Ministry of Finance and Development Planning (MoFDP) has hinted this week that the 2017/18 budget will likely be unfavourable. The budget for the next financial year will be the first since the adoption of NDP 11 and Vision 2036.
According to the 2017/2018 Strategy Paper presented by MoFDP on Thursday in Gaborone, the major downside risks to the budget outlook includes the “continued slow recovery in the global economy, undiversified revenue base, and unforeseen emergency expenditures to address water and electricity supply challenges, and natural disasters like drought and outbreak of animal diseases.”
In addition it states that among the risk to the budget outlook include the continued and sluggish global economic developments which impact on the domestic economy through low commodity prices translating into decreased diamond export earnings and lower revenues for government as well as continued reliance on diamond earnings.
According to the strategy paper, the other risks include “water and electricity shortages which pose a threat to value addition of other economic sectors, public expenditure pressures, especially personnel emoluments under recurrent expenditure.”
It also says that the expansion of guarantees issued to back up parastatals’ loans and weak monitoring, evaluation and implementation of development programmes and projects as well as natural disasters such as recurring drought and animal disease outbreak are other notable risks highlighted in the strategy.
Health costs arising from test and treat initiatives and increased provision of drugs to HIV/AIDS; and Increase in Tertiary Education Funding, were also pointed out as contributing to high risk in the anticipated budget.
In terms of the budget outlook, it was said the financial year is projected to result in among others a “budget deficit of P6.8 billion” or -4.1 percent of GDP.
The paper goes on to explain that this is attributable to the projected “modest growth” in revenues, and “continued pressures” arising from the implementation of the much talked about Economic Stimulus package (ESP).
It further states that: “the expected growth in the real GDP of 4.0 percent in 2017/2018 is insufficient in addressing the development challenges of unemployment, poverty, and income inequality.”
“Despite this projected unfavourable 2017/2018 budget outlook, the Budget strategy paper posits that government remains committed to maintaining fiscal sustainability in the medium term. Thus, additional measures to raise domestic revenues or trim the planned expenditure during the implementation of the NDP 11 will be considered, if necessary, to restore fiscal sustainability.”
Moreover it says there is a need to use the impending financial year budget, which will be first financial year subsequent to the adoption of the crucial NDP 11 and Vision 2036, to align the implementation of the two documents, with a view to promoting growth, economic diversification, and employment creation.
It is understood that the preparation of the 2017/2018 Budget Strategy Paper drew from the national priorities identified in the draft NDP 11, while taking into account the country`s fiscal policy parameters.
The strategy paper maintained that: “however, there was also need to ensure that the implementation of the ongoing ESP is continued during 2017/2018 financial year, despite the budgetary pressures.”
The Budget Strategy Paper was prepared under continued difficult domestic economic conditions, with moderate growth expected due to weak recovery in the global economy.
2015/2016 Budget Outturn
The 2015/2016 budget outturn indicates that a total of P48.29 billion was collected as revenues and grants during the year; of which P35.76 billion was tax revenue, while P12.39 billion was non-tax revenue and P0.14 billion was grants. Figure 4 shows the share of tax revenue by major items. Of the amount collected as tax revenue, Customs & Excise accounted for the largest share of 44.0 percent, while non-mineral income tax contributed 26.0 percent.
Tax revenue collected in 2015/2016 was 2.0 percent above the estimate of P35.05 billion in the revised budget. Non-tax revenue, on the other hand, was 24.0 percent lower than the revised budget estimate of P16.38 billion. This was mainly due to low mineral royalties and dividends payments, which make up over 90.0 percent of non-tax revenue. Seventy-two percent or P9.98 billion was paid as royalties and dividends during the fiscal year, compared to the revised budget estimate of P13.84 billion, due to the operational difficulties faced by several mines in the country. Grants received were also low, amounting to P0.14 billion against estimated grants of P0.34 billion, due to a decline in recurrent grants.
Expenditure performance during 2015/2016, on the other hand, was satisfactory, with total expenditure and net lending amounting to P54.92 billion, or 98 percent of the revised budget estimate. This comprised: P40.93 billion recurrent expenditure; P12.77 billion development expenditure; P0.76 billion lending from the Public Debt Service Fund to state owned enterprises; P0.55 billion equity injections into state owned enterprises; and P0.07 billion of loans repayment. A further analysis of the two major components of expenditures shows that, Recurrent Expenditure stood at 98.0 percent of the revised budget estimate of P41.72 billion, while Development Expenditure was 89.0 percent of the revised estimate of P14.32 billion.
As a result of the revenue and expenditure performance, the overall fiscal balance for the 2015/2016 financial year was a deficit of P6.63 billion, or -4.5 percent of GDP. Whereas total expenditure remained within the projected threshold in the revised budget estimates, then deficit was mainly occasioned by the revenue shortfall, which underperformed by P3.47 billion or 6 percent, compared to the revised budget estimate of P51.8 billion.
