVGuint:a Bissau Aulgust 1984 5083-GLIBBotbwana September 1984 4998-BTSt. Vincent and

the Grenri.ines September 1984 5103-STVSL. Lucia September 1984 5111-SLUOaraguay October 1984 5145-1A

November 1984 4969-TAY'emen Aral- iepublic December 1984 4892-YARLiberia December 1984 5279-LBR.k l.irni c RcpuPI 1ic of

M1aurttant, April 1985 5224-MAUJanmaica April 1985 5466-JMlvjrt ; (oast April 1985 5250-IVCBenin June 1985 5222-BENTogo June 1985 5221-TOVaniuatu LJune 1985 5577-VA

June 1985 5498-TONWe ; t e rEi !amoa June 1985 5497-WSOLIur i,a June 1'.85 5416-BA

Th. I I an fin Sept e:mber 1985 5793-THS.3( Tr'-lle P It il, L pk Oc Lober 198 i 5803-STPL. ,tador PTocembcr 1 98') 3865 -LC. .nlaI i;~ D F ec-Pb;?r 1983 5796-Soi3'hir r i 1i~ Januar,;y 1 98b1 iU-bt'1<

M .a y r1 9 6 3837 ZRSyl Ic Mayv 1956 5 822 -SYR

Nuvembrt r 1 986 623'14-GIl.. l X xzeK t8txV tDbt s °1913 b 13/ -GP's

M _.i2a s ca IJnuar ) 198 7 , 70 -MA'si}ao jI^.k;i quo auoall,iirv I'th ¶11 b

POt OFFICIAL USE OMLY

Report No. 6262-SW

SWAZILAND

ISSUES AND OPTIONS IN THE ENERGY SECTOR

FEBRUARY 1987

This is one of a series of reports of the Joint UNDP/World Bank EnergySector Assessment Program. Finance for this work has been provided, inpart, by the UNDP Energy Account, and the work has been carried out bythe World Bank. This report has a restricted distribution. Its contentsmay not be disclosed without authcrization from the Government, the UNDP,or the World Bank.

ABSTRACT

Although Swaziland has substantial coal &nd hydropowerresources, and its sugar and wood-based industries produce large volumesof biomass residues, it imports 40% of its total energy requirements.Apart from all its petroleum requirements, these include most of itselectricity and coal needs. These are imported from the Republic ofSouth Africa, with which Swaziland has clcse economic ties. TheGovernment would like to reduce the cost and vulnerability posed bySwaziland's heavy dependence upon energy imports in view of the economicand political uncertainty in the region and is considering increasingdevelopment of domestic energy resources; the Government is also becomingconcerned about the gradual depletion of indigenous forest resources forhousehold fuel. In those cases where import substitution is technicallyfeasible, this report shows that it is often also significantly moreexpensive than energy imports, presenting the Government with difficultan. expensive tradeoffs to consider. Swaziland's exteasive reserves ofanthracite coal could also represent a potentially significant export;these are currently constrained by rail and port conditions inMozambique, among other factors. This report examines the main issuesand options for energy development in Swaziland and the associatedeconomic costs and benefits, especially as they relate to importsubstitution. It also reviews the pricing and institutional frameworksin which the energy sector functions, and concludes with a discussion ofinvestment options over the next decade and the priorities for technicalassistance.

ACROUYNS

CMA Common Monetary AuthorityCSO Central Statistical OfficeCTA Central Transport AuthorityESCOM Electricity Supply Commission of South AfricaETHCO Ethanol Development CompanyFAO Food and Agriculture Organization of the United Nationsf.o.b. Free on boardGDP Cross Domestic ProductGSMD Geological Survey and Mines DepartmentJPTC Joint Permanent Technic. 4. Committeekgoe Kilograms of oil equivalentLPG Liquefied Petroleum GasLSC Lonrho Sugar Corporationn.a. Not availablePEA Project Engineering AfricaRMA Rand Monetary AreaRSA Republic of South AfricaSACU Southern Africa Customs UnionSAR South African RailwaysSEB Swaziland Electricity BoardSFF Strategic Fuel FundSNL Swazi Nation LandSR Swaziland RailwayTCOA Transvaal Coal Operators AssociationTDL Title Deed Landtoe Tons of Oil4EquivalentUNDTCD United National Department for Technical Cooperation and

Development

CURRENCY EQUIVALENTS

1 Lilangeni 1 South African Rand s/1 Lilangeni (plural Emalangeni - E) = US 0.50 b/

MEASUREMTS

bbl Barrel of Oil 159 liters, 42 US gallons at 600 FGWh Gigawatt-hour 1,000,000 kilowatt hours (kWh)km kilometers 1,000 meters (i), 0.621 mileskV kilovolt 1,000 voltsklA Kilovolt-ampere 1,000 volt-amperesm cubic meterMJ Megajoule 1,000,000 joulesMVA Megavolt ampere 1,000 kilovolt amperesMW Megawatt 1,000 wattston Metric ton 1,000 kilograms (kg), 2,204.6 pounds

SWAZILAND FISCAL YEARApril 1 - March 30

a/ Until early 1986 the Lilangeni was tied at par to the RSA Rand (R)under the Rand Monetary Area (RMA) Agreement.

b/ February 1986.

This report is based on the findings of an energy assessment missionwhich visited Swaziland during February 1986. The mission comprisedMessrs. John Borthwick (Mission Chief), Ernesto Terrado (BiomassSpecialist), Geoff Jordan (Consultant - Coal Geologist), Thomas Kennedy(Consultant - Energy Planner), and R. Vaughn Sear (Consultant - PowerSpecialist). Mr. Jochen Schmedtje (Senior Economist) joined tLe missionin the course of its work in Swaziland. Additional assistance inreviewing coal development prospects was provided by Mr. Paul Dyson (CoalSpecialist). Ms. Dawn Newsom provided production assistance. Certainsections were updated during the mission to discuss the draft report inNovember 1986.

TABLE OF CONTENTS

Page No.

SUMMARY AND PRINCIPAL RECOMMENDATIONS. ................. i

I. ENERGY AND THE ECONOMY..,.*............................ 1Country Setting ....................... ... . 1The Economy...... . ....................... ...... .. o 2Recent Economic Developments........................**** 4Energy Imports and Exports ........................... 5Prospects for Economic Growth......................... 6Energy Supply and Consumption -_tterns................ 7Prospective Energy Demando................ ................. 9

II. BIOMASS AND RENEWABLE ENERGY ............... 11Introduction ..........e............................... ......... lHousehold Energy Consumption Patterns................. 11Fuelwood ...........S.....y................ ... .......... 13Future Fuelwood Supply and Demand....................* 15Commercial Biomass Energy.....*....................... 18Fuel Alcohol ....... 20Other Renewable Energy Sources........................ 24

III# COAL.................................................... 26

Coal Geol3gy and Status of Exploration................ 26Coal Quality ......... ................................. 28The Mpaka Coal Mine ................................... 30Production and Sales Trends for Swazi Coal............ 30Coal Imports.................. ................... ..... 33Coal Pricing ......... . 34International Anthracite Market..... .. .. . ... .......... 35Coal Development Prospects and Costs..............,... 37Institutional Issues in the Coal Sector............... 38

IV. ELECTRIC POWER .... ..... ............... ....... 40Introduction ..... 40SEB System Development............................... ....... 40SEB Electricity Demand, 1974/75-1985/86............... 41SEB Electricity Supply, 1974/75-1985/86..............0 42Non-SEB Electricity Generation.......................o 43Priorities for Power System Development............... 43SEB System Reliability............. ..... ............ .. 44Future Growth in SEB Demand, 1986/87-1994/95.......... 46Future SEB Supply, 1985/87-1994/95.................... 47Ferrochromium Project ............... .... ............ ...... 49Hydropower Development and the Issueof Water R 49

Thermal Power .1.................. ...... '51Electricity Pricing ................ * 53Institutional Issues on the Power Sector.............. 56

V. PETROLEUMo..................oo. ...............**.. . 0.0...00 59Petroleum Potentialt i al.........o.o....o.o.... 00000 59Petroleum Product Supply and Demand.............o.... 59Petroleum Product Pricing......n goo*@*oo 60Institutional Arrangements in thePetroleum Sector.... ................ .0* 0..... 0*0 63

VI. NATIONAL ENERGY PLANNING REQUIREMENTS........... 4....0 65Introduction. 0.0.00.0...... 00000000000 000000 000 65Existing Energy Planning Capabilities........o..o..oo. 65Energy Planning Requirements andProposed Institutional Structure....... 0 0*..... 66

Energy Policy Formulation. o..** o* .oe..*... 68Work Program for the Energy Branch....a n ch.0.......... 69Technical Assistance....******oo.**0000 ***o.. 70

VII. INVESTMENT REQUIREMENTS ................................ 72Introduction.......................................... 72Energy Investment Strategy............................ 72Sectoral Investment Options .***. .......... 73Technical Assistance Requirements....ooo.............oo 74

ANNEXES1 Energy Balances - 1980, 1985, 1990.................... 762 Household Energy Consumption Mix, 1985 and 2000 ....... 793 Fuelwood Supply and Demand Balance, 1985-2000......... 804 Rural/Urban Household Energy Survey - Outline

Terms of Reference.................................. 815 Economics of Ethanol Production....* .................. 846 Average Analyses of Washed Coal...o..." al............ 867 Combustion Properties of Swazi Coal................... 878 Analysis of Emaswati Export Coalo..................... 899 Coal Production and Exports, 1966-85.................. 9010 Specifications of Selected Coal Imports from

Transvaal, RSAo.....................*............... 9111 SEB Power Generation Capacity, 1985................... 9212 SEB Electricity Sales, 1974/75-1985/86 ............. 000 9313 SEB Suppiy Patterns, 1974/75-1985/86 ..... .... 0*000000* 9414 Electric Power Capacity and Generation

of Self-Producers, 1985............................. 9515 SEB Demand Growth Projections, 1985/86-1994/95 ........ 9616 SEB Power Option Costs . .................... 9717 Schedule of Standard Prices for Electricity .00 ..0..0. 9818 SEB Tariff Study - Outline Terms of Reference......... 10119 Petroleum Product Retail Price Changes, 1979-86....... 10220 Pricing Structure - Major Petroleum Products,

January 1986....... ...................*............ 10321 Technical Assistance - Job Descriptions and

Outline Terms of Reference.0 e..............0 *....... 10422 National Power Plan - Outline Terms of Reference*...*. 108

Chart I Structure of Ministry of National Resources, LandUtilization, and Energy

Chart II Proposed Structure of the Energy Branchmaps IBRD 19802, 19803, 19804

SUMOABY AND PRINCIPAL IECON4ORDATIONS

Overview of Key issues

1. Swaziland depends upon imports to meet 40% of its total finalenergy requirements, including all its petroleum, 84% of its coal, and55% of its electricity needs. These impose a substantial burden on thebalance of payments, equivalent to 36% of exports in 1984. Furthermore,while domestic energy costs have stabilized or fallen for many coul.Lriessince 1980, those in Swaziland have continued to increase, partly becauseof the steady depreciation of the Swaziland Lilangeni, which has beentied to the South African Rand. Between 1980 and 1985, the domesticprice of imported electricity rose by almost 200%, the prices ofpetroleum products by 75%, and the price of imported coal by 60%. Toreduce Swaziland's exposure to movements in prices due to factors beyondits control and reduce its vulnerability to possible disruptions insupply stemming from the uncertain political environment in the southernAfrica region, the Government has begun to pay more attention to thepossibilities for energy import substitution.

2. Swaziland's coal, bydropower potential, and biomass resourcesprovide it with considerable scope for energy import substitution. Inmany cases, however, the development of indigenous resources would entaila higher cost to the economy than energy imports, thus posing a dilemmafor the Government. In the case of electric power, tie choice isparticularly tough, as the economic cost of developing domestic power iscurrently several times that of importing power from the Republic ofSouth Africa (RSA), whose low cost coal and large economies of scale haveenabled it to supply Swaziland with power which is among the cheapest inthe world.

3. The principal purpose of this report is to identify the mainissues and options for energy development and the economic costs andbenefits associated with these, especially where they relate to possibleimport substitution. Government must then weigh how much additional costthe economy would be prepared to incur in the interest of increasedenergy security. The decisions facing Government at present areparticlarly difficult; on the one hand, the increasing politicaluncertainty in the region would tend to reinforce the case for increasingenergy self-sufficiency; on the other, the current state of economicstagnation and the limited prospects for an early resumption of signifi-cant growth already strain the Government budget and strengthen the need,as discussed in the current five-year plan, to ensure the most efficientuse of available resources. The issue is further complicated by the 1986change in monetary arrangements with RSA which could significantly affectthe future cost of energy imports from RSA. The remainder of thissummary reviews each of the main energy sub-sectors, the pricing andinstitutional frameworks in which they iunction, and likely investmentand technical assistance needs over the next decade. It concludes with abrief discussion of areas for priority action.

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Biomass Resources

4. Biomass resources used in households and industry comprise halfof total final energy consumption. Although there is no overt fuelwoodcrisis in Swaziland, mission estimates indicate that consumption exceedsthe annual increment and that the indigenous forest cover is declining.Government should begin to pay careful attention to this problem so thatit can take early steps to prevent the fuelwood supply and deforestationrelated problems that affect many other countries from arisi..g inSwaziland. As there has been no analysis to date of household energysupply and demand patterns, the mission recommends that the Governmentcarry out two related studies (which could be combined) to determine:

- the extent of indigenous forest cover and the sustainableannual yield (para. 2.16); and

- household energy consumption patterns in urban as well as ruralareas (para. 2.16).

5. As fueiwood is likely to remain the principal household energysource in rural areas through the remainder of this century, and in themission's estimation consumption is already likely to exceed sustainableyields, forest cover stands to decline substantially unless measures aretaken to increase supplies and promote more effi-ient fuelwood use.Options for increasing supplies include making greater use of residuesfrom the large commercial forest plantations and from black wattlef'rests (grown primarily for their bark), agro-forestry, and fuelwoodplantation programs. Policy decisions in these areas should, however,await completion of the above-mentioned studies. If these confirm thatthere is a fuelwood deficit, all supply options should be examined,including the involvement of the private sector in the production offuelwood and utilization of biomass residues for domestic fuel. Steps toincrease supplies should be complemented by conservation measures such asan improved cookstoves program.

6. Bagasse wastes in the sugar industry represent a majorpotential source of energy. A recent World Bank Energy Department studyindicated that sugar mills designed to use the minimum amount of steamand recover the maximum amount of energy from the bagasse can produceabout 50 kWh of electricity per ton of cane crushed. In Swaziland, theelectricity surplus to the mills' needs would amount to about ilO GWh,about 50% more than the amount currently generated for own use andequivalent to 30% of current Swaziland Electricity Board (SEB) supplies.However, thk same study indicated that the required investments wouldonly be economically viable if the cost of power for which it wassubstituting was at least USc6 per kWh. As SEB cannot depend onelectricity supplies from the sugar industry to help meet maximum powerdemand, it is only prepared to purchase them at the rate at which itpurchases energy from RSA -- US¢l.l per kWh in early 1986. Under thesecircumstances, neither SEB nor the sugar industry has strong incentive torealize this power. However, bagasse-based power represents one of

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Swaziland's most promising potential indigenous power sources, anddevelopment of that potential should be regarded as one of the options tobe examined under the next SEB generation study. As part of the powersystem expansion study (para. 20) studies should be underlaken at allthree mills to determine the potential, the bottlenecks, and the specificinvestments required at each of them to realize various amounts of theirpotential. An important issue which would need to be addressed under thestudies is the provision of firm power, for only to the extent this powerwere available at peak power demand periods would it allow SEB to deferinvestments in additional capacity. Meanwhile, to encourage self-producers to make the maximum possible use of biomass resources for powergeneration under the prevailing price regime, it is recommended thatGovernment and SEB:

- review the generating licenses of self-producers with a view toliber&lizing any restrictive provisions (para. 2.22).

7. One of Swaziland's most promising potential sources ofindigenous energy is molasses-based ethanol for blending with motorfuels. The basic preconditions for a successful ethanol project exist inSwaziland -- it is landlocked, making transport costs a significant partof gasoline import and molasses export costs, and it has a large andestablished sugar industry. Moreover, the steady depreciation of theLilangeni helped keep the project attractive when international oilprices were beginning to fall. In late 1985, three proposals by privateenterprises were before Government. The studies indicated economic ratesof return of at least 19X as of mid-1985 and, at the current gasolineconsumption rate, net annual foreign exchange savings to Swaziland ofabout $1.5 million. Each proposal provided for the private sector tofully finance the project on its own, to absorb the cost of modificationsto oil company depots, and assured the Government of no loss in revenues.

8. However, the picture was abruptly changed by the drop ininternational oil prices in early 1986 which rendered the projectuneconomic. Mission estimates show, howe-er, that if and when the oilprice recovers to around $18 per barrel the project could once again beviable, barring any substantial increase in tie molasses export price orproject costs. To permit in-depth preparations for an ethanol project toproceed once the private sector finds the project attractive, the Govern-ment, in late 1986, approved ethanol blending with gasoline as a nationalpolicy. The competing sponsors subsequently began discussing implemen-tation of tLe project.

Coal

9. Coal underlies about one-sixth of the surface area of Swazilandand probably constitutes its largest single mineral resource. Althoughthe coal field has been reasonably well explored, the results have neverbeen analyzed on a comparable basis to permit a consistent estimate oftotal reserves. The mission reviewed reserve data on such a basis andfound that the studies demonstrate mineable reserves of about 485 million

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tons, of which 116 million tons can be considered proven. Includingpotential reserves in less intensively explored areas of the field, totalmineable reserves are likely to be about 1 billion tons. Reserves ofthis size could easily sustain production of several million tonsannually; in comparison, production capacity at the only existing coalmine amounts to 0.2 million tons annually. About three-fourths of thecoal is anthracite; it has a relatively high heat content and lowpercentages of volatiles and sulphur, which make it a clean burning fuel.

10. Although the demand for coal in Swaziland amounts to about200,000 tons annually (19% of total final energy consumption), Swazi coalmeets only about 14% of this demand overall, and almost none of that ofindustry. Most industries have attempted to use Swazi coal, but it hasproved unsuitable for use on most types of coal burning equipment which,as they come from RSA, are designed to burn bituminous rather thananthracite coal. Rather than undertake modifications to coal burningequipmert, industries have chosen to import RSA coal, the delivered priceof which is not significantly higher than that of Swazi coal.

11. Any significant expansion of the coal mining industry inSwaziland would need to be based on exports, which already account forover three-fourths of production. Although coal-based electric powerexports to neighboring countries are being considered (para. 24), thebest prospects for Swazi coal are probably as a direct export to the FarEast. The largest importer is Korea which requires anthracite with amoderately high ash content to facilitate briquette manufacture;Swaziland has already shown it can compete in this market. As Swazi coalis relatively clean burning it would also be suitable in markets whereenvironmental considerations are important. Depending on the path offuture oil and natural gas prices, this could become a strong segment ofthe future world coal market and oae from which Swaziland could prosper.

12. Although anthracite exports from traditional suppliers,especially RSA, are increasing, there appear to be some opportunities fornew exporters to enter the market. However, existing rail and portconstraints in Mozambique would need to be alleviated before any sig-nificant increase in Swaziland coal exports could occur. If and whetthese constraints are lifted, Swazi export po.ential is likely to dependsignificantly on its competitiveness vis a vis RSA anthracite exportsfrom neighboring Natal. Currently, Swaziland would not appearcompetitive with potential expanded RSA production, due to higher miningcosts and shortages of skilled manpower, among other factors. Whilepolitical considerations may constrain expansion of RSA exports in theshort to medium term and create additional anthracite export oppor-tunities for Swaziland, realizing that potential would require overcomingexisting transport constraints. The best opportunities for Swazilandanthracite may come after RSA produt ion begins to decline and port andrail constraints are eliminated; this could be beyond the year 2000.

13. The mission's recommendations in the coal sector focus onassessing the pros vcts for increasing substitution away from RSA coal

and strengthening the institutional basis to facilitate any future expan-sion in product.on. Specifically, the mission recommends:

- a study by combustion engineers of the combustion character-istics of Swazi coal to identify the nature and causes of theproblems encountered, and practical solutions which wouldpermit expanded domestic use in industry (para. 3.11);

- the development and adoption by the Geological Survey and MinesDepartment (GSMD) of a consistent set of reserve calculationmethodologies which should improve the direct comparability offuture exploration results (para. 3.4);

- strengthening the GSMD by filling vacancies and appointingadditional administrative staff to allow technical staff toconcentrate on technical matters (para. 3.39); and

- the development of legislation to ensure continuous and effec-tive mine reclamation and rehabilitation (para. 3.39).

Electric Power

14. The Swaziland power sector is unusual: about 35X of the totalelectricity consumed is generated by self-producers from biomassresidues, and SEB meets more than half its supplies through imports fromthe Electricity Supply Commission of South Africa (ESCOM). In the short-to-medium term, the main issues in the sector are SEB system reliabilityand the diffictult financial position of SEB, which makes it desirable forSEB to postpone investments in new generation capacity for as long aspossible.

15. Over the longer term, the key issue to be addressed is the roleof imports from ESCOM in meeting Swaziland's power needs. Currently, thecost of power purchased from ESCOM is considerably lower than the cost ofdomestic production, which would suggest that further links to ESCOM arethe preferred path for system expansion. There are, however, severalother factors which should be considered, especially in view of theuncertain economic and political prospects for the region. While ESCOMhas been, and is likely to remain a willing and reliable supplier, theGovernment must consider the broad strategic issue of the extentSwaziland should be able to meet the power needs of key economic sectorsfrom internal sources of supply. Under present SEB supply patterns, anyprolonged disruption in imports would have serious implications for theSwaziland economy, unless the Government prepared contingency measures.In the short run the Government would have to consider power rationing,but in the longer term it can consider developing power links withMozambique and expanding domestic generating capacity. Swaziland mustalso consider the possibility that growth in demand in RSA could limitESCOM's capacity to supply Swaziland from existing transmission capacityin the area; this has already caused ESCOM to reduce the rated capacityof the existing links from 67 MW to 60 MW. Furthermore, while ESCOM

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charges are currently among the lowest in the world, they have more thandoubled since 1979 to finance ESCOM's large ongoing investment program.Further significant increases in the cost of power from ESCOM arelikely. If the rate of future increases matched those of recent years,{ome domestic power investments which are currently uneconomic (e.g.,increased bagasse-based power) could become economic within the timeframe for investment planning. Viewed from these perspectives, it seemsappropriate for Swaziland to focus greater attention on investments inadditional domestic power generating capacity than may appear warrantedbased on current economic considerations.

16. In the short term, SEB needs to improve system reliability. Onthe basis of conservative planning criteria, which allow for theunscheduled loss of the largest unit of supply -- one of the two 30 MWESCOM links -- SEB already lacks the capacity to meet peak demandreliably. SEB anticipated the need for additional capacity several yearsago and, consistent with the findings of its most recent system expansionstudy (done in the late 1970'8), arranged with ESCOM for the constructionof a third 30 MW transmission link. As this link would enter through adifferent part of the country it would give SEB greater operatingflexibility and allow it to improve voltage control and spread the riskof transmission interruptions. The RSA portion of the link is already inplace; construction of the Swazi portion is being held up by SEB'sfinancial difficulties.

17. Closely related to the need for adequate reserve capacity isthe condition of SEB's older Edwaleni and Maguduza hydropower stations,which comprise half of its hydropower capacity. Serious siltationproblems are reducing storage capacity to the point where SEB cannotalways operate these stations through peak power demand periods, and siltpassing through the turbines is causing excessive mechanical wear. Theseproblems effectively reduce the 20 MW rated capacity of these plants andstrengthen the case for early completion of the third transmission linkto ESCOM. To enable SEB to reliably meet its power demand needs in theshort term, the mission recommends that SEB:

- complete the Third ESCOM Link as soon as a study of its timingindicates that it is justified (para. 4.22),

- retain consultdncy services to advise on how to tackle thereservoir siltation problem (para. 4.17), and

- once the siltation problem is brought under control, makerehabilitatiox' of the Edwaleni and Maguduza hydropower stationsa high priority (para. 4.17).

18. Over the longer term, power sector investment needs dependprimarily upon growth in demand. SEB estimates that power sales willgrow slowly (about 3X per annum) through the remalider of the 1980s dueto expected slow recovery from the recession, and tariff increase-inducedconservation and improvements in the efficiency of energy use. To

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provide an indication of possible investment needs, the mission examinedSEB supply and demand under two scenarios which differ primarily in thespeed of the economic recovery and in consumer responses to recent andlikely future tariff increases. Under both scenarios the key factordetermining the next addition to capacity following the Third ESCOM linkis peak power demand -- SEB already has the capacity to meet energyrequirements through the end of the century.

19. With the Third ESCOM link in place, SEB would be able to meetpeak power demand through 1992/93 under the high growth scenario (1994/95under low growth scenario) allowing for the unscheduled outage of oneESCOM link. SEB could, however, defer the need for additional capacitybeyond these dates by encouraging consumers to shift demand away frompeak periods; currently the system load factor is a relatively low 57Z.While sales show a pronounced seasonality which limits the ultimate scopefor improvement in the system load factor, at present there is almost noincentive for consumers to shift demand to off-peak times. To the extentthat SEE can redistribute the load away from the system peak and defernew investments, the need for tariff increases and/or subsidies to SEB isreduced. The mission therefore recommends that:

- SEB implement tariff as well as non-tariff measures to shiftpower demand away from the system peak (para. 4.21).

20. Even with improved power demand management, SEB is likely torequire additional capacity by the mid-1990s. The key issue is whetherthat capacity should be a further link to ESCON (or possibly Mozambique)or additional domestic capacity. As indicated above, the mission'sanalysis shows that under present circumstances, a further ESCOM linkwould be the least-cost addition; however, the uncertainties associatedwith future ESCOM supplies (para. 15) as well as the time frame for thisaddition suggest that SEB should examine all the possible options as wellas their timing in the context of a system expansion study. The missiontherefore recommends that:

- SEB engage consultants to assist it in preparing a systemexpansion study that examines the options available for powersector development in Swaziland -- incliding new SEB schemes,further links to ESCOM, and the purchase of surplus biomass-based power from the self-producers -- and the costs associatedwith each (para. 4.18).

An important part of this study would be the review of bigasse-basedpower generation potential and costs (para. 6). To provide a basis onwhich the Government can decide on a power development strategy, thestudy should produce alternative scenarios reflecting different degreesof self-sufficiency within various time frames.

21. An important consideration which could induce the Government toproceed with hydropower development is the allocation of joint waterresources between Swaziland and RSA. The RSA government has indicated

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that as long as Swaziland prepares and implements no firm developmentplans of its own for use of common water resources, it will continue todevelop them unilaterally, which permanently reduces cross-border flows.An important case to emerge recently is that of the Komati River. Ajoint RSA-Swaziland inter-governmental committee is recommendingconstruction of two dams -- one each in Swaziland and RSA -- to regulatethe river's flow. SEB would be interested in adding about 10 MW ofgenerating capacity to the dam in Swaziland provided it does not have toassume any of the dam costs and the project is economically viable. Aswater releases would be governed by irrigation needs,, SEB would not beguaranteed power for meeting peak demand; as a result, the mission;spreliminary analysis indicates that the project would be uneconomic. If,however, the project could help meet peak demand through selective timingof water releases, analysis suggests that it could be economicallyviable.

22. SEB has been regarded as well run, efficient and, until therecent sharp depreciation of the Lilangeni greatly increased the cost ofits foreign debt service, as a financially viable entity. Recognizingthat SRB's financial problems were largely due to circumstances beyondits control, the Government has agreed to assist SEB in servicing itsforeign debt (para 4.35). Due partly to a lack of energy planningcapacity within Government, SEB has established national powerdevelopment strategy largely according to its own priorities. With theuncertain political and economic situation in the region, Governmentshould become involved in setting policies and strategy. Its principaLmeans of involvement would be the proposed Energy Branch (para. 30).

23. Althoughi SEB has a comprehensive functional organization,shortages of staff have forced many of its identified sections to becombined, with some senior officers having executive responsibility forseveral jobs. Nor is there any formal corporate planning for the mediumor long term. To further strengthen its institutional capacity andplanning processes the mission recommends that SEB:

- fill existing vacancies so that it can concentrate on theshort-term financial and longer-term system planning issuesfacing it, and in the process seek t6 strengthen its capacityfor economic analysis by adding an experienced power economistto its staff (para. 4.63);

- review at the same time its internal organizational structureto consolidate and streamline its policy and planningactivities to take account of its small size and limited numberof managerial staff (para. 4.44); and

- regularly undertake formal updating of power demand projectionsto pernit it to plan systematically expansions to the powersysten (para. 4.42).

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24. The Government is considering construction of a large (1200 MW)thermal power station to exploit Swaziland's coal reserves; pre-feasibility studies were underway in early 1986. As the project wouldfar exceed internal requirements, it would be geared towards exports,mainly to RSA. However, it is considered unlikely that RSA would needthese supplies or that this plant could be competitive with ESCOM, whichis currently constructing power stations of 3,600-4,000 MW capacity witheven greater economies of scale. Moreover, the cost of Swazi coal islikely to be substantially higher than the cost of coal to ESCOM. On theother hand, smaller-scale coal-fired power plants should be examinedunder the SEB system expansion study as one of the options available formeeting domestic power needs.

Petroleum

25. Swaziland is considered to have no petroleum potential; hence,any reduction in the cost of petroleum products to the economy must comethrough product substitution and improvements in the efficiency of energyuse. In response to high prices relative to other fuels, industries havealready replaced almost all non-transportation use with coal. In thetransportation sector, there would appear to be relatively little scopefor major improvements in efficiency - most vehicles are relatively new,the main roads are of a high standard, and most road transport is left tothe private sector. One potential substitute for gasoline (up to 20%) ismolasses-based ethanol, as discussed in para. 7. Government in late 1986authorized the blending of ethanol with gasoline in Swaziland and theprivate sector began discussing project implementation. The Governmenthas also begun to consider whether the current three weeks of petroleumproduct storage capacity is adequate from a national perspective(para. 5.2).

Energy Pricing

26. Energy pricing is not a major issue in Swaziland, as mostenergy prices, including those regulated by the Government, alreadyreflect of the economic costs of supply. As a result, most consumers andindustry are conscious of energy costs and behave accordingly. Thereare, however, structural adjustments which can be made in the areas ofelectricity and petroleum product, especially diesel, pricing to improvestill further the incentives for efficient energy use.

27. The existing electricity tariff structure dates back to 1980,and all subsequent changes have been of a uniform, across-the-boardnature to help meet SEB's overall financial needs. A recent internalreview by SEB indicated that the existing tariff structure was out ofline with the relevant costs of supply to specific consumer classes,especially for households. SEB is considering changing the householdrate from a flat rate to an increasing block rate basis. To promoteefficient use of electricity and potential substitutes the missionconsiders it preferable that SEB maintain a single household rate whichis at least equal to the marginal economic cost of supply. To assist low

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income consumers, SEB could introduce a special "lifeline" rate thatprovides for a basic amount of consumption at a subsidized rate. Themission recommends that:

- SEB conduct an overall tariff review to bring the entire tariffstructure more into line with the relevant economic costs ofsupply for all consumer groups (para. 4.39) while ensuring thatSEB can earn sufficient revenues to meet its financial objec-tives. The study should also address the issues of anappropriate "lifeline" rate and tariff incentives to shiftdemand away from peak periods.

28. Although petroleum product prices are regulated, they are allabove import parity. However, there is a system of five diesel pricesfor different types of users. There are no obvious reasons why Swazilandshould pursue such a complex pricing pattern. Another issue concerns theduty-free status of fuel sales to Government and parastatal agencies such

s the Central Transport Authority (CTA) and Swaziland Railway (SR). SR:.Iould be a commercially self-sustaining enterprise, while full pricesales to the CTA would be consistent with Government policy of trying toensure efficient use of CTA services. The mission therefore recommends:

- consolidation of the multi-price structure for diesel into asingle price (para. 5.9), and

- elimination of the duty free status of motor fuels to Govern-ment and parastatal agencies (para. 5.10).

National Energy Planning

29. Swaziland currently has no national energy planning capacity;existing energy-related expertise is confined to specific agencies andprivate companies. This limited capacity has been consistent with thepolicy of limited intervention in the economy by government in Swaziland,which has resulted in a market-oriented economy in which izkiividual firmshave proved to be cost-conscious and efficiency-minded. i"hile thesecharacteristics have served Swaziland well, issues which have involvedmore than one energy sub-sector or which should be examined from thenational perspective have eften not been adequately addressed.

