Trans-Kalahari Route Trumps Techobanine In Botswana Coal Competition

Two competing routes to facilitate the transport of coal from Botswana to a seaport are under review. On the one hand, the proposed route through Zimbabwe to Mozambique's planned Techobanine port has already been trialled, has no need for government subsidies, and the port will be ideally located for Botswana's key Asian markets. However, there are numerous drawbacks to this scheme, and we feel the suggested Trans-Kalahari rail route to Namibia's Walvis Bay port offers greater advantages overall due to the lack of transit fees, and the fact that the route's terrain and the well established nature of the Walvis Bay port will result in a quicker completion time for the project.

Botswana's coal production volumes are escalating rapidly, and it is benefiting from booming demand from power-hungry Asian markets. However as a landlocked nation, it needs to establish a regular, reliable route linking its coal fields to a port in order to capitalise on this Asian demand. At present the Botswana government and Chamber of Mines are choosing between two alternate projects. One entails constructing a small railway to Zambia, running along the existing Limpopo rail network into Mozambique, and constructing another small railway down to the coast. There, near Maputo, the Techobanine port would be constructed. The project would be completed after 2017.

The second proposal is for the construction of another 1,500km railway, through the Kalahari Desert and into Namibia, where the railway would lead to the Walvis Bay port. Costing between US$11bn and US$15bn approximately, there are signs that a government agreement is imminent. It has been delayed since April 2013 due to various obstacles, and the launch of the Techobanine proposal. However, at present, no agreements have been signed and sealed with either Namibia or Mozambique and Zambia.

Botswana's Coal Road Map
Potential Coal Transport Routes

Trans-Kalahari Route Trumps Techobanine In Botswana Coal Competition

Two competing routes to facilitate the transport of coal from Botswana to a seaport are under review. On the one hand, the proposed route through Zimbabwe to Mozambique's planned Techobanine port has already been trialled, has no need for government subsidies, and the port will be ideally located for Botswana's key Asian markets. However, there are numerous drawbacks to this scheme, and we feel the suggested Trans-Kalahari rail route to Namibia's Walvis Bay port offers greater advantages overall due to the lack of transit fees, and the fact that the route's terrain and the well established nature of the Walvis Bay port will result in a quicker completion time for the project.

Botswana's coal production volumes are escalating rapidly, and it is benefiting from booming demand from power-hungry Asian markets. However as a landlocked nation, it needs to establish a regular, reliable route linking its coal fields to a port in order to capitalise on this Asian demand. At present the Botswana government and Chamber of Mines are choosing between two alternate projects. One entails constructing a small railway to Zambia, running along the existing Limpopo rail network into Mozambique, and constructing another small railway down to the coast. There, near Maputo, the Techobanine port would be constructed. The project would be completed after 2017.

Botswana's Coal Road Map
Potential Coal Transport Routes

The second proposal is for the construction of another 1,500km railway, through the Kalahari Desert and into Namibia, where the railway would lead to the Walvis Bay port. Costing between US$11bn and US$15bn approximately, there are signs that a government agreement is imminent. It has been delayed since April 2013 due to various obstacles, and the launch of the Techobanine proposal. However, at present, no agreements have been signed and sealed with either Namibia or Mozambique and Zambia.

Coal Productivity On The Up

Botswana has seen a rapid uptick in coal production over recent years, and coal is swiftly becoming one of the country's main exports, after diamonds, and a central contributor to GDP. We hold a positive outlook for coal production over the next five years, and expect it to grow by around 4% to reach 18mn tonnes of coal by 2018, with an industry value of above US$6bn.

Coal Production Increasing
Botswana Coal Production (mn Tonnes)

With this growth outlook it is unsurprising that the government and mining sector are willing to invest substantial sums into developing a rail network to the coast. We believe that in the future, Botswana's key export markets will be Asian. In particular, we flag up the ever-expanding power-hungry populations in India and China whose demand will drive growth in Botswana coal production.

The Cons Outweigh The Pros

We believe that the Trans-Kalahari project has recently moved a step closer to implementation, following an announcement from the Botswana Chamber of Mines that former obstacles no longer exist. Moreover, despite the advantages of the Mozambique proposal, we feel there are too many detractions overall, to render it the most appealing proposition.

There are a number of attractions linked with the Techobanine project which cannot be disregarded. First, the eventual destination point of the railway is on the Indian Ocean, ideally located for shipping coal to the Asian markets via the shortest, quickest routes possible. Moreover, there is no need for government subsidies to be acquired, as a consortium of private business have agreed to fund the entire project, and less investment is required for this route than for the Trans-Kalahari railway. Plus, the route has already been trialled with a small load, and the journey took just over three days to complete, proving it is both feasible and quicker than road-freighting by truck.

However, the rail network not only entails agreements with the Mozambique government, but also with the Zambian government, as the route will run along the Zambian Limpopo railway for one stage of the journey. Moreover, this will result in unavoidable exposure to the persistent domestic unrest in Zimbabwe.

The port of Techobanine will be well placed for Asian markets, but as yet the port does not actually exist and nor has construction started. In April 2013, the Mozambique government granted a concession for the construction of the port; however this will be a lengthy process, and we expect delays to occur. Further, we expect additional delays due to the nature of the terrain over which the route must be constructed as the land is rough and hilly. These delays will lead to additional costs. Plus, overall, we feel the day-to-day running of the cargos along this rail network will prove the costlier route for the Botswana mining companies as both Zimbabwe and Mozambique demand transit fees as compensation for allowing the transport of coal shipments across their borders.

More Positives For Namibia

According to our proprietary Logistics Index, Namibia represents a more attractive package overall with regards to its freight and shipping sectors, as it scores higher than Mozambique for the majority of our indicators, with an overall logistics rating of 49.20 (compared with Mozambique's lower rating of 41.49). This is due to a number of factors which will affect Botswana's ease and rapidity of transporting and exporting its coal, such as better rail network quality and density. We perceive Namibia as offering a more reliable and efficient freight and logistics service than Mozambique.

Namibian Logistics Beat Mozambique's
Namibia And Mozambique Logistics Scores

There are also project-specific attractions to the Trans-Kalahari route which we believe outweigh those of the Techobanine route. The first of these is the general terrain which, in common with Botswana, is predominantly flat, making the construction of a rail network relatively (in comparison to Mozambique's hills) easier. This means that despite the equal length of the two network projects, the Trans-Kalahari route would be completed far earlier. Moreover, as Walvis Bay is already established, further delays would not occur while waiting for the port to be constructed, so the coal transportation could commence as soon as the rail line was completed.

One downside to the Namibia route is that Walvis Bay is situated on the Atlantic rather than Indian coast, and is therefore less well placed for Asian markets. However, we would highlight that ships already ply the routes between the West African coast and Asia, so the port's location is not an insurmountable obstacle.

Another potential detraction has been the shallow depths of the Walvis Bay port, at only around 600m. This has limited the size of ships which could dock and larger vessels, particularly dry bulk ones, have been unable to visit. However, a contract for dredging the port to more accommodating depths was agreed in 2013, and will be completed at the same time, if not before the railway is finished, so the shallow depths are no longer a factor.

Finally, shorter construction times and no delays mean that the overall project might well be cheaper than the Techobanine route. This cost factor will be compounded by the lack of a transit fee charged by Namibia for the transportation of Botswana coal across its borders, making the Trans-Kalahari railway a more cost-effective proposition in the longer term.

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