Mining and infrastructure: reflecting on the experiences of Tanzania and Mozambique Drawing on research conducted for the Making the Most of Commodities Project: UCT

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Mining and infrastructure reflecting on the
experiences of Tanzania and MozambiqueDrawing
on research conducted for the Making the Most of
Commodities Project UCT Open
Universityhttp//www.commodities.open.ac.uk/discu
ssionpapers and Robbins and Perkins (forthcoming
2012) Journal of International Development

• TIPS Seminar
• 1 June 2012
• Glen Robbins Dave Perkins

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Infrastructure and Mining Investment

• How infrastructure influences investment choices
  (in the mining activity)
• Impact on scale of pre-production set-up costs
  and thus delay profitability point (potentially
  raising costs of borrowing or risk profile of
  project). Note transport less of an issue
• Feasibilities will also look closely at supply
  chain risks logistics costs as these cannot be
  ignored higher levels of uncertainty in
  predicting delivery times and costs are a
  concern.
• In some cases are a prerequisite

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Infrastructure and Mining Investment

• How infrastructure issues in mining influences
  investment choices by states
• Governments with stressed expenditure systems
  generally struggle to provide up-front
  commitments at scale
• Donor funds and World Bank/ADB loans are key but
  limited when scale of projects is considered
  (base of systems in place, topography, distance,
  user classes)
• Other options include deals with Chinese
  companies/state or some form of PPP arrangement
• Maintenance budgets tend to be limited or
  non-existent (a washed away bridge or a blown
  sub-station might take a year or more to get
  fixed) although in Tanzania, with donor and
  loan support, the past five years have seen
  steady improvement
• Mining activity can be seen as a revenue source
  for infrastructure provision via fiscal
  allocations enabled because of tax/royal flows or
  through users charges
• Revenue flows attached with mining consumers can
  be used to raise funds by states or to use in PPP
  deals of one sort or another (limited track
  record of success and politically uncomfortable,
  unattractive terms due to risk perceptions)
• Often a reliance on investors in mining projects
  to fund infrastructure connections (access roads,
  rail-heads, connections to grid, water pipes) in
  full at no consumption charge discount
  (attractive to states as it adds to next coverage
  of infrastructure and might allow previously
  un-served communities access to some services
  with no significant diversion of state resources)

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Tanzania and Mozambique

• Tanzania and Mozambique are in the upper-middle
  ranking of African countries in terms of FDI,
  with its FDI stock doubling in the first half of
  the 2000s and again in the second half.
• Both have been among the best African FDI
  performers outside countries with oil and gas
  (with exception of RSA)
• These countries have overtaken traditional
  stronger performers in FDI growth (Kenya,
  Botswana etc)
• Two thirds of growth in FDI stock since 2000 is
  accounted for by mining investments
• (Source UNCTAD and ICMM)

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Road infrastructure I
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Road Infrastructure II
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Investing in infrastructure
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Tanzanias central corridor
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Tanzanias infrastructure

• Despite its geographic advantages as a potential
  entrepôt to its landlocked neighbors Burundi,
  Rwanda, Uganda and Zambia, as well as the D.R.
  Congo, there is clear evidence to suggest that
  Tanzanias lack of infrastructure is acting as a
  constraint on the expansion of trade and economic
  activity in both the country and the region.
  (Ter-Minassian et al, 2008 8)
• The World Banks Logistics Performance Index
  (World Bank 2007a) ranked Tanzanias transport
  infrastructure well below the average of other
  sub-Saharan African and low-income countries.
• In the power sector losses from power failure
  amount to 10 percent of sales for the median
  Tanzanian firm compared to only 1 percent for the
  median Chinese firm. (Eifert, Gelb
  Ramachandran, 2005)
• Pedersen quotes Mwase as saying that the
  passability of Tranzania roads declined from 70
  pecent in 1970 to 30 percent in 1991 (Mwase in
  Pedersen, 2001 12).
• These empirical findings are corroborated by
  evidence from business surveys
• Global Competitiveness Report (2007-08)
• UNCTAD WIR (various)
• Enterprise survey (WB) and Investment climate
  survey (WB)
• There have been some improvements but quite
  limited in terms of scale of backlog/needs

