Doubts over Trans-Kalahari

Gaborone- The envisaged multi-billion dollar Trans-Kalahari Railway line connecting Botswana to Namibia’s Atlantic coast hangs in the balance as legislators and relevant authorities in Botswana have questioned and raised doubt about its viability.

The project is considered among key development initiatives to boost integration in the Southern African Development Community region.

In 2014, Namibia and Botswana signed an agreement at Bird Island near Walvis Bay to pave way for the construction of 1,500 km railway line that would traverse the vast semi-arid, sandy savannah of the Kalahari Desert from Botswana to Namibia.

The 200 billion (Botswana Pula) project was expected to connect the land-locked Botswana to Namibia’s port of Walvis Bay, thus unlocking the value of coal mining in Botswana and power generation in the SADC region.

The railway line mirrors the existing Trans-Kalahari Highway or corridor, which links Botswana to the port of Walvis Bay, but stretches 1 900 kilometres from Walvis Bay, through Windhoek, Gaborone in Botswana and Johannesburg to Pretoria in South Africa.

The Trans-Kalahari railway line agreement includes adding a coal terminal and associated loading facilities to the Namibia-Botswana corridor that would benefit other landlocked Southern African Development Community (SADC) countries like Malawi, Zambia and Zimbabwe by providing alternative transportation routes.

The Trans-Kalahari Railway line is also expected to be used to transport coal to India and China.

But recently, permanent secretary in the Ministry of Minerals Energy and Water Resources Kgomotso Abi told the Parliamentary Public Accounts Committee (PAC) the project was not viable.

The official was responding to Member of Parliament and committee member Guma Moyo who had expressed misgivings about the railway line.

“I do not think that it is the way to go, the cost of transportation of coal to the destination of India and China would be high, maybe ten times the cost of coal itself,” he said. Moyo even doubted if the Botswana government’s balance sheet could afford to finance the construction of the railway line.

“Are we dreaming? Why are we chasing something that will not work? 

The numbers tell the opposite story, the Trans Kalahari, the total estimated cost at its minimal is US$20 billion, and it is not viable,” argued Moyo.

Abi admitted before the committee that the railway line will not benefit Botswana because of the current low coal prices.  But he was quick to add that it was important to go ahead with the project with the hope that one day coal prices will improve.

“At the current prices of coal, Trans-Kalahari Railway line won’t work but we are hoping that at some point coal prices will improve,” Abi said.

Australian based consultants, Aurecon, recently handed over to the Botswana Government, a preliminary assessment of the viability and modalities surrounding the development of the Trans Kalahari railway project.

The report titled ‘Trans-Kalahari Railway Preliminary financial and commercial assessment’ was prepared by Tom Frost and Ben Ellis dated December 11, 2014. This report precedes a final assessment report that will be presented in January next year.

According to the Weekend Post newspaper, the purpose of the assessment was to determine the commercial viability of Botswana coal mines if they were to use the envisaged Trans Kalahari Railway line where various development scenarios were considered and sensitivity analysis was performed on all key inputs.

First, the rail related costs are particularly sensitive to assumptions with respect to WACC (weighted average cost of capital), gauge and below rail capex costs thus, the major impact policy makers can have on the project costs is through the choice of route and gauge.

The optimized route is only 124 km less than 10 percent shorter- than the Government of Botswana route but the longer route is estimated to be nearly US$2 per tonne higher. A move to narrow gauge would increase costs by around US$3 per tonne primarily through higher above rail operating costs. Accessing cheaper investor capital would also improve the viability of the railway line significantly.

Secondly, the results are also very sensitive to assumptions with respect to mine operations.

Lastly, the consultants say ramp up is a major risk for project investors and miners. If all miners are not able to ramp up production from 65 to 95   million tonnes per annum to full production in seven years costs will increase significantly

The major risk factor and potential upside is with respect to the price of coal, the report says. To achieve the target export sale quality, it is likely that miners will use underground mining techniques.

“Botswana coal typically is deposited in a number of seams at varying depths. Coal quality varies across these seams, with the higher quality coal typically lower in the deposit. At a high level two mining techniques are typically considered – underground (board and pillar).”

The report states that underground mining will be more expensive at approximately US$25 per tonne ROM, but miners are able to target only the best seams and it yields a higher proportion of coal per tonne of ROM lower the proportion of waste from the mining. A major disadvantage of underground’s board and pillar mining, however is that it leaves more than 30 percent of the coal behind, as pillars and therefore a much larger resource is required for any given output level.

Open cut is cheaper at approximately US$12 per tonne ROM but miners clear all seams and it produces a significant amount of waste product and low quality coal.

Nonetheless, the Trans-Kalahari Railway line is expected to unlock the monetisation of Botswana’s coal resources, which are seen as a way to augment the depleting diamond resources that have been the mainstay of the country’s economy.

Aurecon has given the resultant capital expenditure costs at a total of US$14.2 billion, comprising US$8.6 billion for electrified rail, and US$1.9 billion for above rail, and US$3.6 billion for the port.

However Namibia’s High Commissioner to Botswana, Mbapeua Muvangua, recently said the Botswana government remains committed to the construction of the Trans-Kalahari railway line.

“There are a few things that need ironing out such as the funding by both governments but President Khama made it very clear to me that he wanted the project to start as soon as possible,” he is quoted as saying in the Botswana press.

“As we all know this project involves other stakeholders that need consultations but I am very confident the project is on track,” added Muvangua when presenting his credentials to President Khama. 

Southern Africa is investing in transport corridors to facilitate trade and economic liberalisation by ensuring the smooth movement of goods and persons across member states. The Trans Kalahari Railway line was one of the 14 transport corridors identified for development. 

The corridors involving two and five countries each are when operational expected to deepen regional integration and boost intra-regional trade.

 

June 2015
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