30. Although a recent reorganization of Government has brought mostenergy-related bodies together under the newly established Ministry ofNatural Resources, Land Utilization, and Energy, there are two relatedissues which have not yet been tackled. The first is that the EnergyBranch of the Ministry was, as of early 1986, unstaffed mainly because ofa lack of qualified staff. To help start the energy planning process,the UNDTCD proposed the establishment of a small, five-person energybranch, supported initially by a relatively small package of technicalassistance and training. Implementation could begin by 1987 when budgetprovision can be made and two staff currently on energy training abroadare due to return to Swaziland. Mernwhile, the mission recommends:

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approval of the structure as proposed in the UNDTCD report(para. 6.6), and

- in order to permit an early start in energy planning andtechnical assistance activities, that the vacant AssistantPlanning Officer position in the Ministry be filled, preferablyby an energy economist (para. 6.7).

The initial work program of the Branch should emphasize surveys toestablish benchmark data and the development of energy statistics. Themission feels that it is important that the size and role of the Branchbe consistent with that of the Swaziland Government in general. Thiswould all.w those aspects of private enterprise, such as efficiencyconsciousness, which have served Swaziland well to continue to do so.

31. The second issue which needs to be addressed is that of energypolicy formulation. The proposed Energy Branch can only begin to workeffectively once it is given broad energy strategy guidelines withinwhich to operate. At present there is no forum to permit the formulationof strategy. Furthermore, even though most energy-related bodies are nowunder a single ministry, there is little formal opportunity for them tomeet to discuss energy matters. To facilitate the formulation ofnational energy policy, the mission recommends:

- the establishment of a national Energy Policy Committee whichwould convene regularly under the leadership of the PrincipalSecretary, Ministry of Natural Resources, Land Utilization, andEnergy (para. 6.9).

The proposed Energy Branch would act as secretariat to this Committee.In addition to the heads of the appropriate sections within the Ministry,or agencies under the Min-stry, the Committee should also comprise headsof relevant sections outside the Ministry, such as the Forestry Sectionof the Ministry of Agriculture and Co-operatives, and private sectorenergy consumers and producers, as appropriate. Committee decisionswould then be submitted to the Cabinet for final approval.

Conclusions and Priorities for Action

32. Although this report identifies several areas in which importsubstitution is possible, the extent to which this potential is realizeddepends upon the economic viability of the schemes, as well as the costSwaziland would be prepared to incur for increased self-sufficiency inenergy. Swaziland's overall scope for energy self-sufficiency islimited, as about 90% of the petroleum product imports (themselves 55% ofenergy imports or an energy content basis and 91X on a cost basis) areused in transportation where, apart from 20% ethanol blending withgasoline, there is little scope for import substitution. Conaequently,even if the ethanol project were implemented and Government progr&ms werein place which enabled Swaziland to substitute for, say, two-thirds of

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its coal imports and realize the full power potential of the sugarindustry, Swaziland's dependence on imported energy would drop by onlyabout one-third (from 42% to 29% of projected final energy consumptionbased en the 1990 projected energy balance).

33. The costs of any program to significantly increase energy self-sufficiency would be substantial, especially considering the Governmenttsdifficult budgetary position. Rough estimates by the mission indicatethat implementing a full-scale bagasse-based power generation programwould cost the Government more than $30 million, while an ethanol projectwould cost an estimated $7 million, although this latter project willprobably be undertaken by the private sector if it is financiallyviable. Increased petroleum product storage capacity would cost anestimated $2 million. More broadly, the Government should also considerwhether it is desirable to proceed with a program of increased energyself-sufficiency when energy is only one of many areas of the economy inwhich Swaziland relies heavily on imports. This high reliance on importsin general has been a natural result of Swaziland's development strategyof export-led growth on the basis of economic comparative advantage, astrategy which has resulted in Swaziland being one of the fastest growingdeveloping economies over the past two decades.

34. In a stable economic and political environment, the missionwould probably conclude that the Government should not approve orimplement uneconomic energy investments solely to increase Swaziland'sself-sufficiency. However, under present circumstances, Governmentconcern over the security of energy supplies and their future cost isjustified. The key decision Government must take is what cost it isprepared to incur to achieve certain increases in energy self-sufficiency. In no sector does the trade-off appear more difficult toassess than in electric power, although for reasons discussed above, thissector is the most important area in which the Government should beginevaluating investment options from perspectives other than current leasteconomic cost alone. The power system development study the mission isrecommending would provide the Government with a cost-oriented basis onwhich to consider its options.

35. The uncertainty concerning Swaziland's energy developmentstrategy makes it impossible to estimate overall energy investment needsover the next decade. The only relatively certain investment is theThird ESCOM Link; including the ongoing augmentation of the transmissionand distribution network, identified investment in the power sector for1986-95 wo-ald amount to about $14 million in 1986 prices. To this wouldhave to be added the cost of the additional capacity required by the mid-1990s (para. 19) and any scheme implemented to increase Swaziland's powerself-sufficiency. Other possible investments include the ethanolproject, which the private sector may implement now that a Governmentgo-ahead has been received, and some form of fuelwood program in eitherthe public or private sector. There are also certain other large andcostly export-oriented projects with energy implications which are underconsideration. These include the 1200 MW thermal power project and

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related coal development, coal export development schemes, and the powercomponent of a ferrochromium project. Even if economic and logisticalconstraints which currently adversely affect the viability of theseschemes can be overcome, these projects would have to be almost fullyfunded outside Swaziland.

36. In the mission's view, Swaziland's principal current needs tndthe priorities for donor assistance lie in the area of technicalass-stance. Thr e would aim at helping the Government prepare energydevelopment plans in key energy sub-sectors taking into account issuessuch as increased energy self-sufficiency, while helping the Governmentdevelop the capacity to carry out such analysis on its own in future.Apart from assistance to help establish national energy planningcapacity, the highest priority activities are the indigenous forestinventory and the household energy consumption survey, the studyconcerning rehabilitation of SEB's older hydrocapacity, and the powersystem development study, including review of the power potential of thesugar industry. Other recommended studies which warrant support are theSEB tariff review, a feasibility study for increased petroleum productstorage capacity and the study of the combustion characteristics of Swazicoal.

ESTIMATED TECHNICAL ASSISTANCE REQUIREMENTS(S million, 1986 Pricos)

Study Cost

* Energy Branch 0.5Coal Combustion Study 0,,

* Power Sector Development Study J.3* SEB Hydro Rehabilitation Study 0.1* Household Energy Consumption and

Indigenous Forest Resource Survey 0,2Increased Petroleum Product StorageFeasibility Study 0,1

SEB Tariff Review 0.2

Total 1.5

* Denotes priority studies.

Source: Mission estimates.

I. MIGY AND THE ECBONOY

Country Setting

1.1 The Kingdom of Swaziland, with an area of only 17,364 sq km andan estimated population in 1984 of 730,000, is one of the smallestcountries in Africa. It is also landlocked, surrounded by the Republicof South Africa (RSA), except for 100 km on the east which borderMozambique. Swaziland lies on the eastern slope of the large plateauwhich dominates the southern Africa region. This divides the countryinto four major north-south geographical zones. The Highveldt, thewestern-most zone, lies at an average altitude of 1,300 m and coversabout 29% of the land area. Although the climate is temperate, landconditions are generally not suitable for crop agriculture. They are,however, well suited to forestry, and Swaziland's large forest-basedindustries are centered in this region, as is the important asbestosmining industry. Although Mbabane, the capital, is situated in theHighveldt, this region is not heavily populated. The Middleveldt, whichcovers about 26% of the land area, lies at an average altitude of about700 m. This region is hilly and dominated by several large valleys; theclimate is sub-tropical. It is the most densely populated and developedpart of the country; Manzini, the main commercial center, and Matsapha,location of the main industrial estate and the international airport, aresituated there. Directly to the east is the Lowveldt, which covers about37% of the land area and lies at an average altitude of about 200 m.This region receives relatively little rainfall and is thinlypopulated. The economy of the Lowveldt is dominated by large agro-industries, particularly sugar; Swaziland's substantial coal depositsalso lie in this region. On Swaziland's eastern border with Mozambiquethe land rises to an altitude of about 600 m. This region, referred toas the Lobombo plateau, covers about 8% of the land area. It is clima-tically similar to the Middleveldt, but it is thinly populated.

1.2 Swaziland is quite well endowed with natural resources. Apartfrom its varied climate which gives it good and varied agriculturalpotential, the country also has substantial water resources. Even thoughRSA makes significant abstractions upstream from some river systems, theremaining resources still provide Swaziland with significant hydropowerpotential and enable the large-scale surface irrigation which supportscommercial agriculture in the Lowveldt. Swaziland also has significantmineral wealth including coal, asbestos ore, high quality clay, and dia-monds which are currently being exploited, and iron ore which wasexported until high grade reserves were exhausted.

1.3 The country's most important transportation links abroad areits rail links to Nozambique and RSA. Historically, Swaziland's prin-cipal port for foreign trade has been Maputo, which is only 74 km by railfrom the Swaziland border via the direct route. Recently, disruptions onthe Maputo line due to lack of maintenance and acts of sabotage haveforced use of a longer route to Maputo via Komatipoort in RSA (150 km),

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which is subject to the same problems, although to a lesser degree, oruse of Durban which, at 394 kmi, is substantially farther away and morecostly to use. The port of Richards Bay, which is primarily geared toexports of RSA coal, is 208 km from the Swaziland border. WithinSwaziland, the rail system comprises links from Matsapha south to Durbanvia South Africa Railways (SAR), east to Maputo via the Mozambique staterailway, and as of January 1986, north to Komatipoort via SAR. 1/ Thereis also a good road system which provides access to most areas of thecountry. The main roads are all paved, of a high standard, and in goodcondition.

The Economy

1.4 Despite its small size and landlocked location, Swaziland is arelatively prosperous country. Its estimated per capita income of $800in 1984 was among the highest in Sub-Saharan Africa and placed it amongthe middle inconie developing countries overall. The key to its relativeprosperity has been its ability to overcome geographical limitations byspecializing the economy to a high degree in areas where it has acomparative advantage, especially agricultural and forest basedindustries. As a consequence, Swaziland has developed as an open economywith a very high dependence on trade -- in 1984 imports were equivalentto 104% of GDP and exports, 74%. Similarly, per capita incomes have beenbolstered by remittances from Swazis working in RSA mines; in 1984 thesewere equivalent to a significant 7% of GDP.

1.5 While this development strategy has made Swazilandcomparatively wealthy and resulted in an apparently well-balancedeconomy -- in 1980, agriculture and forestry accounted for 26% of GDP andindustry, 31% -- all aspects of economic performance, including overallgrowth, exports, and public revenues, are in reality highly dependentupon developments in a few key industries which combine agricultural andindustrial activities. Thus, in 1980 it was estimated that the sugarindustry alone accounted for 19% of GDP and the wood pulp industry for afurther 7%; together they accounted for over 4Ai of total agriculturaland industrial GDP. Similarly, these two industries dominate Swaziland'sexports: in 1984/85 sugar accounted for 46% of total exports and woodpulp, 20%. Other important exports were fresh and canned fruits (15X),asbestos (6%), and timber (3%). In contrast, traditional agriculture andlivertock activities represented only 10% of GDP. This indicates the keyrole wage income plays in the Swaziland economy; it is estimated thatabout half the active labor force holds wage earning jobs.

1/ The railway was originally constructed in 1964 to transport iron orefrom Ngwenya to the port of Maputo. With the closure of the ironore mine in 1979, the link from Matsapha to Ngwenya is no longer inuse.

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1.6 The economy of Swaziland has close links with that of RSA.Formal economic ties are embodied in two arrangements administered byRSA: the Southern Africa Customs Union (SACU) and the Rand Monetary Area(RMA). 2/ Under the SACU agreement customs and excise tax revenues arepooled and distributed according to a formula which takes into accounteach country's share in total imports and dutiable production. SACUreceipts in recent years have accounted for about two-thirds of Govern-ment revenue. Under the RMA both Swaziland Emalangeni and South AfricanRand have been legal tender in Swaziland; however, Emalangeni have beentied at par to the Rand and the Central Bank of Swaziland has only beenable to issue them to the extent it could back them with Rand. Theeffect of these two arrangements has been to greatly limit the Govern-ment's scope for pursuing independent monetary, fiscal, and exchange ratepolicies; they have also had much to do with Government's tendency torely on the private sector and market forces for economic develop-ment. 3/ These arrangements have also served to reinforce Swaziland'snaturally close economic ties to RSA--over 90% of Swaziland's imports arefrom RSA (although a significant portion of these, incltiding all petro-Leum products, are in turn imported by RSA from abroad), while about 30%of Swaziland's exports are to RSA.

1.7 There have been two other important aspects to Swaziland'srelatively rapid development and the successful exploitation of itsresource endowment: the exceedingly favorable conditions it has alwaysprovided for foreign investment and its unusual land tenure system. Twoforms of land ownership exist: so-called Swazi Nation Land (SNL) a.-.Title Deed Land (TDL). TDL, which can be owned outright, emerged fromconcessions granted to non-Swazis in the late nineteenth century; in themid-1980s it accounted for about 441 of the total land area, of which 381was held by Swazi individuals, 25% by companies ('ihose ownership is bothSwazi and foreign), and 371 by non-Swazi individuals. SNL land, incontrast, operates under a traditional system of communal land ownershipwhereby it is vested in the Ngwenyama (Head of State) who holds it intrust for the Swazi Nation as a whole. There is no individual cwnershipof this land; rather, it is divided into chiefdoms in which traditionalleaders allocate homesteads and plots of arable land to families withintheir domain.

1.8 The existence of TDL provided a ready basis for the investmentsin agriculture and forestry. More recently, a number of manufacturing

2/ In addition to Swaziland and RSA, Lesotho is party to botharrangements while Botswana participates in the SACU only.

3/ In early 1986, agreement was reached with RSA which will result inthe RMA being replaced by a new arrangement called the CommonMonetary Authority (CMA). Under the CMA, the Rand will no longer belegal tender in Swaziland and the Swazi Government will be able toissue Emalangeni without having to back them up with Rand.

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industries have been established in Swaziland to exploit the large SACUmarket, But it is doubtful either investment would have taken place wereit not for Swaziland's exceptional political stability and che homo-ge-neous nature of the society, which throughout have provided a climateconducive to foreign investment. Although most of the resource-basedindustries were originally wholly foreign-owned, in recent yearsSwaziland has, usually through Tibiyo Taka Ngwane, which is the trustfund of the Swazi Nation, purchased shares in most of these firms andparticipated in the establishment of new ventures. Even though Swazilandaims at 50% ownership of the resource-based industries (usually a lesserpercentage in the case of other projects), it chooses to leave almost allmanagement decisions to the foreign partners.

Recent Economic Developments

1.9 For more than two decades Swaziland translated its open-economypolicies and its comparative advantage into economic growth which aver-aged over 7%, twice the rate of population growth, which is currently avery high 3.6% per annum. Commodity prices were generally favorable andrates of investment were high. Moreover, Swaziland rode the general waveof economic prosperity in the region; trade and tourism expanded in stepand rising public revenues permitted a steady growth in public services.

1.10 By 1982, however, economic growth had collapsed, and the eco-nomy has essentially stagnated since then. This was primarily due to theworld-wide recession, which was felt particularly severely in thesouthern Africa region. In Swaziland, this not only led to the demise ofa number of industries, including the cement crushing and packagingplant, the brickworks, and the chemicals factory, and large capacitycutbacks in others such as the timber industry, but also to increasedunemployment and a sharp reduction in new investment. The latter wasaggravated by generous investment incentives being offered by RSA forinvestors in the black "homelands" who otherwise might have located inSwaziland. Moreover, production capacity has been reached in the sugarand wood pulp industries, leaving little room for growth in these keysectors. Finally, Swaziland was hit by a drought in 1982 which causedproduction of maize, the staple crop, to drop by almost one half and inthe energy sector re&_ced hydropower generation by 60%, and in 1984 bycyclone Domoina which caused serious damage to physical infrastructure.

1.11 Two other important developments over the period were thedecline in the terms of trade and the depreciation of the Lilangeni. Ledby a 44% decline in the average sugar price received, Swaziland's overallterms of trade fell by 32% between 1980 and 1984, adversely affectinggrowth in national income. The sharp depreciation of the Lilangeni --71% against the US dollar between December 1980 and December 1985 -- hasaffected the cost of fo-eign debt service most significantly; togetherwith unanticipated expenditures because of the cyclone damage, this hasresulted in large budget deficits. Another side effect of the steadydepreciation of the Lilangeni has been a high rate of inflation, whichhas averaged 15% since 1980.

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Energy Imports and Exports

1.12 As discussed in para. 1.18 below, Swaziland imports a largeportion of its commercial eaergy requirements from RSA. While theseimports, as Table 1.1 below shows, have not represented unduly highpercentages of total exports or imports for a non-oil exporting develop-ing country, they have nevertheless placed a significant burden on theoverall economy, as measured by their proportion to GDP. Over 90Z ofenergy imports comprise petroleum products. Although Swaziland has largecoal reserves, coal exports have been an insignificant 11 of totalexports*

Table 1.1: ENERGY IMPORTS AND EXPORTS, 1970-84(E million)

1970 1975 1980 1981 1982 1983 1984

ImportsPetroleum Products 3.4 13.0 92.4 86.9 59.7 85.8 101.9Electricity - 0.4 4.6 5.0 8.6 9.9 8.9coal 0.1 0.4 1.6 1.6 0.6 1.0 0.9Total Energy Imports 3.5 13.8 98.6 93.5 68.9 96.7 111.7

ExportsCoal 0.2 0.4 2.7 3.1 2.1 2,0 3.0

Net Energy Imports 3.3 13.4 95.9 90.4 66.8 94.7 108.7

Memorandum ItemsEnergy Imports-as S of Tota' Imports 8.2 10.5 20.3 17.6 11,6 15.4 16.8-as S of Exports 6.9 9.6 35.3 29.4 20.8 29.9 35.9-as % of GDP 4.4 7.2 21.1 16.9 12.1 15.7 16,1

Energy Exports-Coal as % of TotalExports 0.4 0.3 1.0 0.7 0.6 0.6 1.0

Source: Central Statistical Office and Swaziland Electricity Board.

1.13 Although Swaziland was hit hard by the twin oil price shocks of1973 and 1979/80 -- the energy import bill quadrupled between 1970 and1975 and increased a further sevenfold between 1975 and 1980 -- theimpact of these increases on the economy was mitigated by rapid economicgrowth which was accompanied by rapid growth in other imports andexports In the late 1970s, Swaziland benefitted especially from thesimultaneous large increase in world sugar prices and the major expansion

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in sugar production capacity. Nevertheless, by 1980 energy had risen toaccount for 20X of total imports and to the equivalent of 35% ofexports. While Swaziland subsequently benefitted from the moderation ininternational oil prices, this effect on domestic prices had been largelyoffset by 1983 by the depreciation of the Lilangeni; by 1984 the burdenof energy imports on the economy was once again as high as in 1980.Thus, while the energy crisis for many countries had abated by early1986, that for Swaziland, particularly with respect to petroleumproducts, remained severe.

Prospecta for Economic Growth

1.14 Swaziland it currently implementing the Fourth NationalDevelopment Plan (1983/84-1987/88). The Plan has the following macro-economic objectives:

(a) to establish greater efficiency and control over the use ofpublic funds,

(b) to stimulate private investment in existing and proposed acti-vities, and

(c) to create productive employment opportunities, especially inrural areas.

Strategies to meet these objectives were identified in many sectors,although none were set for ei7ergy. The Government has since indicatedthat increased self-sufficicncy is one of its main goals in the energysector. While the macro-economic strategy of the Plan is sound, fewspecific measures are spelled out for implementing it, nor does itprovide a sectoral allocation of proposed public investment targets. TheGovernment therefore continues to promote economic development primarilyby establishing an environment conducive to private investment.

1.15 By virtue of the development strategies it has pursued,Swaziland's economic fortunes depend most importantly on developmentsabroad which are beyond its control. Of key importance are the economicprospects for the southern Africa region as a whole; however, the regionis expected to recover only slowly from the current deep recession.Equally important are export commodity prices, which are projected toremain relatively weak, the depressed exchange rate, shortages of skilledlabor, and the slow growth in agricultural production on SNL. RecentBank staff projections indicate that economic growth will accelerate onlygradually from its early 1986 state of stagnation, leaching about 4% perannum by the end of the decade. 4/ The limited prospects for externally-led growth suggest that Swaziland will have to make even greater efforts

4/ Economic Memorandum on Swaziland (Report No. 5666-SW), Eastern andSouthern Africa Country Programs Department I, November 1, 1985.

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at promoting economic growth from within. One important contributingmeasure is to ensure that available resources are being used as effi-ciently as possible.

Energy Supply and Consumption Patterns

1.16 Swaziland is endowed with substantial hydropower and coalresources: total economic hydropower potential is estimated at up to 700GWh (para 4.27) and coal reserves are estimated at up to one billion tons(para. 3.7), but for reasons as discussed elsewhere in this report,Swaziland imports most of its coal and electricity n*eeds from RSA. Bio-mass residues produced in the sugar and forest-based industries representthe most fully exploited domestic energy source. While these industriesare large even on a world scale they are particularly significant in thesmall Swaziland economy, accounting for oine-fourth of GDP (para. 1.5).

1.17 The specialized nature of the Swaziland economy is reflected inenergy consumption patterns. Per capita final energy consumption in 1985amounted to 790 kgoe, of which 650 kgoe comprised commercial energy. 5/This level of commercial energy consumption was more than three times theaverage for Sub-Saharan Africa and more than twice the average for lower-middle income countries as a whole. As indicated above, the reason forthis high consumption lies in the presence of the large sugar and forest-based industries which rely heavily on biomass residues to meet theirenergy needs. Bagasse from the sugar industry and wood wastes and blackliquor solids in the timber and pulp industries accounted for an esti-mated 41% of total primary energy consumption. 6/ Almost half of theenergy content of these materials is transformed into electricity; never-theless, these materials still constitute 321 of final energy consumption-- by far the largest of any fuel group (Table 1.2). These industriesalso consume substantial amounts of other energy; together they accountedfor an estimated 46% of total final energy consumption in 1985. Petro-leum products accounted for 23% of final energy consumption, of whichfour-fifths was used for road transportation. Fuel oil accounted foronly 5% of final petroleum product consumption, while diesel used forpower generation was negligible, accounting for less than 1% of grosspetroleum product supplies. Coal consumption, mostly by majorindustries, was significant, accounting for 191 of total final energyconsumption. The heavy overall energy use in the major industries alsoreduces the share of household fuelwood consumption to a relatively low19%, even though actual per capita consumption appears similar to that inmost other developing countries.

5/ Per capita primary energy supplies amounted to 1090 kgoe; about 28%of this, mostly biomass residues, was transformed into electricityor lost in the conversion and distribution processes. For completeenergy balances for 1980, 1985, and 1990 (projected) see Annex 1.

6/ Biomass residues accounted for 48X of total primary commercialenergy consumption (i.e., excluding fuelwood consumed inhouseholds).

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Table 1.2: FINAL ENERGY CONSUMPTION PATTERNS, 1985('000 toe)

Fuel- Blomass Coal Electricity Petroleum PercentSector wood a/ Residues Swazi RSA SEB Self Products Total of Total

Household 111 - 15 7 6 - 8 147 24.7Commercial - - - 4 3 - 1 8 1.3Transport - - - 21 - - 1O7 128 21.5Sugar Industry - 185 4 2 9 6 8 214 36.0Pulp Industry - - - 40 2 6 10 5d 9.8Other Industries - 5 - 20 10 4 1 40 6.7

Total 111 190 19 94 30 16 135 595 100.0

Percent of Total 18.7 31.9 3.2 15.8 5.0 2.7 22.7 100.0

a/ Considered non-commercial energy, comprises household use only.

Source: Mission estimates (see Annex 1).

1.18 Another important feature to emerge from the energy balance isSwaziland's high reliance on imported energy. Approximately 41% of totalenergy requirements in 1985 were imported; if fuelwood consumed in thehousehold sector and biomass residues consumed in industry are excludedtthis share rises to 83%. Apart from all its petroleum requirements,Swaziland imported 55% of its electricity requirements and 84% of itscoal consumption.

1.19 To examine the nature and extent of adjustment in Swaziland dueto increased oil prices, the mission also prepared an energy balance for1980. Between 1980 and 1985, total final energy consumption increased by12%, or only about 30% faster than GDP. This is relatively low for acountry at Swaziland's stage of development and suggests that significantimprovements in the efficiency of energy use were achieved over theperiod. About 40% of the overall final energy demand increase wasaccounted for by the sugar and pulp industries where capacityincreased. In per capita terms, consumption dropped by a significant 7Zover the period, but this was mostly due to an approximate 20% increasein the population.

1.20 Another notable feature of the 1980-1985 period was the 10%decline in petroleum product -onsumption, and its decline from 28% to 23%of total final energy consumption. This was entirely accounted for byfuel oil; consumption by Usutu Pulp Co., the principal user, declined byabout three-quarters over the period, while the already minor use byother industries ceased entirely. Fuel oil was replaced by coal whichconsequently rose from 12% to 19% of total final energy consumption.

Usutu Pulp, for instance, installed a coal gasification plant to convertits pulp dryers and lime kilns from fuel oil to coal gas firing. All ofthe coal increase was accounted for by RSA coal; in fact, consumption ofSwazi coal declined in absolute terms, partly due to decreased use in thesugar industry and partly due to the switch by some smaller industries,such as Swaziland Brewers, from Swazi to RSA coal.

Prospective Energy Demand

1.21 Future energy demand in Swaziland is particularly difficult toestimate. This is mainly due, to the small size of the economy andbecause developments such as the commissioning or shutdown of a singlesizeable industry can significantly affect overall energy consumptionpatterns. Conversely, because much of Swaziland's energy supply anddemand takes place in a few.large industries, the absence of any signifi-cant developments in those industries would tend to dampen overall growthin energy consumption. The importance of overall energy supply anddemand projections in Swaziland is also limited by the fact that so muchenergy is simply a by-product of production in industries that arelargely self-sufficient. Projections can, however, be useful inevaluating trends in and the potential for energy self-sufficiency, thepossible effects of household fuelwood use on indigenous forestresources, or the prospective financial performance of selected entities.

1.22 The mission prepared an indicative overall energy balance forthe year 1990 (Annex 1); for the years beyond, uncertainties wereconsidered to outweigh the usefulness of comprehensive projections.Wherever possible and relevant, however, longer run supply and demand arediscussed in the context of individual energy sources and subsectors.

1.23 Overall energy demand is expected to increase bv 17% over the1985-90 period, or by about 1.5 times the increase in CDP. In per capitaterms, energy consumption is expected to remain steady at about790 kgoe. The main reason for this relative stability in consumptionpatterns is that no substantial additions to industrial capacity areanticipated. It is, however, assumed that the major industries will beoperating at full existing capacity. 7/ In the su¶gar industry, produc-tion is effectively constrained by crushing capacity, which limits sugarproduction to about 400,000 tons per year, while in the pulp industryplantations can sustain production of 180,000 tons annually. In thetimber industry, currently operating at only 60X capacity due to thedepressed regional construction industry, it is assumed that productionreturns to full normal operating capacity of 1,000 m3 per day. It isalso expected that most other industries currently operating at reducedcapacity, or temporarily shut down, such as the brickworks, will haverecovered to normal operating levels by 1990.

7/ In 1985, the sugar industry operated at about 85% of capacity; thepulp industry, at 97%.

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1.24 Consumption of most other energy products is also expected onlyto increase gradually, in part because of the slow pace of overalleconomic recovery, but also because of the high relative prices ofpetroleum products and particularly electricity which will continue toencourage conservation and efficiency improvements in the use of thoseenergy sources. Overall petroleum product consumption is expected toaverage 6Z growth between 1985 and 1990. However, much of this is theresult of increased diesel consumption, which accounts for two-thirds ofthe projected increase in total petroleum product consumption over theperiod. This in turn is due to the anticipated gradual dieselization ofthe railroads, which by 1990, it has been assumed, will be about halfcompleted. The other major petroleum products in which strong growth hasbeen assumed are kerosene, and especially LPG, which are predominantlyused in households. The high growth rates assumed here - 7% per annumfor kerosene and 101 per LPG -- are expected to result from the high rateof urbanization, and the likely high price of electricity relative topetroleum products. While petroleum product pri.es are likely tostabilize if not decline over late 1985 levels, electricity rates arelikely to continue rising due to increases needed to meet SEB's financialrequirements, and a recommended tariff review which is likely to affecthousehold rates. As a result, household electricity sales are assumed togrow more slowly than in the past, at about 41 per annum. 8/ No invest-ments are underway which would increase domestic power generatingcapacity, so practically the full increase in electricity sales wouldfall on imports. Nor is any significant reduction in coal imports fromRSA considered likely; in fact, the full increase in industrial coalconsumption may fall on RSA coal. As a result, no significant change inthe share of energy imports in final energy demand is expected withinthis time horizon; they are expected to remain about 401 of the total.

1.25 In early 1986, the only potential industry that would have asignificant impact on overall energy consumption patterns in the nearfuture and that was considered reasonably likely to proceed was aproposed ferrochromium project. This project, sponsored by RSAinterests, would process RSA chromite to produce 80-100,000 tons offerrochromium for export. The principal benefits to Swaziland would beemployment generation and foreign exchange earnings, although the latterwould be relatively small as almost all inputs except labor would beimported. Apart from chromite, the project would require 60 MVA of powerwhich, as discussed in para. 4.25, would need to be imported. Theproject's coal requirements would also have to be imported as it wouldrequire coking-type coal which Swaziland does not have. Thus, theproject, if it proceeded, would effectively be an enclave project whichmet all of its energy requirements by direct import. In this sense, itwould have little impact on the domestic energy sector.

8/ This corresponds to the low growth scenario, para. 4.19.

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11. BIOKASS AND ROENEABLE ENERGY

Introduction

2.1 As discussed in Chapter I, biomass energy sources comprise 55%of Swaziland's total primary energy consumption and 512 of final energyconsumption. While residues consumed in the wood-based industries andbagasse consumed in the sugar industry account for three-fourths of thisenergy, these industries operate as virtual closed systems, drawing ontheir own continuously replenished forest and sugarcane plantations. Inthe context of this report, therefore, the issue is not that of theimpact of these industries' energy needs on national energy demand, butrather the extent to which these industries could increase the effectivecontribution of biomass residues to the overall national supply throughmore efficient utilization. One significant potential avenue forincreasing the energy contribution of biomass resources is throughmolasses-based ethanol, although whether this project will proceeddepends critically upon the relative costs of gasoline and molasses. Themain area of concern is the household sector, where a large portion ofenergy needs is met by fuelwood drawn from diminishing indigenous forestresources. This chapter examines each of these areas and concludes witha brief review of the potential for other re.-owable energy sources.

Household Energy Consumption Patterns

2.2 Like many developing countries, Swaziland's household sectorrelies heavily on fuelwood to meet its energy needs. Unlike many suchcountries, however, which now suffer from severe deforestation, wide-spread fuelwood shortages, and a large proportion of household incomesspent on fuel, Swaziland does not yet appear to have any significantproblems of this type. In fact, the ratio of forest area to populationwould appear relatively high. Nevertheless, the mission believes thattotal fuelwood consumption already exceeds the sustainable yield of theindigenous forests. This is supported by the widespread perception of agradual decline of forest cover over the years, and increasing reports oflocalized wood shortages in some areas such as the high Middleveld whichhave caused some families to turn to dung and agricultural residues forfuel. Unfortunately, no household energy supply and demand surveys havebeen undertaken which would permit analytical confirmation of theseobservations. Such surveys would be a vital first step towards soundenergy planning in the subsector. Meanwhile, for purposes of illustra-ting the implications of likely trends, the mission has prepared tenta-tive estimates of the fuelwood supply and demand.

2.3 Household energy consumption patterns in urban and rural areasin Swaziland are very different. Some 80-90X of the urban population,itself about 262 of the total, cooks mostly with co=ercial fuels. Thishigh dependence on commercial fuels appears to be the result of severalfactors, including the gradual disappearance around urban areas of "free"fuelwood supplies, the availability of most commercial fuels (especiallycoal and LPG in company towns, where they are distributed as free fringe

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benefits to lower and higher paid employees respectively), and the rela-tively high per capita incomes and large percentage of wage earners inSwaziland. In fact, in urban areas, purchased wood is apparently one ofthe most expensive forms of household energy on a useful energy basis(Table 2.1) and its principal use, like that of coal, appears to be as asupplementary home heating fuel in the Highveldt. Although some attemptshave been made to promote charcoal use, there is no cultural familiaritywith this fuel and consumption is negligible.

Table 2.1: COWPARATIVE USEFUL COOKING ENERGY COSTS, 1986

Fuel Unit Cents/Unit MJ/Unit Efficiency(%) Cents/NJ

Coal kg 10.0 29.02 25 1.38Wood kg 25.0 14.60 10 17.10Kerosene lIter 103.0 36.70 36 7.80LPG liter 155,0 25.10 55 11.23Electricity kWh 7.8 3.60 65 3.33

Source: Mission estimates.

