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Off the rails

World Coal,

The “sleeping giant” that is Botswana’s nascent coal industry is certainly stirring, but efforts to fully awaken it continue to stall. Proposals continue to get close to the finishing line but then fail, some for lack of substance, others hobbled by protracted interdependent negotiations. Some notable efforts by junior exploration companies appear to be on track, with one recent find being claimed as Botswana’s biggest ever, but nothing has yet got the industry on its feet.

The first prize would be to put the 2.6 billion t Mmamabula energy, coal export and synfuel project back on track. It stalled when its planned sale by CIC Energy to JSW Energy failed on the eve of completion. This was ostensibly over the refusal of the Government of Botswana to renew a licence over a 311 million t area of the total measured and indicated resource, which JSW saw as crucial to the project. It had, however, been unsteady since the South African Government withdrew its support from the project in late 2010, and decided not to import significant amounts of coal-fired energy from Botswana or anywhere else.

This means that to develop a significantly viable coal industry, Botswana will have to export its coal internationally, or energy generated from it to other countries within the southern Africa region, whether or not CIC is sold.

CIC says that it has more suitors, and has opened its books for due diligence. Other sources have confirmed this, but none of the potential buyers have been identified.

Too many questions?

A mine at Mmamabula could produce 6.3 million tpa of coal that would wash to export quality. However, Botswana has no access to export facilities, meaning no large-scale physical export of coal is possible. There are ongoing talks about railways to ports and terminals in neighbouring and nearby countries and memoranda of understanding (MOU) have been signed. Initial investigations amounting to pre-feasibility have been completed, but there are as yet no firm deals. Without a rail deal, or a Government guarantee of one, how likely is the sale of CIC? Would a bunch of deals to export power alone make Mmamabula attractive to investors? As Boikobo Paya, permanent secretary in the Batswana Ministry of Minerals and Energy, said at the recent Capital Resources conference in Gaborone, transmission facilities are not yet in place and no-one really knows when they will be.

With a railway to export coal, CIC would presumably go ahead. But if its only opportunities and facilities are to export power – and in competition from other developers who have the same idea – would CIC elect to go it alone?

Plan A

The establishment of the coal industry has become the major thrust of a development diversification programme that has, to date, been largely unsuccessful. Neither is the Government satisfied with what is happening now that the Mmamabula project is on ice. Had the project come to fruition, insofar as the export of energy to South Africa was concerned, the rest would have developed alongside, driven by CIC Energy. Now, even a sale of CIC to a third party will call for Government involvement and initiative. The Government knows it will need help to deliver and freely admits it.

“We have to define our objectives and what we will do to facilitate the achievement of them,” Paya said. “Private investors have already put a lot of money into the development of a coal industry in Botswana. We have to be clear what we really want to do. It has meant we have had to take a difficult decision, which I know that some of you are not too happy with, a moratorium on the issue of further prospecting licences for coal whilst the report is prepared, but this had to be done so we could develop a proper roadmap,” Paya explained. The moratorium is expected to be lifted during January 2012.

No to nationalisation

One fear the moratorium did bring was that it could be a precursor to nationalization, but Paya has assured that this is not the case.

“Botswana has no plans to jump on a nationalisation bandwagon, as has been alleged,” he wrote. “Allowing the mining sector to earn competitive profits, the protection of private property rights, the adoption of commercial principles and security of tenure are enshrined in our Minerals Policy. Current legislation allows for the Government to opt to acquire up to 15% working interest in mining projects, but like any shareholder it is obliged to contribute to the interest or share it opts for.”

Window of opportunity

The investment in developing a coal industry in Botswana has so far followed a well-worn path – junior companies prospecting and finding a resource, then finding buyers or development partners. This was never fully understood by the Government of Botswana, which expected more exploration operations to be able to establish viable mines – and more quickly. This dissatisfaction became more apparent as CIC halted its development.

Paya was keen to stress the open nature of the project. “It will be critical that we identify the right partners, those who have the capacity, knowledge and experience to develop our coal industry in terms of the options we put forward.” Meanwhile, Ponatshego Kedikilwe, the minister of minerals and energy, made clear that he wanted investors who had the experience and technology to make their money by mining and selling coal, not trading share options.

Paya added: “The dynamics of the coal industry, the markets and the producers are changing all the time, we need to be able to take advantage of that. What is very clear is that the window of opportunity is not for ever.”

New responsibilities

Paya recognises rail and port infrastructure as both major challenges and essentials for the development of a Batswana export coal industry, but he acknowledged the need for a wider power transmission network in Botswana and to connect with the rest of the region. The plans of some junior players and potential larger investors include the generation of domestic and export power, with countries to the north of the largely power-strapped region a ready market. An ongoing project of the Gaborone-based Southern African Development Community in co-operation with the World Bank is preparing pre-feasibility reports on such exports.

The two proposed railways to move coal to proposed coal terminals in neighbouring countries – Namibia (adjacent) and Mozambique (through neighbouring Zimbabwe) – remain the subject of debate. The US$ 9 billion, 1500 km Trans-Kalahari railway (TKR) to Namibia remains the first choice, but Kedikilwe suggests that eventually both routes should be developed. The Governments of Botswana and Namibia have signed a MOU, and the World Bank has funded pre-feasibility.

Second choice

The coal route to Techobanine, in southern Mozambique, has been estimated to cost less to build than the TKR through Namibia. Nevertheless, it remains second choice at least for initial development. This is largely because of the neighbourly relationship Namibia enjoys with Botswana, which includes co-operation in several fields and, more recently, uncertainty over new ownership of the eastern route.

The estimated cost of the project is US$ 7 billion, with completion scheduled for 2015.

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