The decision to deliver coal deposits to either the Indian or Atlantic ocean has international implications, writes Roman Grynberg.
Greg Kinross, president of the Botswana and Toronto Stock Exchange-listed CIC Energy, announced in early July that 9.9% of the company was sold for $10-million to the Dutch energy firm Vitol.
Vitol is a relatively large oil-trading firm that, with its partner Helios, recently acquired interests in most of Shell's retail outlets in Botswana and Namibia. It expects to control 1300 retail outlets when its expansion is complete.
All this would be minor news – a minor acquisition of a junior explorer that has not yet turned a profit or extracted one tonne of commercial coal. But in January this year Vitol also announced the acquisition of a 35% interest in the Matola Coal Terminal in Maputo from Grindrod Limited, the JSE-listed integrated logistics services supplier.
This is where the international coal business gets messy.
The Matola terminal provides access to international markets for the export of coal. Where it starts to affect the region in a big way is the impact this acquisition will have on major railway proposals to build a heavy-haul line to either Walvis Bay in Namibia, or to Ponta Techobanine in Mozambique via Zimbabwe. These competing proposals to deliver Botswana coal to either the Atlantic or Indian ocean are backed by rival private consortiums.
Mozambique Ports and Railways (CFM) and Transnet in South Africa have already announced investment plans intended to increase rail capacity to Matola. Vitol and Grindrod have also announced that they would conduct a feasibility study for an expansion of capacity at Matola by 20-million tonnes a year.
Exotic energy sources
And now the commercial plot thickens considerably.
The only real asset CIC Energy has is the huge coal deposit at Mmamabula in southeastern Botswana, just a few kilometres from South Africa's Waterberg coal fields, which contain a significant proportion of the country's known reserves.
CIC's deposits are in the vicinity of 2.4-billion tonnes, a fraction of Botswana's known reserves of 28.4-billion tonnes. CIC's business plan involves the export of coal to India and the middlings and discards are supposed to be used for generating 300MW of electricity that it would sell to the Botswana Power Corporation and 1200MW for Eskom.
So far, however, Eskom wants to keep the core business of generating coal-fired power for itself – independent power producers are regarded as being there for "exotic" energy sources, not core business.
In Botswana, the six or seven potential coal mines along the eastern Kalahari basin that borders South Africa and Zimbabwe have the same business plan as CIC – to sell 300MW to the Botswana Power Corporation. But there is simply no demand in Botswana at that level over the next 20 years.
The absence of the development of a commercial coal railway to the coast has frustrated CIC, which has been trying to develop its reserves for a decade and is rightly anxious to start moving coal.
In the past, CIC and its partners had been the principal proponents of the Trans-Kalahari route to Namibia, but it has now fallen in with Transnet and the route to Matola, with Vitol at both ends of the African supply chain.
The difficulty is that one of the shareholders in the alternative Mozambican route to a new port that would be built at Ponta Techobanine is the Mozambican national railway, which is doing the feasibility study of the alternative route via South Africa with Transnet. CFM is thus hedging its bets and supporting both proposals.
At the moment, the Ponta Techobanine route seems to be stalled while it waits for the Mozambique government to agree to the project. On July 13, the Mozambique minister of transport and communications, Paulo Zucula, said in the local press: "The competition to select the company that will conduct feasibility studies in the economic construction of the deep-water port in Techobanine, in Maputo province, will be released within weeks."
Mozambique has been dragging its feet over the project for many months and there are serious doubts in the markets about whether the R100-billion railway through Zimbabwe to Mozambique will ever go ahead.
But if Transnet completes its feasibility study and finds, as is expected, that the short extension of the Waterberg heavy-haul line to Mmamabula in Botswana would be profitable and should be undertaken, it will have major implications for the economic future of Botswana, Namibia, Zimbabwe and Mozambique. It would mean that the 20-million tonnes annual exports of coal that CIC is expected to deliver to the world market would be taken out of the calculations of the feasibility study for either the Trans-Kalahari or the Ponta Techobanine route.
It is well known that a volume of 50-million tonnes a year is needed to make either of these railways commercially viable. If CIC goes its own way and takes the Transnet route to Mozambique, two things will happen.
First, it will leave any other railway proposal as barely marginal, because the Mmamabula deposit (along with Anglo's Morupule mine) is the best-known quality coal deposit in Botswana. Second, going its own way might mean that Vitol, because of its planned 20-million tonnes expansion at Matola, would have no capacity to handle the extra throughput of the six or seven other mines that could be developed in Botswana.
This is a classic case of one firm operating in pursuit of its own commercial interests, resulting in the failure of the export plans of all the other firms in the industry. It is natural for CIC to want to export and to do so quickly, as its shareholders would demand. But if its plans result in undermining the commercial viability of all the other deposits in Botswana, the government will have to intervene to assure the greater social good.
A resolution lies in an early decision by the governments of Botswana, Zimbabwe, Mozambique and Namibia on the direction of the new railroad. The world's major powers, including the United States, China, Japan and India, are watching this railway proposal with keen interest because they recognise that whatever the decision will be, whether it is through South Africa or Namibia or Zimbabwe, it will either break or consolidate South Africa's 130-year-old stranglehold on trade in and out of southern and central Africa.
What is novel is that, for the first time since Rhodes's railroad from Mahikeng to Bulawayo in the 1880s, the decisions over the future lie not purely with South Africans, but with Africans north and west of the Limpopo basin. The stakes could not be greater.
These are the views of Professor Roman Grynberg and not necessarily those of the Botswana Institute for Development Policy Analysis where he is employed