The future of Botswana’s largest copper and silver operation, Khoemacau Copper Mining, looks promising as the new owners, MMG Group, commit to the mine’s expansion plans. MMG, an Australian headquartered company owned by China, has expressed its dedication to doubling Khoemacau’s production and transforming it into one of the most significant high-grade copper operations in Africa.
Nan Wang, the Executive General Manager for Australia and Africa at MMG, stated that while the immediate focus is on maintaining a consistent production level of 60ktpa, there are solid plans to increase Khoemacau’s production capacity. The company aims to double its production from 3.65Mtpa to 8.15Mtpa, resulting in an increase in payable copper from approximately 60ktpa to around 130ktpa.
To achieve this expansion, Khoemacau has completed a pre-feasibility study on the project and a solar power initiative. The next step is to conduct a feasibility study, which will pave the way for increased production capacity. Additionally, Khoemacau has identified extensive exploration opportunities across its license area, positioning the company for an exciting new phase of development.
The current Khoemacau operation reached full production and nameplate capacity in December 2022, following over a decade of investment totaling over P10 billion. This significant investment allowed for an intense exploration program, resulting in the development of the most automated underground mining operation in Botswana. The first concentrate was produced in June 2021, and the product entered the export market in July of the same year. Throughout 2022, the company has been working on the pre-feasibility study for the expansion project, with the feasibility study scheduled for the following year.
The expansion plans will involve the construction of a new world-class process plant in Zone 5, where the current mining of ore takes place. This new plant will be larger than the existing one in Boseto, which currently receives ore from Zone 5. The expansion will also involve the development of new underground mines, including Mango, Zone 5 North, and Zeta North East. These additional mines will bring the total number of underground shafts at Khoemacau to six. The ramp-up of production from the expansion is expected to occur in 2026.
Khoemacau, which acquired assets in the Kalahari Copper Belt after the liquidation of Discovery Metals in 2015, currently employs over 1500 people, with the majority being Batswana. The Khoemacau Mine is located in north-west Botswana, in the emerging Kalahari Copperbelt. It boasts the 10th largest African Copper Mineral Resource by total contained copper metal and is one of the largest copper sedimentary systems in the world outside of the Central African Copperbelt.
The mine utilizes underground long hole stoping as its mining method and conventional sulphide flotation for processing. Resource drilling results have shown the existing resources to have continuity at depth, and there are several exploration targets within the tenement package that have the potential to extend the mine’s life or increase productivity.
The Zone 5 mine has already ramped up production, and further expansion in the next five years will be supported by the deposits in the Zone 5 Group. The estimated mine life is a minimum of 20 years, with the potential to extend beyond 30 years by tapping into other deposits within the tenement package.
In conclusion, the commitment of MMG Group to Khoemacau’s expansion plans signifies a bright future for Botswana’s largest copper and silver operation. With the completion of pre-feasibility and feasibility studies, as well as significant investments, Khoemacau is poised to become one of Africa’s most important high-grade copper operations. The expansion project will not only increase production capacity but also create new job opportunities and contribute to the economic growth of Botswana.
Khoemacau Copper Mining, a leading copper mining company, has recently announced its acquisition by MMG Limited, a global resources company based in Australia. This acquisition marks a significant milestone for both companies and demonstrates their commitment to continued investment, growth, and sustainability in the mining industry.
MMG Limited is a renowned mining company that operates copper and other base metals projects across four continents. With its headquarters in Melbourne, Australia, MMG has a strong track record in mining and exploration. The company currently operates several successful mines, including the Dugald River zinc mine and the Rosebery polymetallic mine in Australia, the Kinsevere copper mine in the Democratic Republic of Congo, and the Las Bambas Mine in Peru. MMG’s extensive experience and expertise in mining operations make it an ideal partner for Khoemacau.
MMG’s commitment to sustainability aligns perfectly with Khoemacau’s values and priorities. Khoemacau has always placed a strong emphasis on safety, health, community, and the environment. MMG shares this commitment and applies the principles of good corporate governance as set out in the Corporate Governance Code of the Hong Kong Listing Rules. As a member of the International Council on Mining and Metals (ICMM), MMG adheres to sustainable mining principles, ensuring responsible and ethical practices in all its operations.
Over the past 12 years, Khoemacau’s current shareholders have made significant investments in the development of the company. With approximately US$1 billion deployed in the project, Khoemacau has successfully transformed from an exploration and discovery phase to a fully-fledged operating copper mine. The completion of the ramp-up of the Zone 5/Boseto operations has set the stage for the next phase of expansion.
