Mozambique trying to ease coal companies' pain, but no tax breaks

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?"

Mozambique’s project-financed IPP is a first

Standard Bank provided US170-million dollars in debt financing to help build a 118MW gas-fired power plant in Ressano Garcia, Mozambique. The transaction, funded with 75% senior debt and 5% sub-ordinated debt with a door-to-door tenure of 12 years, is the first project-financed independent power producer (IPP) initiative to reach financial close in Mozambique.

The government awarded Gigawatt a gas power generation concession which is expected to supply power to the capital city of Maputo. On completion, the project will supply about 12% of Mozambique’s total power demand. Gigawatt has also signed a long-term power purchase agreement with state power company, Electricidade de Moçambique. The company plans to use all the power generated by the project domestically.

The plant will be built over 18 months, through a joint venture between WBHO Construction and Parsons Brinkerhoff. Engines for the gas plant will be supplied by Rolls Royce and will be run by TSK.

Standard Bank: East African oil and gas discoveries to kick-start economic transformation,

East African oil and gas discoveries are poised to fundamentally transform the economies of the region as the fuel resources usher in new investment in road, rail, power and industrial infrastructure, according to Standard Bank.

Uganda, Kenya, South Sudan, Ethiopia, Tanzania and Mozambique have emerged as one of the most prolific oil and gas exploration regions in the world over the last 10 years, says Mr Simon Ashby-Rudd, the London-based global head of oil and gas at Standard Bank, Africa’s biggest lender. These discoveries will establish the region as a major hydrocarbon province in the decades to come and drive wider economic growth throughout East Africa.

“Over and above the traditional oil and gas regions in Africa, notably West Africa, East Africa has essentially been a forgotten desert in terms of upstream oil and gas exploration over the last 40 years,” said Mr Ashby-Rudd. “This has changed completely over the last decade, oil and gas companies are starting to realise the potential in nations along the East African rift valley and Standard Bank believes this is going to fundamentally transform the region’s economy.”

Oil exploration in East Africa was sparked off by the discovery of between 1.5 and 2 billion barrels of commercially viable oil reserves in northern Uganda in the middle of the last decade. Last year the country announced that total known oil reserves in the country were estimated at about 3.5 billion barrels.

The discovery of oil in Uganda coupled with the fact that exploration licences in East Africa were comparatively cheap due to the fact that the region was not regarded as an oil rich area, ushered in further exploration activity in other countries along the Rift Valley. As a result, further oil discoveries were made in southern Ethiopia and Kenya with additional gas finds in Tanzania and Mozambique.

One of the biggest indicators that the region is likely to experience an oil- and gas-led boom in the next half decade is the fact that several projects in East Africa are likely to come on stream at similar times.  Mozambique and Tanzania’s gas and liquefied natural gas projects are expected to come on stream in 2019 with Kenyan and Ethiopia expected to begin commercialisation of their oil deposits over the next six to seven years. Uganda is set to begin oil production by 2018/19, while South Sudan is already producing.

“Oil investment could accelerate the economic growth of several economies in the region,” said Mr Ashby-Rudd. “While the discoveries might be fairly modest in a global context, they’re very significant in a regional economic context.”

Plans are now underway to construct an oil pipeline linking Uganda’s oil fields to the coastal port of Lamu in Kenya. In February this year Uganda signed a memorandum of understanding (MOU) with oil companies operating in the country to facilitate the development of an oil refinery in the country as well as a pipeline that enables crude reserves to be exported.

“A pipeline would really kick-start economic growth in the region as it would usher in additional investments, the necessary infrastructure which in turn will enable further investment in industrial operations,” said Mr Ashby-Rudd. “Oil thus becomes the catalyst for an economic transformation across the region. An oil pipeline could become the backbone on which an entire infrastructure corridor could be constructed.”

Mr Ashby-Rudd says Uganda’s efforts to link its oil reserves to the coast to facilitate exports could be replicated by other landlocked nations in Africa.  This would allow additional infrastructure corridors to be developed as a means of harnessing the economic potential of central and east African nations such as Tanzania and the Democratic Republic of Congo.

Burgeoning economic growth in East Africa is also likely to result in increasing demand for fuel within that region, which imported a collective $10bn of fuel and petroleum products in 2012. Standard Bank expects total demand for petroleum products in East Africa to treble by 2030 with Kenya likely to remain the largest market in the region, which the bank estimates will record compound annual growth rates of between 5% and 7% over the next half decade.

This is press release by the Standard Bank South Africa