Ncondezi Energy said it has signed a non-binding Power Purchase Agreement and Transmission Agreement Heads of Terms agreement with Mozambique’s state owned power utility company, Electricidade de Mozambique, which brings it a step closer to closing the deal on a 300MW integrated thermal coal mine and power plant project Ncondezi Project, located near Tete in northern Mozambique.

The signed agreement is a precursor to negotiating a full and binding contract and is expected to be finalized in early 2014. The non-binding Coal Supply Agreement Heads of Terms was also agreed, with Ncondezi coal mine named as owner of the fuel resource for twenty-five years. The signing of the PPA HoTs significantly accelerate the project momentum built over the past five months as it confirms EdM as the main off-taker for the first 300MW generated.

“The degree of engagement we have experienced with the key commercial agreements and the speed in which they have been executed, post the signing of the Power Framework Agreement in April, is a clear reflection of the Mozambican Government, EdM and Ncondezi’s commitment to bring the Ncondezi Project to Financial Close within the 2014 timeframe,” said Paul Venter, chief executive officer of Ncondezi Energy. “We are now targeting completion of the remaining conditions precedent during the quarter in order to make the Power Framework Agreement effective by year end, as previously indicated, which will allow us to begin Power Concession Agreement negotiations, a key component of the PPA.”

The companies said they have also agreed on a timeline to finalize the PPA and expect formal negotiations to start imminently. In the meantime, they have agreed to a set of provisions terms for the sales and purchase of the electricity and ancillary services, as well as the construction and transfer of a transmission line to connect the power plant to the Northern Grid in Mozambique.

Ncondezi has agreed to be responsible for the design, construction, commissioning, ownership, operation and maintenance of the power plant and making available the entire capacity of the power plant and net electrical output to EdM on an exclusive basis.

The power plant’s fuel supply, including a coal supply agreement with the Ncondezi coal mine at arm’s length on commercial terms and the design, construction, commissioning of a transmission line, will be transferred to EdM for operation and maintenance, upon commissioning.

EdM will be the exclusive buyer of the electricity generated by the first phase of the 300MW unit of the Ncondezi Project for a 25-year period, from the date of commercial operation, which is targeted for the first half of 2018.

EdM will also be responsible for making the tariff payments and going operation and maintenance of the transmission connection and in providing assistance to enable the power plant to undertake its testing and commissioning procedures.

Both companies agreed on tariff composition, which will cover fixed, capacity, energy and ancillary service payments for the power plant and will be subject to appropriate taxation.

Once construction and commissioning of the transmission connection to the Northern grid is completed, Ncondezi will transfer ownership to EdM in consideration of a lump sum, fixed monthly installments or combination of both.

Ncondezi Energy, which 100 percent owns the Ncondezi Project, plans to develop the integrated thermal coal mine and power plant in phases from 300MW phases up to 1,800MW.

The first 300MW phase will target domestic consumption in Mozambique using reinforced existing transmission capacity to meet current demand. Commissioning is planned for 2017, followed by commercial operations in early 2018.

The company’s discussions with the government over the past few months have been progressive so far. In late August, Ncondezi Coal Company Mozambique Limitada, the company’s subsidiary, received a mining concession from the Mozambican Ministry of Mineral Resources, which gives Ncondezi, amongst other rights, the exclusive right to exploit and mine the Ncondezi coal deposit over the next 25 years, until 2038.

In addition, in accordance with the new Mozambican Mega Projects Law, a statutory 5 percent equity participation in NCCM Lda will be set aside for the Mozambican public at commercial market terms and Ncondezi has agreed to spend a minimum of $5million on social development program, which fulfils one of the key conditions precedents to the power framework agreement and increases the bankability of the Ncondezi Project.

Early this month, Ncondezi Energy also received approval from the Environmental Social Impact Assessment to access the Ncondezi mine.

The company said the Ncondezi mine will be an open pit operation targeting production of 1.3Mtpa of saleable product to the power plant at an average yield of 70 percent and an average strip ratio of 0.61Bcm/tone using contractor mining. Mine commissioning is planned for second half of 2016 to meet the power plant stockpile requirements ahead of its commissioning during the second half of 2017.

Ncondezi has also recently completed an additional infill drilling of 33 core and 3 LD holes within a target mine area of the South Pit to further increase drill density and upgrade JORC indicated resources into a measured category.

The drilling has been focused within a ring-fenced area capable of supplying the required coal for the first phase of the 300MW power plant for more than 25 years. Results from the drill program and an updated reserves and resources statement are expected at the end of this year.

East Africa as a whole in recent years has certainly generated some of the most lucrative oil sites in Africa and if that is indicative of what to expect in terms of discovery, Analysts said investors should definitely pay closer attention to Mozambique.

Mozambique, a relatively unknown small African country, entered the international spotlight in recent year as a major LGN exporter when Anadarko Petroleum Corp made a natural gas discovery of approximately 100 trillion cubic feet off the country’s coast. Since then, major energy giants such as Eni, Tullow oil and Statoil, among others, have flocked to the country in search of natural gas and black gold. However, Mozambican has been producing coal for decades. Second to South Africa, the country is emerging as the new coal power generator on the continent. Until recently, it consumed its coal locally or export to neighboring countries and it relies on the expertise of outside companies to develop its fields.

Over the past decade, an estimated 140 exploration licenses have been issued in the country, with a vast majority located in Tete Province in the far northwest of the country. Among those holding a license for coal exploration and productions are Brazilian giant, Vale, which is investing $1.7 billion into its Moatize project and Australian’s Riversdale Mining, which was acquired by Rio Tinto in August.

While constructions and productions are underway on some of these projects, where outputs are expected to range from the low 11 million mt/year to 26 million mt/year, the lack of transportation such as rails and other road infrastructures development could post huge setback s and challenges in getting the finished products to final destinations.

The government is counting on recent foreign investment inflow to help it develop Mozambique’s economy and infrastructure. The World Bank, other international financial institutions and investors are stepping up to help the country develop its ports and railways.

Currently, there are three main coal export terminals: Matola Coal Terminal, Beira and Nacala. The latter two terminals are small in capacities and are located near Tete, and have been earmarked for domestic and export usage, to handle the huge volumes of coal that will be mined in the area. Matola Coal terminal is located far off the main port but near the South African region.

A dedicated coal terminal that will serve both Vale and Riversdale is expected to be developed.

Also in consideration is the idea to use coal vessels to transport coal. The Danish International Development Agency said it will provide $57.9 million to help to purchase larger coal ships.

If all the transport logistics fall into place, Mozambican has the potential to be one of Africa’s major exporters.