International advisory reportChallenge # 6: Electricity for Fort Dauphin
60. The construction phase included installation of generators and transmission lines for the port and the mine. In March, 2006, QMM offered to install an additional generator with capacity to meet the electrical energy needs for Fort Dauphin for at least a decade. The offer included meeting the costs of purchase, installation and maintenance of the generator. The energy would be sold to JIRAMA, the energy utility and collector of tariffs.
61. The generator was purchased and installed, but JIRAMA and QMM have thus far been unable to arrive at a mutually acceptable solution on the purchase of fuel to feed the generator. Efforts were made to obtain a payment guarantee from the Multilateral Investment Guarantee Agency (MIGA) of the World Bank, but progress was halted by the political crisis. Following this, JIRAMA elected to purchase and install its own generator, but it is apparently defective. The result is that the mining site and port are illuminated every night while Fort Dauphin suffers repeated electricity cuts and often sits in darkness.
62. The view of QMM is that it has done everything reasonably possible for electrical supply to Fort Dauphin. It met the costs of the purchase and installation of the required generator; it offered to sell fuel at a tariff rate that would permit JIRAMA to convert its operating deficit into a profit and worked to obtain a MIGA guarantee. It is now trapped in a dilemma. On the one hand is the need for sound business. On the other hand, QMM runs a high risk of being blamed for the darkness in Fort Dauphin.
Recommendation # 14 There are no good options to this dilemma. JIRAMA is in a financial deficit and the MIGA guarantee option is ruled out at least until the crisis has ended and development assistance re-started. QMM should obviously continue to seek a solution with JIRAMA, but it is not clear that there is one. Given JIRAMA’s balance sheet, the possibility of first purchasing the fuel and providing the electricity and then expecting repayment by JIRAMA would involve exceptionally high risks which do not accord with sound business practice. The fact, however, is that QMM has only two choices. The first is to adhere to sound business practices and accept whatever the consequences are of Fort Dauphin remaining without a reliable supply of electricity. The second option is to turn on the switch which would give the town electricity with low probability of future payment from JIRAMA. That option would seem the equivalent of providing an indefinitely long term operating subsidy to JIRAMA. Whatever its choice, QMM should ensure full communication to the people of Fort Dauphin. |