Mozambique is discussing with its foreign coal mining partners ways to help them ride out depressed markets but will not be offering special tax breaks to ease the pain, its mineral resources minister said on Monday.
Esperanca Bias told Reuters the government understood that companies such as Vale of Brazil and Rio Tinto, which helped Mozambique to start up in 2011 as a coal producer and exporter, were feeling the pain of depressed global prices for coal used in steelmaking and generating power.
The southern African nation, which still bears the scars of a 1975 to 1992 civil war, has the world's fourth-largest untapped recoverable coal reserves, estimated at over two billion tonnes.
Vale is investing billions of dollars on rail and port networks to bring greater volumes of coal to the market, up from a current export capacity of five million tonnes per year. It is targeting 22-million tonnes by 2017/18.
But Vale, which announced an accumulated loss of uS$44-million for Mozambique operations in the first quarter, says it urgently needs to cut operating costs to remain competitive.
"We're studying this," Bias said on the sidelines of the fifth Mozambique Coal Conference in Maputo. "We are working on it to see what can be done from our side." she added.
Mining companies face the challenge of getting coal, mostly from mines in Tete province, over 600 km to 900 kmto ports on the Indian Ocean coast. This is in a nation that urgently needs modern railways and ports.
Comparatively, major coal producer Australia has to carry its coal only about 200 km to ports which give access to the same big overseas export markets of China and India, putting the fledgling southern African producer at a costs and logistics disadvantage.
Bias said that although the government was looking at ways to tackle the challenging logistics, this would not involve any special concessions.
"We don't believe that reducing tax will resolve the problem. We don't think the tax system needs to be changed," she said.
First Nacala Train This Year
Addressing the Maputo conference, the director of Vale's Global Coal Division, Pedro Gutemberg, said the Brazilian company remained committed to Mozambique.
It was investing more than US$4.5-billion in a 900 km railway from Moatize through Malawi to Nacala port in northern Mozambique. Nacala is being developed as a deep-water coal export terminal capable of taking bulk carriers.
"Definitely, the plan is to have the first full train by the end of the year," Gutemberg said.
The Nacala terminal would be tested in January or February to be able to start exporting next year.
Bias said this would complement the existing Sena rail line carrying coal from Tete province to Beira port in central Mozambique. This line had been improved too, she said.
Gutemberg said Vale was talking to prospective partners to join it in Mozambique but he denied this formed part of any potential "exit strategy".
Coal miners are hoping a combination of continuing Chinese demand and the potential growth of the steel market in India will improve long-term coal prices, although prospects for the next few years remain depressed.
Bias said a revision to mining laws currently before parliament offered tax breaks to firms willing to process minerals, including coal, in Mozambique - for example building steelworks or thermoelectric plants or transforming coal into liquefied fuel.
But she made clear this kind of local processing was not necessarily being demanded of the existing coal producers.
"We're not saying the additional value has to be brought by the mining companies," she said. "It would be other companies. But if the mining companies have other industries in their portfolio, why not them too?"