Mozambique: Rising coal prices improve prospects for infrastructure projects

Coal prices on international markets have more than doubled since the beginning of the year, allowing mining projects to resume and improving the prospects for infrastructure projects in Mozambique.

Due to international production cuts over the past months, coal prices rose from almost US$80 per tonne to around US$190 per tonne this month, which has led India’s Jindal Steel & Power Ltd. to resume its operations at the Chirodzi mine, achieving a monthly production of 300,000 tonnes.

The slowdown of infrastructure projects, coupled with the drop in commodity prices and austerity measures implemented by the government to deal with budget problems, are considered by economists to be the main factors of a slowdown of the Mozambican economy – to 3.6% growth in 2016, according to an Economist Intelligence Unit (EIU) report, to which Macauhub had access, compared with an annual average of 7.2% in the last decade.

Low commodity prices, which have since started to recover, have diminished confidence in the rapid implementation of infrastructure projects such as the one recently signed by Mozambique, Botswana and Zimbabwe to build a 1,600-kilometre railway line the deepwater port of Techobanine in southern Maputo province, connecting it to Francistown in eastern Botswana through Zimbabwe.

The international consortium responsible for the port project, costing an estimated US$1 billion, is part of the China Harbour Engineering Co, in addition to Bela Vista Holdings (BVH) and Transnet, a public railway company from South Africa.

Mozambique and Botswana initially agreed to this project in 2010, providing total financing of US$7 billion, the construction of 1,100 kilometres of rail link, with capacity to process 200 million tons of cargo per year, ranging from general bulk to ores, fuel and passengers.

According to the Economist Intelligence Unit, Botswana has said it is available to finance construction of the railway line, which would create “much needed distribution capacity for its coal mines in the east, which has affected the development of the coal industry, despite its superabundant reserves.”

For Zimbabwe, the facility also opens up opportunities for export growth, while for Mozambique it allows “the development of a new and potentially vibrant port,” which is expected to involve private investors, said the EIU, adding it has doubts about its ability to attract investors, however.

In addition to coal prices, natural gas prices, to which some of the major infrastructure projects in Mozambique are connected, have been rising, particularly since July, and in September reached the highest values of 2016.

This upward movement has strengthened the confidence of the Mozambican authorities in a final investment decision being made by the companies leading natural gas exploration consortia in Rovuma – ENI and Anadarko Petroleum, whose chairman met with Mozambique’s President, Filipe Nyusi last week in the United States.

ENI is in talks with ExxonMobil to sell part of its stake and there is the possibility of Qatar Petroleum taking a stake in the same consortium, as it plans to acquire part of the Italian company’s share. (source: macauhub/mz)