2.4 Rural inhabitants in Swaziland are classified as those livingin homesteads on SNL. Because of the dispersed nature of the homesteads,the inhabitants are never far from clusters of indigenous forest whichcover the countryside; consequently, about 80-90% of the rural populationrelies on fuelwood as its main cooking fuel. While some wood iscollected for sale to others, the bulk is for own-use. Most cooking isdone on traditional "three-legged" stoves of low efficiency. Some kero-sene is used for cooking, but most is used for lighting. Little coal isused, mainly because its different combustion characteristics requirerelatively expensive metal or heavy brick stoves. 9/

2.5 As mentioned above, specific fuel ood consumption is notknown. Government sources estimate about 3m per household annually,but the basis for this figure is unclear. Assuming an average familysize of eight, per capita consumpcion would amount to about 0.4 min, whichis well below other countries in the region. In Zimbabwe, for example,per capita consumption is estimated at 0.75-1.1 m annually, while inMalawi, one of the few countries to have conductel proper field surveys,rural household consumption amounted to 0.85 m per capita annually.Assuming similar cooking practices, consumption in Swaziland could be

9/ In the company towns, where use of coal for household purposes isrelatively common, the companies provide communal "Dover" typestoves.

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somewhat higher due to its colder winters and relatively more abundaniwood resources. The mission has assumed per capita consumption of 0.9 m5annually for purposes of its analysis.

Fuelwood Supply

2.6 Almost all fuelwood consumed in households comes from the indi-genous forests which consist mainly of native varieties of acacia. TheForestry Section of the Ministry of Agriculture and Co-operatives tenta-tively estimates the area of indigenous forest to be about 3% of the landarea, or about 52,000 ha. A much higher estimate of 123,000 ha was madeas part of a 1982 charcoal production feasibility study. 10/ That studyassumed that 10% of SNL grazing lands and 20Z of so-called "all otherland" (consisting of idle land and land used only for traditional Swaziagriculture) are covered by natural forests. This estimate would appearmore consistent with the consumption patterns discussed above and visualimpressions; the mission therefore has assumed that 1985 indigenousforest cover amounted to 120,000 ha. The mean annual increment of theseforests is low, ranging from an estimated 1-8 m3/ha. Assuming an averageyield of 3 m /ha/year, the total Sustainable yield of the indigenousforests is currently about 360,000 m /year.

2.7 Another important source of fuelwood is the approximately7,500 ha of black wattle forests originally introduced for bark produc-tion. About two-thirds of these are on SNL where they have degeneratedinto jungles with a sustainable yield of about only 7 m /ha 3annually.The remaining wattle forests on TDL land yield 15-18 m /ha/year.Although cultivated for bark, the stripped wattle logs comprise most ofthe biomass yield and are useful as fuel. Overall, however, less thanhalf of the wattle wood is probably utilized for fuel at present.Company fuelwool plantations, which total about 1,100 ha, yield an addi-tional 11,000 m /year. The only sizeable communal plantation at presentis 155 ha of eucalyptus located at Mahlangatsha; assuming at annual yieldof 15 m /ha this plantation would contribute some 2,325 m3 of fuelwoodannually.

2.8 In addition, there are large wood-based industr..es in Swazilandwhich operate a combined 101,000 ha of forest plantations. Althoughthese plantations cover al estimated 6% of the total land area, they areprimarily located in the Highveldt, away from population centers; thewood wastes from these plantations are thus not readily accessible tomost of the population. Because of the size of the operations andliberal company policies, forest and processing residues do, however,provide a significant portion of household fuel in workers' homes anddormitories, as well as in nearby homesteads.

10/ "Charcoal Production Centers Feasibility Study," National IndustrialDevelopment Corporation of Swaziland (NIDCS) and Lux-Development,1982.

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2.9 The Usutu Pulp Co. operates the largest plantation, comprising65,000 ha of pine plantations extracted on an 18-year cycle. Thefactory, which has more or less reached full capacity given the extent ofits plantations, produces about 180,000 tons of dry kraft pulp annuallyfor export. About one million tons of wood are extracted each year; ofthis about 30% is left in the forest, 60% is processed, and 10% compriseswastes used as fuel. Even allowing for biomass which must be left asforest mulch, it is clear that a considerable amount of wood waste ispotentially recoverable for fuel purposes.

2.10 Peak Timbers, the second largest forestry group, operates26,000 ha of plantations consisting mostly of pine, but also of someeucalyptus species. Pine is normally extracted on a 25-year cycle;eucalyptus, on an 8-year cycle. The sawmill is currently only operatingat about 60% of capacity because of the recession in the regionalbuilding market, while some eucalyptus logs are being shipped directly toa pulp factory in RCA. The mill currently processes about 600 m daily,producing 270-280 mJ of final product. The sawmill wastes are fed to theplant's boilers to produce steam for electricity generation and wooddrying. These wastes currently amount to about 100,000 tons annually.In addition, significant amounts of waste materials at the mill are givento emplFyees or are simply disposed of by burning, while an estimated 10-15% of the volume extracted is left in the forest as mulch. Based on theestimated number of empl Iees and their extended families it is estimatedthat as much as 20,000 m of wood demand is currently being met from theresidues of the private forest industry in Swaziland. Table 2.2 belowsummarizes the contributions from existing fuelwood supply sources asestimated by the mission.

Table 2.2: EXISTING FUELWOOD SUPPLY SOURCES, 1986

Mean Annual UtilizationSource Area Increment Factor Yield

(ha) (m3/ha) (M) (m /yea-)

Indigenous Forests 120,000 3 100 360,000Company Fuelwood Plantations 1,100 10 100 11,000Communal Woodlots 155 15 100 2,325Wattle Forests

SNL 5,000 7 50 17,500TDL 2,500 15 50 18,750

Residues from Private Forests 20,000Total 429,575

Sources: Forestry Section, Charcoal Production Centers Feasibility Study (1982),Usutu Pulp Co., Peak Timbers and mission estimates.

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Future Fuelwood Supply and Demand

2.11 Demographic trends are likely to be the main influence on thefuture demand for fuelwood, at least over the next decade, as commercialfuels are already well established in urban areas, and fuelwood willremain relatively abundant in rural creas. Swaziland has been undergoingrapid urbanization. According to a recent World Bank report, the urbanpopulation rose from an estimated 18% of the total in 1980 to nearly 25%in 1985, and is projected to reach 45% by the year 2000. 11/ While thesepercentages appear high, they are not surprising in the context ofSwaziland, where mobility between urban and rural areas is high becauseof the small country size, and where migration from homesteads into townsor to RSA for work is accomplished easily. This rapid trend towardsurbanization with its implied heavier dependence on commercial fuels willdampen overall growth in demand for fuelwood (Annex 2).

2.12 Table 2.3 shows the mission's fuelwood demand projections. Dueto the effects of urbanization on household energy consumption patterns,fuelwood demand is projected to grow at only 1.71 per annumt or at lessthan half the rate of population growth (3.61). In volume terms, theanalysis shows that Jy the year 2000 total fuelwood consumption willincrease by 130,000 m over 1985, or by about 28%. This is equivalent tothe sustainable annual yield of about 60,000 ha of indigenous forests, orabout 12,000 ha of short-rotation (eucalyptus) plantations.

Table 2.3: FUELWOOD DEMAND, 1980-2000

===--- - --Population-----Fuelwood Demand----Year Urban Rural Total Urban Rural Total

(Percent) (Percent) (Thousands) (thousand m3)

1980 18 82 633 15.4 397.1 412.51985 25 75 758 25,6 434.9 460.51990 30 70 898 36.4 480.9 517,21995 35 65 1,051 49.7 522.6 572.32000 45 55 1,218 73.2 517.1 590.3

Note: Assumes 85% of the rural population and 15% of the urban popula-tion use fuelwood, and annual per capita consumption is 0.9 03.

Sources: IBRD Population Department, Forestry Section, and missionestimates.

11/ Swaziland - Population and Health Sector Review (Report No. 5338-SW); Population, Health and Nutrition Department; May 31, 1985.

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2.13 The mission has attempted to estimate the realistic potentialfor additional sources of supply to supplement the fuelwood available forhousehold use through the year 2000. The principal additional sourcesare new woodlots, increased exploitation of existing black wattle forestreserves, and use of extraction residues from the private forests. TheForestry Section has plans to establish 13,000 ha of communal plantadionsof short-rotation tree species over the next 10 years (including 5,000 haduring the current Plan period) in plots of sizes ranging from less than1 ha to 100 ha, depending on land availability and perceived needs inparticular areas. This translates to an average of 1,300 ha/year whichis clearly beyond the present capability of the Forestry Section toimplement. To estimate the future contribution from possible new wood-lots, the mission assumed a planting rate of 100 ha/year up to 1990,increasing to 200 ha/3ear thereafter. With a five year rotation andaverage yield of 15 m /ha/year (this assumes proper ground preparationand initial fertilization) some 7,500 m could become available in 1990,increasing to 22,500 m3 by 1997. The mission has also assumed that itwill become economic to use residues from private forests on a morewidespread basis, especially during the late 1990s, and that consumptioncould rise to 110,000 m by the year 2000.

2.14 The resulting indicative supply and demand balance is shown inTable 2.4. Even allowing for the development of additional sources ofsupply, there remain deficits which must be met by cutting into thestanding stock of indigenous forest, such that by the year 2000 the levelof indigenous forest could be reduced by 40%. This over-extraction ofineigenous forests in turn compounds the fuelwood problem by reducing theamounts of fuelwood available in future years. The analysis concludesthat if no new sources of supply are developed, the depletion of indige-nous forests would be hastened considerably. However, it is alsopossible that long before acute depletion of the natural forest occurs,localized shortages would induce rural households to shift to alternativefuels, including to commercial fuels.

2.15 It should be re-emphasized that the assumptions used in thisexercise are merely the mission's best estimates of data which arelargely unknown. Nevertheless, they do serve to show that even usingsome relatively optimistic assumptions (e.g., the existing forest areaand the rate of urbanization), Swaziland is likely to already be in afuelwood deficit situation. Policy decisions should, however, awaitcompletion of a forest resource inventory and the household energysurvey. In particular, a decision to pursue a major fuelwood plantationprogram should only be made if these studies indicate that there is infact a fuelwood deficit. At that time all fuelwood conservation andsupply options should be examined, including improved cooking stoves,agro-forestry, and the possibility of involving the private sector in theproduction of fuelwood and utilization of biomass residues for householdfuel. Fuelwood plantation programs will also need to take into accountcompeting land uses, especially for agriculture and grazing.

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2.16 On the whole, the mission's impression is that unlike manydeveloping countries Swaziland is not yet in any critical situation interms of traditional fuel supplies; however, the trends do suggest thatthere is likely to be cause for concern for the future and that earlyplanning attention should be focused on this area. The first stepshould be the development of baseline data on the natural forestresources and household fuelwood consumption patterns. Such quantitativeinformation would enable the derivation of reliable fuelwood supply anddemand estimates, which are prerequisites for proper policy formula-tion. Therefore, the proposed forest inventory should be initiated atthe earliest. It is also recommended that a comprehensive survey ofhousehold eliergy consumption patterns covering urban and rural householdsand both traditional and modern fuels be conducted in parallel. Thissurvey could be designed and implemented using mainly local expertise,such as that available at the University of Swaziland whose SocialScience Research Unit has in the past conducted socioeconomic surveys ofgood quality. An energy survey could be launched as a joint effort withother technical departments of the University. The mission has preparedoutline terms of reference for the household energy survey (Annex 4).PAO has done some preparatory work towards the forest inventory, andprepared a project for strengthening the forestry sector. At present theforestry section consists of only one forester, six assistant forestofficsrs, and two forest assistants. Because of the small country size,both forest inventory and energy consumption surveys could be conductedrelatively quickly and at minimal cost; in fact, the two studies couldeasily be conducted as part of the same project.

Table 2.4: FUELWOOD DEMAND AND SUPPLY BALANCE('000 m3 )

1985 1990 1995 2000

Demand 460 519 572 590

Indigenous Forest Sustainable Yield 360 336 287 221Wattle Residues 36 46 75 75Existing Fuelwood Lots 13 13 13 13Private Forest Residues 20 26 41 102New Fuelwood Lots - - 8 23

Total Sustainable Supplies 429 421 424 434

Deficit - Net by Overcuttingof Indigenous Forest 31 98 148 156

Extent of IndigenousForest Cover ('000 ha) 120 109 91 69

Source: Mission estimates (see Annex 3).

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Commercial Biomass Energy

2.17 Although biomass has played an important role in the nationalenergy picture, it was until recently always within the confines of indi-vidual industries, The most important of these is the large sugar indus-try. Table 2.5 shows key production indicators for the three sugarmills.

Table 2.5: SUGAR MILL INDICATORS, 1985

Cane Sugar BagasseMill Capacity Processed Produced Produced

(tons per hour) - - - - - - - - tons - - - - - - - -Mhlume 300 1t078,248 116,227 316,331Ubombo Ranches 300 1,192,896 135,168 348,736Simunye 260 1,107,242 123,049 268,994

Total 860 3,378,386 374,444 914,061

Sources: MhIume Sugar Company, Lonrho Sugar Corporation, and RoyalSwazi Sugar Corporation,

2.18 There is clearly considerable technical potential for the sugarindustry to make a greater effective contribution to the national energysupply, as is the case in some other countries with large sugar indus-tries. However, the production of surplus power for export to the gridhas not been a major consideration of the sugar industry in Swaziland,although during 1983-85 two of the sugar mills sold small amounts ofpower to the SEB (an average of 0.65 GUh per year). A major complicationemerged in 1983/84 in the form of a lawsuit by cane growers who contendedthat they were entitled to a share of the proceeds from the powersales. The case went in favor of the growers, which has substantiallyreduced the already low incentive for the sugar industry to sell power -SEB purchases it at the cost of ESCON energy, currently only Swazi cents2.2 (US¢ 1.1) per kWh. The consequence of this is that the industry hasmade no sales to SEB since 1984/85. Instead, the companies have begun tostore bagasse from the end of one season, when they normally have excessbagasse, to the beginning of the next, when they normally need tosupplement bagasse with coal. As a result, coal consumption in the sugarindustry fell by about one half between 1980 and 1985.

2.19 If Swaziland decides to increase the energy contribution of thesugar industry, that contribution could be substantial. A recent WorldBank Energy Department study indicated that the world sbgar industry onaverage produces about 101 more bagasse than it requires to meet itsenergy needs; the remainder is normal'y burnt for disposal or consumed

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inefficiently. 12/ It is likely that in Swaziland this percentage is atleast as high, given the large size of the mills and their relativelyyoung age. At present conversion efficiency this would be equivalent tosome 40 GWh of additional electricity supplies. Far higher energyproduction is possible -- the same study estimates that sugar factoriesdesigned to use the minimum amount of steam and recover the maximumamount of energy from their bagasse can produce about 50 kWh of elec-tricity per ton of cane crushed. 13/ Of this about one-fourth would beneeded to meet sugar mill requirements. In Swaziland, where more than 3million tons of cane are crushed annually, the surplus power would beequivalent to more than 110 GWh, or about 50% more than the amount thatis currently produced to meet the sugar industry's own needs, andequivalent to about 30% of SEB's distribution requirements in 1985/86.

2.20 While the potential exists to substantially increase the amountof electricity generated in the sugar industry, the extent to which thiscan be realized is primarily an economic issue. The above-mentionedstudy indicated that realizing the full potential of bagasse-based powerwould entail extensive modifications to the boilers, generators, andbagasse handling systems of most sugar mills, and that these could onlybe justified economically when the economic cost of power for which itwould substitute was at least US¢6 per kWh. Less extensive and costlymodifications are possible (for instance, bAgasse dryers 14/) providedthe capacity exists at other stages of the transformation process toutilize the additional energy made available. Bagasse dryers, forinstance, could be justified at an economic cost of power of about US2.50per kWh. 15/

2.21 As indicated above, the rate at which SEB is prepared topurchase power from industry is considerably below these levels, whichrenders the investments uneconomic. Because iiidustry power cannot berelied upon to help meet peak power needs, SEB is only prepared to

12/ "Ilentifying the Basic Conditions for Economic Generation of PublicElectricity from Surplus Bagasse in Sugar Mills,," Wortd Bank EnergyDepartment, October 1983.

13/ Certain sugar mills in Hawaii have achieved as much as 70 kWh perton of cane processed.

14/ Bagasse dryers based on flue gases would reduce the bagasse moisturecontent from 50% to about 35Z, thereby raising average boilerefficiency from around 60% to 70-75%, and, provided sufficientgenerating capacity is available, increase electricity output byabout 181.

15/ In fact, it might not even be possible to realize the 40 GWhidentified as likely to be available in para 2.19 above if therequired generating capacity is not available.

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reimburse the producers et the ESCOM energy rate, but even if producerscould provide firm power and SEP reimbursed them at the average ESCOMrate (US¢l.9 per kWh) these investments would still be uneconomic. Underthese circumstances, SEB is content to purchase power from ESCOM, whichhas been low-cost and reliable, while the sugar producers are takingsteps to use their bagasse more efficiently to reduce coal needs.

2.22 If the Government wanted to increase surplus power generationin the sugar industry, it would have to provide subsidies, either to themills or SEB, or both. Whether the Government is prepared to providesuch subsidies would depend on the price it is prepared to pay forincreased self-sufficiency; certainly, power generation in the sugarindustry would be one of the more cost-effective areas of increasingpower self-sufficiency, particularly if it could be relied upon to helpmeet the daily maximum load. The mission recommends that the Governmentgive serious consideration to increased bagasse-based power generationfor sale to the grid as one of Swaziland's power supply options. A mill-by-mill review of existing transformation capacity to identifybottlenecks and the specific investments required to increase capacity ateach mill should be conducted as part of the power system developmentstudy (para. 4.18). Special consideration would need to be given to theissue of providing firm power during the offseason as well as during thecrushing season (which is a relatively long eight months in Swaziland).Offseason power generation would require improved bagasse storagetechniques such as pelletizing, briquetting, or baling. Meanwhile, toencourage the sugar industry (and other self-producers) to make themaximum economic use under the prevailing price regime of biomassresidues for power generation to meet their own needs, it is recommendedthat Government and SEB review the generating licenses of self-producersand liberalize any restrictive provisions.

2.23 As woodwastes are relatively small compared to bagasse -- onlyabout 15X in TOE terms -- there is little scope for using them to exportpower to the grid. Furthermore, the industries in which they areconsumed still import power from the SEB grid, and so they areemphasizing improvements in their own conversion efficiency to reducetheir purchases from "ER. From the perspectives of the individualcompanies as well as Swaziland as a whole, this would appear to be themost efficient strategy to pursue at present. Over the longer run, ifrelative energy prices rose, it could become economic for the companiesto exploit part of the substantial wastes left in the forests either forpurposes of power generation, as fuelwood, or through other means such asconversion to charcoal.

Fuel Alcohol

2.24 Molasses-based ethanol for blending with motor fuels has beenconsidered a potentially economically viable contributor to Swaziland'senergy resources since the time of the second oil price shock of 1979-80. At that time, the Lonrho Sugar Corporation (LSC) submitted a pro-posal to GoverrJment for a 60,000 liter per day anhydrous ethanol plant to

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be attached to the Ubombo Ranches sugar mill, which it co-owns along withthe Swazi Nation. No decision was taken on that proposal. Renewedinterest in an ethanol project was sparked in 1985 by the sharp deprecia-tion of the Lilangeni (para. 1.11) which was increasing the cost ofpetroleum products in Swaziland, even though international oil priceswere declining. Two pre-feasibility studies were submitted by regionalconsulting firms (RSA-based Project Engineering, Africa (PEA) and Malawi-based Ethanol Development Company (ETHCO)) to the Commonwealth Develop-ment Corporation fcr ethanol facilities to be attached to the Mhlumesugar mill, which it co-owns together with the Swazi Nation. Meanwhile,LSC revised and resubmitted its own proposal.

2.25 The other significant impetus behind an ethanol project hasbeen the difficulty in marketing the 120,000 tons of molasses producedannually by the three sugar mills. Molasses is shipped by rail toMaputo; as discussed elsewhere in this report, this rail link is subjectto serious disruption and as a result, large quantities of molasses haveaccumulated at the mills. These have been in excess of tank capacity andare being stored in open air pits, with consequent quality and environ-mental problems. Furthermore, molasses sales are priced f.o.b. Maputo,meaning that the industry must absorb all the transport and handlingcosts as far as Maputo. These substantially reduce the already depressedcurrent f.o.b. price of $42-43 per ton (E85) to E50 per ton ex-mill. Insum, the sugar industry considers molasses a nuisance product which itwould like to reduce, especially if it could be put to profitable alter-native use such as ethanol for motor fuels blending.

2.26 Swaziland satisfies many of the preconditions for a successfulfuel alcohol project. It is landlocked, which means transportation costsfor importing petroleum products and for exporting molasses are high. Italso has a large, modern, and efficient sugar industry to which the plantcould be attached, thus drawing on existing management and labor resour-ces and minimizing energy costs by using steam from the mills during the250-day milling season. 16/ Finally, it can be noted that ethanolblending with gasoline is now an established and practically risklesstechnology, and the oil companies have indicated that if the Governmentmade ethanol blending national policy, they would co-operate providedthey did not have to absorb the cost of modifying their depots.

2.27 The gasoline market is also sufficient to support a standard-sized ethanol plant in the 40-80,000 liter per day range (Table 2.6).Gasoline sales in Swaziland in 1985 amounted to about 46 million liters;assuming growth continues at its historical rate of around 3% a year, theethanol required for 20% blending with gasoline would rise from about 9

16/ To the extent the plant was operated during the oflseason, it woulduse coal.

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million liters in 1986 to about 14 million liters by 2000. 17/ Thiswould require approximately 57,000 tons of molasses by 2000, which iswithin the capacity of the industry. By 1990, ethanol could comprise anestimated 8% of total petroleum product consumption and 2% of total finalenergy consumption (based on Annex 1).

Table 2.6: ETHANOL PRODUCTION - KEY TECHNICAL INDICATORS

-- Actual - Projected

1980 1985 1990 1995 2000

Gasoline Sales (million liters) 40,4 45.7 53.0 61.4 71.2Ethanol - 20% blend (million liters) 8.1 9.1 10.6 12.3 14.2Required Plant Capacity - 250days per year ('000 liters per day) 32 37 42 49 57

Required Molasses - 4 tonsper kiloliter ('000 tons per year) 32 37 42 49 57

Memorandum Items

Sugar Production ('000 tons per year) 335 403 424 445 468Molasses Production ('000 tons per year) 100 121 127 134 140

Source: Mission estimates based oes project pre-feasibility studies.

2.28 The mission reviewed all three pre-feasibility studies, andfound them to be of good quality. All three of the firms which preparedthe proposals had been involved in one way or another with the successfulM4alawi and Zimbabwe ethanol programs. The projected capital andoperating costs appeared reasonable and consistent with those of similarprojects elsewhere. The process proposed -- simple batch fermentation --is also relatively straightforward to operate. All three pre-feasibilitystudies indicated that an ethanol project was economically viable, withrates of return ranging from 19-27% (Table 2.7). All three proposalshave made provisions to absorb the costs of modifying the oil companydepots, and seek to ensure the Government of no loss in currentlycollected revenues on gasoline.

17/ None of the studies proposes blending with diesel at this stage.

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Table 2.7: ECONOMIC COST OF ETHANOL PROOUCTION UNDERALTERNATIVE PROJECT PROPOSALS

GeneralSite Mhlume Mhlume Ubombo RanchesProponent CDC CDC LSCConsultant PEA ETHCO Lonrho

Technical FeaturesPlant Size (liters/day) 65,000 65,000 40,000Average Production (kiloliters/year) 11,938 10,300 8,400Operation (days/year) 250 250 330

Cost EstimatesCapital Cost (E million) 13.40 15.64 9.00Variable and Fixed Costs (ce,nts/liter) a/ 26.62 28.04 30.52Economic Cost (cents/;iter) 39.81 45.87 43.10Transport to tdatsapha 1.79 1.79 1.79Ethanol Cost Matsapha (cents/liter) 41.60 47.66 44.89Gasoline Import Parity (93 RON)-Matsapha 58.99 58.99 58.99

EconOmic SavingsDifference Between Ethanol Cost and GasolineImport Parity Matsapha (cents per liter) 17.39 11.33 14.10

Economic Rate of Return (S) 27.0 18.6 24.6

a/ Excluding debt service.

Note: To permit uniform comparison, the mission assumed In all three cases the following:a plant life of 20 years, molasses cost of E50 per ton, recovery of 250 litersalcohol per ton of molasses, and transport cost to Matsapha of Swazi cents 1.79 perliter, All three cases also assume an economic discount rate of 10%.

Source: PEA, ETHCO, and Lonrho pre-feasibility studies and mission estimates.

2.29 In late 1986 the Government approved ethanol blending withgasoline as national policy, and the two competing sponsors begandiscussing possible implementation of the project. It has thus becomethe economic and financial viability of the project which will determinewhether it proceeds. Provided capital costs do not increase substan-tially over mid-1985, the key variables are likely to be the price ofmolasses, which represents the value of foregone exports, and the priceof gasoline, which represents the potential import savings and, to alesser extent, the exchange rate. 18/ At the time the studies were

18/ As over 70? of the capital costs are from within the RMA, capitalcosts as a whole are relatively insensitive to movements in theexchange rate.

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prepared$ the import parity price of gasoline was EO.59 per liter, whileit was estimated that ethanol could be produced and delivered atEO.42-0.48 per liter (depending on the proposal - see Table 2.7),resulting in savings to the Swaziland economy of up to EO.17 perliter. 19/ At the 1985 gasoline consumption rate, this would be equiva-lent to total savings to the economy of E1.6 million per year. Netforeign exchange savings would amount to $1.5 million annually.

2.30 Between mid-1985 and 1986, however, international oil pricesdeclined sharply. This development has significantly affected theeconomics of ethanol production and in the mission's analysis, ethanolproduction would not be viable in Swaziland at the mid-1986 oil price ofaround $15 per barrel. In an attempt to systematize the effects ofuncertain oil and molasses prices, the mission did sensitivity analysison one proposal using a series of price and exchange rate scenarios(Annex 5). The analysis indicates that at the molasses price andexchange rate prevailing in mid-1986 ($42.7 per ton and US$0.50 perLilangeni, respectively), the international crude oil price would need toexceed $18 per barrel for the project to be economically viable. While alower exchange rate and/or molasses price would improve the economics ofthe project at any given oil price, the analysis in Annex 5 shows thatthe exchange rate effect is not very strong, as molasses export lossesand gasoline import savings largely offset each other. The sensitivityto %!hanges in the molasses price is relatively strong (although not asstrong as that of the oil price); at the mid-1986 oil price of about $15per barrel, an ethanol project could be viable in Swaziland if the inter-national molasses price fell from its level of $43 per ton to about $35per ton, which translates to an ex-mill price of E35 per ton, 70% of thecurrent yield. In evaluating the project, the mission suggests thatcareful consideration be given to the valuation of molasses. If, becauseof marketing difficulties, some molasses is being lost due to spoilage,then a lower economic price than the currently realized export pricecould be justified. Deducting a "nuisance" cost due to the inconvenienceof handling and marketing molasses would have a similar beneficial effecton the economics of the project. It is, in fact, these largely molasses-related issues that have led the sugar companies to consider implementingthe project under current oil price conditions.

Other Renewable Energy Sources

2.31 A number of renewable energy technologies have been consideredfor application in Swaziland, among them solar water heaters, cookers andphotovoltaic cells, wind energy systems, and biogas digesters. 20/ There

19/ All three studies assume the ethanol would be sold to the oilcompanies at the import parity price of gasoline.

20/ The Swaziland Energy Master Plan (Fichtner, et al. -- see ChapterVI) reviewed several of these in considerable technical detail.

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has, however, been no long-term measurement of solar and wind energypotential. The limited information available indicates relatively lowwind speeds in most parts of the country, but solar insolation is goodand substantial amounts of animal dung are available.

2.32 Despite these apparently good theoretical potentials, the mis-sion considers it unlikely that these renewable energy forms could becomepractical and economic options for Swaziland in the near to mediumterm. A major reason for this view is the general availability of moreconvenient or less expensive alternatives. For example, it can be shownthat the coal-fired water heaters used in communal work camps are cheaperthan flat-plate solar water heater systems, while also having theimportant capability to deliver hot water at all hours of the day andunder any weather conditions. The economics of wind turbines must becompared with those of grid extension; those of biogas digesters builtfor cooking or lighting, with the cost of wood, coal or kerosene.Moreover, the main advantage of many renewable energy systems is realizedwhen deployed in decentralized, isolated areas where conventional fuelsare costly or physically difficult to deliver. Swaziland is very compactand almost all parts of the country are easily accessible.

2.33 Some renewable energy devices are displayed at the Rural Tech-nology Center in Ntfonjeni near Piggs Peak. The Center is run as a jointproject of Women in Development, a non-governmental aid organization, andthe extension service of the Ministry of Agriculture, with initialfunding from the Dutch government and the UNDP. There are three othersimilar centers in other parts of the country. At Ntfonjeni, trainingclasses in livelihood skills are held periodically, for homesteaders inthe vicinity. The classes seem to be popular and considered useful bythe community. Instructions )a building biogas digesters, solar cropdryers, and coal stoves are also given, but it is not clear how effectivethe technology transfer effort has been. Most of the devices the missionsaw did not appear to be "appropriate" for replication in terms of designor affordability. For example, it is unlikely that the average homesteadfamily could afford the initial capital cost of a biogas digester or acoal stove, especially when fuelwood is readily available. On the otherhand, the more affluent households would probably opt for the moreconvenient kerosene or LPG fuels. Efforts of the centers in thisparticular area are perhaps better directed at developing anddisseminating inexpensive coal stoves and higher efficiency wood stoves.

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III. COAL

Background

3.1 Swaziland has been known to have coal for at least one hundredyears, and prospecting maps from the late nineteenth century accuratelyshow the area of the coalfield. However, early development plans failedto materialize, mainly because of a lack of transport to reach markets.Renewed interest occurred in the late 1950s with the formation of theGeological Survey and Mines Department (GSMD) and in 1964, with the open-ing of the Mpaka mine to service the newly-formed Swaziland Railway. Theoil crises of the 1970s sparked strong interest in the coal resource, andin the late 1970s and early 1980s a number of private companies undertookexploration on the field; apart from the operating mine at Mpaka, fiveexploration shafts have been sunk. As a result of these activities, theshallower areas of the coal field are now known in good detail.

Coal Geology and Status of Exploration

3.2 Coal bearing strata underlie about one-sixth of the surfacearea of Swaziland, probably constituting its largest single miningresource. The coal lies in one contiguous field which has an averagewidth of 15 km; it lies in a general nortt.-south direction and extendsinto adjacent areas of RSA. The coal bearing strata dip from the surfacein she west gently towards the east at 3_50 for shallow depths (less than200 m) and at 5-7 to depths of 500 m or more.

3.3 There are two main coal zones each containing numerous seams.Most of the coal seams of mineable thickness are found in the LowerZone. One seam, the Main Seam, has been found to have a high level ofcontinuity at mineable thickness throughout much of the coalfield. Thegeology is relatively complex as igneous dykes and sills have intrudedthe strata causing areas of coal to be devolatized, burnt, or evenreplaced by dolerite. Further geological complications have been causedby faulting, but the intensity of faulting is not considered unusuallyhigh for strata at this level of deformation. In general, miningconditions are similar to those encountered in the neighboring RSA stateof Natal, into which the same .oalfield extends, but somewhat moredifficult than those in the Transvaal, which are considered among thebest in the world.

3.4 From an overall perspective, the coal resources of Swaziland,especially those at shallow depth, have been well explored and to ahigher level of intensity than in many other countries. Although theexploration standards set by the companies have been high, thosestandards and the subsequent interpretation of the data have variedconsiderably. Not being directly comparable, they have presented specialproblems in estimating the size of the total coal resource. TheGCSMD todate has not consolidated these studies, nor has it set common standardsfor calculating reserves. To help in the systematic a.ssessment of future

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studies, it is recommended that a consistent set of standards and method-ologies be developed and adopted.

3.5 To provide a basis for assessing Swaziland's coal developmentpotential, the mission reviewed the available exploration studies andattempted to put them on a closely comparable basis (Table 3.1). Thework concentrated on identifying mineable reserves, which exclude coalthat is unlikely to be mined because geological complexity woulA make ituneconomic, and losses that occur in normal mining operations. Safetyfactors to account for areas of geological uncertainty and dilutioneffects were also incorporated. Mineable reserves in turn comprise threecategories of reserves -- proven, probable, and possible (or measured,indicated, and inferred) -- depending upon the intensity of the explora-tion conducted.

