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Flying across the Rufiji River, and a landscape of borassus palms and tamarind trees, it’s hard to imagine what the dam at Stiegler’s Gorge in southern Tanzania will look like once it has finally been built.

The hydro-electric scheme – which was designed, and its feasibility studied, almost two decades ago – is purely a project of vision.

In five years’ time the dam could provide the answer to the region’s energy crisis – bringing a reliable and sustainable power supply to the national grid and to neighbouring Rwanda, Zambia and Kenya, as well as generating enough electricity to power Tanzania’s mining industry.

Energem Resources – a provider of logistics, supply and energy support to the mining industry in southern and central Africa – dusted off the shelved plans for Stiegler’s Gorge in May, taking a 40 per cent stake in the potentially 900MW output dam from Infrastructural Development Finance (IDF) for $1.2 million (£610,000).

Energem funded the deal from its existing cash resources, and has also agreed to update the feasibility study in return for its shareholding – it has a dual listing on the Toronto Stock Exchange and AIM. In essence, the Africa-focused mid-stream infrastructure platform, with a string of biofuel businesses, has picked up where the Norwegian government left off in the 1980s when it abandoned its plans for the dam owing to poor local demand for electricity.

Once the plans have been updated and approved by the government, an estimated $2 billion will have to be secured to finance its development and construction – a massive investment. However, in the context of surging regional power demand and the current infrastructure’s inability to meet local energy demand, Energem’s first steps into hydro-electricity are reckoned to be something of a sure thing by chairman Brian Menell.

Uncharted waters

Energem was introduced to Stiegler’s Gorge by IDF, which has a number of similar hydro-electric sites across Africa. IDF has retained a 40 per cent shareholding in the business – matching Energem’s – while government agency the Rufiji Basin Development Authority (RUBADA) holds a ten per cent stake in the project, leaving an engineering consortium with another ten per cent.

Menell says: “The indications are that it’s a robust project – subject to the updating of the feasibility study, which will be completed over the coming months.”

The hefty $2 billion project-completion price tag may suggest that Energem, valued at $50 million, has bitten off more than it can chew. The company posted revenues
of $20.8 million in March, up 42 per cent on 2007 revenues of $14.6 million, but is yet to release its pre-tax profits.

However, Menell explains that it will provide logistics and supply support for the project. “The intention is to end up with a significant position in this large and desirable project without significant cash equity participation,” he adds.

The World Bank initially endorsed the dam, but Theo Watson, vice president of corporate and legal affairs, says he is reluctant to dwell on it. “Times have changed and although the World Bank may have said it was a good project 20 years ago, it’s not something that we want to rely on. We need to finish our own feasibility studies and get the thumbs up from all relevant authorities.”

Nigerian deal

Energem is able to make key additions to its green energy division, Energem Biofuels, which develops biofuels and alternative energy in Africa, through the proceeds of deals involving its oil-related logistics and supply businesses. One such transaction is the company’s recent disposal of a minority stake in its fuel storage facilities in Nigeria to Glencore Finance, a subsidiary of Glencore International.

Glencore International, the largest oil trading company in the world, acquired the 20 per cent stake in May for $32.3 million (£16.5 million).

Menell says: “We put $25 million (£12.8 million) into developing a tank farm and a deep-water jetty in Nigeria. Two years on, we’ve sold a minority interest in the business and the facility is valued at $200 million (£102.5 million).

“It’s an important transaction as we get $32.3 million, which allows us to fast-track our biofuel activities.”

Energem retains a 30 per cent stake in the Nigerian business however, Glencore has the option to buy a further ten per cent within 12 – months. And it’s more than likely to bite Energem’s hand off, as the facility posted net profits of $8.8 million on a $26 million turnover in December.

Biodiesel business

Such ‘value creation’ will allow Energem’s green energy business to thrive, says Menell. Energem Biofuels’ activities are centred on two core businesses: molasses-based ethanol production in tumultuous Kenya and biodiesel-feedstock jatropha cultivation in the more stable Mozambique.

Based on a small-scale plantation model, Energem’s jatropha business is becoming a much larger-scale operation – initially focused in Mozambique, where the company has been allocated a first 60,000 hectares of land for its jatropha model, which will be rolled out to other jurisdictions in Africa. This process has already involved the launch of an out-growers extension scheme in Malawi – with farmers trained and provided with the seeds to produce jatropha on behalf of Energem.

Tom Swithenbank, Energem Biofuels CEO, says: “We chose Malawi because it has a long history of out-growers schemes through tobacco crops. Malawi has also been blending ethanol with its gasoline for more than 35 years. It was an early adopter of blending, due to it being landlocked and the cost of getting petroleum products into the country.”

He is in the process of setting up a Centre of Excellence in providing seedlings, a the region as a hub for the Malawian out-growers scheme – nursery and training to farmers, and in some cases microfinance. “Malawi farmers have always produced tobacco, a volatile market. There is a move towards diversifying away from tobacco to a more stable crop,” he notes.

He explains that the centre will focus on R&D as jatropha needs work to extract maximum yields. “The fundamental problem is that its maturity cycle is five years. We need to review it as the sector is still learning.”

In addition to nurturing optimum yields of this inedible, mildly toxic plant that produces seeds that can be pressed to produce crude oil and refined into biodiesel, he wants to bring local policy makers around to his way of thinking – with mandatory blends for biodiesel and subsidies to help create a local market for the crop. This will cut the need for shipping costs to Europe, previously eyed by Energem as a key market.

Energem’s biodiesel project is at the pre-revenue stage and first revenues are expected in 2009, owing to the lengthy maturity cycle of the plant. However, plans are in place to use Energem’s fuel distribution depots in Malawi, together with 15 Energem Petroleum petrol stations, to conduct a small field-to-forecourt experiment.

“We are keen to grow jatropha, crush it, refine it and distribute it. We believe this would be the first time globally that this has been done on a small-scale by a single group.”

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