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Regional update - Botswana: power plants and railways

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World Coal,

African Energy Resources (AFE), and ACWA Power International, incorporated in Saudi Arabia, are planning to bid in joint-venture for a 300 MW greenfield coal-fired power project in Botswana. It could be the first in a series of similar projects to supply power to Botswana and export coal into the southern Africa region. Botswana’s Ministry of Minerals, Energy and Water Resources (MMEWR), which is currently finalising the terms of the project, has placed the joint venture on its shortlist to receive an invitation to bid.

AFE’s Sese mine, which would supply the coal for the proposed power plant, has a resource base of more than 2.5 billion t. It has a very low strip ratio with raw coal quality suited to low-cost power generation.

Meanwhile, ACWA Power would be the lead developer and financier for the project. It says the consortium could be in a position to seek financial closure on the project by year-end, if it submits a successful bid. It would be able to deliver power into the regional grid by 2016. The company, worth an estimated US$ 1.4 billion, is itself a consortium of eight Saudi conglomerates.

The joint venture partners seem ideally suited to take on similar projects. AFE is focused on developing additional 300 MW or larger power plants based on Sese coal, while ACWA has the experience gained in developing a portfolio of assets and power projects that deliver over 6050 MW.

Regional fall out

Unidentified Botswana coal tenements and other assets have been sold off by Continental Coal. The company has moved to delay the company being forced into administration. A well-established and historic South African gold miner, Village Main Reef (VMR) faces the loss of all or most of a Rand 76 million investment in Continental Coal.

In January, the Australian company voluntarily suspended its shares, while it sought new terms on AU$ 51 million of bonds now due to mature. With the shares down to AU$ 0.02, VMR’s 20% stake in Continental was down Rand 26.6 million. For VMR, the deal, a year old, was the first in a new asset diversification programme.

After a disappointing coal market resulted in severe cash flow problems, the slow ramp up of its new Penumbra mine compounded Continental’s situation. Lower than expected production at the mine placed additional pressures on working capital.

The company was relying on Penumbra to replace falling production at its nearly exhausted Ferreira mine and sustain a total saleable output of 2.2 million tpa.

Continental had two other properties – a mine in Vlakvarkfontein and a 1.6 million tpa project in De Wittekrans – but not the AU$ 120 million to develop them, CEO Don Turvey said. “If no acceptable restructure and/or refinancing arrangements can be agreed, the appointment of a voluntary administrator to the company in Australia may be necessary. The company will have insufficient funds to meet its repayment obligations and other creditors,” he said. As of 30 June 2013, total company borrowings were AU$ 82 million.

Opening moves in the rail game

The Botswana and Namibia governments have signed their long-awaited agreement to develop a railway from the major coalfields in landlocked Botswana to a Namibian port and build a commodity terminal there. Estimates of the total cost are in excess of US$ 10 billion.

Reports of the signing indicate that the Namibian terminal of the 1500 km Trans-Kalahari Railway (TKR) will be at Walvis Bay, although there is continued speculation that the final choice will have to be some distance from that port. Most areas of the Namibian coastline are environmentally protected and loading facilities will have to take account of that. Proposals suggest that conveyor belts or pipelines could be used to take the coal out to sea for loading well beyond the protected coastline.

Historical neighbourliness and regional politics have made exporting its coal via Namibia – as opposed to Mozambique, where there are existing terminal facilities or through the 100 million tpa existing terminal at Richards Bay in South Africa – Botswana’s first choice. However, it remains possible that one or both of these options could be developed alongside the TKR project.

South Africa’s government-owned railway operator, Transnet, is bidding strongly for more traffic and has surveyed rail links from the Botswana coalfields to Richards Bay. A new line to Mozambique would involve a link through Zimbabwe. Such a line is, at the moment, problematic; however, there is the potential for Zimbabwe to also export coal.

A third route to export coal from Botswana using existing lines via Mozambique has been successfully tried and tested by African Energy Resources, in partnership with the existing Anglo American-owned Morupule coal mine. The line may need refurbishment and is unlikely to become the main coal line, but could prove a useful second route.

Botswana’s major export coal targets remain India and China. “There is an ever-growing demand for coal in those countries. The Walvis Bay terminal as envisaged is expected to handle about 65 million tpa of coal,” Botswana Minister of Minerals, Energy and Water Resources, Onkokame Mokaila, said at the signing.

“Notwithstanding environmental challenges associated with coal generated electricity, it is a fact that coal will be a source of fuel for power generation for a long time to come. The development of the TKR will go a long way in facilitating the development of Botswana’s estimated 212 billion t coal resource. We must ensure that investors are comfortable and focus on [the project’s] long-term rewards,” Mokaila said.

Written by Barry Baxter. Edited by

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