With the acquisition by MMG, Khoemacau is poised for an exciting new chapter in its development. The completion of a pre-feasibility study on the Khoemacau expansion and a solar power project has paved the way for increased production capacity. The feasibility study will be the next step in doubling the production capacity from 3.65 million tonnes per annum (Mtpa) to 8.15 Mtpa, resulting in a significant increase in payable copper from approximately 60,000 tonnes per annum (ktpa) to 130,000 ktpa. Additionally, Khoemacau has extensive exploration opportunities across its license area, further enhancing its growth potential.
The CEO of Khoemacau, Johan Ferreira, expressed his gratitude to the current owners for their stewardship of the company and their successful transformation of Khoemacau into a fully operational copper mine. He also highlighted the company’s focus on the expansion study and its vision for the future with MMG. Ferreira emphasized that the partnership with MMG will ensure Khoemacau’s long-term success, delivering employment, community benefits, and economic development in Botswana.
MMG Chairman, Jiqing Xu, echoed Ferreira’s sentiments, stating that the acquisition of Khoemacau aligns with MMG’s growth strategy and vision. Xu emphasized MMG’s commitment to creating opportunities for all stakeholders, including shareholders, employees, and communities. He expressed confidence in Khoemacau’s expansion potential and the company’s ability to realize its full potential with the support of MMG.
The sale of Khoemacau to MMG is subject to certain conditions precedent and approvals, with the expected closing date in the first half of 2024. This acquisition represents a significant step forward for both companies and reinforces their commitment to sustainable mining practices, responsible resource development, and long-term growth in the mining industry.
In conclusion, the acquisition of Khoemacau Copper Mining by MMG Limited signifies a new era of investment, growth, and sustainability in the mining industry. With MMG’s extensive experience and commitment to responsible mining practices, Khoemacau is well-positioned for future success. The partnership between the two companies will not only drive economic development but also ensure the safety and well-being of employees, benefit local communities, and contribute to the overall growth of Botswana’s mining sector.
The Botswana Power Corporation (BPC) has taken a significant step towards diversifying its energy mix by signing a power purchase agreement with Sekaname Energy for the production of power from coal bed methane in Mmashoro village. This agreement marks a major milestone for the energy sector in Botswana as the country transitions from a coal-fired power generation system to a new energy mix comprising coal, gas, solar, and wind.
The CEO of BPC, David Kgoboko, explained that the Power Purchase Agreement is for a 6MW coal bed methane proof of concept project to be developed around Mmashoro village. This project aligns with BPC’s strategic initiatives to increase the proportion of low-carbon power generation sources and renewable energy in the energy mix. The use of coal bed methane for power generation is an exciting development as it provides a hybrid solution with non-dispatchable sources of generation like solar PV. Without flexible base-load generation, the deployment of non-dispatchable solar PV generation would be limited.
Kgoboko emphasized that BPC is committed to enabling the development of a gas supply industry in Botswana. Sekaname Energy, along with other players in the coal bed methane exploration business, is a key and strategic partner for BPC. The successful development of a gas supply industry will enable the realization of a secure and sustainable energy mix for the country.
The Minister of Minerals & Energy, Lefoko Moagi, expressed his support for the initiative by the private sector to develop a gas industry in Botswana. The country has abundant coal reserves, and the government fully supports the commercial extraction of coal bed methane gas for power generation. The government guarantees that BPC will purchase the generated electricity at reasonable tariffs, providing cash flow to the developers and enabling them to raise equity and debt funding for gas extraction development.
Moagi highlighted the benefits of developing a gas supply industry, including diversified primary energy sources, economic diversification, import substitution, and employment creation. He commended Sekaname Energy for undertaking a pilot project to prove the commercial viability of extracting coal bed methane for power generation. If successful, this initiative would unlock the potential of a gas production industry in Botswana.
Sekaname Energy CEO, Peter Mmusi, emphasized the multiple uses of natural gas and its potential to uplift Botswana’s economy. In addition to power generation, natural gas can be used for gas-to-liquids, compressed natural gas, and fertilizer production. Mmusi revealed that Sekaname has already invested $57 million in exploration and infrastructure throughout its resource area. The company plans to spend another $10-15 million for the initial 6MW project and aims to invest over $500 million in the future for a 90MW power plant. Sekaname’s goal is to assist BPC in becoming a net exporter of power within the region and to contribute to Botswana’s transition to cleaner energy production.
In conclusion, the power purchase agreement between BPC and Sekaname Energy for the production of power from coal bed methane in Mmashoro village is a significant step towards diversifying Botswana’s energy mix. This project aligns with BPC’s strategic initiatives to increase the proportion of low-carbon power generation sources and renewable energy. The government’s support for the development of a gas supply industry and the commercial extraction of coal bed methane will bring numerous benefits to the country, including economic diversification, import substitution, and employment creation. With the potential to become a net exporter of power and a cleaner energy producer, Botswana is poised to make significant strides in its energy sector.