Table 3.1: MINEABLE RESERVES - RUN OF MINE(mIillion tons)

Total Mineable Proven Mineable Proven SaleableArea (All Categories) (Proven Reserves Only) (After Washing)

Mhlume 18.4 18.4 14X72Area 1 128.0 9.1 5e46Area 2 55.2 41.2 39.13Area 3 36.1 20.6 12.10Maloma 44.2 7.8 5.76Lubukhu Block (N) 132.5 18.9 a/ 14.71 a/Lubukhu Block (S) 70.8Subtotal Lower Coal Zone 485.2 116.0 91.88

Upper Coal Zone b/ 64.1

Total Demonstrated 549.3 c/

Additional Potential d/ 450.0

Total Demonstrated andPotential Reserves 999.3

a/ Includes proven and probable categories,bJ This Is high ash coal.c/ Includes both surface and underground mining potential. All areas except those east

of Area 3 have been assessed to depths of 200 m only. Normally, 500 m depth Isconsidered acceptable for underground mining; coal from 200-500 m and beyond has notbeen Included.

d/ In areas not Intensively explored.

Source: Various studies as provided by GSMD.

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3.6 The analysis indicates that the Lower Coal Zone has been demon-strated to contain about 485 million tons of mineable coal resources, ofwhich 116 million tons can be considered proven. This estimate of mine-able reserves is almost twice a previous estimate of 250 milliontons. 21/ These reserve estimates compare to a current production ofonly 0.2 million tons annually, indicating that Swaziland has the coalresources to support a far higher rate of exploitation.

3.7 Most of the exploration conducted to date has concentrated onthe shallow western side of the coal field, and the Lower Coal Zone inparticular. The limited exploration work that has been done on the UpperCoal Zone in the western part of the field indicates that these UpperCoal Zone reserves, at about 64 million tons mineable, were also sig-nificantly underestimated; however, this coal is of lower quality (para.3.9). On the basis of general geology and limited exploration it hasbeen shown that the coal field extends into the east. So far only about20% of this eastern area can be considered to be as intensively exploredas the western half. Thus, about 40% of the total coalfield is essen-tially unexplored. Assuming that coal occurs to roughly the same degreeand under similar mining conditions in the eastern as the western area,the mission estimates that an additional 450 million tons could bepresent in the eastern area. Taking these two lesser explored areas intoconsideration, Swaziland's reserves of mineable coal are consideredlikely to be around 1 billion tons.

3.8 Although five groups held exploration leases on the coalfieldin the early 1980s, none of them converted these into productionleases. In early 1986, the only exploration activity was the Deep Dril-ling Project being undertaken by the GSMD with Japanese government assis-tance. The purpose of this project is to explore deeper parts of thecoalfield, the Lubukhu block in particular. In addition, Emaswati CoalLtd., operator of the only existing mine, has taken out explorationleases in areas adjacent to its concession.

Coal Quality

3.9 Coal properties vary considerably over the field, dependingpartly on the depth of the coal and whether it is in the Upper or LowerZone (Annex 6). About half the total shallow coal is semi-anthracite orbituminous, the remaining shallow coals and the deep coal reserves are-indicated to be anthracite. Thus, of the total demonstrated and poten-tial reserve roughly one-fourth is semi-anthracite or low volatile bitu--minous coal that is weakly coking, while the remaining three fourths aremostly anthracite. In general, coal of the Upper Zone is inferiorquality anthracite with a high ash content. Table 3.2 shows the averagecoal properties for Area 2 which contains the only operating mine.

21/ N.C. McKeown, "A Note on the Coal Resources of Swaziland," CoalUnit, Geological Survey and Mines Department, October 1981.

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Table 3,2: COAL PROPERTIES, AREA 2 a/

Run-of-Mine Washed b/

Moisture (%) 1.6 1.3Ash (%) 24.9 14.1Volatile Materials (%) 13,1 12.7Fixed Carbon (%) 60.4 72.0Sulphur (%) 0.2 0.35Ash Fusion Temperature (0C) c/ 1,260 1,250Calorific Content (MJ/kg) 25.6 29.0

a/ For air-dried coal.b/ At 1.6 specific gravity.o/ Initial Deformation Temperature.

Source: Geological Survey and Mines Department.

3.10 Although coal properties across the field vary, it all has anumber of desirable characteristics including low percentages of vola-tiles and sulphur which make it a relatively clean-burning fuel. It alsohas a relatively high heat content and, with the exception of the UpperZone, ash content is moeerate and yields from washing are reasonable.Swaziland coal can thus be an attractive fuel where high heat content andenvironmental considerations are important.

3.11 The coal can, however, present combustion problems in someindustrial applications and thesz have proved to be a major constraint toits use within Swaziland. These problems stem partly from the ash con-tent, which although moderate by most standards is considered too highfor some applications, and partly from the fact that most coal burningequipment comes from RSA where it was designed to burn bituminous ratherthan anthracite coal. 22/ This has resulted in increased maintenance,low boiler efficiency, and even boiler damage. Most consumers who havetried Swazi coal have since converted to RSA coal, as this option wasconsidered less expensive and more straightforward than modifying thecoal burning equipment to accept Swazi coal. As a comprehensive reviewof the combustion properties of Swazi coal has never been undertaken, themission recommends that such a study be conducted by combustion engineersto permit a scientific assessment of the problems and the indentificationof any practical solutions for promoting greater domestic use.

22/ See Annex 7 for a more complete discussion of combustion problems.

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The Mpaka Coal Mine

3.12 The only operating coal mine in Swaziland is located at M4pakaand currently operated by the Emaswati Coal, Ltd. 23/ The mine,, whichopened in 1964, was originally developed as a wholly-owned subsidiary ofAnglo-American Corporation to provide coal for the locomotives servicingits now closed iron ore mine at Ngwenya. The original mining leaseexpired in 1973 and was extended a further ten years through 1983, andsubsequently through 1984. Agreement on a new long-term lease was notreached; subsequently, successful negotiations were concluded withEmaswati Holdings, Ltd.,, a Swaziland-based company which took over themine in January 1985. An important element of the new agreement isequty participation in the mine by the Swazi Nation. Ownershipi

currently 90% Emaswati Holdings, 10% Swazi Nation; however, the share ofthe Swazi Nation will eventually rise to 50% through the purchase ofadditional shares out of dividend income.

3.13 The mine is a non-mechanized underground operation using theroom and pillar method. Only the Main Seam is being mined and in thearea being mined in early 1986 it varied in thickness from 3.5-4.2 m.The coal is extracted by undercutting the seam,, blasting,, and hand-loading into coal cars which are transported to the surface via acontinuous cable haulage system. The production capacity of run-of-minecoal is about 17,500 tons per month (210,000 tons per annum). At thepithead, the run-of-mine coal is transferred to a conveyor for processingat a simple plant consisting of a crusher, screens, and a 52 ton per hourcapacity heavy medila washing bath. Initially, all coal is screened andthe fine coal (less than 25 mm) is stockpiled for export; the remaininglarger coal is washed, usually at a specific gravity of 1.6 beforerescreening. As of February 1986 Emaswati Coal employed 399 persons ofwhom 284 worked underground.

3.14 The plant produces four size fractions as follows: washed cob-bles (38-75 mmn), nuts (25-38 mm), peas (9-25 mm), and duff (less than 9mm); other sales products are unwashed peas and duf f (less than 25 mm).The washed duff is combined with the unwashed coal and exported;t all theother washed products are prepared for local consumers. Export coal istransported by company-owned trucks to the Mpaka railway station, whichis 7 km from the mine. Coal to domestic consumers is transported bycommon carrier.

Production and Sales Trends for Swazi Coal

3.15 Although the existing mine was opened initially to supplySwaziland Railway, it soon also supplied other domestic consumers andbegan exporting; the main initial export customers were Mozambique and

23/ There is another production lease in effect -- the Sumcor lease --but this scheme has yet to be developed.

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Kenya. During the 1970s, production ranged from 120,000-170,000 tons, ofwhich some 60,000-80,000 tons were typically destined for the domesticmarket (Annex 9). Throughout this period the Bamburi Cement Works atMombasa, Kenya remained the principal export customert althcegh occa-sional one-time sales were made to other overseas countries includingItaly, Belgium, and the Scandinavian countries. In the late 1970s,following the independence of Mozambique, the Swaziland Railway beganleasing locomotives from South African Railways instead of Mozambique.As these were unable to operate on Swazi coal, internal coal salesdropped sharply and have since ranged from 25,000-35,000 tons annually.

3.16 Since 1980, coal production has fluctuated sharply (Table 3.3);developments in the export market, which now accounts for over 801 oftotal sales, have been the principal explanatory factor. In 1980 and1981, apart from sales to Kenya, Swaziland had a coal export contractwith France which resulted in the export of 103,500 tons over the twoyears. During 1982-4, Swaziland's only export contract was with Kenyaand as a result exports, at about 80,000 tons annually, were only about602 of those in the previous two years. A significant impediment toexports during this period wat the limited availability of the rail linkto Maputo, which had not only deteriorated due to inadequate maintenance,but had also become subject to sabotage and attack by insurgents inMozambique. Furthermore, the antiquated coal handling facilities atMaputo were subject to frequent breakdowns. Rather than cut back onproduction and lay off workers, the mine for several years produced coalin excess of needs. Thus, between end-1979 and end-1984 coal stocks roseby 49,000 tons, equivalent to four months production (Table 3.3).

Table 3.3: COAL PRODUCTION AND SALES, 1980-85(tons)

1980 1981 1982 1983 1984 1985

Production a/ 184.2 157,7 115.0 101.7 124.6 166.1Sales 174,3 148.9 98.1 103.2 109.7 128.5Export (139.6) (118.8) (77*3) (76.2) (83.4) (101.0)Domestic (34.7) (30.1) (20.8) (27.0) (26.3) (27.5)

Change In Stocks +9.9 +8.8 +16.9 -1.5 +14,9 +37.5Cumulative ChangeIn Stocks since 1979 +9.9 +18,7 +35.6 +34.1 +49.0 +86.5

a/ Saleable coal,

Source: Geological Survey and Mines Department.

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3.17 In 1985, production increased substantially after an exportcontract was signed with Korea. However, infrastructure problemsremained serious and limited Swaziland's actual export capacity; hence, amajor accumulation of stocks in 1985. As of February 1986, coal stocksstood at 85,000 tons which comprised 55,000 tons at the mine, 6,000 tonsat the railhead, and 24,000 tons at the port. The availability of therailroad has continued to decline steadily. In January 1986, the directline to Maputo was open for only about 9 days, and only during daylighthours. In an attempt to increase shipments to the port, Emaswati Coal inFebruary 1986 began routing coal via Komatipoort on the new northern raillink. The Komatipoort-Maputo line, although still subject to significantinsurgent activity, has been somewhat more reliable.

3.18 As of early 1986, Emaswati Coal had two export contracts -- onefor 76,000 tons for the Bamburi Cement Works at Mombasa, Kenya andanother for 120,000 tons with Korea. The current Kenya contract callsfor four quarterly shipments of 19,000 tons of raw duff (-25 mm). TheKorean contract calls for raw duff (-25 mm), an ash content of less than30%, a calorific content of at least 5,500 kcal/kg (23 MJ/kg) and mostimportantly, a volatiles content of less than 10%. This coal is beingused to manufacture household briquettes. Emaswati Coal has limited thiscontract as it is unable to identify further reserves of readily acces-sible low volatile coal in the part of the mine currently beingoperated. Both contracts had an export price of $31.30 per ton f.o.b.Maputo. Transport costs to Maputo in January 1986 were E10.10 per ton;port charges, E9.00 per ton. The consequent ex-mine realized price inJanuary 1986 on exported coal was $23.20 per ton.

3.19 Domestic sales of Swazi coal dropped sharply after SwazilandRailway switched to RSA coal, and in 1985 sales amounted to only about27,500 tons. Table 3.4 below shows the broad composition of domesticcoal sales. The sugar industry accounted for two-thirds of the coalsold; however, only 22% of those sales were used for industrial purposes,and all of that was used at one mill, Mhlume. Because of combustionproblems, other sales, even those to industries, were for distribution toemployees for domestic purposes or to schools and hospitals.

Table 3.4: INTERNAL SALES OF SWAZI COAL, 1985(tons)

Cobbles Nuts Peas Duff38-75 m 25-38 m 9-25 -n 0-9 m Total

Sugar Industry 14,274 --- 4,132 --- 18,406

Others 4,262 4,142 672 9.076

Total 18,536 4,142 4,804 --- 27,482

Source: Emaswati Coal, Ltd.

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Coal Imports

3.20 Coal is mainly imported from RSA into Swaziland to meet coalquality requirements. 24/ Coal is imported tinder two arrangements:through a commercial broker or by direct arrangement between major consu-mers and the coal mines through their umbrella organization, theTransvaal Coal Operators Assocation (TCOA). In early 1936, Van's CoalAgency (Pty.), Ltd. was the ornly import broker of coal and licensedSwaziland agent of the TCOA. Table 3.5 shows the estimated breakdown ofcoal imports into Swaziland in 1985.

3.21 Specifications for imported coal vary by consumer and by mine,but it is all of bituminous grade. Only the Usutu Pulp Co. imports to anexact specification which is required for optimal functioning of its coalgasification plant. The largest quantities imported are of pea size(5-25 mm) for industrial use. The larger size fractions are mostly forhousehold use. In general, the RSA coal has a lower heat content andhigher volatile and sulphur contents than Swazi coal. (See Annex 10 forspecifications of selected imports.)

Table 3,5: ESTIMATED COAL IMPORTS, 1985

Quantity Percent of Total

(tons)Direct ImportsUsutu Pulp Company 64,946 37.6Swaziland Railway 30,000 17.4Havelock Asbestos Company 45,892 26.5Langa National Brickworks 4,000 2.3Sub-total 144,838 83.8

Agent ImportsIndustrial 19,000 11.0Sugar (3,300) (1.9)Other Food and Beverages (9,200) (5.3)Other (6,500) (3.8)

Commercial 7,000 4.1Households 2 °0° 1.1Sub-total 28,000 16.2

Total 172,838 100.0

Sources: Van's Coal Agency, major consumers, and mission estimates.

24/ For certain isolated consumers near the RSA border (such as HavelockAsbestos Mines) imports probably also represent the least costsource of supply.

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Coal Pricing

3.22 Coal pricing is left entirely to the private sector; it is not,however, a competitive market. Buyers of RSA coal do not have the optionof selecting between various mines; they provide TCOA with a coal speci-fication and are assigned to a particular mine. Furthermore, because oflicensing arrangements which restrict the number of transporterspermitted to operate in both Swaziland and RSA, essentially all the coalis transported by one company. This company is also the principal agentfor RSA coal in Swaziland, handling all coal imports except those nego-tiated directly by large consumers with TCOA.

3.23 In early 1986, the average landed price of RSA coal was esti-mated at about E42 ($21) per ton, with transportation costs accountingfor 55-60% of that price. Ex-mine prices of RSA coal depend on the coalspecification and the volume purchased; in early 1986 they ranged fromE16-22 per ton. Transport costs are substantial, ranging from E15-27 perton depending on the distance to the mine. Direct importers pay actualtransport costs from the mine to their factory. Larger consumers whopurchase from Vans Coal Agency pay around E47 per ton for 10,20, or 25ton deliveries by truck. Final distribution to smaller consumers takesplace through local sub-agents who take delivery of truckloads and resellthe coal in 50 kg bags at E6 per bag (E120 per ton) or in e2 containerswhich hold about two buckets of coal.

3.24 Emaswati Coal, Ltd. sets the price of its coal largely on thebasis of the delivered price of RSA coal. The mid-1986 ex-mine price ofEmaswati coal was E39.60 per ton ex-mine for all grades of washed coal,which is about twice the ex-mine price of RSA coal. 25/ To some extentthis reflects higher estimated production costs in Swaziland, but mostlyit is the result of protection afforded by high transport costs from RSAfor imported coal. The price advantage of using domestic coal is there-fore limited, and well illustrated by the cases of two adjacent sugarmills. The Mhlume mill is able to use domestic coal, for which it paid adelivered cost of E45.33 per ton in early 1986 (E34.40 ex-mine plusE10.93 transport), whereas the Simunye mill, which cannot use domesticcoal for technical reasons, paid E51.00 per ton for RSA coal delivered.Taken in conjunction with combustion problems, this magnitude of priceadvantage (less in many other cases) provides little incentive for domes-tic users to switch, especially as coal is usually not a major cost item.

3.25 Although Emaswati Coal would like to see domestic salesincrease, its primary emphasis is clearly on exports where earnings are

25/ Under Swaziland Collieries, Ltd., the operator of the mine prior to1985, the ex-mine price of coal rose from E23.00 per ton in 1982 toE26.22 per ton in 1983 to E29.90 per ton in 1984. Emaswati Coal,Ltd. raised the price to E34.40 in April 1985 and to E39.60 per tonin April 1986.

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higher. As noted in para. 3.18, the realized ex-mine price of exportedcoal in February 1986 was E54.50 per ton ($23.20), some 58% higher thanthat sold domestically. As long as Swaziland can export coal at a higherprice than it costs to purchase from RSA, the promotion of exports overdomestic sales is economically justified. However, exports at presentare limited to two contracts calling for delivery of fixed volumes whichare less than the capacity of the mine. Under these circumstances,domestic sales are not displacing exports, and the opportunity cost ofthe coal is essentially the marginal cost of production. As this islower than the delivered cost of RSA coal, import substitution would bedesirable on strict economic grounds; however, as noted above there aretechnical constraints to its use in many applications.

International Anthracite Market

3.26 The preceeding discussion has indicated that Swaziland clearlyhas the reserve base to support a much higher level of coal production.Given the small size of the domestic market, even if RSA coal could befully replaced, most incremental production would have to be for exportabroad. The presence of additional producers could, however, also serveto increase competition and reduce prices in the domestic coal market.In order to assess the potential for exports, a brief look at the worldanthr ,cite market is in order.

3.27 Current world production of anthracite is about 250 milliontons per year. However, by far the largest percentages are consumeddomestically by the two major producers -- China and the USSR - and lessthan 10 million tons per year are internationally traded. Anthracite hasuses in both the industrial and household sectors. In the industrialsector it has a wide range of applications including combustion fordirect heat and steam production; as an addition to coking coals in blastfurnace production of steel -- although this market is declining withchanging technology; in the ceramics industry for insulation, electrodes,and pot linings; in the ferrous metallurgical industry; and in othersmelting processes. It also has a variety of non-combustion uses such asin manufacturing graphite, activated carbon, and filter agents. Most ofthese applications require ash and volatile contents each less than 10;most Swazi coal would not fit into these more specialized categories(i.e. other than direct combustion) without extensive processing.Anthracitic coals with less rigorous specifications also have a market asa home heating fuel in Europe and the Far East; this is likely to be themain market fcr Swazi coal.

3.28 Currently, the Par East is the largest export market foranthracite, and South Korea is the largest single anthracite importer,importing about three million tons annually. Imports consist principallyof lower grade anthracite, with ash contents of around 20X, which facili-tate briquette manufacture. The volatilee content must, however, be lessthan 1OZ. The potential for this export market to expand is consider-able, as domestic mines, which produce 17-20 million tons annuaally, areencountering increasingly difficult mining conditions. Since 1980, three

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of the more significant anthracite mines have had to close. The othermajor market is Japan, where anthracite imports are also expected toincrease from their current level of two million tons annually. Qualityrequirements are diverse and reflect the multiplicity of both industrialand domestic use in Japan. Hewever, an undetermined portion of theJapanese market reflects the purchase of anthracite rather thanbituminous coal by some consumers to avoid the requirement to take aquita of high priced domestic, bituminous coal.

3.29 The other major importers of anthracite are the EECcountries. This market is estimated at about 15 million tons, of which3-4 million are imported; it consists of a large number of relativelysmall consumers who require low ash, low volatile, coarse size fractionmaterial. European anthracite production is declining steadily as miningcomplexities and production costs increase. While conversion to naturalgas is making up for much of the shortfall, there is likely to remain asigrtificant import market for clean burning coal.

3.30 The major anthracite exporters supplying this market are cur-rently Vietnam, China, the Reriblic of South Africa, and the easternUnited States, with most of Lhe top quality coal coming from Vietnam.Although Vietnam has opener several new anthracite mines since 1980,these are experiencing severe operational problems.

3.31 Anthracite is unusual in that the price shows a much widerrange than that of other coal types. At the bottom of the market is theanthracite of high ash and small size distribution typical of much ofSwaziland production such as that purchased by Korea. This type ofanthracite typically commands f.o.b prices of $30-35 per ton in thesouthern Africa region. While the higher quality anthracite (low ash,coarse size) can command f.o.b prices as high as $90 per ton, it would beunrealistic to expect Swaziland to be able to market large tonnages atthese prices. Table 3.6 summarizes early 1986 anthracite prices.

Table 3.6: ANTHRACITE PRICES, 1986

Quality Key Sectors Price

(S/ton f,o.b. )

Premium Quality (6% ash) Domestic and Industrial $90Medium Quality (10% ash) Industrial $65Briquetting Quality (20% ash) Domestic $30-35

Source: Mission estimates.

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Coal Development Prospects and Costs

3.32 As discussed above, the international trade in anthracite cur-rently amounts to less than 10 million tons per year. Exact figures aredifficult to establish because of conflicting definitions of anthraciteby various -aountries. Anthracite production in consuming countries isdeclining vhile the market remains at least stable; this should permit agrowing export market. While exports are increasing from traditionalsuppliers such as RSA, whose anthracite exports have increased from about1 million tons a year in the mid-1970s to around 3 million tons in 1985,there appears to be some opportunity for new exporters includingSwaziland to enter the market. Furthermore, because of increasingenvironmental concerns, the market for relatively smokeless low sulphurcoal is likely to be a strong segment of the overall future coalmarket. Swaziland, with its large reserves of low-volatile, medium qua-lity anthracite ahould be well placed to participate in that marketprovided low petroleum prices do not cause anthracite to be replaced byfuel oil or natural gas.

3.33 The identified mineable coal reserves of Swaziland indicatethat an annual output of up to, say, five million tons could be developedand sustained for over 100 years. While the market could probably notabsorb such an increase in a short time horizon, it would appear to jus-tify Swaziland seeking to gradually increase production with such atarget in view. Exploration studies already conducted have identifiedabout 4 million tons production capacity; these studies (except forLubukhu) dealt with only selected areas of the shallow coal reserves andnone of the deeper reserves (Table 3.7).

Table 3.7: POTENTIAL COAL PROOUCTION SCHEMES AND COSTS

Production (million tpy) Development Costs (S million)Year of Production Clean Original Est, 1986

Area Study Run-of-Mine Coal Cost Cost) a/

Lubukhu (N) 1986 0.64 0,50 26.9 26.9Mhlume 1979 0.83 0.67 34.1 31.0Area 1 1973 1.43 1.12 --- ---

Area 2 1973 1.00 1.00 15.2 33.1Area 3 1974 0.59 0.37 24.7 43.1Malomna 1980 0.75 0.50 23.1 16.6

Total 5.24 4.16 150.7

a/ As a proxy for actual cost escalation the mission used the ESCOM costof coal time series.

Source: Geological Survey and Mines Department.

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3.34 Whether Swaziland can realize this potential depends primarilyon factors beyond its control. The quality of most of the anthracitewould appear to prevent Swaziland from being a significant supplier ofthe low ash, low volatile anthracite which commands the highest prices.Swaziland then must look principally to the Par East where a potentiallyexpanding market for anthracite of Swaziland quality exists, as witnessedby the existing Emaswati Coal contract for export to Korea. The prin-cipal competitor to Swaziland for this market is RSA, where extensivereserves of similar grade anthracite exist in Natal. Unfortunately,Swaziland would not appear to be competitive with expanded RSA productionbecause of:

(a) likely higher mining costs,

(b) the shortage of skilled underground mining manpower,

(c) poor rail access to Maputo and possible inability toobtain access to the coal port at Richards Bay in RSA, and

(d) inefficient port and limitations on vessel size at Maputo.

3.35 While political considerations may constrain expansion of RSAexports in the short to medium term and crc4tte additional anthraciteexport opportunities for Swaziland, realizing chose opportunities woulddepend upon existing rail and port constraints being overcome. The bestexport opportunities for Swaziland anthracite may come when RSAproduction starts declining and port and rail contraints no longerexist. This would appear to be beyond the year 2000.

Institutional Issues in the Coal Sector

3.36 Coal, like other natural resources, is vested in the Head ofState in trust for the Swazi Nation. He alone is permitted to authorizeexploration and development. He is advised by the Minerals Committeewhich comprises six members whom he appoints. The Minerals Committee isindependent of Government and its members usually comprise traditionalleaders, although in early 1986 the Minister of Natural Resources, LandUtilization, and Energy was a member of the Committee (but not ex-officio). The Commissioner of Mines is the chief technical advisor tothe Committee and forms the principal institutional link to the Govern-ment and the energy policy-making and planning process.

3.37 Although there is no established policy regarding foreigninvestment, recently negotiated agreements have had a common patternwhich is likely to form the basis for future mining agreements. Prospec-ting licenses are typically issued for 3-5 years; production leases,which also vary, are at least 15 years long. Any mining operation isexpected to be incorporated as a locally-owned company; shile the companymay initially be owned by the foreign investor, provision must be made inthe mining lease for the Swazi Nation to acquire equity in the company.That share would be negotiated on a case by case basis, and would include

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a portion to be provided free in exchange for the ore body; the remainingshare would be purchased out of dividends on the shares which are to beacquired in this way. Swaziland as a whole would aim at obtaining about60% of the net revenue generated through royalties and dividends,which accrue to the Swazi Nation, and taxes on profits (37.5%) and divi-dends remitted outside Swaziland (15%, or 12.5% if remitted within theSACU) which go to the Government. 26/ The Swazi Nation currentlyacquires most of its earnings via dividends; the royalties on coal aresubject to negotiation on a project by project basis, but are currentlylow -- less than 5% of the pithead sales price. New investors areprovided with tax incentives including a five-year tax holiday andaccelerated depreciation allowances.

3.38 The Government agency which deals with the mining sector on anongoing basis is the Geological Survey and Mines Department (GSMD) of theMinistry of Natural Resources, Land Utilization, and Energy. The Depart-ment is headed by the Director of Geological Survey, who is also theCommissioner of Mines. It comprises two divisions -- the GeologicalSurvey Division, under an assistant director, which collects andpublishes basic information on rocks, soils, minerals, and undergroundwater; and the Mines division, under the Government Mining Engineer,which is responsible for administration of the Mining Act and associatedregulations, including the administration of exploration and productionleases, and royalty and rent collection. The Director GSMD supervisesthese activities in his capacity as Commissioner of Mines.

3.39 Shortages of skilled staff affect the administration as a wholeand are a particular constraint on the work of the Department. Severalkey staff have responsibility for more than one area. As of end-1985,GSMD comprised 23 higher level technical positions of which six -- forone mines inspector and five scientists -- were unfilled. While it isimportant that these positions be filled to permit GSMD to functioneffectively, a general strengthening of the department administration iswarranted to permit technical staff to concentrate on technicalmatters. The Department as a whole will also require considerablestrengthening at the technical level if it is to be able to adequatelysupport and supervise an expanded coal mining industry. Key staff areaswhich would require strengthening are mining engineers, processingengineers, financial analysts, and economists. It is also importantunder any expanded mining program to ensure that continuous and effectivemine reclamation and rehabilitation steps are undertaken. At present,Emaswati Coal indicates that it is following standard RSA guidelines onits own accord.

26/ This compares with a total take of about 55X in RSA.

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IV. ELECTRIC POWlER

Introduction

4.1 The Swaziland Electricity Board (SEB) is a government-ownedentity established under the Electricity Act of 1963. Under the Act, itis the only body authorized to generate, transmit, and distribute elec-tric power in Swaziland, although it may grant licenses to other entitiesto generate electricity for their own use, especially in cases where thisis based on waste by-products. In Swaziland, these self-generators aresubstantial, accounting for about 34% of the total consumption ofelectrical energy in 1985.

SEB System Development

4.2 The first public power generation capacity in Swaziland was0.6 MW installed at Mbabane in 1954-55. During the 1960s following theestablishment of SEB a major expansion of the system took place -- 15 MWof hydro capacity was installed at Edwaleni during 1964-67, followed by9.5 MW of diesel generating capacity during 1968-70. A further 6.5 MW ofhydro capacity % , commissioned at Maguduza in 1969. During the 1970sadditions to SLEB capacity came in the form of 132 kV transmission linksto ESCOM. In 1974 a 40 MVA link was installed (equivalent to 36 MW atthe originally envisaged power factor of 0.9). In 1979 a second 40 MVAlink was commissioned alongside the first, and together the two lines hada rating of 75 MVA (67 MW at a power factor of 0.9). 27/ In 1980, SEBbegan construction of the 20 MW (90 GWh per annum) Luphohlo-Ezulwinihydropower project; the scheme was commissioned in 1985.

4.3 In early 1986, SEB supply capacity amounted to 110 KW --46.5 MW hydropower, 9.5 NW diesel, and 60 MW in transmission links toESCL'M (Annex 11). However, half the hydro capacity is about 20 years oldand An need of rehabilitation (para. 4.17). As the ESCOM tariffstructure has a relatively high demand charge and a relatively low energycharge, SEB operates its system to maximize the capacity factor on ESCOMsupply, thereby minimizing the average cost of power purchases fromESCOM. Consequently, ESCOM capacity carries mainly the base load; hydrogeneration is programmed to meet fluctuations from this base, with dieselcapacity being used only to meet extreme peaks in demand. In 1984/85,the capacity factor of the ESCOM links was 45%, that of hydro capacitywas 43%, while that of the diesel units was less than 3Z.

4.4 As of March 1986 the SEB transmission and distribution networkcomprised 87 km of 132 kV line (the ESCOM links), 825 km of 66 kV line,

27/ In 1985 it was arranged with ESCOM that these lines be derated to60 MW because of recent increases in Qemand on the ESCOM side of thelink.

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and 1,645 km of 11 kV line. With this network, SEB considers that itcovers about 80% of the country. 28/ As of March 1986, SEB served atotal of 15,060 consumers -- 11,866 household, 2,700 commercial, 385industrial, and 109 irrigation customers. Compared to other countrieswith similar per capita incomes, households in Swaziland are relativelythinly served, as only about 10% of the population has direct access toelectricity. Some of the larger industrial and agricultural consumersdo, however, purchase power in bulk from SEB which they redistribute(free of charge) to their employees for domestic use; as a result, actualpopulation coverage is more likely to be around 20%. In part, the lowdirect household coverage is due to the absence of an active rural elec-trification policy on the part of SEB or Government -- SEB is onlyrequired to make electric service available within 100 yards of itslines; beyond that distance the customer may be required to pay part ofthe capital cost of providing service. 29/ It is also due to the absencein Swaziland of typical village groupings. Regardless of SEB policies,this would tend to make rural electrification very costly.

4.5 Almost all electrical supplies to rural areas have consequentlybeen to community centers such as schools, hospitals, churches, watersupply schemes, and other public undertakings. In the Swaziland context,the mission considers that the pragmatic expansion of the distributionsystem based primarily on commercial principles will continue to meetSEB's and Swaziland's overall needs best. This system has in any eventbeen serving Swaziland well despite the current recession -- betweenMarch 1983 and March 1986, the total amount of 11 kV line increased by28% and the number of direct household consumers by 21%.

SEB Electricity Demand, 1974/75 - 1985/86

4.6 Between 1914/75 and 1979/80, SEB electricity sales grew at anaverage annual rate of 17%, reflecting rapid overall economic growth andrelatively stable electricity charges (Annex 12). All classes of consu-mers shared in the rapid growth, but irrigation sales grew especiallyfast due to major expansion of the sugar industry during this period.Beginning in 1980/81, sales growth began to slow down, again reflectingoverall economic trends; nevertheless, over the 1980/81 - 1982/83 periodsales still averaged 10% growth per annum. But between 1982/83 and1984/85, sales actually declined at an average rate of 2% annually. 30/

28/ SEB considers an area covered it it is within 10 km of 11 kV line.

29/ SEB normally expects to recover the capital costs of connectionwithin two years; in cases where it estimates revenues may beinadequate, a bank guarantee is required before connection canproceed.

30/ In 1985/86, sales recovered to their 1982/83 level due mainly to alarge increase in power sales for irrigation.

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These declines stemmed primarily from the economic recession which hadtaken full hold by 1982, and which was aggravated first by the droughtand then by cyclone Domoina in early 1984. The slowdown was mostpronounced in the industrial and irrigation sectors, where sales fellsharply. In the irrigation sector, the drought of 1982/83 had raisedirrigation pumping needs to unusually high levels, so subsequent declineswere to be expected. In industry, sales fell with the liquidation ormothballing of several significant industries, including the fertiliserfactory which had accounted for 8Z of industrial sales in 1982/83. Intotal S$B estimates it lost 20 GWh in annual sales between 1982/83 and1984/85, three-fourths of which it attributes to the economicrecession. The remainder it estimates is the result of efficiencyimprovement programs by seli-producers, especially in the wood-basedindustries, which in response to larger and more frequent tariffincreases by SEB, have been improving their own generating efficiency.Once these programs take full effect by end-1986, SEB estimates that afurther 11 GWh in sales will be lost; the total 16 GWh loss would beequivalent to about 10X of current sales to industry. Since 1980/81, thesystem load factor has remained around 57X, except in 1982/83 when excep-tionally heavy irrigation power sales pushed it to 662.

