Australian based Trans Kalahari railway line consultants, Aurecon, last week Thursday, handed over to Botswana Government, a preliminary assessment of the viability and modalities surrounding the development of the rail line.
The report titled ‘Trans-Kalahari Railway Preliminary financial and commercial assessment’ was prepared by Tom Frost and Ben Ellis dated 11 December 2014. This report precedes a final assessment report that will be presented in January next year.
The purpose of the assessment was to determine the commercial viability of Botswana coal mines if they were to use the envisaged Trans Kalahari Railway line where various TKR development scenarios were considered and sensitivity analysis was performed on all key inputs.
The 1477 kilometers railway line will run from Mmamabula through six coal producing regions in Botswana, to Walvis Bay, Namibia.
KEY FINDINGS First, the rail related costs are particularly sensitive to assumptions with respect to WACC, gauge and below rail capex costs thus: The major impact policy makers can have on the project costs is through the choice of route and gauge. The optimised route is only 124km -less than 10 percent shorter- than the Government of Botswana route but the longer route is estimated to be nearly $2 per tonne higher. A move to narrow gauge would increase costs by around $3 per tonne primarily through higher above rail operating costs. Accessing cheaper investor capital would also improve the viability of the railway significantly
Secondly, the results are also very sensitive to assumptions with respect to mine operations
Last, consultants say ramp up is a major risk for project investors and miners. If all miners are not able to ramp up production from 65 to 95 Mtpa to full production in seven years costs will increase significantly
RISK FACTOR The major risk factor and potential upside is with respect to sale price of coal, the report says.
To achieve the target export sale quality, it is likely that miners will use underground mining techniques.
“Botswana coal typically is deposited in a number of seams at varying depths; Coal quality varies across these seams, with the higher quality coal typically lower in the deposit; At a high level two mining techniques are typically considered; Underground (bord and pillar).”
The report states that Underground mining will be more expensive at approximately $25 per tonne ROM, but miners are able to target only the best seams and it yields a higher proportion of coal per tonne of ROM lower the proportion of waste from the mining
A major disadvantage of underground mining bord and pillar mining, however is that it leaves more than 30 percent of the coal behind, as pillars and therefore a much larger resource is required for any given output level.
Open cut is cheaper at approximately $12 per tonne ROM but miners clear all seams and it produces a significant amount of waste product and low quality coal.
BENEFITS OF THE RAIL LINE The railway line is expected to unlock the monetisation of Botswana’s coal resources, which are seen as a way to augment the depleting diamond resources that have been the mainstay of the country’s economy. Aurecon has given the resultant capital expenditure costs at a total of USD14.2 billion, comprising USD8.6 billion for electrified rail, and USD1.9 billion for above rail, and USD3.6 billion for the port.
The “Pre-Feasibility Study of the TKR Report” prepared by Canadian firm, CPCS in 2011, contained capital and operating costs estimates for the rail and port but the new assessment by Aurecon is said to be 90 percent different due to several considerations such as: A high level review of these costs has been undertaken as a result of a number of issues: changes to the construction market since 2011; changes in operating philosophy of the rail, and proposed enhancements to the project.
“Lower capex possible however will result in higher operating costs, and overall higher whole-of-life costs,” states the report.
There are two coal quality options that policy makers will be faced with, Option 1 being Richard Bay benchmark export which has middlings, and Option 2 which is lower than Richard Bay quality coal, little or no middlings.
Benchmark quality export coal can be produced but only if there is a domestic market for the low quality ‘middlings’ by product while producing a lower quality export coal (~5,500 c/kg) middlings production is eliminated or minimized.
Botswana possesses substantial coal deposits of 212 billion tonnes, the majority of which are low grade. Under favourable conditions, and until solar power becomes a feasible option for supplying base load electricity, this coal could be either exported or used for local regional electricity production and consumption. Electricity shortages impose a considerable constraint on economic growth in sub-Saharan Africa. This strengthens the argument for local production of coal-fired electricity, especially if regional fossil fuel supplies are integrated in a technologically adept manner to ensure economies of scale. However, coal extraction for either export or local production is environmentally costly despite advances in technology.
The alternative is for Botswana to export its coal, which would attract immediate export revenue. This is unlikely to create sustainable economic diversification, though. Botswana is landlocked and lacks available transport infrastructure to facilitate exports of such a scale, weakening the argument for this option.
