Maputo - A Thai-Mozambican consortium has set a 2018 target to commission a $4.5 billion coal export railway and port terminal project in central Mozambique, but the depressed global coal prices outlook made the timing “tough”, the company's president said.
Late last year, Mozambique's government picked Bangkok-based contractor Italian-Thai Development to construct the 537 km rail line from the Moatize coal mines in Tete province to Macuse on the coast in Zambezia province.
The project forms part of ambitious plans made by Mozambique with foreign investment partners to become a major exporter of metallurgical and thermal coal to the global market, based on estimated reserves of at least 2 billion tonnes.
These are the world's fourth-largest untapped recoverable coal reserves.
Companies like Vale of Brazil and Rio Tinto have invested billions of dollars, helping Mozambique launch in 2011 as a coal producer and exporter.
But a downturn in global prices has now raised serious questions about whether Mozambican coal can be competitive, given the huge costs involved in expanding the southern African 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 tonnes per year capacity just to be economically viable.
Mozambique is currently exporting around 5 million tonnes 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, speaking at the 5th Mozambique Coal Conference being held in the capital Maputo.
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.
It is precisely the lack of available modern railways and ports that places Mozambique at a big costs disadvantage when compared with major coal producers like Australia, putting big new projects under pressure at a time of low coal prices.
“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 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 $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.
The Moatize-Macuse rail-port project, which foresees deep-water container and general cargo facilities as well as a coal export terminal at the port, will need existing major coal miners operating in Tete to come onboard with shipments.
Bovard said he would approach these operators when the feasibility study provided a clearer picture of the economics of the Moatize-Macuse project.
Mozambique's ports development plan sees a massive ramping up of tonnage handling capacity over the next 6 years to 2020, as a country still stricken by widespread poverty and recovering from a 1975-1992 civil war hopes to benefit from huge coal and offshore natural gas deposits discovered in recent years.
Mozambique's own infrastructure deficit reflects a situation existing across Sub-Saharan Africa, where the potential of exploiting untapped national resources is being held back by the absence of road, rail and port networks to get the oil, gas and minerals out 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, chief executive officer of the Maputo Corridor Logistics Initiative, which promotes the major transport corridor linking Maputo port to South Africa and the surrounding region. - Reuters