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The growing gap between mining investment and
infrastructure spend

• Historic synergies between developing
  infrastructure platforms and enabling mining
  extraction that also yielded a measure of
  linkages (synergies not just in terms of supply
  and demand but also in terms of capabilities)
• Slight recovery (in historical terms) of
  infrastructure spend in SSA (excl RSA) largely
  driven by donor commitment post SAPs but growing
  gap as no country fiscal capability, limited ODA
  and lack of private take up in PPPs. (not
  including mobile telecommunications)

Tanzania conceptual image timeline
1967 Arusha Declaration 60 of all production in
hands of state
1975 Basic Industrial Strategy Capitalist
activities outlawed
Capital invest-ment
1973 Oil crisis
1980s SAP marketisation
1997 Mining Bill HIPIC
Mining investment
1993 Restructuring reform
Infrastructure investment
1940s
1980s
2000s
1960s
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Tete Coal Basin Mozambique
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Background

• Lower Zambezi River basin paradox
• one of worlds poorest regions
• endowed with vast natural resource, energy and
  industrial development potential
• Tete Province
• worlds largest unexploited coking coal deposits
  (rival Bowen Basin in N. Australia) in part due
  to disruption of civil war
• commissioning of two new mines (Vale and
  Riversdale/Rio Tinto) with others to follow (82
  coal exploration licenses held by 33 companies)
• potential for inexpensive power presence of
  complementary mineral deposits raises prospect
  for in-situ or in-country mineral
  processing/industrial development
• But area is hopelessly under-serviced by
  transport, energy and ICT infrastructure that has
  not only limited the pace of mining developments
  but also the realisation of the linkage
  opportunities that could arise from them

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Magnitude of the Infrastructure Challenge

• Two mines about to commence production export
• Moatize Mine (Vale) - 1.5 billion investment
• 2003/4 IFC/GoMZ secured developer signed
  Framework Agreement
• 2007 Feasibility licensing 2008 construction
  commences
• 2011 First production 2012 first exports
• Originally 11mtpa by 2014/15
• 2011 approval of 6bn expansion to 22 mtpa
• Benga (Riversdale/Rio Tinto with Tata) - 800 m
  investment
• 2009 Construction commences
• 2011 Rio Tinto acquires Riversdale (4bn
  takeover includes Benga and Zambeze projects)
• 2012 first coal shipments
• Production to ramp up from 2 mtpa to 12 mtpa by
  2015

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Magnitude of the Infrastructure Challenge (contd)

• Despite long mine development lead times,
  necessary investment in rail and port
  infrastructure has not taken place
• Sena railway (600km) linking Moatize to Port of
  Beira has insufficient capacity (max 6 mtpa) to
  handle projected exports even in short-term
  (2012)
• By 2015 need capacity of at least 30-45 mtpa!
  Sena line constrained and cannot be developed to
  requisite capacity
• Until recently, identification of necessary
  solutions and planning for expanded capacity
  bedeviled by lack of coordinated planning and
  underperforming rail concessionaire
• But GoMZ and private sector have, albeit
  belatedly, come around to the need for urgent
  action
• Key is for GoMZ though is to avoid perpetuation
  of enclave development and ensure integrated
  mineral and other economic development in tandem
  with new infrastructure development

