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First catch your Eland

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  1. 1. Coal Transportation Africa Summit 19 - 20 May 2015 Indaba Hotel First Catch your Eland - or . . The San bushmans wisdom on planning coal export railways Andrew Marsay Transport Economist "Aligning financial cost with real economic value"
  2. 2. The theme of this talk . . . African economies face unparalleled opportunities to host inward investment in mining, agriculture and even industry Although funding is often a constraint, funding opportunities, or concessions, are frequently confused with viable projects This results in premature celebration of success or misguided views about what a fundable infrastructure project looks like! This talk aims to: define the problem, give examples of it, and draw lessons for better project structuring in order to avoid it Andrew Marsay Transport Economist "Aligning financial cost with real economic value"
  3. 3. But first, whats all this about an eland? The wisdom of the San bushmen caught the imagination of writer, Laurens van der Post Living so close to death, the San viewed immediate interests in the context of lifes bigger picture Just like us, they would dream about enjoying a good party! But, unlike us modern Africans, they could tell the difference between dreams and reality . . . Hence, First catch your eland before calling everyone to party!
  4. 4. 1. Defining the Problem Andrew Marsay Transport Economist "Aligning financial cost with real economic value" First night parties vs. whole life parties the problem of IMPATIENCE or, the inability to distinguish dreams & reality! Following your heart vs. following your head the problem of FEAR or, balancing political security and economic viability
  5. 5. IMPATIENCE We have the concession to develop a new bulk port; and agreement to traverse our neighbours railway network China is (was!!) growing at 8% p.a. so 100 million tonnes can be exported. India is on the way to China. Were made! The consultants say its an ideal opportunity and, with basic technical testing, the big money will follow the current funds So, lets call the general,form a working committee, appoint ourselves as Board members, agree the salaries, and PARTY!
  6. 6. FEAR The way that countries decide on infrastructure solutions often reflects historical misperceptions - or bad experiences South Africa thinks that the 1986 De Villiers Report caused dis-investment in rail. Hence fear of under-investment in rail Zimbabwe: BBR concession led to corporate profit, but ran down state infrastructure. Hence new fear of rail concessions Botswana: All our N-S rail transit trade was lost when SA went with the BBR route. Hence fear of dependence on SA Andrew Marsay Transport Economist "Aligning financial cost with real economic value"
  7. 7. 2. Illustrating the Problem Andrew Marsay Transport Economist "Aligning financial cost with real economic value" From dashed dreams to delayed dreams? - Lessons about impatience from MOZAMBIQUE's coal export options saga From daunting dreams to deliverable dreams? - Lessons about fear from BOTSWANA's coal export options problematique
  8. 8. MOZAMBIQUE 1: dashed dreams Original Sena Line upgrade not based on Tete coal resources, yet mining investors relied on its bulk coal export potential When the scale of the coal bonanza was realised, miners had to make new plans; Government knew they were in a corner! Many plans for new lines have been promoted and some even designed. Concession bonanza replaces coal bonanza! Many firms dreams of translating their coal holdings into profits have turned into commercial nightmares instead. Andrew Marsay Transport Economist "Aligning financial cost with real economic value"
  9. 9. MOZAMBIQUE 2: delayed dreams? To stay or not to stay; that was the question! But, for those with big investments, a solution HAD to be developed. How? Vale runs bulk infrastructure in Brazil. But in Mozambique they realised they must build the institutional infrastructure! The first reality to face was that Beira could not support the volumes needed for viability; Nacala was the obvious port So, Vale has built partnerhsips with CFM,CEAR, Provincial and local communities for a delayed but viable bulk export dream Andrew Marsay Transport Economist "Aligning financial cost with real economic value"
  10. 10. BOTSWANA 1: daunting dreams How do you value thermal coal that is over 1,000km from the coast? It might as well be on the moon; Its just dirt But Botswana is planning for the day that its diamond wealth runs out; this means they must dream big dreams The last thing Botswana wants is to be dependent on its big neighbour whose track record does not commend trust So, Botswana is going with its Trans Kalahari Railway. Namibia agrees; geology supports it; so the daunting dream is feasible Andrew Marsay Transport Economist "Aligning financial cost with real economic value"
  11. 11. Botswana 2: deliverable dreams? The CBA study has suggested that, at 50-60mtpa, a line could deliver an affordable tariff. Engineering is tough but feasible Agreement on all institutional aspects is imminent, if not complete. The door appears to be opening for a viable line But there are some questions: Have any miners committed their balance sheets? Can rapid ramp up to 50mt be achieved? To be deliverable there will need to be named stakeholders whose survival depends on the project going ahead. Who?? Andrew Marsay Transport Economist "Aligning financial cost with real economic value"
  12. 12. 4. Lessons for better project structuring TECHNICAL VIABILITY - requires more than good engineering ECONOMIC VIABILITY - requires attributable assumptions INSTITUTIONAL VIABILITY this may have to be created FUNDING VIABILITY about appetite to manage the risks Andrew Marsay Transport Economist "Aligning financial cost with real economic value"
  13. 13. TECHNICAL VIABILITY Technical viability without whole life stakeholders is no use Technical viability independent of markets is no use. (TKR?) Engineering design needs to be part of project structuring Design to market principles will increase project deliverability Andrew Marsay Transport Economist "Aligning financial cost with real economic value"
  14. 14. ECONOMIC VIABILITY Economic viability is a fluid concept; if this then that The assumptions underlying the numbers are the real test Economic assumptions are ultimately a matter of commitment So the key question is: WHO is going to back the numbers? Andrew Marsay Transport Economist "Aligning financial cost with real economic value"
  15. 15. INSTITUTIONAL VIABILITY Is there sufficient legal robustness to protect the contracts? Will the business model needed for economic viability fly? Do the stakeholders in the deal REALLY, REALLY need it? If not, there will be no incentive to overcome showstoppers Andrew Marsay Transport Economist "Aligning financial cost with real economic value"
  16. 16. FUNDING VIABILITY Is there realistic hope of an affordable tariff being achieved? Can a revenue stream to cover whole life costs be achieved? Are there any collateral projects to mitigate export sales risk? Can exposure of private funding institutions be balanced? Andrew Marsay Transport Economist "Aligning financial cost with real economic value"
  17. 17. SO, IN CONCLUSION . .
  18. 18. THEN, and only then . . . ENJOY THE PARTY!