The high quality export/middlings option is potentially attractive to miners if the middlings can be sold to a relatively close power station because it maximises the price achieve for export coal and minimised the proportion of output that has to be transported to a port
If all the miners took this strategy a much higher ROM output would be required if 60mtpa of export coal were to be produced and the middlings output would be in the order of 20mtpa. Current domestic Botswana electricity demand can be satisfied by under 2mpta of coal. It is not expected that the market will expand sufficiently to be able to provide a market for high volumes of middlings. If the middlings are not sold then the average cost of producing benchmark export coal will rise by 20 percent to 30 percent and become uneconomic. As a result it is anticipated that the majority of producers will blend to produce a higher volume mid range ~5,500 c/kg.
The Richards Bay has been used to benchmark potential Botswana coal products and estimate a sale price, which at the moment stands at US$ 65 per ton, a five year low. Botswana’s Export quality coal with 20 percent ash and 5500kcal/kg is estimated to sell at US$60 per ton, with expected price increases forecast for the next ten years.
Price variations from this benchmark are calculated based on a wide range of factors including, caloric value, sulphur content, ash and moisture levels.
A primary problem is that demand for Botswana’s coal is not guaranteed. The International Energy Agency’s (IEA) ‘Annual Energy Outlook 2014’ foresees a general shift away from carbon-intensive fuels for electricity generation, though that may largely be restricted to the Organisation for Economic Co-operation and Development (OECD) countries.
A 2014 statistical review by British Petroleum, the global energy giant, shows that total world coal consumption in 2013 was the equivalent of 3 826 million tonnes of oil (Mtoe), up from 2 342 Mtoe at the turn of the century. Much of this growth is primarily generated by non-OECD countries.
However, increasingly competing with coal and cohering with the IEA assessment, consumption of ‘other renewables’ was up to 279.3 Mtoe from only 51.8 Mtoe in 2000. In the absence of globally binding policies to mitigate climate change, though, the EIA still projects coal consumption to increase at an average rate of 1.8 percent per year through 2040 in non-OECD countries. Coal’s share of fuel consumption for electricity will only decline from 43 percent in 2010 to 37 percent in 2040.
Furthermore, Aurecon has identified a number of alignment improvements that will reduce the length by a total of approximately 108km, in addition to the 24km reduction resulting from the GoB enhancement between Mochudi and Kang. However, the PFS Northern Alignment, whilst environmentally and socially superior to the Southern Alignment, adds significant costs to the supply chain.
“Considering the economics of exporting coal from Botswana, it is critical that (whole-of-life) costs be minimised – optimising the alignment provides the greatest opportunity in this area,” stated the report.
DIESEL OR ELECTRIC TRAINS? The debate around whether to employ diesel or electric locomotives on the Trans Kalahari Highway will be decided on various factors, including environmental and long term cost concerns.
Electrification of the envisaged railway line provides several additional benefits such as: Opportunity to convert coal unsuitable for export to power; Provides additional high value link to Namibia; SADC region projected to experience continued shortfall in power; Electricity generation from own resources provides significant balance of payments benefits compared to importing up to 450 million litres of diesel fuel each year; Improved supply security – not reliant on external suppliers for a critical input and cleaner, quieter operation compared with diesel locomotives
RISKS TO THE PROJECT There remain various latent risks to the project such as : Loss of the project to a major resource player whereby a major coal developer possibly seeks to take control of the project once the Botswana Government has invested significantly to initiate the project; Major User seeks to dictate terms favourable to them; Low coal price – non-viable project; Principal driver for the project is the commercial viability of export coal; Timing as a critical issue with the project being delivered at a time when the market can sustainably support it; Land acquisition and negotiations and approvals, though not a concern for the majority of the alignment of the TKR, the revised alignment has a significant impact upon the viability of the project and might bring the TKR closer to populated or developed areas; Project timing with resource projects gearing up for the next wave bringing Botswana and Namibia domestic resources and workforce to develop this project.
Finally, the Walvis Bay Export Terminal development faces a risk of running slow or capability of Walvis Bay developers to meet the timeline of the TKR as it must be considered within and as part of the total export supply chain Walvis Bay Export Terminal fails to develop, the rail is unlikely to proceed.
The finalisation of the Development Plan for the Trans Kalahari Railway line will be possible after the following are completed: Finalisation of Supply Chain Infrastructure; Master Plan mapping of clusters and connections to copper/manganese; Finalisation of the commercial model assessment for the TKR; Incorporating the commercial outcome from the mine to ship modelling; Finalisation of structure assessment and impact on Government of Botswana; Funding sources identified and the Project Memorandum being developed to engage with the market in the next stage.