,SEB Electricity Supply, 1974/75 - 1985/86

4.7 As discussed above, SEB additions to supply capacity in the1970s comprised two transmission links to ESCOM. Whereas SEB had beenself-sufficient prior to 1973/74, by 1979/80 it imported 622 of totalrequirements from ESCOM. Power imports continued to rise, peaking in thedrought-affected year of 1982/83 when SEB hydro generation was less than60% of normal and 81Z of total electricity requirements had to beimported (Annex 13). The Luphohlo-Ezulwini scheme which came on streamduring 1984/85 significantly reduced SEB purchases from ESCOM to 61X;however, even with the benefit of a full year's generation in 1985/86,SEB imported about 581 of its requirements. 31/

4.8 SEB's own use and losses consistently averaged about 102 of thetotal energy generated and purchased over the decade 1974/75 - 1984/85.This level is considered acceptable given that SEB operates essentially atransmission and distribution system with a relatively low loaddensity. Losses did, however, increase to an unprecedented 12.2% in1985/86. SEB believes this increase was the result of power theft inreaction to the substantial tariff increases over the past few years; itis investigating this problem and taking measures to correct it.

31/ River flows in 1985/86 continued to show the aftereffects of thedrought of 1982-83; with normal flows SEE expects it would have beenable to meet about 552 of total needs through domestic hydropower.

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Non-SEB Electricity Generation

4.9 Non-SEB generation capacity in Swaziland amounts to about57 MW, equivalent to about half of SEB's supply capacity in 1985(Annex 14). Of this, 43 MW represents steam plant based on bagasse orwood wastes, 8 MW comprises coal-fired steam capacity, 5 MW representsdiesel capacity, mostly for back-up, and about 1 MW is micro-hydrocapacity. Total generation by self-producers in 1985 amounted to anestimated 189 Gih, larger than SEB sales to industry and equivalent to52% of total SEB sales. Their power generation durinig the year and year-to-year is variable and tends to depend upon the levels of output in thevarious industries; in the sugar industry in particular, the weather is amajor influence.

4.10 There are two aspects to this high level of non-SEB production.In the case of the sugar and wood-based industries, the use of waste by-products is an integral part of the technical operations and economics ofthese industries world-wide. Furthermore, all the larger self-producersexcept the third sugar mill were established before SEB and had to beself-sufficient in power. This applies particularly to Havelock AsbestosMines, Ltd., which was established in 1938 and has its own coal-basedgenerating capacity (8 MW). Although Havelock has long been connectedinto the SEB grid, it continues to generate about 82X of its require-ments. In part, this is because the company does not want to exposedangerous underground mining operations to SEB supply, which is particu-larly unreliable in the remote, mountainous area of north-west Swazilandwhere the mine is located (see also para. 4.16), but also because coal isused to counterbalance asbestos which is sent out directly to RSA on a20 km ropeway. The company would especially like to reduce its need fordiesel generation, which it estimates is five times as expensive as SEBpower and about eight times as expensive as its own coal-based power.

4.11 There have been no significant additions to the generationcapacity of the self-producers since the commissioning of the third sugarmill in 1980. In response to the rapidly rising cost of purchasedenergy, these producers have; however, made significant improvements intheir energy conversion efficiency. Thus, the sugar industry reduced itscoal consumption by one half between 1980 and 1985. Electricity produc-tion by Usutu Pulp Co., the largest single self-producer (70 GWh in1985), increased 25% between 1980 and 1985 while pulp production rose byonly 10%. This enabled the company to rise from 66% to 712 self-sufficiency; once the energy efficiency improvement program is completedin late 1986, they expect to be 80% self-sufficient. Similarly, PeakTimbers made improvements in its steam turbines in 1984 which increased1985 electricity production by 52%.

Priorities for Power System Development

4.12 The most important issues in the Swaziland power sector, andthose which should help guide future power development strategy, are thereliability of power supply and the serious financial difficulties of

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SEB. There are in turn two aspects to the reliability of power supplysthat related to the supply of power within Swaziland and that concernedwith the overall security of power supply -- as noted above, SEB importsmore than half its supplies from RSA.

4.13 Concerning the reliability of supply within Swaziland, majorconsumers indicate that SEB supply is subject to frequent outage and tovoltage fluctuation. There appear to be several causes, including thelimited amount of reserve capacity, the propensity of the system tolightning strikes, and the small size of the system which has constrainedSEB's ability to diversify its sources of supply. Although most outageslast less than 30 minutes, there can be several su:h occurances a day.One industry reports more than 100 outages annually in three out of thelast seven years. Industries also mention frequent voltage surges whichcause circuit breakers on sensitive items to trip. As a result, some arereluctant to put critical operations onto the grid.

4.14 While ESCOM has proved to be, and is likely to remain, awilling and reliable supplier, Government should also consider thestrategic issue of the extent Swaziland should be able to meet the powerneeds of key ecoiaomic sectors from internal sources of supply, especiallyin view of the political and economic uncertainty in the region. Underpresent SEB supply patterns, any prolonged disruption would have seriousimplications for the Swaziland economy unless the Government preparedcontingency measures. It is important that Swaziland consider how itwould tackle a disruption. In the short terr options appear limited todevising standby plans for power rationin, S over the longer term,Swaziland could take steps to increase domestic power generating capacityand develop power links with Mozambique. rhe possibilities for increaseddomestic generating capacity are discussed below in the context of over-all power system expansion. It must also be considered that steadygrowth in demand on the RSA side of the ESCOM links could reduce ESCOM'sfuture capacity to supply Swaziland from its existing transmission capa-city in the area. As discussed in para. 4.2, this has already led ESCOMto reduce the rated capacity of the existing liriKs from 67 MW to 60 MW.

4.15 The other critical issue in the power sector is the difficultfinancial position of SEB. To minimize tariff increases and/or any needfor subsidies to SEB, it is desirable that SEB postpone investments innew power capacity for as long as possible. As new investments are beingdictated by peak power demand rather than by energy needs (para. 4.20),any demand that SEB can shift away from the system peak would permit itto improve the system load factor and defer investments in new capacity.

SEB System Reliability

4.16 While SEB operates a system that is reliable compared to manydeveloping countries, as noted above, outages occur frequently. Inade-quate reserve capacity appears to be a contributing factor. Conservativeplanning criteria call for SEB to be able to meet maximum demand with atleast its largest source of supply out of service; in this case, one

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30 MW ESCOM link. Even more appropriate would be the capacity to meetmaximum demand with its largest generating unit as well as one ESCOM linkout of service. As Table 4.1 shows, the gap between reliable capacityand maximum demand increased steadily in the early 1980s. The situationimproved significantly with the commissioning of the Luphohlo-Ezulwinischeme in 1984/85, although by 1985/86 SEB once again had inadequatereserve capacity even under the less conservative criterion. Thesituation is aggravated by the high incidence of outages on the existingESCOM links. tit only are the lines situated in one of the mostlightning-prone areas of the world but, as they run alongside each other,they can be lost together resulting in the loss of 60 MW, which SEBcannot cover. As a result, major outages can and do happen regularlyduring the summer months, when electrical storms are frequent.

Table 4,1: SEB RESERVE CAPACITY, 1979/80 - 1985/86(1W)

1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86

A, Maximum Demand 57.2 69,5 72,7 70,4 78.0 78.0 81.0

B. Supply Capacityless 30 MW ESCOM link 61.0 61.0 61,0 61.0 61.0 80.0 80.0

Reserve Capacity 3.8 -8.5 -11.7 -9.4 -17.0 2,0 -1.0

C. Supply Capacityless 30 MW ESCOM linkand largest SEBgenerating unit 56.0 56.0 56.0 56.0 56.0 70.0 70.0

Reserve Capacity -1.2 -13.5 -16*7 -14,4 -22.0 -8.0 9.0

Source: Mission estimates based on SEB data.

4.17 Further reliability problems stem from the canal and pondagesystems from the Greater Usutu River and the Little Usutu River to theEdwaleni and Maguduza power stations near Mbabane, which at 20 NW com-prise half of SEB's rated hydro capacity. The canal system has beenfilling with silt for several years, and the situation has reached thepoint where an island has formed in the pond, which has greatly reducedstorage capacity. This is critical because the water accumulated in thepond provides the run-off utilized to meet the system peak, therebylimiting the demand drawn from ESCOM. The silt is also causing excessivewear on the turbines, which are in need of substantial repair. The com-bined effect of these problems is that the hydro plants cannot operate attheir maximum efficiency, nor can they be properly utilized to meet peak

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power demand. The generating equipment still has another 10 to 20 yearsof useful life and represents a substantial sunk capital cost. Thiscapacity is a low cost source of peak power and SEB should make its res-toration to full capacity a top priority. This sort of siltation problemis encountered in many parts of the world and an experienced consultantshould be able to recommend a cure, such as the installation of sandtraps. It is recommended that SEB retain a consultant to advise on howto tackle the siltation problem. By late 1986, SEB had begun takingsignificant steps to tackle the siltation problem.

Future Growth in SEB Demand, 1986/87 - 1994/95

4.18 SEB has not undertaken a major power sector development reviewsince the late 1970 s. Considering that there are several importantinvestment decisions to be taken in the power sector within the next fewyears, it is recommended that SEB undertake a formal study of demand andthe investment possibilities for meeting those needs. In addition todetermining the least cost expansion program, the study should alsoexplicitly examine the costs and benefits of options which would enhanceSwaziland's power self-sufficiency. The two most promising domesticpower supply options would appear to be the Maguga Dam project, which SEBis examining (para. 4.28) and increased bagasse-based power by the sugarindustry, although the possibilities for small coal-based power plantshould also be considered (para. 4.31). The mission is also recommendingthat the Government explicitly examine the power potential and theassociated cost of increased bagasse-based power generation (pa-a. 2.22)as part of the overall system expansion study.

4.19 To gain a preliminary view of Swaziland's likely power invest-ment needs over the next decade, the mission prepared power demand pro-jections for the 1985/86-1994/95 period. These projections are based onthe SEB assessment that power sales will recover only gradually from thedepressed level of 1984/85; this in turn is based on Swaziland's limitedgrowth prospects, at least through 1990, and increased generation byself-producers. Based on this overall assessment, two sets of projec-tions were produced which differ principally in their outlooks for theperiod 1985/86-1989/90 in the household and industrial sectors (Annex15). The low growth scenario assumes a significant response by consumersto the large recent tariff increases, and a slow recovery from the reces-sion. Overall energy sales average only 1.31 growth per year and do notrecover to their 1982/83 peak until 1989/90. However, maximum demand isexpected to continue to grow, rising from 78 MW in 1984/85 to 81 MV in1989/90. In contrast, the high growth scenario assumes that householdsales will maintain their current growth rate of 5% throughout the periodand that industry will recover substantially by 1986/87. As a result,overall energy sales would average 4.9% growth, and maximum demand wouldrise from 78 MW to 96 MW. By 1990/91, it is assumed that the regionalrecession is over and that the economy is responding to growth orientedGovernment policies. Thus, overall energy sales after 1989/90 would growat almost 5X annually, reaching 463 GWh under the low growth scenario by1994/95, with a maximum demand of 110 MW, and 516 GIh under the highgrowth scenario, with a maximum demand of 120 MW.

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Future SEB Supply, 1986/87 - 1994/95

4.20 Together with domestic hydropower, the existing links to theESCOM system have the capacity to meet SEB's energy needs for the rest ofthis century. 32/ Its ability to meet maximum power demand is adifferent matter. SEB's current capacity of 110 MV wo. d be sufficientto meet maximum power demand under the low growth scenario through1994/95 and under the high growth scenario through 1992/93, providedthere are no unscheduled outages. However, as discussed above, systemreliability is already an important issue. The question then is when andhow SEB goes about ensuring that it has the capacity to reliably meetmaximum demand, especially beyond 1989/90 when power demand is expectedto increase substantially under either scenario.

4.21 SEB has several options for meeting new demand. First, asdiscussed in para. 2.22, it should remove any restrictions on biomassbased power generation by self-producers, thereby helping reduce SEB'ssupply requirements. SEB also has the options of improving demandmanagement and/or bringing on new capacity. The preferred initialapproach would be to concentrate on improving demand management, espe-cially considering SEB's financial difficulties. The overall system loadfactor is currently a relatively low 571. This is the result of daily aswell as seasonal fluctuation -- over 60X of total irrigation sales, whichare themselves 25-301 of total atnual sales, occur during the firstquarter of the year. Maximum daily demand can vary by about 25 MWdepending upon the time of year. While this may limit how much of animprovement in the system load factor is possible, at present, SIBprovides no incentive -- other than a water heating rate, which is beingphased out -- for consumers to move consumption demand away from peakdemand periods. SEB should therefore make improved demand managementthrough tariff as well as non-tariff (e.g., by encouraging off-peak irri-gation) means an immediate priority.

4.22 Once SEB has taken all practical steps to improve demandmanagement, the issue becomes the most economic means of increasingsupply capacity. In the short term, SEB's options for increasing supplyare limited, and SEB has already decided that its next addition to capa-city should be a third transmission link to ESCOM. SEB's most recentsystem expansion study (done in the late 1970s) indicated that this wouldbe the least-cost addition to the system once the Luphohlo-Ezulwinischem was in place. Agreement with ESCOM has already been reached andthe ESCOI portion of the link is in place; SEB already pays charges onit. Construction of the SEB portion has been delayed by its financialdifficulties (para. 4.34), and in any event, the severe recession hasmade the need less serious now than it appeared to be around 1982/83.The line would, however, bring SEB substantial benefits in terms of

32/ By 1994/95, Swaziland would be drawing on only about two-thirds ofthe energy capacity of the link even under the high growth scenario.

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system reliability and voltage control, especially as the link would comein through the southwest (as opposed to existing links which enterthrough the northwest), and thus provide an added measure of protectionto SEB, particularly against lightning strikes. Concerning the timing ofthe link, while SEB's financial difficulties make the project difficultto implement at present, it should be constructed as soon as the analysisindicates that it has an acceptable economic rate of return. SEB there-fore should undertake an evaluation of the sales lost because of outagesand the associated value to the economy of lost production. SEB'scurrently limited reserve capacity situation and the deteriorating condi-tion of the Edwaleni and Maguduza hydro facilities should also be takeninto account in considering the timing of the link.

4.23 SEB's subsequent addition to capacity could be required by1992/93 under the high growth scenario or by 1994/95 under the low growthscenario. 33/ This gives SEB time to examine all the alternatives formeeting those needs. The mission's analysis indicates that at currentprices a further link to ESCOM would be the most economic addition tocapacity. The cost of an additional link to ESCOM, given most likely SEBoperating practices, was estimated at USC2.5-3.0 per kWh. In comparison,the cost of domestic hydropower using the Luphohlo-Ezulwini project as abasis, was estimated at about US¢ll per kWh. 34/ A small-scale (30 MW)coal-fired plant vas estimated to cost about US¢8 per kWh (excluding thecost of any necessary coal development -- para. 4.31), while the fuelcosts aleae of diesel plant amounted to USC7 per kWh (diesel priced atimport parity).

4.24 There are, however, two further considerations which should betaken into account: the likelihood of further ESCOM tariff increases andthe need for increased security of power supply. The ESCOM tariffs havebeen rising steadily in recent years (more than doubling in nominal termssince 1979) and are considered likely to continue increasing as ESCOM isin the process of making large additions to capacity -- see footnote 37.If the rate of future increases matches that of recent years, some domes-tic power investments which are at present uneconomic, including thepower component of the Maguga Dam and bagasse-based power, could becomeeconomic withiut the time frame for investment planning. Indeed, signifi-cant increases in the SEB tariff have already made it economic for indus-tries to increase the utilization of biomass residues to meet their ownpower needs (para. 4.11). The implementation of these projects wouldalso be consistent with another important consideration, that of improv-ing Swaziland's security of supply. Together these considerations wouldsuggest that it is appropriate for Swaziland to focus greater attention

33/ Assuming SEB is prepared to operate with only one unit (30 NW)reserve capacity.

34/ See Annex 16 for a more detailed discussion of the economic costs ofthese options.

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on investments in additional domestic power than would currently appearwarranted on strict economic grounds, and that following the Third ESCOMLink, the next addition to capacity could be domestic. The proposedsystem study -.ald address the various options open to Swaziland and thecosts associated with each. To provide a basis on which the Governmentcan decide on a power development strategy, the study should producealternative scenarios reflecting different degrees of self-sufficiencywithin different time frames.

Ferrochromium Project

4.25 Because of the small size of the SEB power system, the com-missioning (or shutdown) of a single major enterprise can have majorimplications for the power system as a whole. In early 1986, the mostlikely and most significant of such projects was a ferrochromiumproject. If this project were to proceed, it would require 60 MVA ofpower capacity, which would exceed SEB's supply capability even if thethird transmission link were completed. Clearly, special supply arrange-ments would need to be made to meet the requirements of this projectthrough a separate transmission facility from ESCOM. The financing ofsuch a link and cost of power to be provided have been a major focus ofpreliminary discussions between Government, SEB, and the promoters.

Hydropower Development and the Issue of Water Rights

4.26 As discussed above, domestic hydropower is likely to representa more costly solution in economic terms to meeting Swaziland's powerneeds than purchases from ESCOM. However, the issue of hydropower isalso connected to that of water rights on the rivers that flow throughboth Swaziland and RSA. RSA has indicated that as long as Swazilandpresents no firm plans (including financing) of its own for developingwater resources that flow from RSA into Swaziland, it will continue todevelop these resources unilaterally. It also maintains it is not in aposition to guarantee minimum dry season flows. Meanwhile, RSA continuesto increase the offtake on its side of the border; this could precludefuture Swazi use of these resources for hydropower or irrigation whenstudies might indicate that it would have been economic to do so. Aslong as agreement cannot be reached on a different basis for determiningthe apportionment of waters other than on current or imminent specificuse, Swaziland may decide that it is in its best long-run interests toincur additional economic costs to develop these waters at an earlystage.

4.27 The significance of actual and likely upstream abstractions byRSA on river flows within Swaziland has been amply demonstrated. In1970, UNDP financed a study by Engineering and Power Development Consul-tants which identified 21 possible sites for hydropower schemes, with anestimated energy potential of about 3,000 GWh. The same study attemptedto determine the effects of likely water abstractions by RSA, concludingthat the total potential would decline by about 40X, to 1,800 GIh. Underthe recent Energy Master Plan (para 6.3), these estimates were revised in

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the light of actual flows being recorded on existing schemes and toeliminate those schemes which were clearly uneconomic. The analysesindicated that the realistic hydro-potential of Swaziland amounted toonly about 550-700 GWh (Table 4.2), of which 30-401 has already beendeveloped. 35/

Table 4.2: SWAZILAND HYOROPOWER POTENTIAL, 1980(GWh)

Allowing for RSACurrent Situation Abstractions

Total Potential 1,200-1,500 800-1,000

Total Potential excluding 900-1,100 550-700Uneconomic Schemes, of which:Existing Stations a/ (220) (220)

Unexploited (670-870) (330-480)

a/ As of 1986.

Source: Fichtner, et al, Swaziland Energy Master Plan.

4.28 In 1979 RSA and Swaziland agreed to establish a Joint PermanentTechnical Committee (JPTC) to discuss water rights. This committeeagreed to tackle the issue on a basin-by-basin approach. The JPTCdecided to tackle the Komati River basin first. This river rises in RSA,where substantial abstractions are made for power generation and indus-trial purposes, flows into Swaziland where abstractions are made forirrigation purposes, and flows again into RSA where further abstractionsare made for irrigation purposes. RSA wishes to ensure minimum dryseason flows once the river re-enters the country. The JPTC has recom-mended to their respective governments an allocation of the runoff (Table4.3) and the construction of two dams -- one in Swaziland and one in RSA-- for river regulation purposes. The total cost of the two dams wouldbe about E260 million, of which Swaziland is anticipated to assume about20X and RSA the remainder. It is expected that the dam in Swazilandwould be constructed for river regulation and irrigation purposes, andstudies are underway to identify an economically viable irrigationscheme. However, there are also potential hydropower benefits which SEB

35/ The recently commissioned Luphohlo-Ezulwini project depends onwaters which arise in Swaziland; hence, international water rightswere not an issue in this project.

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has indicated it would be interested in exploiting provided it does nothave to assume any of the dam costs. A significant constraint on thisproject is the fact that, as currently envisioned, water releases wouldbe governed by irrigation requirements. This means that the dam couldnot be relied upon to meet maximum demand, which as discussed inpara. 4.20, should be the focus of SEB's next capacity addition.

Table 4.3: ALLOCATION OF MEAN ANNUAL RUNOFF ON KOMATI RIVER

(mllon m3)

Mean Annual Runoff 732less: Current RSA Abstractions 141

Future RSA Abstractions 132Current Swazi RSA Abstractions 177

Balance Available 281less: Swazl Share 40

RSA Share 40To be Allocated 60

Remainder 141

Source: Water Resources Branch; Ministry of Natural Resources,Land Utilization, and Energy.

4.29 Preliminary SEB estimates indicate that the cost uf adding10 MW of capacity to the dam would be around E 14 million in 1986 prices,and that it could provide an annual energy output of 40 CWh. Over a30 year economic life, the economic cost of power would amount to aboutSwazi cents 4 per kVh -- considerably higher than the present ESCONenergy rate of Swazi cents 2.2 per kWh. Under such conditions theproject would not be economically viable, although Swaziland could stillchoose to pursue it on grounds of increased energy security. There are,however, two factors which could make the project economically viable:the prospects for continued real increases in the ESCOM tariff (para.4.24), and the possibility that water releases could help meet seasonalpeak demand. Even though water releases and power generation would begoverned by irrigation needs, it is during the irrigation season thatannual power demand peaks. It is therefore possible that water could bereleased through the dam during the irrigation season to help meet themaximum daily load at that time. This would permit the power benefits tobe valued at a higher rate (up to about Swazi cents 6 per kWh -- seeAnnex 16), which could make the project economically viable.

Thermal Power

4.30 The possibilility of installing coal-fired steam generating

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capacity in Swaziland has been investigated on several occasions. In theearly 1970s, serious consideration was given to installing capacity farin excess of Swaziland's needs in order to permit significant exports toESCOM, which was considered the only potential market for such exportsand which at the time was in need of additional capacity. A number ofschemes were considered ranging from a single unit 500 MW station to a1,500 MW multiple unit station. These large-scale schemes had to beshelved due to insufficient data regarding the sufficiency of the coalresource. In consultation with ESCOM, it was ultimately decided that a200 MW station could be supported, and as proven coal reserves and powerdemand increased, so could generation capacity. This project had theproblem, however, that subsidies from the RSA government to ESCOM wouldbe required in order to make up for the higher unit costs a relativelysmall Swazi station would result in -- ESCOM is required by law to supplypower at the lowest possible cost. A subsidy guarantee did not material-ize and the project was shelved in the mid-1970s.

4.31 In the late 1970s, when SEB was considering additions to capa-city, the economic viability of small 15 MW and 30 MW schemes was inves-tigated. Studies by SEB consultants indicated that the least cost systemexpansion was the Luphohlo-Ezulwini hydropower project followed by addi-tional links to ESCOM. The alternatives involving 15 and 30 MW coal-fired steam plant were found to be at least 28Z more expensive. However,due to the changed environment, small-scale power plants should be inves-tigated again under the proposed study of SEB system expansion. If SEBand the Government decided as a matter of longer-term power policy tobegin developing Swaziland's thermal power capacity to meet internalneeds, the issue of coal supply would need to be addressed. While theexisting coal mine should be able to meet the needs of one relativelysmall unit (30 MW) given the current size of the market for Swazi coal,additional units or a significant increase in coal sales, particularlyexports, would require investment in additional mining capacity. 36/These costs would need to be considered in evaluating the competitivenessof domestic coal-based generation.

4.32 Recently, the Ministry of National Resources, Land Utilizationand Energy revived the concept of a large-scale (1,200 MW) coal-firedthermal power plant as a means of exploiting Swaziland's large coalresources. The project, which SEB estimates would cost an estimated$500-600 million excluding the mining component, would again be based onexports to neighboring countries, in particular, RSA. In early 1986, twostudies were underway, one regarding the size of the coal resource andthe other concerning the technical feasibility of a power plant based onSwaziland coal. A project committee has been established which comprisesrepresentatives of concerned agencies. SEB has expressed no interest inthis project, which is clearly incompatible with the small size of itssystem.

36/ A 30 MW unit operating at a 65% plant factor would require about85,000 tons of coal a..nually.

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4.33 Although the studies are not yet available, it is difficult tosee how the basic prospects for this project have changed over adecade. To begin with, ESCOM is now in a comfortable supply positioncompared to a decade ago when demand was growing rapidly; in fact,because of relatively slow demand growth, it is stretching out commis-sioning of schemes already underway. Moreover, RSA subsidies would stilll-ikely be required for ESCOM to be able to purchase the power. ESCOM iscurrently installing 3,600-4,000 MW stations which obviously have evengreater economies of scale than those of the proposed 1,200 MW plant inSwaziland. 37/ Furthermore, the cost of Swazi coal is likely to be subs-tantially higher than that to ESCOM. A recent survey of RSA mines foundthat mining costs in Natal, which has mining conditions similar to Swazi-land, were between 11% and 46% higher than in the Transvaal (dependingupon whether the Transvaal coal is surface or underground mined). 38/ESCOM also has a policy of assisting in the development of some dedicatedcoal mines through its ability as a large corporation to borrow at themost favorable rates, which further reduces coal development costs.

Electricity Pricing

4.34 SEB electricity rates have almost tripled since 1980,reflecting SEB attempts to achieve its objective of an 8% return on netrevalued assets in the face of high domestic inflation, rising costs forpower purchases from ESCOM, and the financing requirements associatedwith the 20 MW Luphohlo-Ezulwini hydropower project commissioned in1985. Foreign debt service in particular has been sharply affected bythe steady, sharp depreciation of the Lilangeni in recent years. Whiletariff increases have permitted SEB to maintain a positive net income --although a rate of return of only about 4% -- they have not been highenough to permit it to contribute as envisioned to investment or to coverdebt repayments as planned; SEB had to cover the shortfalls with costlybank overdrafts. Debt service payments, largely associated with theLuphohlo-Ezulwini project, are projected to rise six-fold between 1985and 1987. Barring any major additional shifts in the exchange rate ortariff hikes by ESCOM, Bank staff zn December 1985 estimated that a 40%tariff increase would be required for SEB to meet its 8% target rate ofreturn by 1986/87. In January 1986, the tariff was raised by 15%, partlybecause of a 10% increase by ESCOM, and in June 1986 SEB matched afurther 10% ESCOM increase. Further increases appear necessary if SEB isto achieve its target 8% rate of return.

37/ As of December 31, 1985 ESCOM had total installed capacity of25,716 MW, of which 85% was coal-fired. It also had five coal-firedpower stations under construction with a combined installed ratingof 17,836 MW. The standard ESCOM base load unit is now 600 MW.

38/ The largest ESCOM coal-fired power stations are located in theTransvaal.

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4.35 In late 1985, SFB finances had deteriorated to the point atwhich the Government had to step in to cover part of SEB's obligations.The Government recognized that SEB's problems were due to circumstancesbeyond its control; it was also concerned over the size of the requiredtariff increases needed to stabilize SEB's finances and the effects thatthese could have on Swaziland's competitive edge in attracting foreigninvestment (especially vis a vis the RSA "homelands"), as well as ondomestic consumers. Agreement was subsequently reached whereby theGovernment would directly assume that portion of debt payments due todeterioration of the Lilangeni beyond its level of end-March, 1985(US$ 0.525 per Lilangeni) and provide SEB with loans to repay those whichit could not meet from its own resources.

4.36 As SEB's primary recent concerns have been with its short-termfinancial position, it has naturally focused on the level of the overalltariff rather than its structure. All tariff adjustments since January1980, when the last revisions to the structure were made, have been of afixed percentage, across-the-board nature. Recently, these have tendedto follow those of ESCOM, mainly because ESCOM increases have a directbearing on SEB's cost structure. In January 1985, SEB followed a 10%ESCOM increase with a 10% increase of its own, while ESCOM's 1%increases of October 1985 and January 1986 were followed by 15% SEBincreases. 39/ Table 4.4 summarizes the SEB tariff in early 1986.

4.37 An important determinant of SEB's financial performance is thecost of power purchased from ESCOM. SEB purchases power from ESCOM atbulk supply rates available to ESCOM's largest customers. Monthly pay-ments are governed by a formula which takes into account the fixed costof the facilities in place, maximum demand, and the energy drawn. 40/Usually, maximum demand is sufficient to overcome the fixed charges (seefirst component in formula in footnote 40). ESCOM rates have been low byinternational standards and reflect the large economies of scale inherentto the ESCOM system and the low cost of RSA coal. Energy charges inparticular are among the lowest in the world -- Swazi cents 2.26 (USC1.1)per kWh in early 1986. The average cost of ESCOM power to SEB was about3.8 Swazi cents per kWh, of which about 60% represented energy chargesand 40%, maximum demand charges. 41/ However, ESCOM charges have beenrising significantly in response to ESCOM's large investment program.

39/ In July 1986, SEB matched a 10% ESCOM increase.

40/ The formula as of January 1, 1986 was [R69,000 - R2 X (NVA maximumdemand)) + fR11.32 x kVA maximum demand] + |RI.02263 x kWh] permonth. The first component cannot be less than zero.

41/ By late 1986, the average cost of purchases from ESCOM has risen toSwazi cents 4.6 per kWh, of which the energy charge was 2.488 centsper kWh and the maximum demand rate was R12.45 per kVA.

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Table 4.4: SE8 ELECTRICITY RATES AS OF JANUARY 1, 1986

Rate Category Demand Charge - Unit Charge …

(E per kVA) (Swazi * per kWh) (US j per kWh) b/

Household - 7.8 3,3General Purpose - 32.0 13.6Commercial and Industrial - 10.9 4.6Off-Peak Water Heatlig / - 5.5 2.3Large Coosercial and Industrial 12.5 4.6 2.0

a/ No new consumers are being accep4ed to this rate category.b/ El * USSO.425

Note: Recent tariff Increases have been as follows:Jan. 2, 1981 - 15% Jan. 1, 1985 - 10%Jan. 1, 1982 - 19% Oct. 1, 1985 - 15%Dec. 1, 1962 - 20% Jan. 1, 1986 - 15%Jan. 1, 1984 - 20% Jul. 1, 1986 - 10%

Source: Annex 17 and Swaziland Electricity Board.

4.38 While the basic 8EB tariff structure has not changed since1980, there have been changes in sales and supply patterns. BetweenMarch 1980 and March 1986, the total number of customers increased from9,471 to 11,866 with most of the growth occurring in the householdsector, where consumption rose from 172 to 202 of the total. It islikely that the existing respective tariffs do not represent the economiccost of supply to specific consumer classes, particularly in the case ofhouseholds, where the rate is relatively low but administrative andsupply costs are relatively high. This was confirmed by an internal SEBtariff review, a principal finding of which was that the existing house-hold rate was less than half the incremental economic cost of supply. 42/It also concluded that a restructuring of the demand and energy chargesfor large consumers (those with a demand of more than 20 kVA) was desir-able and that a distinction should be drawn between those major consumerswho draw large quantities of power at relatively few points anc those whodraw at many points, thereby burdening the distribution network. 431This distinction would particularly affect the irrigation sector, which

42/ On the other hand, the general purpose rate is almost certainlyexcessive.

43/ It found that for large non-irrigation consumers the maximum demandcharge was too high and the energy charge too low, while forirrigation consumers both the maximum demand charge and the energycharge were too low.

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draws large quantities of power through many connections. The reviewalso recommended that efforts be made to diversify the load through mea-sures such as off-peak rates or seasonal rates based on the availabilityof water for hydropower generation, a recommendation which the missionstrongly supports.

4.39 While the internal study represented an initial approach towhat is normally a relatively complex exercise, it nevertheless pointedout the need for adjustments in the tariff structure, especially thehousehold category. SEB is currently considering to revise the latterfrom a flat rate to an increasing block rate basis. To promote efficientuse of electricity and possible substitutes, the mission considers itpreferable that SEB maintain a single household rate which is at leastequal to the marginal economic cost of supply. To assist low incomeconsumers SEB could introduce a special "lifeline" rate that wouldprovide a certain basic amount of consumption at a subsidized rate. Todetermine the appropriate economic cost of supply to households and otherconsumer groups, as well as a suitable "lifeline" rate, it is recommendedthat SEB carry out a full scale tariff review. The tariff should then beadjusted on the basis of this study, taking into account SEB's overallfinancial needs. This study would, however, have to await the outcome ofthe proposed system expansion study. In the process of implementing anew tariff, SEB should also introduce measures to shift consumption frompeak to off-peak hours, thereby improving the system load factor andpermitting it to defer investments in additional capacity. Annex 18contains proposed terms of reference for the tariff review.

