Which way Botswana - east or west?

| Thursday February 2, 2012 00:00

At some point this year, the Government of Botswana and its neighbours will probably have to make a decision that will shape the economic future of the country and the region and result in by far the biggest infrastructure investment in Botswana's history.

The question the leadership will face is the direction of the new proposed railway to the coast - should it be to the Atlantic Ocean, i.e. the Trans-Kalahari route to Walvis Bay in Namibia, or to the Indian Ocean via Zimbabwe to Southern Mozambique?

Throughout the latter part of the 20th Century, a railway to the coast was geo-politically impossible because of the liberation struggles and civil wars. It was not until the end of apartheid in 1994 that a new railway was even geo-politically feasible. But geo-politics does not pay for a $10 billion railway line. You need to move either large numbers of people or large volumes of goods. Neither were in abundance and what Botswana principally exports, diamonds, could be taken out in suitcases. Moreover, what Namibia imports from SA could largely come across the Kalahari by road or by sea. As a result, a trans-Kalahari railroad has remained a dream even after the end of apartheid.

Two things have happened that have created a commercial basis for a new direct railroad from Botswana to the ocean. First is the discovery of one of the richest 'green fields' coal reserves in the world. Botswana has what is estimated to be a resource of 212 billion tonnes of coal. At present, 77 percent of that is still in the so-called hypothetical and speculative categories, which means that no-one really knows if it is commercially viable. But even the announcement of the construction of a railroad would lead to a rush of further exploration. There are currently four known very large multi-billion tonne coal deposits on the eastern edge of the Central Kalahari Karoo Basin at Morupule, Mmamabule, Sese and Mamantswe. Together these four deposits could alone result in exports of what government officials believe could be up to 90Mt per annum, an export industry larger than that of South Africa's 70Mt in 2010. Some of these deposits have been known for many decades but the second factor that has changed is coal prices, which have now risen so dramatically on world markets over the last decade that exporting coal from the Central Kalahari to India or even China would prove profitable with a new and efficient railroad. At present, there are two competing projects for a railroad across southern Africa. Both proposals have private sector backers and both want to develop the project as a concession on a private basis. CIC Energy, which owns the huge Mmamabula deposit, supports the Trans-Kalahari route. The alternative route to Ponta Techobanine in Mozambique also has private sector backing from three consortia of companies based in Botswana, Zimbabwe and Mozambique for a railroad that follows the Limpopo valley down to the Indian Ocean. The Ponta Techobanine route avoids South Africa completely because shipping coal across the shorter, more direct route to Richards Bay or Durban would mean crossing Waterberg and Drackensberg mountains. Shipping coal downhill along the Limpopo is simply cheaper. Both routes are problematic, and whatever decision the Government of Botswana makes, someone will end up very unhappy. If the government goes ahead with the Trans-Kalahari Railway to Walvis Bay, this will involve taking coal 1,500km across the Kalahari and Namib Deserts. The Ponta Techobanine route is 400km shorter than the alternative route to Namibia. Moreover, when the coal arrives at Walvis Bay, it will be located on the 'wrong ocean,' i.e. the Atlantic, when the entire coal market is in India and China. The proponents of the Walvis Bay route say that this will not substantially affect the landed price of the coal. But the problem of the trans-Kalahari route is compounded by the fact that Walvis Bay is also not a natural deepwater port and would have to be significantly dredged to allow bulk coal carriers. Moreover, Walvis Bay is a vital fishing port for Namibia, and when asked whether they are ready to live with environmental risks of shipping 90Mt of coal to the dry and windy Namibian coast, officials appear less than enthusiastic.

When you ask some of the proponents of the trans-Kalahari route why they want to ship coal further to the wrong ocean, the answer is generally one word - Zimbabwe. The prospect of coal contracts and what will certainly be Botswana's second largest export after diamonds being subject to the political vagaries of the situation in Zimbabwe puts many investors off. The sovereign risk of such a route is substantial and may well be the one factor that tips the scales against the more commercially obvious Indian Ocean route. Yet the most attractive aspect of the Ponta Techobanine proposal is that its proponents have said quite clearly that they do not want one pula of government money.

However, under the Ponto Techobanine proposal, high quality cooking coal from Sengwe in Northern Zimbabwe bound for the Indian Ocean would cross the Botswana border to the rail hub at Selebi-Phikwe in Botswana, hence both countries would be dependent on the continuation of open borders. But the Ponta Techobanine proposal also has environmental issues. The railroad traverses the international Lubombo Transfrontier Conservation Area and the Maputo Elephant Reserve, and South Africa, which has considerable interests in coal exports to and from the nearby Ports of Durban and Richards Bay, has reportedly expressed serious concern about the environmental impacts of the proposal.

The importance of a new wide-gauge heavy railway is however far greater than simply allowing the export of coal from Botswana and Zimbabwe. While all the countries of southern Africa have railway networks that are of generally low standard and high cost, they nominally connect. In theory, it is possible to ship coal on the existing narrow Cape Gauge railways, but they would never be able to carry the 90Mt that Botswana hopes to export. What the new railway also offers is potentially a way of bringing imports from the Indian Ocean coast to Botswana at a much lower cost than is currently possible.

The proponents of the Techobanine route suggest that the connection can bring a 40foot container to the dry port of Selebi-Phikwe for USD600. This would change transport economics in the region and do more for Botswana's third largest town, which has been on death's door for 20 years because of the expected end of copper mining, than any government programme.

Whichever route is taken will make the other financially not viable for the foreseeable future, and so the geo-political implications of any decision will be hard. Go to the Indian Ocean and you offend Namibia, which really wants the Trans-Kalahari; go to the Atlantic and you exacerbate relations with Zimbabwe and annoy Mozambique.

This issue has all the makings of one of those inter-generational impasses with many bureaucrats and ministers having many meetings over many years. However, the very economics that makes what was a commercial pipedream 20 years ago - shipping coal from the Kalahari to India - is what militates against what bureaucrats call 'a sustained reflection'.

Generating electricity from coal is a 19th century technology that is not in political favour because of global warming. Given the frenetic pace of economic growth in India and China, thermal coal plants keep mushrooming there on an almost a monthly basis, thereby guaranteeing an import market for coal for the next 30 years.

The high prices of coal that make a $10billion railway to the coast financially possible also has two known economic effects. First, Botswana is not the only country eyeing the expanding Indian and Chinese coal markets - Mozambique, Russia and Columbia are all interested, along with traditional exporters like South Africa, Australia and Indonesia.

Asian demand for coal will create a global supply and Botswana will, despite good reserves, by virtue of location, be a high cost supplier. All this interest in coal exports to Asia creates a serious potential for over-supply of coal in the 2020s. Second, the high coal prices make modern 21st Century technologies commercially viable. It will take roughly 10 to 15 years to build and break even on a railway to the coast.

In the US, on-shore wind power is already on price parity with electricity generated by coal, and given the pace of technical change, solar power is expected to reach price parity with coal by 2020, which unsurprisingly corresponds to the Durban deadline for a new treaty on Greenhouse gas emissions. If Botswana and its neighbours do not decide soon upon the railway, they will literally miss the boat to China and the huge coal reserves of the country may become of no commercial value.

*Professor Roman Grynberg is a senior research fellow at the Botswana Institute for Development Policy Analysis. This article reflects his personal views and is not in any way connected to the official position of BIDPA.