The efficiency of the railway line coal supply chain is expected to be maximized by Copper resources in North West Botswana identified to boost TKR viability, Manganese ore resources in southern Botswana identified to add to the viability of the TKR, both these mineral developments (copper and manganese) will add to the diversification of Botswana’s GDP. Mineral resources along the TKR corridor in Namibia have the ability to further improve the viability of the TKR.
In the coming months prices will go up and inflation will shoot sharply above the target of 3 percent to 6 percent towards the third quarter of 2021, the Bank of Botswana on the other hand will continue to withhold its knife on the Bank Rate. This is according to a forecast made by Kgori Capital in its recent Market Watch Segment.
Statistics from Statistics Botswana show that the recent 1.8 percent increase in the September inflation, from 1 percent in August, was a reflection of the upward adjustment in public transport fares (Transport (from -6.9 to -3.9 percent) in September 2020, which is estimated to have increased inflation by approximately 0.64 percentage points.
Local anti-trust body, Competition and Consumer Authority (CCA), this month received back to back acquisition proposals from South African clothing retailers to wipe out their former rivals, Edcon, from Botswana malls.
Last week BusinessPost was in possession of Merger Notice No 23 of 2020 whereby a South African clothing retailer owner, Retailability Proprietary Limited, through Oclin Proprietary Limited, proposed to acquire parts of the Edgars business conducted by Edcon in Botswana (through Edcon Botswana), as a going concern, consisting of certain assets and identified liabilities.
South African government’s Business Rescue Practitioners earlier this year announced that Retailability will buy Edgars, after the latter filed for a business rescue plan in April after it failed to pay suppliers. This move will see Retailability add Edgars to its portfolio consisting of brands such as; Legit, Beaver Canoe and Style.
Retailability landed on Botswana shores 18 years ago with its flamboyant urban fashion Style which had 17 stores. Style, having almost the same target market as Edgars as it offers men’s and ladies’ contemporary and formal fashion, gave the 91 year old legendary clothing retailer a run for its money, and has won the battle as its parent company has taken over Edgars.
Retailability brands are synonymous with Botswana shopping centres and there are currently five (5) Beaver Canoe stores, 10 Style stores and seven (7) Legit stores across this country. The Beaver Canoe stores sell clothing apparel for men and boys only. The Legit stores have a fashion store format which focuses on the retailing of clothing, footwear, accessories, colour cosmetics and cellular products.
Retailability operates in over 460 stores across South Africa, Namibia, Botswana, Lesotho, and Eswatini. Many observers suggest that because of the deal with Retailability to swallow Edcon, most Edgars stores in Botswana will change their name and be branded Style. A sad tale for religious consumers of the Edgars trademark who got used to love their favourite brand for years.
According to CCA’s Merger Notice No 23 of 2020, Retailability is controlled by Clifford Raymond Lines (through a company which functions solely as a holding company of his interests in Retailability) and Metier Investment and Advisory Services Proprietary Limited (“Metier”). Metier is a private equity enterprise with investments in a number of industries spanning from healthcare, hospitality, FMCGs and telecommunications.
Retailability directors are mostly South Africans; Clifford Raymond Lines, Mark Richard Friday and Norman Victor Drieselmann. Only Nasreen Essack, who was appointed February this year, is a Motswana. He comes after Brian Thuto Tsima left on the same date. Retailability 100 percent owns Oclin Proprietary Limited, the company it is acquiring Edgars with, by a capacity of 3000 shares.
The target business, Edgars, offer textiles, cosmetics and cellular products. Edcon has a Motswana director, Charles Mzwandile Vikisi, a South African, Shane Van Niekerk and Zimbabwean Jethro Kamutsi.
“The Target Business comprises of two (2) Edgars franchise brands and private label stores across Botswana. These stores target middle to upper income customers and are home to a range of private label brands such as Free2BU, Charter Club and Stone Harbour, and a wide range of market label brands (such as Levi’s and Guess) for clothing, footwear and cosmetics.
In addition, the Target Business operates iconic Edgars Home and Edgars Beauty stores as store-in-store formats rounding out the department store offering in Botswana,” said CCA. Foshini also lines up to take Jet Botswana from Edcon.
The Foschini Group (TFG) released a statement confirming its latest intentions to acquire Edcon assets or Jet for a cash purchase consideration of R480 million. This was after the business rescue practitioners offered TFG to buy Jet by that amount.
