Shipping coal from Botswana to South Africa to generate energy does not make financial sense.
Zuma is reported to have said that "the bilateral agreement on energy would make meeting energy demands easier for both countries". The grades, types and, most importantly, prices of coal to be exported are not known, but the agreement will strengthen the commercial and energy ties between the countries and, depending on the coal grades to be sold, might solve one of the Botswana coal industry's most intractable problems – what to do with its middlings, the waste from the washing of coal that is necessary to get it up to export quality.
With a potential reserve of 212-billion tonnes, Botswana has 60% to 70% of Africa's actual reserves – what is known and which is much lower – of about 28.5-billion tonnes. But even this figure could create a long-running export industry of 90-million tonnes a year, which is the government's eventual target.
The problem with Botswana's coal is the quality. Many of the deposits that have been discovered are of low quality, buried in deep sand and, at current prices, unlikely to be mined. But three deposits – at Moropule (Debswana), Mmambula (CIC Energy/Jindal Steel & Power) and Sese (African Energy Resources) – are near to export quality. Other deposits may still prove to be commercially viable.
Once the coal is washed for export, probably to India, the middling needs to be sold to make the mine profitable. The usual buyer is the local electricity authority, which uses it to generate electricity. But the problem with Botswana is that the domestic market for electricity is small, so there is no local market for the middling.
The new Botswana Power Corporation thermal power plant at Moropule B is due to be completed next year and will use three million tonnes of coal a year. By the end of the decade, the country may need another three million tonnes, but there is no market for what will be tens of millions of tonnes of coal middling. The agreement with South Africa could well be heaven-sent for Botswana's export industry.
Expanding
Eskom is running out of coal at Witbank, which has supplied it for decades. It is expected that in the next decade it will need to import coal for its generators, which it is now expanding enormously.
Reading from South Africa's energy projections, Eskom will remain dependent on coal for decades to come. According to the South African Chamber of Mines website, "assuming growth rates of between 3% and 5%, the coal used by 2030, when estimates suggest electricity demand is likely to peak at 75000MW, together with coal dedicated to future use by power stations either operating or under construction in 40 years' time, amounts to a staggering 30-billion tonnes, about half of the country's reserves".
Even with the growth of the new coalfields in the Waterberg, it is easy to understand why South Africa would want a supply agreement with Botswana.
For many years, Khama and his predecessor, Festus Mogae, tried to convince the South African government to allow Botswana to export electricity. CIC, the owner of the Mmambula coal deposit until it was sold to Jindal Steel last week, long nurtured a business model that would generate electricity for South Africa. Initially the plan was for a 3000MW power station, which was not acceptable to Eskom. That was scaled down to a 1200MW power station, but even that was unacceptable. So, CIC proposed a small 300MW power station to supply the local and export market. Jindal has said it will pursue the same business model.
At the core of Eskom's business plan is the maintainance of its monopoly on thermal power generation. Exotic power can be farmed out to independent power producers and cheap hydropower can be bought from elsewhere, but Eskom is clinging to its core business.
New power plant
Furthermore, trade union federation Cosatu has made it quite clear that it does not want to export energy sector jobs. One also senses that the South African government does not want to become dependent on energy imports, a situation in which Botswana found itself when Eskom decided to cut off the power it had supplied to the Botswana Power Corporation and other countries since the 1980s. Eskom began phasing out the sales in 2008, after load-shedding in South Africa, over a five-year period. Although Botswana still buys some electricity from Eskom, the sales are expected to end completely next year once its new power plant is commissioned.
Botswana, like South Africa, wants to beneficiate its raw materials. Although this new bilateral agreement is a positive move, a better one would have been to allow Botswana to export electricity to South Africa. Instead, it will mean exporting raw material, even though it makes little commercial sense to ship low-cost, low-quality coal hundreds of kilometres to South Africa instead of generating it on site in Botswana. It is the reason why thermal power generators are invariably close to coal mines.
But selling coal to South Africa will create a market for coal of a quality that is otherwise unexportable, which is to be applauded, although the irony is that the electricity generated with this coal will fuel South Africa's beneficiation programmes at the expense of Botswana's coal beneficiation programme.
With increasing reluctance, South Africa has shared the revenue derived from trade with its Southern African Customs Union neighbours, but it has never been willing to share the economic benefits of international trade in an equitable way. This is just the latest chapter in a century-long history.
These are Professor Roman Grynberg's views and not those of the Botswana Institute for Development Policy Analysis where he works