Institutional Issues in the Power Sector

4.40 SEB operates within the Electricity Act (1963); among the mostimportant of its rights and responsibilities are (i) the authority to setits own tariffs and other charges so that revenues exceed expenditures;(ii) the responsibility for developing, extending, and reducing the costof power; and (iii) the requirement to make electricity service availableto any customer only within 100 yards of its lines (see para 4.4). Pro-visions (i) and (iii) in particular allowed SEB until recently tofunction as a viable commercial entity.

4.41 SEB is run by a board appointed by the Minister of NaturalResources, Land Utilization, and Energy, but recently its main dealingshave been with the Ministry of Finance because of its financialdifficulties. The Board comprises a chairman and from three to fiveother members; they serve staggered three year terms and may bereappointed. The Minister is entitled to give general directions onelectricity matters in the public interest, and the Board is required tocarry them out. In undertaking any substantial measures of reorganiza-tion or major development the Board is required to act in accordance witha general programme to be agreed upon from time to time with theMinister. These provisions of the Act thus provide the basis for aconsultative planning process in the electricity sector, although inpractice the absence of a national energy policy, together with the

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ministry's lack of technical expertise, has generally confined theGovernment's role to a broad concern about the availability ofsupplies. This has left SEB to pursue overall power sector developmentprimarily according to its own priorities.

4.42 The structure of SEB is typical of that of an electric powercompany of its size, and it has served the utility well until the pre-sent. SEB has been regarded as a well run, efficient and, until therecent sharp depreciation of the Lilangeni, as a financially viableentity. It has a comprehensive functional organization, although due toshortages of staff many of its identified sections are combined and con-solidated, with officers, especially at the senior levels, having execu-tive responsibility for a number of jobs. Planning activities are nomi-nally carried out within the Commercial Department which prepares theannual budget and considers the need for any tariff changes. These arethen dealt with by the General Manager and his Deputy before beingdiscussed with the Ministry of Natural Resources, Land Utilization, andEnergy and the Ministry of Finance. There is no formal corporate plan-ning for the medium or long term, although the Deputy General Managermakes demand forecasts, and consultants are retained from time-to-time toadvise on system expansion needs. It is recommended that SEB undertakeformal updating of power supply and demand on a regular basis in order tosystematically plan expansion of the power system and preparation ofannual budgets.

4.43 There was considerable staff change at SEB in 1985. TheGeneral Manager, Board Chairman, and three members resigned for variousother reasons. Together with retirements among the staff, this left SEBin a difficult position to deal with its current severe financial diffi-culties. The Deputy Chief Engineer was promoted to General Manager,which now leaves the positions of Chief Engineer and his deputy vacant.The Chairman designate is, however, highly qualified in financial mattersand will concentrate on financial planning in addition to his duties asBoard Chairman. It is recommended that SEB fill the remaining vacanciesquickly so that the utility can concentrate on the important short-termfinancial and longer-term system planning issues facing it. In theprocess, SEB should seek to strengthen its economic analysis capacity byadding an experienced power economist to its staff.

4.44 As a result of SEB's current financial difficulties, itshistorically relaxed and arms-length relationship with Government hasbecome closer and more formal. Co-ordination with the Ministry ofNatural Resources, Land Utilization, and Energy should increase once theEnergy Branch (para. 6.6) becomes functional. There are a number ofparticular power sector issues which have inter-ministerial or nationalenergy policy implications which will need to be addressed (e.g., thepossible ferrochromium, Maguga, and thermal power projects). There is,moreover, the need to begin developing a national energy policy for the1990s; in that process power sector development should be approached fromthe perspective of national power security/self-sufficiency as well asthe perspective of least economic cost. While closer links between

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Government and SEB on matters of power development policy are desirable,it is also considered important that SEB retain considerable operatingindependence to permit it to continue to function efficiently. There isa recognition within SEB that closer future links with Government arelikely, and that decisions about future electricity supply will form anintegral part of the national energy planning process. To facilitatethat process, it is recommended that the Board review its internalorganizational structure to consolidate its policy and planningactivities, taking into account its limited number of managerial staff.

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V. PETOLM

Petroleum Potential

5.1 Swaziland is considered to have no petroleum potential. Aboutone-third of the country comprises basement rocks, including some of theoldest recognized rocks on earth, which are not associated with oil andgas formation. Although there are numerous shales which could haveproduced hydrocarbons in Swaziland, their geology is not conducive topetroleum accumulation. They tend to lie on a monocline towards theIndian Ocean, so that any gas that may have been produced would haveescaped upward along the formations or through volcanic fissures. Thistheory is supported by the low volatile nature of the coal in which mostof the methane has escaped, having been driven off by heat andpressure. This considered lack of petroleum potential in Swaziland isalso supported by exploratory wells drilled in neighboring areas in RSAwhich have come up totally dry.

Petroleum Product Supply and Demand

5.2 Swaziland's petroleum product requirements are met by seveninternational oil companies--BP, Caltex, Mobil, Shell, Sonap, Total andTrek -- which supply Swaziland as part of their overall southern Africaoperations. These operations are based in RSA; in keeping with thesearrangements and Swaziland's membership in SACU, petroleum policies inSwaziland are broadly consistent with those in RSA. 44/ Products arenormally transported by rail from Durban to the company oil depots inMatsapha from where they are transported by road tanker. Because of thehigh degree of integration with their RSA operations, the companiesmaintain only about three weeks storage in Swaziland. While this may beadequate from a normal commercial standpoint, the Government has begun toconsider whether this is sufficient from a national perspective. 45/Supplies by rail have been cut off on several occasions in recent yearsby natural disasters necessitating costly shipment by road, and anysupply disruptions to RSA would almost certainly affect Swaziland. 46/

44/ In addition, Swazi Oxygen, Ltd. imports LPG and some consumersimport products directly from RSA, either for convenience (HavelockAsbestos Mines - para. 4.10) or because they are the only consumerof a product (Usutu Pulp Co. for fuel oil).

45/ The Government of nearby Botswana has, in cooperation with the oilcompanies, expanded in-country storage to 4 months consumption.

46/ In 1984, E9 million in additional transport costs were incurred dueto the extended loss of the rail link caused by cyclone Domoina.

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it

5.3 Considering the small size of the market for petroleum products(less than 2,000 barrels per day) Swaziland is very well covered by sup-pliers. The presence of seven oil companies with some 70 servicestations between them would, in fact, appear excessive; it is areflection of the keen competition for market share in the southernAfrica region. 47/ The industry eventually recognized this andestablished a coordinating group -- the Swaziland PetroleumRationalization Committee -- to control and coordinate the establishmentof retail outlets, and since 1984 few additional outlets have beenestablished. The Government's gasoline and diesel requirements are putup for tender twice a year and delivered directly to Central TransportAuthority depots, while final retail sales of kerosene and LPG are madethrough a network of authorized retailers.

5.4 The petroleum product market is relatively simple. In 1985,motor fuels accounted for 86% of the total sales volume, with dieselaccounting for about 54% of this. About 17% of the diesel was used inthe commerciat agricultural sector, while less than 2% was used for powergeneration. Kerosene and LPG accounted for 4% and 1% of total salesrespectively and are used predominantly in the household sector. Fueloil comprised only about 7% of total consumption, all of which isconsumed by a single industry, Usutu Pulp Co. Since 1980, consumption ofpetroleum products has grown slowly, in response to the economic reces-sion and frequent price increases (para. 5.6) which have induced conser-vation, efficiency improvements, and conversion to alternative fuels.Casoline consumption averaged only 1.6% annual growth; diesel, 3%. Onthe other hand, LPG consumption continued to rise rapidly (17% perannum), reflecting its growing popularity as a household fuel.

Petroleum Product Pricing

5.5 The structure, level, and movements in petroleum product pricesin Swaziland largely mirror those in RSA. For pricing purposes, petro-leum products fall into two groups: those subject to regulation andthose that are not. Those products subject to price regulation are thesame as those in RSA; namely, gasoline, diesel, and kerosene. The oilcompanies are free to set the prices of other products as they choose.The most important of these products is LPG.

5.6 While the prices of the main petroleum products are regulated,it has not been government policy to subsidize them, and Government hassought to ensure that the prices of regulated prices generally reflectthe economic cost of supply (i.e., import parity) and permit the industryreasonable fixed operating margins. Consequently, petroleum productprices have been adjusted frequently in Swaziland. Between February 1979

47/ The four largest suppliers are BP, Caltex, Mobil, and Shell.Between them they control over 85% of the market for motor fuels andover 80% of the market for kerosene.

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and July 1981, during the second oil shock, prices were increased sixtimes, more than doubling over the period (Annex 19). While interna-tional petroleum prices have stabilized and begun to decline since then,domestic prices in Swaziland and RSA continued to rise because of thesteady depreciation of the Rand (para 1.11). Thus, in local currencyterms, petroleum product pri.ces rose by a further 52-75%, depending onthe product, between August 1981 and November 1985. Table 5.1 belowshows prices of the main petroleum products as of Janruary 1986; it alsodemonstrates that all were substantially above import parity (see Annex20 for a detailed cost structure). 48/ Prices of regulated products areuniform across Swaziland, prices of non-regulated products such as LPGvary, mainly according to the distance from Matsapha.

Table 5.1: PETROLEUM PRODUCT PRICES, JANUARY 1986

Swaziland cents/liter US cents/literRetail Import Parity Retail Import Parity

Gasoline - 93 Octane 95.00 64,485 40.394 27.419- 98 Octane 99.010 n.a. 42.095 n.a.

Diesel - Full Duty 96.000 59.564 40.819 25.327- Mid Duty 86.000 59.564 36.567 25.327- Low Duty (Buses) 83.000 59.564 35,29! 25.327- Low Duty (Agriculture) 81.000 59.564 34,441 25.327

Kerosene 81.000 66.309 34.441 28,195

LPG a/ 155.316 n.a, 58.492 n.a.

a/ Shell Swaziland, as of November 11, 1985 (per kg at Mbabane).

Sources: BP Swaziland, Ltd. and Shell Swaziland, Ltd.

5.7 While petroleum pricing policy in general aims at coveringcosts, individual product prices are set to partly reflect socialconcerns. Thus, gasoline is priced substantially higher than importparity as compared to kerosene, an important household fuel. The adjust-ments from import parity are achieved through a complex series of selec-tive taxes and duties (Annex .0). In addition to customs duty collectedon all products (except kerosene) and distributed under SACU arrange-ments, the oil companies also collect on behalf of Swaziland a Fuel Oil

48/ By late 1986 Government had reduced the prices of regulated productsby about one-third, reflecting the drop in international oil pricesand an improvement tn the exchange rate (see Annex 19).

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Levy whose original purpose was to finance energy-related nrojects butwhich in recent years was returned to the oil companies to help offsetcost increases, and a Strategic Fuel Fund (SFF) levy which is used tohelp finance investments in SASOL, the RSA synthetic coal-based fuelsprogram, and in its strategic petroleum reserves. 49/ In the event of asupply cutoff to RSA, Swaziland's participation in the SFF program shouldin theory ensure some petroleum supplies until an alternative means ofsupply could be arranged. In addition, Swaziland collects on its ownbehalf sales tax at a rate of 10%. In comparison to most countries,however, taxes on petroleum products are low, ranging from 22% of importparity on full-duty diesel, to 17% on gasoline, to only 2% on kerosene.In late 1986, the Government began introducing a Road Levy of Swazicents 3 per liter on motor fuels to finance road works.

5.8 The pricing of regulated products is overseen by the Ministryof Natural Resources, Land Utilization, and Energy. To determine whetherprice increases will be permitted or noc, the industry is required tocalculate its net earnings on the slate of products subject to priceregulation. In general, once the position of the slate as a whole slipsinto deficit, price increases are authorized. It is, however, possiblethat because of individual product pricing policies and movements in therelative costs of particular products the industry is recovering lessthan costs on some products but more than costs on others; as long asthere has been a net positive recovery for all products, the Governmenthas been more hesitant to permit price increases. Thus, just prior tothe November 1985 price adjustments, the oil companies were recoveringless than costs on every motor fuel except full-duty diesel. While theprice of no product, even at that difficult time, was less than importparity, it does suggest periods of cross subsidization both among certainconsumers and between consumers as a whole and the oil companies whichmore frequent adjustments in prices could prevent.

5.9 In contrast to its relatively pragmatic approach to the levelof petroleum product prices, there are two issues concerning the pricingstructure which should be tackled to ensure the most efficient use ofpetroleum products. The first is the complex structure of dieselprices. Apart from a duty free price for Government (para 5.10), thereare four different prices for diesel depending upon the type ofconsumer. Agricultural users receive the lowest rate, followed by publicbuses. The mid-duty level appli6s to licensed common cargo carriers andSEB. The full duty rate applies to the remaining, mostly smaller,users. Although there are obvious administrative inefficienciesassociated with any multiple price sch-nme, these are minimized as most ofthe users who are eligible for these low price sales maintain their ownstorage facilities and take delivery directly from the dil companies, andthe few stations that sell low price diesel to bus operators maintain

49/ The SFF levy on diesel is Swazi cents 4.7 per liter, on gasoline,1.3 cents per liter.

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separate pumps for that purpose. Nevertheless, there remain the economicinefficiencies inherent to any multiple pricing system. The missionconsiders it desirable to eliminate these and recommends that the Govern-ment consolidate the price structure for diesel into a single price.

5.10 The second area of petroleum pricing which deserves to beaddressed is that of the duty-free status of motor fuels used by Govern-ment, particularly the Central Transport Authority (CTA) and theSwaziland Railway (SR). Removing the duty-free status of sales to theseagencies would serve to put public use of motor fuels on an equal footingwith private use. While charging duty on sales would have no net revenueeffect in the case of CTA, where Government itself is the user of itsservices, there would be a revenue effect in the case of SR, where dieselsales will grow rapidly with the advent of dieselizatior. Moreover, withCTA paying for and passing on the full price of fuel to its users,Government would 8 so be promoting its high priority policy objective ofmaking more efficient use of the CTA fleet. Eliminating the multi-pricesystem and adjusting all product prices on the basis of economic costwould also enable the Government to simplify if not eliminate thecumbersome product slate pricing exercise.

Institutional Arrangements in the Petroleum Sector

5.11 The degree of representation of the oil companies in Swazilandis generally quite limited, with most decisions being taken at the RSAoffices. The Swaziland branches are generally concerned with aspects oflocal distribution and marketing. Even information regarding overallsales in Swaziland is usually only available from the companies' RSAoffices. Liaison with the Government is handled by one of the sixcompanies on a rotational basis. That company, referred to as the secre-tariat company, was BP in early 1986. The secretariat company'sprincipal responsibilities are to collect on behalf of the Swaziland andRSA governments the various taxes and duties from the oil companies, andto compile sales statistics. and earnings calculations for the slate ofregulated products.

5.12 Swaziland's reliance on the major international oil companiesis a logical extension of its close commercial links to RSA, and while itin theory could import directly through Mozambique, this option has neverbeen exercised. 50/ The existing arrangements are also cost effectiveand convenient considering the small size of the Swazi market. The onlysignificant potential drawback is the uncertain nature of petroleumsupplies which must come through RSA. To respond to this uncertainty atthe time of the second oil crisis, RSA established together witl,Botswana, Lesotho, and Swaziland the Inter-State Oil Committee in 1979.

501 Until 1983, the oil companies transported petroleum products bycoastal tanker to Maputo, from where they were transported by railto Swaziland. This practice ceased because of the railway problems.

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The purpose of this inter-governmental committee is to coordinatepetroleum policies and allocate supplies in the event of shortages. Thecommittee, which comprises senior government officials from all fourcountries meets 3-4 times a year at the working level ana once at theminister level. The venue of the meeting rotates among the fourcountries. So far, the committee has not nad to tackle the issue ofallocating supplies but has provided instead a forum for discussingpricing trends and logistical matters.

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VI. NATIONAL ENERGY PLANNING REQUIREMJWTS

Introduction

6.1 In Swaziland, Government performs a more limited role than inmost African countries. On the one hand, the country has a long-established monarchial system with an underpinning of traditional Swaziinstitutions which function alongside the Cabinet and Parliamentarysystems of administration; many important policy decisions are taken inthis arena. On the other, Government takes a deliberately low profile inthe economy, mostly letting the private sector function in response tomarket forces. Consequently, Government has generally limited its inter-vention in the economy to the exercise of certain regulatory powers.

6.2 Reliance on private investment and market forces has resultedin an economy in which individual firms are generally cost-conscious andefficiency-minded. In the area of energy, for instance, the rising costof purchased energy has induced most major industries to take steps toincrease the efficiency of their own electricity conversion processes,and to switch from fuel oil to coal as their principal source of processheat and steam. While such behavior has clearly been in the bestinterests of individual firms and has served Swaziland well, other issueswhich have involved more than one energy subsector or which should beexamined from the national perspective often have not been adequatelyaddressed. Examples of such issues included (until late-1986) theproposed ethanol project and the possibility of generating increasedpower for the grid on the basis of bagasse. Similarly, the continuedexploitation of indigenous forests for household fuel, while costless andpractical from tha point of view of individual households, is graduallydepleting Swaziland's indigenous forests. In both cases Government coulddevelop programs to address these issues, if it were so inclined and hadthe necessary planning and implementation capacity. This chapteroutlines the institutional requirements which would permit Swaziland tobegin such national energy planning.

Existing Energy Planning Capabilities

6.3 To the extent that energy planning capacity already exists inSwaziland, it is largely in the various public institutions and privatecompanies directly involved in specific energy areas. In the publicsector these institutions have comprised SEB, GSMD, and the ForestrySection. These institutions have tended to be spread through a number ofdifferent ministries and departments, making coordination on a regularbasis difficult, and in practice agencies such as SEB and GSMD haveoperated with considerable independence. The only major effort atnational energy planning to date was the Federal Republic of Germany

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assisted Energy Master Plan study of 1980-82. 51/ That study providedgreat technical detail on energy production and consumption patterns inSwaziland and examined possible future trends under a variety ofscenarios. The study's potential impact was, however, considerablydiluted by the absence of any focal point for energy matters withinGovernment and the limited familiarity with energy sector analysis ofmost officials. Recognizing these inadequacies, the Government, as partof its reorganization in 1984, brought most energy-related agenciesincluding SEB and GSMD together under the newly formed Ministry of Natu-ral Resources, Land Utilization, and Energy (Chart 1). 52/ The Ministryalso deals with the secretariat oil company on petroleum matters andrepresents the Government on the Inter-State Oil Committee and at inter-national conferences on energy matters. Within the Ministry it isintended to establish an Energy Branch to handle energy-relatedmatters. So far, the Energy Branch has not been established because of alack of trained qtaff and sanctioned positions, and energy-relatedmatters have been dealt with on an ad hoc basis by the senior ministerialofficials, including the Planning Officer.

Energy Pl&aning Requirements and Proposed Institutional Structure

6.4 The role and structure of the Energy Branch needs to beconsidered carefully. In particular, it should be consistent with thesize and role of government in Swaziland in general, to ensure that thosemarket-oriented aspects of the economy which have served Swaziland well(such as efficiency consciousness) can continue to do so. Accordingly,the Energy Branch should be limited in size and in the scope of its termsof reference. In particular, it should be seen as a body to adviseGovernment and the private sector on energy-related issues and optionsthrough cechnical and policy analyses, rather than one w'nich seeks todirectly manage energy supply and demand. To permit an effectiveadvisory role, its staff should be of sufficiently high caliber to permitit to have a meaningful and productive relationship with the privatesector, where the level of expertise is generally high.

6.5 Following the establishment of the Ministry of NaturalResources, Land Utilization, and Energy, the Government invited theUnited Nations Department of Technical Cooperation and Development(UNDTCD) to advise it on possible organizational arrangements for theenergy sector. A UNDTCD advisor subsequently recommended establishing arelatively small Energy Branch comprising a Chief supported by aprofessional staff of four (Chart 2). There would be two sections, one

51/ Swaziland Energy Master Plan; Fichtner Consulting Engineers, Dr.Otto Gold Consulting Engineers, Electrowatt Engineering Services;1982.

52/ Only the Forestry Section, under the Ministry of Agriculture and Co-operatives, falls outside the purview of this ministry.

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dealing with commercial fuels (electricity, coal, and petroleumproducts), and the other with renewable energy sources and issues relatedto rural and household energy. As this latter section would have fewerregular monitoring duties, it would probably be the more appropriate ofthe two sections at this early stage to do general coordination andintegrate the work of the two sections. The branch would be launched andsupported by an Energy Advisor, by other specialists who would visitSwaziland on a short-term basis, and by training for Energy Branch staffabroad. The estimated cost of the UNDTCD package was $375,000.

6.6 The mission examined the proposed structure and discussed therecommendations with Government. In general, the recommendations appearappropriate, although some modifications resulting from the principalrecommendations of this report and the present budgetary and staffingconstraints in the Ministry appear warranted. For instance, the missionbelieves that energy efficiency is already a major concern of industry inSwaziland and that technical assistance in energy conservation does notappear warranted at this stage. Also, the mission believes that techni-cal assistance should not be appointed until suitable counterpart staffare available. Thus, the Energy Adviser should not be appointed untilthe post of Energy Branch Chief has been filled. While staffingconstraints continue to prevent immediate establishment of the fullBranch, it is important that Government st.rt tackling some policy issuesand establish some institutional momentum in the sector. The missiontherefore recommends that certain interim steps be taken to provide abasis for gradually establishing the full Energy Branch as staff becomeavailable.

6.7 The principal requirement is that the Government commit itselfto including in the 2987/88 budget firm posts and funds for the EnergyBranch along the lines proposed. Meanwhile, steps should be taken tobegin recruiting appropriate staff. In the current financial year thepost of Senior Assistant Planning Officer in the Planning Unit should befilled, preferably by an economist, with that officer assigned exclu-sively to energy-related matters. Once these steps have been taken itcould be possible to begin implementing the technical assistance programand for the Energy Adviser to be appointed. Some specific short-termtechnical assistance could be made available, for example, in the area ofdata and information systems where local counterpart staff are alreadyavailable in the Central Statistical Office. At present, two Ministrystaff members at the Assistant Secretary level are studying energymanagement overseas and are due to return in 1987. Together with theSenior Assistant Planning Officer (Energy), they could form the core ofthe new Energy Branch, and provide a basis for implementing the fullproposed work and technical assistance programs.

6.8 The UNDTCD report recommends that the Energy Branch be providedcomputer facilities for data processing and basic energy modelling. Thiswould appear a desirable suggestior., but given the rudimentary nature ofthe country's energy statistics, limited staff capacity, and charac-teristics of the energy sector, the mission considers it more desirable

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in the early stages for staff to become manually familiar with processingstatistics and develop an understanding of their quality. Therefore, themission believes computerization at this stage should be limited topersonal computers and the simple tabular processing of data.

Energy Policy Formulation

6.9 The Ministry has a difficult task in the energy sectorinitially because it has acquired responsibility for several separateagencies covering various parts, but not all, of the energy sector.Moreover, as yet no clear guidelines for a national energy strategy havebeen formulated; these are essential if the Energy Branch is to develop aconsistent work program. In particular, some of the agencies, such asthe parastatal SEB and the GSMD, have brought with them a number ofspecific projects at various stages of maturity which now need to havetheir viability and priority assessed from a national perspective. Whilethe general effectiveness of internal communications and discussions isdeveloping satisfactorily, some concerns have been expressed about theneed for improved coordination and executive action where the interestsand responsibilities of agencies have overlapped -- for example, inrelation to electricity supply, where SEB, GSMD, and the Water ResourcesBranch are all involved in possible alternatives (ESCOM links, coal-basedthermal, and hydropower respectively) for meeting Swaziland's futurepower needs. Although most agencies concerned with energy are now partof the same ministry, they rarely convene for policy discussions. Themission proposes that an Energy Policy Committee be established toprovide such a forum.

6.10 The proposed Energy Policy Committee would meet regularly(perhaps monthly) under the Chairmanship of the Principal Secretary ofthe Ministry of Natural Resources, Land Utilization, and Energy to reviewcurrent and prospective issues and projects in the energy sector. ThePrincipal Secretary would subsequently report to the Minister who wouldbring the issues and recommendations before Cabinet. The membershipshould be flexible as non-Government interests would need to be involvedfrom time to time, but it should include the Chief of the Energy Branch,the Energy Adviser (once appointed), the Commissioner of Mines, theGeneral Manager of SEB, and a senior representative from the ForestrySection. When petroleum matters are under discussion the secretariat oilcompany should be invited to attend and, when the agenda required, repre-sentatives of major private sector energy suppliers or consumers couldalso be involved. The Energy Branch would act as Secretariat to theEnergy Policy Committee.

6.11 The Energy Policy Committee would, at the working level, be thepr.ncipal authority within the Government for planning, reviewing, andcoordinating energy matters. It would receive regular reports on theenergy situation and the progress of individual energy projects from theEnergy Branch and the other agencies involved. It would review energypolicy issues and make specific recommendations to Cabinet for action.It would be responsible for reviewing and monitoring the investment

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programmes in the energy sector and ensuring their consistency andcompatibility with energy policies. It would identify areas for researchand analysis and approve programmes designed to develop and improveinformation on energy matters.

Work Program for the Energy Branch

6.12 The main initial tasks of the Energy Branch will be tocoordinate all energy related activities in the country, provide andmaintain data and information for internal Government and public use,develop analytical and consultative procedures in support of energypolicy-making and planning, and appraise and monitor energy projects forpurposes of providing policy advice to senior officials and ministers.The Branch will have to establish its status and authority within theGovernment as the main center of energy policy and expertise, and thehead of the branch in particular will have important representational andliaison tasks to perform with the energy industries, consumer interests,and other agencies. As a longer-term objective it should prepare acomprehensive energy strategy for Swaziland.

6.13 The Energy Master Plan should provide a helpful starting pointfor the Branch's work. As noted above, it is the only comprehensiveanalysis of the Swaziland energy sector to date. Unfortunately, much ofits analysis and projections are based on the period up to 1980, beforethe worsening of the general economic outlook, but it is a thorough studycontaining energy balances, energy supply and demand scenarios and op-tions, resource analysis, and selected policy measures on certain i-sues,including energy management and conservation. While the Energy Branch isstill developing its own analytical procedures and techniques, this plan-ning document will provide a useful framework for data collection andpolicy analysis.

6.14 As already noted, high priority should be given to the initia-tion of research work and pilot studies in the field of energyconsumption and utilization, especially in the rural and householdsectors. Before the end of 1986, discussions should take place betweenthe Ministry of Natural Resources, Land Utilization, and Energy, theUniversity of Swaziland, the CSO, and the Ministry of Agriculture and Co-operatives, with a view to undertaking the first studies early in 1987.The main requirement is to obtain as quickly as is practicable someempirically based estimates of household energy consumption patternsincluding fuel supply and conversion efficiencies.

6.15 Being small in size the Branch will need to be flexible andversatile over a wide range of economic and technical energy affairs, andthese considerations should be borne in mind in the recruitment andtraining of staff. While a high degree of expertise in energy tech-nologies is not required it is important that all the members of theenergy branch be familiar with the basic characteristics and operatingpractices of the energy industries and the scientific and engineeringprinciples on which they function. Much of this can be acquired through

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on-the-job experience, but it will also be a primary function of thetechnical assistance advisers to provide formal training as well as passor their experience in the day-to-day working context. The EnergyAdviser, in particular, when the Branch has been fully staffed, shouldprepare a training programme to be carried out in Swaziland as well asseek opportunities for training overseas. In view of the small numbersof staff, however, the latter are likely to be limited for some time.

Technical Assistance

6.16 The UNDTCD report recommended a package of technical assistancesupport over a 2-3 year period, including advisors, training, and variousitems of hardware. The mission broadly endorses these suggestions, withreservations about the urgency and scope of the data processing capacity,the need for adequate counterpart staff, and some of the areas for tech-nical assistance. Assistance would be required in two broad areas:institution establishment and specific energy policy analysis. In thearea of institutional development, support would be required to establishand strengthen the institutions and their procedures, develop appropriateinformation and planning systems, and train local officials responsiblefor developing, implementating and monitoring energy plans and policiesin the longer term. Assistance would also be required to startimplementing a work program and provide advice and support on generalenergy policy and planning matters. Two particular areas in whichsupport would be desirable at an early stage are for assessing patternsof energy supply and demand in the household sector--this would supportand could be provided in conjunction with the studies discussed in para.2.16--and in energy economics, especially for assessing the costs andbenefits of various indigenous energy development schemes as compared toenergy imports.

6.17 To meet these needs, four technical advisors are recommendedfor the first year, 1987. These would comprise an o.erall energyadvisor, a statistics advisor, a woodfuels and household energy advisor,and an energy economist. Expanded job descriptions and terms ofreference are contained in Annex 21. A brief synopsis of the majorresponsibilities of each is reproduced below.

Energy Advisor (2 years) - The energy advisor would work with theChief of the Energy Branch to establish the Branch and implement awork program, manage the technical assistance program, and adviseGovernment on energy matters. Organizational and communicativeskills and a sound overall understanding of energy issues areimportant for this position. If it is possible to recruit anoverall enerij adviser who has strong economic as well as overallenergy planning and organizational skills, then it may not benecessary to recruit a separate energy economist.

Statistics Advisor (3 months) - The statistics advisor would workclosely with the Government Statistician and the Central StatisticalOrganization to develop the country's system of energy data collec-

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tion, processing, and dissemination. He would ensure the accuracyand relevance of collected statistics for energy planning purposes,ensure their compatibility with other economic statistics, and makerecommendations regarding computerization of statistics and energymodelling techniques appropriate to Swaziland's needs and resources.

Woodfuels and Household Energy Advisor (3 months) - The woodfuelsand household energy advisor's main task would be to ensure that thewoodfuels and rural and urban household energy analysis is integ-rated into overall energy planning in the energy sector, and toassist the Government in identifying and interpreting trends insupply and demand. In this respect, the advisor should be involvedin the proposed fuelwood supply and household energy demandsurveys. He would need to work closely with the Forestry andCommunity Development Sections of the Ministry of Agriculture andCo- iperatives and with the Social Science Research Unit of theUniversity of Swaziland.

Energy Economist (6 months) - The principal responsibility of theenergy economist will be to assist in undertaking economic analysisof proposed energy projects, especially those aimed at increasedenergy self-sufficiency for Swaziland. In doing so he will aim totrain counterpart staff in economic analysis skills as chey speci-fically relate to energy projects. He will also provide theeconomic analysis support for decisions on energy pricing.

Finally, it may be desirable to make provision in a technical assistanceprogram for short-term visits by technical experts in areas where morespecific expertise is required than can be provided by the Energy Advisorand his fellow advisors. The amount of short-term technical assistancerecommended by the Mission is somewhat higher than that recommended byUNDTCD (12 versus 8 man-months). Together with contingencies for othershort-term visits for technical experts, this raises the total cost ofthe package to about $500,000.

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VII. INVESTMENT REQUIREMENTS

Introduction

7.1 Future energy investment in Swaziland is subject to a number ofuncertainties which make it difficult to assess and predict. In partthis stems from the continuing political and economic uncertainty in thesouthern Africa region, but it is also due to the lumpy nature of typicalenergy sector investments compared to the small Swazi economy. In thepast, the energy sector has depended on government support in only themost limited ways; even the parastatal SEB has financed investmentsthrough internal cash generation or borrowings on its own account. How-ever, if the Government decides to take a more active, policy-orientedrole in the energy sector, in connection, say, with a program ofincreased energy self-sufficiency or the development of energy exports,its investment role will also expand. Overall energy investment is alsosubject to uncertainty stemming from several large export-orientedprojects, most notably the possible large-scale thermal power project andrelated coal development, but also possible coal export developmentschemes and the potential ferrochromium scheme.

Energy Investment Strategy

7.2 The mission attempted to estimate Swaziland's energy investmentneeds over the next decade from two general perspectives: under a so-called "economic" scenario in which development is pursued on the basisof least economic cost, and under an "increased self-sufficiency"scenario in which certain relatively modest investments are made toreduce energy imports and increase energy security even though these maynot represent least economic cost solutions. 53/ A comprehensiveanalysis was, however, not possible. In some cases, such as the substi-tution of Swazi coal for imported coal and possible fuelwood suppliesaugmentation it was not possible to ur.dertake analysis because studies todetermine critical background information have not yet been undertaken;the mission is recommending that these studies be carried out. In othercases, investment needs depend critically on the extent to which Govern-ment is prepared to support certain investments for reducing Swaziland'sfuture need for energy imports. The most important of these sectors ispower, where a study is recommended to examine alternative power sectordevelopment plans and their costs, taking into account likely growth inoveral'l demand and varying extents of power self-sufficiency. As part ofthis study, the scope for and cost of realizing the power potential ofthe sugar industry would be examined. Consequently, this sectionexamines a number of specific investment options without determiningwhich of these will or will not be eventually pursued.

