“Tough” conditions for Mozambique’s coal infrastructure projects

A 2018 target has been set by a Thai-Mozambican consortium to commission a US$ 4.5 billion coal export railway and port terminal project in central Mozambique. However, the company's president  claims the depressed global coal prices outlook made the timing of the project "tough".

In 2013, Mozambique's government chose Bangkok-based contractor Italian-Thai Development (ITD) to construct the 537 km railway from coal mines in Moatize in the Tete province to Macuse on the coast.

The project is one of many ambitious plans made by Mozambique with foreign investment partners. The country is looking to become a major exporter of metallurgical and thermal coal, based on estimated reserves of at least 2 billion t. These are the world's fourth-largest untapped recoverable coal reserves.

However, a downturn in global prices has now raised serious questions about whether Mozambican coal can be competitive. Investors have raised concerns over the downturn, given that expanding the nation's limited rail and port infrastructure to bring large quantities of new coal to the market.

ITD, one of the largest contractors in Southeast Asia, has formed a joint venture with Mozambique's state railways CFM and private company Codiza to develop the Moatize-Macuse rail and port project, which needs to operate at an initial 25 million tpa capacity just to be economically viable.

Mozambique is currently exporting around 5 million tpa of coal, and is developing capacity to rapidly increase this.

John Bovard, president of the Thai Mocambique Logistica, S.A. venture, told a conference that the project feasibility study, being carried out by ITD and the China Rail Construction Company, should be completed by the end of this year. Actual construction was seen taking three years.

"The target is 2018 to have the train line commissioned," Bovard said. With global coal prices depressed and expected to remain so in the next few years, Mozambique's coal mining partners face an uphill struggle to reach profitability and have been lobbying the government to help them ease logistics costs.

"We are conscious that this is not great timing for this project [...] the timing is not of our making. It's tough," Bovard said, responding to questions from the conference floor.

He said, however, that the project had the potential to unlock and bring to the international market millions of tonnes of new coal currently viewed as "stranded" underground in the huge Tete coal deposits because of the shortage of export rail infrastructure.

Despite the challenging market conditions, Brazil's Vale is also pressing ahead with its own US$ 4.5 billion project developing a 900 km rail corridor from its Moatize mine to Nacala port in northern Mozambique. The first coal train on this new line, which will cross the small neighbouring nation of Malawi, is expected to run by the end of the year to Nacala port.

"The trains make the mines economic, and the mines make the trains economic," Bovard said. But global coal prices also have a key role in the equation for such projects to be viable.

Mozambique's infrastructure deficit reflects a situation found in countries across Sub-Saharan Africa, where the potential of exploiting untapped national resources is being held back by the absence of infrastructure networks to export the resources easily to world markets.

"(Africa's) transport and logistics costs are the highest in the world for the continent that can least afford it," said Barbara Mommen, CEO of the Maputo Corridor Logistics Initiative, which promotes the major transport corridor linking Maputo port to South Africa and the surrounding region.

Edited from various sources by Sam Dodson

Read the article online at: https://www.worldcoal.com/handling/23072014/mozambique-rail-projects-face-difficult-market-conditions-1115/