CCA is currently mulling on a proposed merger by TFG to take over Jet operations in Botswana. Merger Notice No 21 of 2020 from TFG came a few days before the Retailability proposal. In this merger TFG, acting through Foschini Botswana, want to take over “parts” of the Jet business conducted by Edcon through Jet Supermarkets Botswana.
TFG will be willing to add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents. TFG will also get Jet’s distribution centre located in Durban and certain stores in Botswana, Lesotho, Namibia and Eswatini. Also part of this fat deal is that the company is looking to also acquire JET Club and all existing JET stock of no less than R800 million.
Johannesburg listed TGF owns Foschini Retail Group which owns the local operations called Foschini Botswana, the acquiring enterprise according to CCA merger notice. “TFG is not controlled by any enterprise/s and for completeness, the three largest shareholders of TFG holding shares greater than 5% as at 27th March 2020 are: Government Employees Pension Fund (16.2%) Public Investment Corporation (13.2%); Old Mutual Limited (6.7%); and Investec Asset Management (6.3%). The remaining issued share capital in TFG is widely held,” said the merger notice.
Only Abdool Rahim Khan is a Motswana in the Foschini Botswana directorship, the rest; Ganeswari Shani Naidoo, Anthony Edward Thunström and Gustav Jansen (alternate director) are South Africans.
According to the CCA merger, the Jet Business is Edcon’s discount department store division, selling clothing, footwear, homeware and some cosmetics as well as cellular products and targets lower-to-middle income consumers throughout Botswana. The Jet Business does not directly or indirectly control any enterprises, says the notice. CCA seeks any stakeholder views for or against the proposed merger, which may be sent within 10 days from date of this publication to the following address.
Botswana Communications Regulatory Authority BOCRA signed a memorandum of Agreement (MoA) with the Ministries of Transport and Communications (MTC), Basic Education (MoBE) as well as Local Government and Rural Development (MLGRD).
The MoA seeks to continue the collaboration that dates back to 2016 when the three parties first agreed to work together in a project aimed at computerizing and providing broadband Internet to primary schools in remote and underserved areas of Botswana.
The project benefitted 68 primary schools and 9 secondary schools through the construction of Local Area Network (LAN) in each primary school, provision of 5 Mbps dedicated broadband Internet to each Primary School and provision of Wi-Fi enabled tablets, laptops and related peripherals such as printers and copiers.
Further, the project will see the augmentation of computers in 9 Junior Secondary Schools with 30 laptops per identified school and employment of Information Technology (IT) officers at each primary school.
When speaking at the signing ceremony in Gaborone, Chief Executive of BOCRA and Chairperson of Universal Access and Service Fund (UASF) Board of Trustees Martin Mokgware said the project’s ultimate goal is to facilitate pupils in schools and host villages to be able to play a meaningful role in the digital economy.
Mokgware indicated that this necessitates upgrading of existing Telecommunications infrastructure to high capacity broadband that will support delivery of education, accessibility to the quality Internet and usage of ICTs.
The Fund began its inaugural programme by sponsoring the provision of WiFi hotspots in public areas around the country as its first project. Following the successful implementation of public WiFi hotspots, the Fund identified Kgalagadi, Ghanzi and Mabutsane areas for mobile network upgrades, schools computerization and internet provision.
Conscious that the project would not be possible without buy-in and support from MoBE, MTC and MLGRD, the Fund facilitated the signing of the first MoU between the three parties in 2016 for implementation of the project.
BOCRA Chief Executive said the signing of this agreement is aimed at benefitting the Kweneng District, adding that they have already assessed the area and have determined that they will be covering 62 underserved villages and 119 schools, 91 of which are primary schools.
“This is a project for which the partner Ministries need to re-commit for its success. Lessons from the previous schools’ computerization and internet connectivity project require that we increase our involvement and resources dedicated to the project for it to be successful. It is my belief as the project coordinator, that we will not do things the way we did them during the first project, for if we do, then we will not have learnt anything,” he said at the signing ceremony.
The purpose of learning is so that there can be continuous improvement to minimize the length of time and amount of resources utilized, he said expressing confidence that their partners will step up to the plate and ensure they play their part in the implementation of the project and that it will progress smoothly having already tread along a similar path.
UASF’s role lies mainly in funding and project management. According to Mokgware, once the project is completed, the work to integrate ICTs into the classroom begins in earnest. Therefore, he said, the project will not succeed without full cooperation and oversight of partners.
“MoBE will put in place the necessary content and ensure that the curriculum is available to all. MLGRD will provide, among others, the enabling environment by ensuring readiness of the school’s infrastructure and necessary security.”