53/ Schemes such as large-scale coal gasification and coal liquefactionor total power self-sufficiency were not considered as the costs ofthese alternatives were considered prohibitive.

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Sectoral Investment Options

7.3 In the power sector the next investment is likely to be theThird ESCOM Link (estimated cost $5 million)? which is needed for systemreliability and control reasons; it is likely to be in place before1990. SEB would need additional capacity to meet projected demand by themid-1990s, although this could be brought forward if the objective is toincrease Swaziland's power self-sufficiency. The time horizon availableis adequate to permit SEB and Government to evaluate all the investmentoptions in the context of a full power sector expansion study. From theperspective of SEB, the options at present are the addition of powergenerating capacity to the proposed Magugia Dam and the construction of afourth ESCOM link. However, SEB and the Government should also considerother options, including development of the power potential of the sugarindustry and small coal-fired power stations. An important factor toconsider in evaluating these options is the ability of each to providefirm power, which as discussed in para. 4.20 is SEB's key need throughthe 1990s. However, if these options are evaluated in the context ofincreased energy self-sufficiency and power security, their ability toprovide power at peak demand times becomes less critical.

7.4 SEB has tentatively estimated the cost of the power componentof the Maguga Dam at about $7 million; the cost of a program to generateadditional power from bagasse can only be determined on the basis of asurvey which examines the specific potential, bottlenecks, and investmentneeds of each individual mill. Furthermore, the costs depend on whatpercentage of surplus power the Government chooses to realize and howmuch financial support it would be prepared to provide the sugarindustry. The mission has estimated that a minimal approach such asinstalling bagasse dryers and improved storage means such as pelletizingat all three factories would cost $8-10 million, while a program designedto achieve a high 50 kWh of electricity per ton of cane crushed couldcost around $25-30 million. In addition to bagasse drying and storagefacilities, this approach would include retrofits to allow boilers tooperate at higher temperatures and pressures, the installation ofefficient condensing/extracting turbogenerators, and the installation ofpre-evaporators to reduce process steam requirements. Such a programcould, however, result in the realization of up to 110 GWh of electricityand, because of improved bagasse storage facilities, provide firmpower. The capital costs of coal based power would depend heavily on thecapacity installed; this would need to be studied as part of the powersector expansion plan.

7.5 In the petroleum sector, the decision in late-1986 to authorizeprivate sector production of molasses-based ethanol for blending withgasoline is likely to result in the realization by the private sector ofone of Swaziland's most promising avenues for energy import substitu-tion. The cost of the project is estimated at about $7 million in 1986prices. The Government could also reduce the uncertainty associated withimported petroleum products by increasing storage capacity. The oilcompanies have little additional interest in increased product storage

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capacity as the existing three weeks of storage capacity is consideredsufficient from a normal commercial standpoint. Increasing storage capa-city from about three weeks equivalent of gasoline, diesel, and keroseneto ten weeks would cost an estimated $2 million. The mission isrecommending a feasibility study of increased petroleum product storagecapacity.

7.6 Investment in the coal sector is especially hard to predict.Under present export and domestic market conditions, no investment in newmining capacity is necessaryt If, however, the coal combustion charac-teristics study indicated that there were low-cost solutions to the com-bustion problems currently being encountered which would permit a subs-tantial switch from RSA to Swazi coal, or the constraints on exports werealleviated, additional mining capacity could be required. Apart fromexpansion by Emaswati Coal, the first project to be :mplemented could bethe Lubukhu project for which a pre-feasibility study was completed withJapanese government assistance in 1986. 54/ Costs were estimated at$27 million in 1986 prices. At full capacity the project would produce0.5 million tons of washed coal annually. The other major factor whichwould affect the pace of coal development is thermal power development.The 1200 MW project under consideration would require about 3 milliontons of coal a year; however, as discussed elsewhere in this report, themission considers the probability of this project proceeding as low. Thedevelopment of smaller scale power plants for domestic supply would alsorequire investment in additional coal mining capacity (para. 4.31).

7.7 In the fuelwood sector, an assessment of investmentrequirements should await completion and evaluation of the indigenousforest inventory and the household energy survey. If those studiesindicate that there is a need for some form of a fuelwood plantationprogram, all the alternatives, public sector and private, should beexamined for meeting that need as cost effectively as possible. TheForestry Section estimates the cost of public sector fuelwood plantationsat E327 per ha; however, this excludes the cost of ground preparation,firebreaks, and fertilizer. Including these, the mission estimates thecost at a relatively high B500 per hectare.

Technical Assistance Requirements

7.8 In the mission's view, Swaziland's priority needs at presentare in the area of technical assistance. The mission has identifiedseven activities which warrant donor support totalling about $1.5 million(Table 7.1). The costs of the national planning technical assistance areestimated at $0.5 million; the costs of the other technical assistancestudies are tentatively estimated at about $1.0 million, The highestpriorities for technical assistance are considered to be national energy

54/ This project is based on the Deep Coal Drilling project which isalso being assisted by the Japanese government.

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planning, the household energy consumption and indigenous forest resourcestudies, the study related to' rehabilitation of SEB's older hydropowerstations, and the power system development study, including assessment ofthe sugar industry's power potential. On the basis of these studies andthis support, the mission believes Swaziland would be well placed todevelop a strategy for tackling the difficult strategic and economicissues facing it in the energy sector in the years ahead.

Table 7.1: ESTIMATED TECHNICAL ASSISTANCE REQUIRENENTS(S million, 1986 prices)

Study Cost

* Energy Branch 0.5Coal Combustion Study 0.1

* SEB Hydro Rehabilitation Study 0.1Power System Development Study 0.3*Household Energy Consumption and Indigenous

Forest Resource Survey 0.2SEB Tariff Review 0.2Increased Petroleum Storage Feasibility Study 0.1

Total 1.5

Source: Mission estimates,

Axmex 1Page 1 of 3

SUAULIID EttE(,G1 BMOU1CE - 1980i hI. t8EJ

Flod oodustes basse 9 L S Hdro - Coal ---- EEletti l it- - - - - - Petotu Ptodcts - - - - - - - - - - - -- 1 FF tSim, 95I SE8 Ib-SES tF6 hAaS aliss tle Ibtw tiosee Di- Fuel It l Sht toI

1trodetis 99,9.4.t 47,50.0 203,70b.9 74,084.8 31,5uo.e 125,071.9 - - - - - - - - 5.8E'.ports - - - - 5,000.V - 5S,159.0 - - 1,31t.9 411.7 58,061.7 3,433.3 1,963.1 53,VS1.e, 149,741.2 ,t,641._

EhWts I - - - - - - -

Stuat Oinpf - - - - * a,f2.1 444.5 - - - - - - - 73 O.8. r.:X-S

total avatible 99,024.1 47,500.0 203,70a.9 74,e84.8 B1,500.e 23,289.7 56,705.5 - - 1,311.9 411.7 5\,061.7 3,433.3 4,963.1 53,95i.e -. ,1r1.7 l5v,I55.1 ?:o,.a,2.1

CUSIilS AID LOWSSESPOWt 6,dtita - 139,300.0 W2,337.5J (74,084.8) (81,50.0) - 0B,669.0) R,4tO5.o 157,517.7 - - - - - (632.0 --

Caversica Losms - - - - - - - 49,175.6 14b,512.7 - - - - - - - 1 ,2t,., Didt es - - - - - - 7, .0 - - - - - - - - ;,5'.v;

hi vp#II A*ilable 99,024.1 8,200.0 176,369.4 - - 2289.7 S8,036.5 25,330.0 13,04.0 1,311.9 411.7 58,061.7 3,433.3 4,963.1 52.419.7 29,:21.7 149,8:.1 .1

cQWNttIu BY SECTOIbeohIds 99,024.1 - - - 12,154.1 4,699.O 4,335.0 - 1,180.5 - - 4,963.1 - 6,143.e I:b,55.6 .?Coartial - - - - - 1,e1.5 3,1)5.0 2,295. - 131.4 - - - - - 1:S.9 6J.: 6,74.6 I.;*1tstett - - - - - 13,S98.5 - - - 411.7 5&.462.1 3,4:3.3 - 44,233.1 - 104,54v.1 1,938.* :?.1 _Irrigtia - - - - - a,75s.0 - - - - - - - - 8,755.0 1.b 0%Saw Itrdstt y - 176,369.4 * 9,u98.6 2,095.5 306.0 5,279.5 - 1,112.7 - - 4,596.v. - 5,keL7 19,S!.b.? 37.3Iodstry, 8,200.0 * - 2,018.5 14.M$8.S 9,639.0 ',76.5 - - 486.9 - - 3,50i.6 :, ;;,le.3 4.429.8 14.0ihuts Nlp - - - - - - 381.0 £,48-0 4,428.5 - - 496.9 - - 3,51.9 29,O1.8 2,1 U.o 6,47.l 7.bP*Ak tiders - 8,200.0 - - - - 824.5 263.5 - - - - - - - - 9,:.0 1.ILvtck abestos - - - - - 2,U7.u ?73.5 3,v34.5 - - - - 28.7 2.; ou;. I.tWht - - - - - 1,018.5 11,62o.5 5,55S.0 - - - - - - - - - 11,198.0 S.8

ML8 FII1. LISIPtI 9$,24.1 8,200.0 t76,369.4 - - 23,289.7 38,tl.5 25,33v.0 13,ui5.0 1,311.9 411.7 58,061.7 3,433.3 4,943.1 52,419.7 .:9,21.' 1I9,83.1 5;:,0 7.B Jv.,vAs of tolow t8.6 1.5 35.1 - - 4.4 7.1 4.8 2.4 u.2 0.1 10.9 0.6 0.9 9.8 5.5 26.1 t10.3

Source: Mission estimates.

.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

AnnexPage 2 of 3

SNAZILlltD ENEGIY BALAUE - 1985 TI. tOE)

Fuelumd Ndast.s Bagss* I L S *I Hytro - - - -Coal- --- - -EleEitity- - - - - - - - - - - - - - - - - - - Petrfole Prodicts - - - - - - - - - - - - - - - - - ltI ftrcast

611DS stony Suau R SEB IO-SE8 LPG Aga Gasoline Actor 6vose hDel Fuel Oil Subtotal

Fraductaem 110,548.9 36,000.0 226,962.0 76,912.0 46,250.0 112,781.9 - - - - - - - - -54.

lrts - - - 56,75e.0 - 116,205.0 - - 2,86.7 344.0 59,550.1 1,464.2 5,901.0 58,523.2 6,437.? 135,002.9 307,957.9

Etptts -- -- 6-,646.9Stock Can - -1,944.0 - - 25,462.5 1,143.0 - - - - 145v., 1 t4o.21 9,ttS.3

lotul Atalable 110,548.9 3b,000.V 225,019.0 76,912.0 103,000.0 18,6t2.5 115,062.0 - - 2,662.7 344.0 59,55s.l 1,464.2 5,901.0 58,523.2 6,987.9 135,45;.2 620,fti.c

CNimESIO ASND LOSSESPour karatim -t 31,200.01 139,657.6e 176,912.041103,00u.0) - (21,209.01 103,741.9 169,330.2 - - ^ - - 11,099.41 - 1,0941 -

Cov,arsa Losses - - - - - ,80t.9 t53,249.2 - - ^ -14,v40.(

Trm, tist Loss - - - - ,750.0 - - - - - - ,

Nkt Splv Atailable 110,549.9 4,600.0 185,3O0.4 - - 19,672.5 93,953.0 31,195.0 16,092.0 2,892.7 344.0 59,550.1 1,44.2 5,801.0 57,424.? e,8Bt.9 134,354.7J 94,9Be.5

c1111111 B S£CTORiuS"bldS 110,S40.9 - - - - 14,B70.1 i,b'4.0 6,296.o - 2,594.4 - 5,741.2 - - 6,,. 14t,e

4&.6 ;4. 7

Coarcal - - - - 4,445.0 2,975.0 - 229.3 - - - - - -*.S 7,?06. 1.3

ttsrt - - - - - - ,,955.0 - - 344.0 57,749.8 1,464.2 - 47,684.6 - 10,241.7 22B,196.7 21.6

Irritation - - - - - - -t,1l0.0 - - - 9,1v . 1.5

Suga InWstry - - 195,360.4 - - 3,u2.4 1,^5. - 6,42h.0 - - 1,30.9 - 59.e e,l39.1 - :,507.8 X.5,1..1 4.5

Inutry - 4,00.0 - - - - 59,753.5 12,750.0 9,656.0 - - 492.5 - - 3,601.0 6,897.9 10,981.4 9?,94-..9 To S

ote Ptip - - - - - 39,941.5 2,397.0 5,2.5 - - 492.5 - - 3,572.2 6,?.T 20,152.7 59,i86.7 ;t.

hak Tim" - 4,90c.0 - - - - 102.0 323.0 - - - - - - - 5,2:5.v .9?

1AvelOt K esS - - - - - - 2,667.0 697.0 3,230.0 - - - - - 29.7 - 2. 7 ,,a2. 1.1

lltbt -1- - - - - 27,145.0 9,554.0 -_ _ _ _ 2b,689.0 4.5

xTT FI.IESL C_INTI9U 110,504.9 4,900.0 155,360 4 - - 18,672.5 93,953.0 31,195.0 16,092.0 2,882.7 344.0 59,X5.1 2,464.2 5,601.0 57,424.7 6,c87.9 134,.54.7 594,66.5 1(0.0

a t fTotal I1.6 0.8 31.2 - - 3.1 15.8 5.2 2.7 0.5 0.1 10.0 0.2 2.0 9.7 1.2 X.e6 I00.i

Source: Mission estimates.

Annex 1Page 3 of 3

SIULJA EtiERGf BM.AIC6 - 19S0 (to TOE)

Folsood astes aasst L S / iydro - - - Coal … - - - Electrcty-Prole Product ttal cSml MA SEl lon-SEb LPS iias i lasolin Avttr lerose hteset Fuel DiI Statel

Prodection 12,474.7 49,800.0 267,300.0 79,040.0 5o,000.0 116,10.0 - - - - - --9-,72.'140tW - - - - 59,250.0 - 109,791.5 - - 4,641.7 333.5 68,"3.6 3,789.6 t,9s0.8 91,69s.2 7,215.0 184,c4.4 =55,'35.9laports - - - - ,v60.0 - - - - - - - - - - 9,s.Stock maps - -

Total Available 124,474.7 49,300.0 267,300.0 79,04u.0 114,250.0 21,049.0 09,791.5 - - 4,641.7 33.5 68,993.t 3,789.6 7,980.3 91,A9v.2 7,215.0 164,b94.4 950,:99.6

tCU I IIU A LISSESPow karotam - 41,600.4i (52,245.0) 079,040.0)2114,250.01 - 119,621.5) 114,939.4 192,793.3 - t976.7) - 976.i7 -Coovrsio Le - - - - - - - 8, 534.4 173,022.3 - - - - - - - 241.35?.2ttus, Dist lows - - - - - - - 1l,5s.0 - - - - --- ,50.

bt Sply Available 124,474.7 3,200.0 215,055.0 - - 21,0S;.0 %,lIu.0 35,105.0 19,771.0 4,441.7 37.5 68,93.6 3,789.6 7,980.S 90,712.6 7,215.0 183,71.7 .? 77,542.4

amo byr SECTlMlNetovds 124,474.7 - - - - 114.65.0 7,937.5 7,480.0 4,177.5 - - 7,980.3 - 12,158.3 Wo.'A4.5 24.2Cameerciel -- - - - 5,080.9 3,145.0 - 464.2 - 6- - - - 44.2 3,b89 . .2 1.Irasrt - - - - - 10,47 3.5 7 -,171.4 3789.6 - 60,114.0 - 151,45S.5 Itl,13o.0 12.2 Ilrrlatio - - - - - - 9,95.0 - - - - - - - - 5,US.0 1.4 ^SOWer l try - - 215,055.0 - - 3,395.u 1,905.0 - 6,500.v - - 1,321.5 -- 6,94.4 - 8,215.5 37.0'.5 4., cotodstry 8,200.0 - - - 64,770.0 14,535.0 11,271.0 - - 500.3 - - 3,705.5 7,215.0 11,4:1.2 11.,197.2 15.5lo,t hap - - - - - 41,275.0 1,955.0 7,395.0 - - 50.3 - - 3,.;b.8 ?,215.0 219.. c;:,017. 5.9IPea Tubers - 8,2Ov.0 535.5 - - &,?;.5 2.bwelckt Asetos - - - - - - 1,905.0 680.0 3,23o.o - - - - 2S.7 - .3.J ',j4;.; .Otber - - - 21,590.0 11,900.0 -- - - - - : 4.

tALT rIV. CUtilhN 124,474.? 8,200.0 215,055.0 - - 21,049.* 90,170.0 35,105.0 19,771.0 4,641.7 385.5 68,993.6 3,789.6 7,9i.8 0,71t3. 7,215.S) ;,'P.7 ar,542.4 ;00.-As I O Total 11.S 1.2 30.8 - - 3.0 12.9 5.0 L8 0.7 0.1 9.9 0.5 1.1 1M 1.0 26.3 lo.t

Source: Mission estimates.

t

Annex 2

HOUSVHOLD ENERGY CNMSWTION MIX, 1985 AND 2000

Rural Urban Total

Fuel Type Original Units Thousand toe Percent Original Units Thousand toe Percent '000 toe Percent

1985

Wood 434,903 m3 104.41 95.9 25,583 .3 6.14 18.1 110,55 77.4

Coal 1,615 tons 1.06 1.0 30,685 tons 20.12 59.3 21.18 14.8

Electricity 3.65 GWh 0.31 0.3 69.35 GWh 5.84 17.2 6.15 4.3

Kerosene 3,489,000 liters 3,01 2.8 1,163,000 liters 1.00 3.0 4.01 2.8

LPG 83,790 kg 0.09 0.1 754,1W) kg 0.80 2.4 0.89 0.6

108.87 100.0 33.91 100.0 142,78 100,0

toe per capita 0.19 0.18 %°

Total Wood Demand: 460,485 .3

2000

Wood 517,132 .3 124.15 94.7 73,171 m3 17.57 16.3 141.71 59.3

Coal 3,357 tons 2.20 1.7 93,699 tons 64.72 60.1 66.92 28.0

Electricity 10.83 GWh 0,91 0.7 232.69 GWh 19.61 18.2 20.52 8.6

Kerosene 4,234,895 liters 3.65 2.8 3,740,805 liters 3.23 3,0 6.88 2.9

LPG 174,193 kg 0.18 0.1 2,425,605 kg 2.57 2.4 2.75 !.2

131.10 100.0 107.69 100.0 238.79 100.0

toe per capita 0.19 0.20

Total Wood Demand: 590,303 .3

Source: Mission estimates.

- 80

Annex 3

FUELWOOD SUPPLY AND DEMAJhi BALANCE, 1985-2000(m3)

Supply Deficit NaturalCommercE al met by Forest Area,

Natural Existing New Forest Wattle Total Clear- end-YearForests Woodlots Woodlots Residues Residues Total Demand felling (ha)

1985 360,000 13,325 0 20,000 36,250 429,575 460,485 30,910 119,1171986 357,351 13,325 0 21,000 38,063 429,738 471,537 41,799 117,9231987 353,768 13,325 0 22,050 39,966 429,108 482,854 53,745 116,387188 349,161 13,325 0 23,153 41,964 427,603 494,442 66,839 114,4771989 343,432 13,325 0 24,310 44,062 425,129 506,309 et,179 112,1581990 336,474 13,325 0 25,526 46,265 421,590 518,460 96,870 109,3901991 326,171 13,325 0 28,078 50,892 420,466 528,829 108,364 106,2941992 318,882 13,325 7,500 30,886 55,981 426,574 539,406 112,832 103,0701993 309,211 13,325 7,500 33,975 61,579 425,590 5t^,194 124,604 99,5101994 298,531 13,325 7,500 37,372 67,737 424,465 561,198 136,733 95,6041995 286,811 13,325 7,500 41,109 74,511 423,256 572,422 149,166 91,3421996 274,025 13,325 7,500 49,331 74,511 418,692 575,856 157,165 86,8511997 260,554 13,325 22,500 59,197 74,511 430,087 579,311 149,225 82,5881998 247,763 13,325 22,500 71,037 74,511 429,135 582,787 153,652 78,1981999 234,593 13,325 22,500 85,244 74,511 430,173 586,284 156,111 73,7372000 221,212 13,325 22,500 102,293 74,511 433,841 589,802 155,961 69,281

Assumptions:

Indigenous Forest Area End-1985, ha: 120,000Mean Annual Increment, m3/ha/yr: 3Clearcut Yield, m3/ha: 35

Private Forests Residues Used In 1985, m3: 20,000Percent Increase per year, 1985-1990: 5.0%

1991-1995: 10.0%1996-2000: 20.0%

Wattle Residues Used in 1985, m3/yr 36,250Percent In^rease per year, 1985-1990: 5.0%

1991-1995: 10.0%1996-2000: 0e0%

New woodlots planting starts 1987Rate of Planting 1987-1991, ha/yr: 100Rate of Planting 1992-1996, ha/yr: 200

Yi6Id, m3/ha/yr: 15Rotation, yrs: 5

Source: Mission estimates,

- 81 - Annex 4

Page 1 of 3

RURAL/URBAN HOUSEHOLD ENERGY SURVEY

OUTLINE TERMS OF REFERENCE

Background

1. Basic energy consumption data on the household sector of Swazilandhave never been gathered in a quantitative and comprehensive manner.Consequently, policies designed to meet fature household energy demand arebased on estimates of household fuel consumption. Accounts of familiesswitching to dung and agricultural wastes in response to fuelwood shortages insome parts of the country are becoming common, but little analytical evidenceis available. It is estimated that 251 of 1985 final energy demand inSwaziland was consumed by the household sector (75% of household fuel use isfuelwood). The energy assessment mission has noted that annual fuelwooddemand probably exceeds the aniual fuelwood increment. As a prerequisite toenergy planning in the household sector, it is recommended that acomprehensive rural/urban household energy survey be conducted to complement aforest inventory study.

2. Swaziland is experiencing rapid urbanization; the urban populationcomprised 25% of the total population in 1985, as compared to 7.5% in 1970.As in other areas of Africa, markedly different fuel consumption patterns areapparent in homesteads, company towns, and cities. Hence, demographic changesare correlated with shifting national energy consumption patterns in thehousehold sector. Projection of future household energy demand compositionrelies heavily on population growth, urbanization rates, and assumptions aboutenergy consumption pattern,, in different settings. Appropriate policies tosecure household energy supplies and manage demand require an accurate pictureof current household energy demand patterns and how they are changing withurbanization and fuel availability. A properly conducted national householdenergy survey would provide this picture as an instrument for policy makers.

Objectives

3. The survey would be designed to assist in developing appropriatepolicies to meet future household energy demand in Swaziland. It would do soby:

(a) determining existing patterns of household energy consumptionby income level, fuel, and community type;

(b) determining the quantity of all fuels consumed by type of enduse (cooking, heating, lighting, etc.) of all fuels andappliance ownership;

(c) determining current availability and fuel prices as well asperceptions of fuel desirability for each end use and recentperceived changes it' 4vailability;

- 82 - Annex 4

Page 2 of 3

(d) measuring efficiencies of end-use devices and energy contentof fuels used; and

(e) presenting results in a form that shows what are importantfactors in fuel choice, such as availability of alternativefuels, income prices, cooking habits, and lifestyle.

Scope

4. The survey should be conducted in a manner to yield reliable,representative household energy coisumption data covering:

(a) at least 5 incomei levels or socio-economic classes;

(b) rural homesteads, company towns, and urban areas; and

(c) all traditional and commercial fuels used in the householdsector.

Resulting summary tables should contain average household size, percentages ofhouseholds using each fuel, and average quantity of fuel usad per householdfor each income level in each of the three settlement categories.

5. Specifically, households should be selected to be representative ofincome distribution in each area sampled and to assure that a minimal numberof surveyed households are included in each income category to guard againstrandom sampling error. Questionnaires should be administered by universitystudents or research assistants to those who purchase fuels in the presence ofthe entire household. The fuel use of a subset of the participatinghouseholds should be measured for at least one week. These measurements,after being adjusted for seasonal variations and weather, can be used to checkthe fit between recall responses to questions and actual measuredconsumption. Detailed measurement of end-use device efficiencies and energycontent of traditional fuels can be made during this phase.

6. Data to be collected during the household survey should include:

I. Household Characteristics

(a) Family size, level of education of head, and occupation

(b) Number of decision making units in the household (fuelpurchasers and users)

(c) Household income in cash and in kind

(d) Land ownership, cattle, area farmed, etc.

II. Fuel Supply

(e) Types of fuels purchased and gathered

- 83 - Annex 4

Page 3 of 3

(f) Effort and labor required for gathering fuels and recentchanges

(g) Average fuel prices and availability (also question retailers)

(h) Estimate of seasonal variation in demand for each type of fuel(also question retailers)

III. Fuel Consumption

(i) Cooking fuels: quantity used/household/day

(j) Lighting fuels: quantity used/household/day

(k) Heating & other: quantity used/household/day

IV. Fuel Use Measurement

For a subsample of households, fuel consumption should be measuredfor at least one week as in III, above.

V. Energy Content of Commercial and Ttaditional Fuels

(1) Average fuel content of fuelwood and common biomass fuels

(m) Measured or published efficiencies of common household end-usedevices

Staffing Requirements

7. It is envisioned that the survey would be carried out by theUniversity of Swaziland Social Science Research Unit (USSSRU), with short-termassistance of an external expert in household energy survey methods. Theexternal consultant would confer with USSSRU counterparts during an initialfour week visit which would be spent developing the overall project design anddrafting and pilot-testing of survey questionnaires. He would return toSwaziland after the survey is performed to assist in the analysis of data andreport writing for four weeks. Thus about 8 man-weeks of external consultingwould be needed with travel and subsistence, the external consultant costcould be roughly $20,000.

8. The resources needed to carry out the actual survey are difficult todetermine offhand. If it is assumed that 1000 homesteads would be sufficientsampling, it may only be necessary to cover 500 urban homes and 200 homes incompany towns, or about 2,000 households in total. An interviewer could coverabout 10 homes per day. thus actual interviews, training and travel wouldprobably require some 600 man days, altogether. Possibly four faculty memberscould be asked to put in a total of 12 man-months of supervisory inputs. Ifstudents are used as interviewers, the total financial requirement for theUSSSRU counterpart of the project should not exceed $50,000.

- 84 -Anuex 5Page 1 of 2

ECONOMICS OF ETHANOL PRODUCTION

1. The mission examined the economics of ethanol production undera variety of oil price, molasses price, and exchange rate assumptions.The mission used as a basic model for its analysis the ProjectEngineering Africa (PEA) study, although the analysis could just aseasily have been done using eit)ar of the other two studies; in thissense the choice of the PEA study was arbitrary. The objective of thisanalysis was to examine those combinations of the above-mentionedvariables which result in economic rates of return in excess of 10%.

Assumptions

2. Ethanol production and sales assumptions correspond to those inthe PEA study: 3% annual growth from a base in year 1 (which was assumedto be 1987) of iO,226 kiloliters, which corresponds to a 20% blend.

3. Capital costs amounted to E10.941 million, of which E7.952million were from within the 2MA and E2.989 million were from outside theRMA, and hence true foreign exchange costs. Initial working capitalamounted to R1.371 million, increased at 3% annually in line with sales,and was fully recovered at the end of the 20 year assumed project life; asalvage value of 10% was assumed on capital investment.

4. Fixed and variable operating costs were taken directly from thePEA study. Variable operating costs increased at 3% per annum, in linewith ethanol production. As in the PEA study, molarses requirements werecalculated on the basis of a yield of 250 liters of ethanol per ton ofmolasses (4 tons molasses per kiloliter yield of ethanol). Transportcosts of EO.0179 per liter from the mill to the blending and distributionfacilities at Matsapha were asaumed.

Baseline Case

5. The economic rate of return in the base cace which correspondsto when the original PEA analysis was made (second quarter of 1985) was28.5%. This scenario was based on the following assumptions:

Exchange rate - US050.22 per LilangeniMolasses price - US$25.11 per ton ex-factory

(E50 per ton)Oil price (Middle-East) - US$27.70 per barrel, which translates

to a landed economic cost of EO.58998per liter.

(Note that the rate of return differs from that in Table 2.7. This stemsfrom the more detailed approach permitted in this analysis, which doesnot need to be directly comparable with the other studies, as was thecase in Table 2.7).

Annex 5

Page 2 of 2

ECONOMIC RATE OF RETURN OF ETHANOL PROJECT

(in percent)

Exchange Rate: Lilangeni I = US S0.35 Exchange Rate: Lilangeni 1 = US SO,50 Exchange Rate: Lilangeni 1 = US 50.65

Molasses Price Molasses Price Molasses Price

Oil Price FOB Maputo (S/ton) 30.0 40.0 42.7 50.0 60.0 30.0 40.0 42.7 50.0 60.0 30.0 40.0 42.7 50.0 60.0

(S/bbl) Ex-factory (E/ton) 50.7 79.3 87.0 107.9 136.4 25.0 45.0 50.4- 65.0 85.0 11.2 26.5 30.7 41.9 57.3

535.0 31.5 over 36% 28.2 over 30% 31.8 26.0

$30.0 over 30% 30.0 20.7 32.2 27.0 19.7 30.9 29.3 25.0 19.1

S27.7 31.8 25.1 15.5 30.3 28.3 23.1 15.6 27.7 26.2 21.9 15.7

$25.0 28.5 26.0 19.1 8.7 32.9 25.8 23.8 18.5 IC.5 29.9 24.1 22.5 18.0 11.6

$24.0 26.3 23,8 16.8 31.2 24.1 22.1 16.7 28.5 22.7 21.1 16.6 10.0

S23.0 24.2 21.6 14.5 29.6 22.4 20.4 16.9 27.2 21.3 19.7 15.1

S22.0 31.2 22.0 19.4 12.0 27.9 20.7 18.7 13.0 25.8 19.9 18.2 13.6

521.0 29.1 19.8 17.1 9.5 26.3 19.0 16.9 11.1 24.4 18.5 16.8 12.0

$20.0 27.0 17.5 14.8 24.6 17.2 15.1 9.0 23.1 17.0 15.3 10.4

$19.0 24.8 15.2 12.4 22.9 15.4 13.3 21.7 15.5 13.8 8.8

58.0 22.6 12.8 9.8 21.2 13.5 11.3 20.3 14.0 12.3

S17.0 20.4 10.2 19.5 11.6 9.3 18.9 12.5 10.7

$16.0 18.2 7.5 17.7 9.6 17.4 10.9 9.0

S15.0 15.9 less than 10% 15.9 less than 10% 16.0 9.3

$14.0 13.5 14.1 14.5 less than 10%

513.0 9.0 12,2 12.9

$12,0 8.3 10.2 11.4

511.0 8.4 9.7

S10.0

Source: t4Issio4n estimates.

_ 86 -

Annex 6

AVERAGE ANALYSES OF WSHED COAL a/

Nihlume Area 1 Area 2 Easwati Area 3 Su cor Lubukhu Me loma 14t Indekwa bl

Yield 80.0 83,2 75.1 75.0 62.0 90.S 78.0 8S.0 40.8

Moisture 1.1 1.0 1.8 1.3 0.6 1.6 1,4 1.3 1.1

Ash 17.0 9.8 11.4 14.0 10.0 10.8 13.9 9.1 21.7

V'jlatiles 9.0 11.0 12.2 12.7 13.9 13.6 7.7 5.7 7.4

Fixed Carbon 72.9 78.0 74.6 72.0 75.5 74.6 76.9 83,5 69.8

Sulphur 0.40 0.60 0.30 0.35 O.5O 0.50 0.43 0.60 1.54

Phosphorous 0.003 0.01 0.006 0.01 0.01 0.01 n.o. n.a. D,006

Ash Fusion Temp (*C) c/ n.a. 1,300 1,280 1,250 1,265 1,265 1,290 1,400+ 1,160

Calorific Value (MJ/kg) 28.3 32.0 31.0 28.2 31.9 31.5 29.7 31.4 27.0

a/ Coal washed at 1.6 specific gravity, air dried._/ Upper Coal Zone.c/ Initial deformction temperature.

Source: Geological Survey and Mines Department.