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Solutions

• In short-term (2-3 years) Vale Riversdale (with
  CFM) planning for expansion of capacity of Sena
  line from 6 to 12 mtpa and a concomitant
  expansion of Port of Beira coal terminal
• Vale 3-year project to enable exports through
  Port of Nacala
• plan to invest 1bn to develop 138km railway
  linking Moatize on Sena line through Malawi to
  Nacala line
• With rehab of 98km of existing Nacala line and
  development of coal terminal will enable 30-35
  mtpa exports through Port of Nacala
• Acquired 51 stake SDCN the Nacala port rail
  concessionaire to secure operational control
• Riversdale/Rio Tinto
• Investigating feasibility of tug barge
  transportation of coal from Tete down Zambezi
  River to offshore loading platforms at river
  mouth
• Third parties investigating other coal transport
  options such as a new dedicated railway line from
  Tete to the coast at Savane (with development of
  new coal terminal and port facilities

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Response of Government of Mozambique

• Ministry of Transport Communications recognises
  need to find ST solutions while simultaneously
  determining a longer-term minerals transport
  logistics master plan.
• In the short-term the MTC has
• Terminated the CCFB concession agreement on the
  Sena line
• Sanctioned agreement between Vale
  Riversdale/Rio Tinto on the use, sharing and
  operation of the Sena Line and Port of Nacala
  coal terminal
• Considered a number of unsolicited proposals
  i.r.o. development of new coal transportation
  capacity
• Established a new surface transport regulator to
  provide a more equitable regulatory framework
• Lent support to a Coal Industry Export Initiative
  Study in conjunction with the Moz Coal
  Development Association

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Response of Government of Mozambique

• Based on two key policy positions namely, that
• MZ needs to use its comparative adv in natural
  resources as a catalyst for diversified economic
  growth and development
• Any strategy to promote infrastructure
  development must be informed by its economic
  context
• the MTC has adopted a Strategy for the
  Integrated Development of the Transport Sector
  that
• Recognises the role of the transport sector as a
  key determinant of economic competitiveness,
  social territorial cohesion and levels of
  regional integration
• Aims to develop an integrated transport system
  that facilitates investment growth of the
  national and regional economies
• Advocates adoption of development corridor
  planning methodologies focused on integrated
  planning and management of transport, energy and
  ICT infrastructure development with linked anchor
  investments (mainly in the natural resource
  sectors) by the private sector

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Observations and Lessons

• In Moz there is a heightened awareness of the
  need to avoid enclave development as a result of
  large-scale mineral investments
• A progressive Minister has motivated a shift in
  national transport policy to a point where
  strategies to promote infrastructure development
  must be informed by the range of inter-related
  economic development opportunities that they may
  facilitate and in turn be sustained by.
• As a result
• levels of political will appear to be enhanced
• levels of inter-agency cooperation in the MZ
  public sector have been enhanced (through an
  Inter Ministerial Coordinating Committee
  co-chaired by the Minister of Planning and the
  Minister of Transport Communication)
• there is an increasingly closer alignment of
  transport infrastructure development commitments
  by government and the needs of private sector
  investors and
• Prospects for natural resource based sustainable
  economic development in the Zambezi Valley are
  enhanced

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Observations Lessons (contd)

• Long lead times of large-scale mining projects
  does not guarantee timeous delivery of requisite
  enabling infrastructure by the public sector
• MZ experience has highlighted the need for
• progressive infrastructure development policy and
  strategies that recognise the economic function
  that infrastructure performs
• formalised public sector inter-agency cooperation
  on large-scale, high impact investment projects
• While some large-scale natural resource
  investments may themselves be able to sustain the
  capital cost of their enabling infrastructure,
  care must be taken to ensure patterns of
  infrastructure development that do not sterilise
  other adjacent economic development opportunities

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Observations Lessons (contd)

• In Tanzania the combination of government policy
  and the character of the commodity being mined as
  not enabled opportunities in infrastructure to be
  exploited.
• The entrance of new Chinese mining companies in
  Iron ore, Nickel and Coal is likely to change
  this.
• Almost exclusive donor focus on regulatory reform
  misses the issue about the scale of investments
  needed to help infrastructure function in support
  of sustainable economic growth.