- 87 -Annex 7Page 1 of 2

COMBUSTION PROPERTIES OF SWAZI COAL

1. Combustion problems associated with the use of Swazi coal fallinto two categories: those stemming from its high ash content and thoserelated to its inherent combustion characteristics. The ash content ofwashed coal is around 16X which certain industries consider too high.Although Emaswati Coal could produce lower ash coal, yields from run-of-mine coal would be lower - the yield to produce 101 ash coal would onlybe about 452, which Emaswati Coal considers uneconomic. The experienceof the Langa National Brickworks serves as a good example of the problemsassociated with the high ash content. Although its brick kilns work mosteffectively on coal with an 8-10% ash content, the brickworks initiallytried using domestic coal because of its proximity to the mine. However,that coal, with an ash content around 161 when washed, resulted in exces-sive ash accumulation, and the company was forced to switch to importedcoal. 1/ Barring any change in the mine's production pattern, thisproblem is probably best handled by modifications to ash handling equip-ment by the industrial consumers.

2. There also appear to be certain Laherent combustion propertieswhich make the coal difficult to use and which can result in increasedmaintenance, low efficiency, and damage to coal burning equipment. Inpart, these problems stem from the anthracitic nature of the coal, whichmakes it difficult to ignite and relatively slow burning, but with a highheat output. 2/ The coal is also prone to fouling - the formation ofhard glassy clinker - which has proved to b' a significant problem withchain grate and steam locomotive boilers. In chain grate boilers, whichare widely used on Swaziland, the hard glassy clinker tends to wedgebetween the links of the chain grates and then force the links apart asthey rotate around the end of the grate. It also tends to build uparound the sides of the grate, restricting air flow. Fouling was alsofound to restrict the flow of air through the grate of steam locomotives,in some cases causing partial melting of the fireboxes. Fouling is knownto be associated with soda and potash contents above 2%; analyses ofexport coal indicate that Swazi coal can reach these levels (Annex 8).However, like many many characteristics, these are not rniform across thecoal field. The area being explored under the Deep Drilling Project, forinstance, has been shown to have soda contents of up to 32, while inadjacent areas it can be less than 12. Another problem associated withthe use of Swazi coal has been slagging and high temperature corrosion.

1/ It should be noted that most imported coal has an ash content onlyslightly lower than Swazi coal; 8-10X ash coal is exceptional.

2/ These characteristics have also been known to cause distortion anddamage to household stoves.

- 88 -Annex 7Page 2 of 2

These depend on characteristic ash temperatures. When gas temperaturesexceed 6900C complex salts can be formed which remove protective metallayers from boiler components and in turn promote high temperaturecorrosion of boiler metals.

3. In part these problems occur because almost all the coal-burning equipment used in Swaziland, including all the modern chain grateboilers, come from 3SA, where they were designed to burn RSA bituminouscoal. Potential solutions to the problem include mining one of the coalseams with lower soda and ash contents, introducing chemical additivesthat impede klinker development, and introducing boilers which are resis-tant to these problems. It is doubtful, however, whether the introduc-tion of different boilers can be financially justified given the smallcost advantage afforded by domestic coal and the fact that such boilerswould likely have to be imported from outside the SACU.

- 89 *-

Annex 8

ANALYSIS OF EMASWATI EXPORT COAL a/

Proximate Analysis

Calorific Value (MJtKg) = 25.91Moisture % = 1.5Ash% 23.0Volatiles % 9.3Fixed Carbon = 66.2Sulphur % = 0.36

Ash Fusion Temperatures = DEFT HEM FLOWReducing (IC) 1,320 1,340 1,350Oxidizing (d) = 1,330 1,350 1,560

Ultimate Analysis (0)

Carbon = 67.23Hydrogen = 2.73Nitrogen a 1.56Oxygen a 3.62

Analysis of the Ash

S02 * 50.89Al 2j3 24.41Fe203 = 6.71

P.e 25 0.09Ti02 = 0.47CoO ' 6.39t4g0 = 1.2020 2.60

NaO2 = 1,81

S03 = 2.3

Note: DEFT a Initial Deformation TemperatureHEM = Hemisphere Point TemperatureFLOW = Flow Point Temperature

a/ Run-of-Mine Coal

Source: Emaswatl Coal, Ltd.

- 90 -

Annex 9

COAL PROOJCTION AND EXPORTS, 1966-85(in thousand tons)

Destination of ExportsYear Productlon Exports Kenya Mozaubique Korea Other

19w 84.4 ---- -

1967 96.31968 105.3 - - --

1969 114.7 58.06/ -- - °1970 138*2 75.3 33,7 41,4 - 0,2 bl1971 150,S 84.6 45,4 33.4 5,3 ¢/

1972 143.0 62.9 30*2 30*6 -- 2.1 b/1973 140*4 80,2 54.5 14.7 ° 11.0d/1974 116.5 62.1 S2*9 9.2 - --

1975 126*9 67.2 67*2 - -

1976 126.1 109.8 80.3 2.2 - 27.3 e/1977 129.0 76.9 46.1 2*9 - 27.9 ef1978 165*9 105.3 61.5 - 23.0 20,9!I1979 168,4 165.2 46.7 - 118.5 ---1980 176.0 139.6 45.7 - 18.6 75.3 f/1981 157.7 118.8 90.5 - -- 28.2 f/1982 115,0 77.3 77,3 n -1983 101.7 76*2 76.2 - - -

1984 124*6 83.4 83*4 -- -

1985 16601 101.1 75.4 1 25.7 -

Note: Individual exports may not add up to total exports due to rounding.

a/ Accurate breakdown not available, but believed to be almost evenly dividedbetween Mozambique and Kenya.

b/ Republic of South Afleac ItalydJ Scandinavian countriese/ BelglumfJ France

Source: Central Statistical Office and Geological Survey and Mines Department.

I

- 91 -

Annex 10

SPECIFICATIONS OF SELECTED COAL IMPORTS FRM TRANSVAML, RSA

Mine Size Hoet Content Moisture Ash Volati les Sulphur

Frection (J/kg) (S) (S) (S) (%)

Phoenix Cobbles 26.3 3.3 16.7 24.7 1.0

Nuts 27.0 3.3 14.6 25.5 0.9Peas 27.1 3.3 14.8 25.1 0.8

Duff 25.7 3.2 18.4 24.1 1.3

Breyton Cobbles 24.9 2.6 22.2 27.4 0.9Large Nuts 24.5 2.9 20.6 23.4 0,7small Nuts 25.1 2.9 20.4 22.2 0.8

Peas 25.0 2.9 20.5 21.9 1.0

Duff 24.6 2.9 21.5 21.0 1.0

Source: Van's Coal Agency.

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Annex 11

SEC POWER CENERATION CAPACITY, 1985

- - - CapdC?Ity (MW) - - -

Ins+alled Available Date Installed

Hydro

Mbabane 2 x 0.25 MW 0.6 0.5 1954, 1955Edwalenl

4 X 2.5 MW 10.0 9.5 1964-671 x 5.0 MW 5.0 5.0 1969

Nagrduza 1 x 5.5 MW 6.5 5,5 1969Ezulwini 2 x 10 MW 20.0 20.0 1984

Sub-total 42.1 40.5

Diesel

Edwaleni 1 x 0.5 0.5 0.5 19672 x 4.5 9.0 9.0 1968, 1970

Sub-total 9.5 9.5

Total 51.6 50.0

Source: Swaziland ElectrIcity Board.

Annex 12

SEB ELECTRICITY SALES, 1974/75 - 1985/86

(GWh)

----- Growth Rates (% p.a.) ---

1974/75 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1985/86 1974/75 - 1979/80 - 1982/83 -

79/80 82/83 84/85

Households 21.6 47.0 51.5 60.1 63.6 67.1 70.1 71.7 16,8 10.6 5.0

Commercial 13.8 24.2 27.0 30.4 31.5 32.4 33.0 35.1 11.9 9.2 2.4

Irrigation 24.4 88.4 103.0 101.2 117.2 94.9 94.4 138.1 29.4 9.9 -10.2

Industry 66.4 116.2 116.6 131.7 15219 154.2 147.5 121.2 11.8 9.6 -1.8

Total 126.3 275.7 298.3 323.4 365.1 348.6 345.0 366.1 16.9 9.8 -2.8

Maximum

Demand (MW) 28.5 57.2 65.9 72.7 70.4 78.0 78.0 81.0 15.0 7.2 5.3

Note: Totals may not add up exactly because of rounding.

Source: Swaziland Electricity Board.

Annex 13

SEB SUPPLY PATTERNS, 1974/75 - 1985/86(GWb)

Growth Rates (C p.a.)1974/75 1979/80 1980/81 1981/82 1982/83 1983/84 1984/85 1965/86 1974/75 - 1979/80 - 1982/83 -79/80 82/83 84/85

Hydropower 121.6 114.4 123.0 126.6 70.4 79.1 152.1 172.2 -1.2 -14.9 47.0Diesel Generatlon 0.5 2.9 2.0 2.7 4.8 1.0 2.0 1.8 42.1 18.3 -35.4

Purchased Power- ESCXXN 18.2 187.9 208.9 227.2 330.6 309.2 236.5 243.1 59.5 20.7 -15.4- Domestic Industry - 0.7 0.6 - - - -

Total Supplies 140.4 305.2 333.9 356.4 405.8 390.0 391,2 417.1 16.8 10.0 -1.8

Own Use and Losses 14.1 29.5 35.6 33.0 40.7 41.5 46.2 51.0 15.9 11.3 6.5Net Suppi-les = Sales 126.3 275.7 298.3 323.4 365.1 348.5 345.0 366.1 16.9 9.8 -2.8

Mmorandum Items

Sent-out load factor (S) n.a. 61 58 56 66 57 57 59HYdrlopowr as percentof Total 86.6 37.5 36.8 35.5 17.3 20.3 38.9 41.3

Purchases from ESCONas percent of Total 13.0 61.6 62.6 63.7 81.5 79.3 60.5 58.3

Own use or Lossesas percent of Total 10.0 9.7 10.7 9.3 10.0 10.6 11.8 12.2

Source; Swaziland Electricity Board.

Note: Totals may not add up exactly due to rounding.

- 95 -

Annex 14

ELECTRIC POWER CAPACITY AND GENERATION OF SELF-PRODUCERS, 1985

Capacity Generation

(MNW) (Gwh)Sugar Industry

Mhlume Sugar Company, Ltd. 6.50 (steam) 16.40.60 (dIesel) 0.1

Ubombo Ranches, Ltd. 10.50 (steam) 32,9Royal Swaziland Sugar 7.00 (steam) 26.2Corporation, Ltd.

Subtotal 24.60 75.6

Wood-Eased IndustriesUsutu Pulp Co., Ltd. 16.90 (steam) 70.4

1.60 (dlesal) 0.1Peak TImbers, Ltd. 1.95 (steam) 3.8Swaziland Plantatlons, Ltd. 0.65 (hydra) 1.0

Subtotal 21.10 75.3

OtherHavelock Asbestos Mines, Ltd. 8.00 (steam) 37.4

3,00 (diesel) 0.6Ingoninl 0.30 (hydra) 0.3

d,l5 (diesel) -

Subtotal 11.45 38.3

Total 57.15 189.2

Source; Individual companies and Swaziland Electricity Board.

Annex 15

SEB DEMAND GROWTH PROJECTIONS, 1985/86 - 1994/95(GWh)

-- ---- Growth Rates1984/85 1985/86 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94 1994/95 1984/85-1989/90 1989/90-1994/95

ow Growth Scenario

Domestic 70 72 74 77 80 84 89 94 100 106 112 3.7 6.0

CommercIat 33 33 34 34 35 36 37 39 41 43 46 1.8 5.0

Industrial 148 138 128 132 137 144 151 159 167 175 184 -0.5 5.0

Irrigation 94 96 98 100 102 104 107 111 114 117 121 2.0 3.1

Total 345 339 334 343 354 368 384 403 422 441 463 1.3 4.7

*4aximum Demand 78 79 79 81 84 87 90 95 100 105 110 2.2 4.8

Igh Growth Scenario

Domestic 70 74 77 81 85 89 95 101 107 113 120 5.0 6.0

Commercial 33 34 34 35 36 37 39 41 43 45 47 2.3 5.0

Industrial 148 138 148 155 163 171 180 189 198 208 219 2.9 5.1

Irrigation 94 96 99 103 108 112 115 118 122 126 130 3.6 3.0

Total 345 342 358 374 392 409 429 449 470 492 516 4.9 4.8

Maximum Demand 78 79 83 87 91 96 100 105 110 115 120 4.2 4.6

wrce: Mission estimates.

- 97 -

Annex 16

SEB POWER OPTION COSTS

1. As an indicative basis for estimating the cost of domestic hydro-power, the mission used the cost of the recently commissioned Luphohlo-Ezulwini scheme. That project, implemented over the 1980-84 period, cost E80million in current prices, equivalent to $63 million or about $3,200 per kW.Adjusting to early 1986 prices, the mission estimates that the same projecttoday would cost $81 million, or approximately $4,000 per kW. Amortized overa 30 year project life (at an opportunity cost of capital of 10%) and assuming90 GWh energy production a year, this results in an economic cost of aboutUS¢ll per kWh.

2. In contrast, the investment costs of a third 30 MW transmission linkwith ESCOM are estimated at about $5 million, or $170 per kW of capacity.Variable costs depend on the ESCOM tariff which takes into account the levelof masimum power demand as well as the amount of energy drawn. The missionestimated these under a variety of assumptions, ranging from an inefficientoperating regime in which maximum demand rose to line capacity (30 MW) but theoverall capacity factor was low (only 30%), to one in which the systemoperated at a high capacity factor (70%) and maximum demand also reached a30 MW peak. The resulting economic costs, assuming no real increases in ESCOMrates, are shown in Table 4.4. They range from about US¢2.4-4.4 per kWh, withthe most likely economic cost range about USC2.5-3.0 per kWh, given SEBoperating practices. This was also considerably cheaper than diesel-basedpower, for which the current fuel costs alone amount to US¢ 7 per kWh (dieselvalued at import parity). This analysis confirms SEB's own views thatadditional links to ESCOM are currently the most economic means of increasingSEB's supply capacity. This option would save Swaziland as estimated$7 million annually in economic benefits (1986 prices) over the domestichydropower option.

ECONOMIC COST OF ELECTRICITY FROM ESCOM(USt per kWh)

Capacity Low Maximum Medium HighFactor Demand (11.5 MVA) Demand (25 MVA) Demand (30 MVA)

30% 2.9 4.0 4.4

50% 2.5 a/ 2.9 3.1

70% b/ 2.4 2.6

a/ At 38% system load factor (maximum possible with 11.5 MVA maximum demand)b/ Not possible.

Source: Mission estimates.

- 98 -

Annex 17Page 1 of 3

SCHEDULE OF STANDARD PRICES FOR THE SUPPLY OF ELECTRICITY 1/

Swaziland Electricity Board

1. These prices shall apply to all accounts based on meterreadings taken after December 31, 1985.

2. See the General Notes at the end of this Schedule fordefinitions.

Scale 1 - Domestic Tariff

3. For the supply of electricity to premises used solely forprivate residential purposes and to all apparatus normally used at suchpremises, including electric motors up to 2 kVA.

All units per month at 7.8 cents per unit.

Minimum charge per month or part thereof E6,20.

Scale 2 - General Purpose Tariff

4. For the supply of electricity to premises or installations forwhich, in the opinion of the Board, no other tariff is appropriate.

All units per month at 32.0 cents per unit.

Minimum charge per month or part thereof E8.60.

1/ SEB tariff as of January 1, 1986.

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Annex 17Page 2 of 3

Scale 3 - Commercial and Industrial Tariff

5. For the supply of electricity to premises, other than privateresidential premises, including commercial, administrative and publicpremises, farms, hostels, industrial installations, etc. and electricmotors provided the maximum demand does not exceed 20 kVA at any time ofthe year.

All units per month at 10.9 cents per unit.

Minimum charge per month or part thereof E19.50.

Scale 4 - Off-Peak Water Heating Tariff

6. For the supply of electricity for commercial water heatingwhere the installed capacity of water heating plant is not less than9 kI:

All units at 5.5 cents per unit

Rent of time-switch E8.60 per month.

7. The supply of electricity will be available for not less than9 hours daily in not less than two periods, the length of any periodbeing not less than 11 hours. The on-off period will be controlled by atime switch, the settings of which will be subject to adjustment at thediscretion of the Board, fr3m time to time. The amount of electricitysupplied will be measured by separate meter from that measuring thesupply to the other sections of the electrical installations on thepremises. The maximum demand of the water heating equipment will not beincluded in the assessment of the maximum demand of the installation.

8. No new consumers will be accepted on this tariff.

Scale 5 - Large Commercial and Industrial Tariff

9. For the supply of electricity to consumers having a maximumdemand of 20 kVA or over at any time of the year.

For each kVA of maximum demand recorded per month at E12.50

Plus, for each kWh of energy at 4.6 cents

- 100 -

Annex 17Page 3 of 3

Notes on Scale 5

1. If tl- average charge per unit for the month calculatedaccording to the above scale exceeds 29 cents, the account shall bereduced to an amount which results in an average of 29 cents per unit.

2. The minimum charge per month, or part thereof, for electricitysupplied, however calculated, shall be E6.30 per kVA of the highestmaximum demand recorded during the 12 months previous to the currentmonth's reading. When the highest recorded maximum demand is less than25 kVA, the minimum charge, however, calculated shall be E157.50.

3. No installation shall operate at a power factor of less than0.9 lagging. If the power factor as measured by the Board over any 30consecutive minutes is found to be less than 0.9 lagging, the Board mayrequire the consumer to pay a surcharge on his total account of 20% foreach 0.1 or proportional part thereof that the power factor is less than0.9 lagging.

4. Maximum demand shall be the power indicated over 30 minutes ya kVA demand indicator.

General Notes

1. Only one point of supply will be given to a consumer providedthat if a consumer requires additional points of supply, each point shallbe treated as constituting a separate agreement for which a separateaccount will be rendered.

2. In the foregoing tariffs the term 'unit' shall mean onekilowatt hour and the term 'month' shall mean the time betweenconsecutive readings on the consumer's meter, which shall be as near toone calendar month as is convenient to the Board. The term kVA means akilovolt-ampere.

3. Where in the opinion of the Board a single premises has aninstallation of which the application of more than one of the foregoingtariffs would be appropriate, they may charge such of the foregoingtariffs as in the circumstances they deem appropriate.

- 101 -

Annex 18

SEB TARIFF STUDYOUTLINE TERMS OF REFERENCE

1. The purpose of the study is to derive a tariff structure forSEB which reflects as closely as possible the costs of the economy ofmeeting the demand for electricity subject to SEB revenue requirementsand any other special objectives which may be required of SEB.

2. The study would aim to formulate a tariff structure on thebasis of a load forecast and a reference system expansion plan. Inaddition to devising a recommended pricing structure, the study would aimto establish a methodology which would facilitate continual tariffrevisions for the system in response t- changing conditions. It wouldtake into consideration the existing preliminary tarirf review undertakenby SEB in 1983. The scope of the study would include:

(a) computation of the marginal economic costs of SEB generation(or power purchase from ESCOM), transmission, and distributionat different places, times and voltage levels to .;fferentconsumers over the time-frame specified;

(b) analysis of the existing tariff structure and its comparisonwith the marginal cost structure to identify those tariff areasin which the current structure is giving wrong signals toconsumer groups;

(c) formulation of a preliminary proposal for tariff changes withincentives corresponding to the schedule of marginal costs; and

(d) modification cf the preliminary proposal to:

(i) compensate for any distortions in the pricing ofelectricity substitutes,

(ii) earn sufficient revenues for SEB to meet its financialobjectives,

(iii) ensure practicality and reasonable administrative costs,and

(iv) meet any other policy objectives (e.g., incomedistribution) the Government or SEB may have.

3. The manpower required for the tariff study would include apower tariff specialist, a power economist, and a financial analyst. Asthe Swaziland power system is relatively simple, this study would besomewhat more straightforward than those for most power companies. Roughestimates of time and cost follow.

Duration - 5 months, 2 months of which will be field workMan-months - 12Cost - $150,000.

- 102 -

Annex 19

PETROLEUM PRODUCT RETAIL PRICE CIANGES, 1979-86(Swaziland cents Wer lIter)

Gasoline Illuminating Diesel93 RON 98 RON Kerosene Agriculture Buses M14-Duty Full -Duty Avtur / Avgus a/

02/02/79 31,60 32.40 19.90 20.50 20,50 21.67 31.40 - 39.5506/08/79 52,60 53.40 40.90 41.50 41.50 42.67 52.40 53.85 61.8509/21/79 52.80 53.60 41,06 41.67 41.67 42.84 52.57 54.05 62.0502/27/80 55.10 55.90 43.75 44.20 44.20 45.33 54.80 54.30 65.7003/27/80 - - 38.40 - - - - - -08/27/81 62.40 63.20 46.40 52.00 52.00 53.10 63.00 61.06 75.2009/01/83 57.90 59.40 44.10 49.70 49.70 50.90 60.80 49.62 63.3605/01/84 61.00 62.56 47.40 51.30 51.30 52.40 62.40 52.62 68.4609/13/84 63.20 64.80 47.40 53,40 53.40 54.50 64.50 54.26 71.56

06/01/85 88.20 91.80 73.70 77.20 77.20 76.60 89.90 n.a. n.a.11/20/85 95.00 99.00 81.00 81.00 83.00 86.00 96.00 n4e. n.a.3/12/86 75.00 n.a. 67.00 69.00 69.00 0.00 74.00 n.e. n.e.4/24/86 65.00 73.00 59.00 58.00 61.00 58.00 66.00 n.e. n.e.

a/ Wholesale prices.

Source: Ministry of Natural Resources, Land Utilization, and Energy,

- 103 -

Annex 20

PRICING STRUCTUK - MAJOR PETROLEUiM PRODUCTS, JANUARY 1986(Swaziland cents/l i ter)

Gasoline Kerosene Diesel93 Octane Full Duty Mid-Duty Low Duty Buses Low Duty

Agriculture

Import Parity Calculation

F.O.3. 52.233 53.311 47.664 47.664 47.664 47.664Freight 3,967 4.235 4.503 4.503 4.503 4.503Insurance: 0.1009%

of FOB & Freight 0.057 0.058 0.053 0.053 0.053 0.05356.257 57,604 52.220 52.220 52.220 52.220

C.1 .F.Ocean Leakage: 0.3% of CIF 0.169 0.173 0.157 0.157 0.157 0.157Landing and Wharf age: 1.8%

of FOB 0,940 0.960 0.858 0.858 0.858 0.858Coastal Storage 0.400 0.400 0.400 0.400 0.400 0.858Railage Durban/Matsapha 6.719 7. 172 5.929 5.929 5.929 5.929

Import Parity Matsapha 64,485 66.309 59.564 59.564 59.964 59.964

Slate Calculation

Pump Prices 95.000 81.000 96.000 86.000 83.000 81.000

Less: Dealers Margin 6.060 4.720 6.260 5.230 5.130 i.130

Wholesale Selling Price 88.940 76.280 89.740 80.770 77.870 75.870Less: Fuel Oil Levy 2.250 1.250 1.250 1.250 1.250 1.250Duty 4.000 - 4.000 0.365 0,365 0.365SFF Levy 1.300 - 4.700 4.700 4.700 4.700Sales lax: 5% of Import Parity 3.224 - 2.978 2.978 2.978 2.978Depot Storage & Handling 0.600 0.600 00600 0.600 0.600 0.600Road Delivery 1.300 1,300 1.300 1.300 1.300 1.300Import Parity Matsapha 64.485 66.309 59.564 59.564 59.564 59.964Industry Margins 4.500 4.500 4.500 4.500 4.500 4.500

Unit over/(under) Recovery 7.280 2.321 10.847 5.512 2.612 0.612

Note: In February 1986 the sales tax was raised to 10%.

Source: BP Swaziland (Pty.) Ltd.

- 104 -Annex 21Page 1 of 4

TECHNICAL ASSISTANCE - JOB DESCRIPTIONS AND OUTLINE TERMS OF REFERENCE

Energy Advisor

1. The Energy Advisor (Chief Technical Advisor) will be appointedfor a period of two years in the first instance. He will work in theMinistry of Natural Resources, Land Utilization and Energy alongside theChief of the Energy Branch (when appointed) and be responsible to thePrincipal Secretary of the Ministry. He will be required to advise theMinistry on all matters concerned with energy policy and planning inSwaziland. He should have administrative, organizational, and overallenergy planning skills and preferably good economic skills.

2. The Energy Advisor will be expected to perform the followingprincipal duties:

- Assist in the setting up of the Energy Branch and its internalorganization, and develop its links and relationships with therest of the Ministry and other institutions in the energysector;

- Prepare and imvlement a detailed work programme for the EnergyBranch;

- Manage the technical assistance programme and supervise thework of other technical assistance advisers;

- Assist in the establishment of data and information systems onenergy resources, supplies, and consumption;

- Carry ouc and direct specific studies, as required, in connec-tion with the updating and review of the Energy Master Plan forSwaziland;

- Provide analysis and advice, as required, to senior officialsand Ministers on energy developments and policies;

- Establish close working relations with officials and others inall energy related institutions in Swaziland and with otherrelated technical assistance programmes;

- Give advice and assistance, as required, on the appraisal,implementation and monitoring of major energy investment pro-jects;

- Develop working contacts with energy institutions inneighbouring countries; and

- Assist in the recruitment and training of all professionalstaff in the Energy Branch.

- 105 -Annex 21Page 2 of 4

Statistics Advisor

3. The Statistics Advisor will work for a period of about threemonths in the Ministry under the general direction of the Energy Advisorand with the Ministry's energy staff. He will also be required to workclosely with the Government Statistician and the Central StatisticalOffice. His general responsibilities will be to develop the country'ssystem of energy data collection, processing atid dissemination, to ensureits relevance for energy policy and planning and its compatibility withSwaziland's other national economic statistics. He should also makerecommendations regarding computerisation and the development of energymodelling techniques appropriate to Swaziland's needs and resources.

4. Specifically, the Statistics Advisor will:

- Review existing statistics relating to the supply and use ofall fuels, having regard to their accuracy, timeliness,internal consistency, and compatibility with related data;

- Advise on data collection procedures, processing of raw data,and forms of presentation;

- Review the present energy accounting units and make proposalsfor ensuring standardization and consistency with currentlyagreed international practices and conventions;

- Prepare energy balances in accordance with international gu.ide-lines;

- Advise, together with the woodfuels and household energyadvisor, and in consultation with the CSO and the University,on the design and implementation of sample and pilot surveys ofhousehold fuel use;

- Advise on the potential for the use of a computer in the EnergyBranch for the storage and retrieval of data and for simpleenergy modelling;

- Participate in the training of local staff in the developmentand use of energy statistics; and

- Advise on the presentation of energy statistics to achievetheir maximum relevance and effectiveness for policy purposes.

Woodfuels and Household Energy Advisor

5. The Woodfuels and Household Energy Advisor will work for aperiod of about three months in the Ministry under the general directionof the Energy Advisor and with the local staff of the Woodfuels and RuralEnergy Section of the Energy Branch. He will also be required to workclosely with the Forestry and Community Development Sections of the

- 106 -Annex 21Page 3 of 4

Ministry of Agriculture and Co-operatives and with the provincial andlocal government organizations. His general task will be to ensure thatthe woodfuels and rural energy sectors of the economy are integrated intothe overall policy making and planning of the energy sector and toprovide guidance on future policies in this sector.

6. The Woodfuels and Household Energy Advisor will be required to:

- Advise the Renewable Energy Section of the Energy Branch on thedevelopment of its work programme and on the technical aspectsof the production and use of woodfuels;

- Advise on the current and potential contribution of woodfuelsto the energy economy in Swaziland;

- Advise the Ministry and the Forestry Section on woodfuel supplypolicies: agro-forestry, plantation and woodlot schemes inrural and peri-urban areas;

- Review the status and progress of existing projects (includingtechnical assistance) in the fuelwood sector;

- Advise on the preparation and implementation of surveys ofwoodfuel resources and their use in the cash and subsistencesectors;

- Report on the marketing and pricing of woodfuels in relation toalternative fuels;

- Review the status of, and advise on the pro;pects for, projectsrelating to efficiency in the use of woodfuels;

- Assist and advise local authorities and other field agencies indeveloping awareness of energy policies and needs and encouragelocal participation; and

- Participate in training of local staff.

Energy Economist

7. The energy economist will work for a period of about six monthsin the Ministry under the general direction of the Energy Advisor andwith local staff of the Energy Branch. His general task will be toensure that project and policy analysis is conducted in accordance withestablished economic principles and that economic considerations aretabled in the decision-making process. In the process, he will seek tostrengthen the practical economic analytical skills of Energy Branchstaff who have had the appropriate background training.

- 107 -

Annex 21Page 4 of 4

Specifically, he will:

Assist in the appraisal of project proposals taking intoaccount established economic principles and pract.ices;

Identify as appropriate the increased cost associated withpursuing increased energy self-sufficiency options as comparedto energy imports;

Provide the support required for analyzing appropriate energypricing policies which take into account economic cost ofsupply;

Advise on desirable structural changes in specific energyprices, particularly as regards the electricity tariff andpetroleum product pricing;

Assist, together with the Statistical Advisor, in the prepara-tion of energy balances;

Assist in developing a longer term energy development strategyfor Swaziland; and

Participate in the training of local staff.

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Annex 22Page 1 of 2

NATIONAL POWER PLAN - OUTLINE TERMS OF REFERENCE

Scope of Study

1. The objective of this study is to prepare alternative medium-to-long term investment programs for expanding the generation,transmission, and distribution of electric power in Swaziland taking intoaccount:

(a) possible SEB as well as non-SEB sources;

(b) the desirability of minimizing investwen.t costs; and

(c) various degrees of power self-sufficiency for Swaziland.

This information would provide the Government with a framework fordeciding on future power sector investment strategy.

2. The study would include:

(a) a national power market survey leading to long-term demandprojections over a specified period (through 2000). Thissurvey would include alternative growth assumptions, an assess-ment of unconstrained demand as well as the effect on sales oftariff as well as non-tariff measures (such as those whichcould be introduced to shift demand from peak to non-peakhours).

(b) a review of the status of existing power supply facilities.

(c) identification of a range of technically feasible developmentoptions and their costs for future supply facilities to meetthe identified power demand and their costs. In addition toindigenous hydropower, power imports from ESCOM, links toMozambique, dome. ic coal-fired stations, diesel plant, and gasturbines, the study should examine the scope for increasedpower generation by self-producers for sale to the grid on thebasis of biomass residues (bagasse and wood wastes), takinginto account existing capacity in this area and investmentsrequired to realize varying levels of increased geaerationcapacity.

(d) preparation of alternative programs for transmission anddistribution system expansion taking into account thepossibilities of interconnection, system operation improvement(including loss reduction and load control) and energyconservation, as well as of improved reliability standards.

(e) determination of a least-cost expansion program based on themost economic combination of generation and transmission

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Annex 22Page 2 of 2

systems and a series of alternative plans (and their costs)that incorporate varying degrees of increased domesticgeneration. These plans would show the extent of any tradeoffbetween self-sufficiency and investment cost.

(f) for each case a long-term investment plan and investmentschedules should be prepared.

Manpower Requirements and Cost

Regarding staffing of this study, in addition to powerengineers and economists, it should also include specialists in thegeneration of biomass-based power (especially bagasse). The duration ofthis study would be about 8 months including 2-3 months of fieldwork. Itwould require a total of about 25 man-months, and cost an estimated$300,000.

STRUCTURE OF MINISTRY OF NATURAL RESOURCES,LAND UTILIZATION AND ENERGY rt

MINISTER

SWAZILAND PLANNING UNIrBOARD ADMINISTRATION PLANNING OFFICER

SEN. ASST. PLAN.PRINCIPAL SE~. OFFICER (VACANT)PRINCIPAL SECY.

UNDER SECRETARY

SEN. ASST. SECY.

PETROLEUM ASST. SECRETARYCOMPANIES, ACONTNTHROUGH _ ACCOUNTANT

SECRETARIATCOMPANY

GEOLOGICALPHYSICAL WATER SURVEYS ENERGYPLANNING HOUSING LAND USE RESOURCES & MINES (CURRENTLY ARCHIVES

UNSTAFFED)

WORLD BANK 30625A

PROPOSED STRUCTURE OF THE ENERGY BRANCH Chart IIOF THE MINISTRY OF NATURAL RESOURCES,

LAND UTILIZATION AND ENERGY

CHIEF(LEVEL 24/22)

SECRETARY (13)TYPIST (11)

OIL. COAL AND RENEWABLEELECTRICITY SECTION ENERGY SECTION

ENERGY OFFICER (20) ENERGY OFFICER (20)ASST. ENERGY OFF. (18/16) ASST. ENERGY OFF. (18/16)

NOTE IN SWAZILAND STAFFING GRADES ARE APPROXIMATELY AS FOLLOWS'LEVEL 24/22 - UNDER SECRETARY. LEVEL 20 - ASSISTANT SECRETARYAND LEVELS 18/16 ARE THE ENTRY GRADES FOR GRADUATE PROFESSIONALAND TECHNICAL STAFF

WORLD BANK 306258

IBRD 19831° q.:o

S W A Z I L A N D

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