Foreign investment, SA expertise and support, delivers Mozambique’s $10bn game changer

LONDON — In this special podcast RMB’s head of export financing Inal Henry unpacks an amazing project transforming a previously undeveloped stretch of the SADC region as a giant coal mine and a 912km railway line opens up big chunks of Mozambique and Malawi. – Alec Hogg

This special podcast is brought to you by RMB. In this episode, we are talking to Inal Henry, Head of Export Financing at RMB about an amazing project that lies to the north-east of South Africa. Inal, Mozambique is opening up a huge coal mine – the Moatize Coal Mine. There’s a railway line of 912kms that’s going to be taking the coal to a new port facility that’s been built. It’s an enormous project. Overall thought, when you take the rail line, together with the coal terminal, the entire investment – how much does it come to?

The development of the Nacala Logistics Corridor (that links the Moatize Mine in the Tete Province to the Port of Nacala) cost approximately $5.5bn. The Project was funded through a combination of sponsor support and a consortium of senior banks. The senior debt lending was approximately $2.7bn, while the rest was equity-funded. Of the $2.7bn funding, the South African banks (under an ECIC-supported tranche) advanced $400m. The rest of the funding was advanced by Japanese ECAs (JBIC and NEXI), while the African Development Bank (ADB) contributed $300m.

These are big numbers. You said ECIC. What exactly is that?

The ECIC is South Africa’s National Export Credit Agency. It’s a state-owned company that falls under the Department of Trade and Industry. The ECIC was established by parliament legislation in 2002. It has the exclusive mandate to promote the manufacturing and industrialisation sector of South Africa through the export of capital goods and services. At the moment this support only applies to the export of capital goods and services, not commodity or trade-linked exports. They are however in the process of opening an Exim Bank to help traders and small manufacturers in South Africa.

Inal Henry, Head of Export Financing at RMB.

Sorry, just to get this into some kind of context: this is a mega project in Mozambique. Why would South Africa be involved? Clearly you are. RMB’s involved and the ECIC, which you’ve just explained is involved but where’s the connection?

The connection is South African exporters and suppliers. Mozambique used South African capital goods and equipment, to build the railway line – hence the link from the ECIC to support the project. The quid pro quo to South Africa is that South African services and South African equipment are being used in the project.

So where does RMB come into this?

RMB was a funder under the ECIC tranche. Of the $400m, RMB advanced $113m.

So that’s your money, or money that RMB itself as bank has put in there. What about other banks from South Africa? Were they involved as well?

Absolutely. The other banks involved were Standard Bank of South Africa, Absa Bank Ltd. as well as Investec.

Just unpack the project for us because you’ve got a coal mine in northern Mozambique that was producing under 4 million tons of coal. Then it went up to 5.5 million tons and from the stuff that you’ve shared with me off-air, it’s going to be taken to 18m tons. That’s an enormous development there, but where did it all begin? Who’s behind this?

It began a while ago when the sponsor (Vale, a diversified mining company from Brazil) was awarded the concession or actual mining license for the Moatize Mine to develop the mine and to export coal from that region. They started producing in 2012 when the mine was first producing approximately 3.7 million tons. Part of the problem to expand mine production was the transportation of the coal from the mine to the port for export across the globe. The existing railway line was hugely inefficient, so the Nacala Logistics Corridor Project came to life to upgrade, rehabilitate and rebuild certain sections of the railway line to transport said coal.

The new railway line goes through Mozambique, Malawi to the new port in Nacala where new port handling and terminal facilities have been built. The new railway line not only aids the export of the coal from the wagons that are coming into the port, but to also put them on vessels for export to the rest of the world. The actual project and the one that the banks were involved in was to upgrade, rehabilitate and build the railway link.

912kms – that’s almost Johannesburg to Cape Town. That’s a very long line.

The railway line runs through two jurisdictions – Mozambique and Malawi. The complications from a jurisdictional, legal point of view was quite extraordinary. Apart from the logistical aspect, the Project also involved multiple stakeholders such as the governments from South Africa, Mozambique and Malawi, not to mention previously unattainable regions because the mines are situated in a very inaccessible region.

The railway line and the corridor are so much more than just the export of coal though. It’s about the general upliftment of the region, which is why the project will include passenger services as well as freight services along the line.

What kind of freight might be going along there? Is it an agricultural region?

Apart from the communities along the line, the new activity around the Moatize Mine brought more activity to the area such as agricultural and trading jobs. Sparsely allocated communities and rural communities in the area didn’t have access to trading and shops for the provision of services until the onset of the project. They’re now seeing an influx of that. The project has uplifted and developed the general region along the route.

Stockyard – Moatize coal mine, Mozambique. Photo taken from Vale’s website.

That’s fascinating stuff. A 900km railway line that people can plug into who, in the past, just didn’t have that accessibility. From your side, you’ve been working with the ECIC (the South African entity) but it’s a multinational project. You have Vale in Brazil. You have Mitsui as well. The Japanese are involved in some way.

Yes. The Mitsui is a shareholder of the mine and the corridor. Hence the support from the Japanese banking consortium through their ECAs – JBIC as well as NEXI, the official ECA of Japan.

How long is this mine likely to be in operation? I guess there are many parties who would have assessed the whole project in the first place to put up this kind of money, which I suppose (all around) must be heading towards US$10-bn.

If you consider the mine development process (which was all sponsor-injected), it is a huge amount of money that has gone in. In terms of the mine sustainability there are two factors in play. The first factor is the 30-year concession license and the second the volume and quality of the available resources. We believe that there will be enough resources for a number of years, beyond the tenure of the mining concession. This includes both the availability and quality of the resource.  

Well, if they start off with a concession of 30 years, it gives you an understanding of the impact. Talking about impact, the impact here on the region – certainly, Malawi will benefit as well. One doesn’t normally think that if it’s a Mozambican project that there’ll be Malawian benefits. You’ve also spoken about South Africa enjoying some benefit.

Yes. First and foremost, it is a great employment opportunity for the local people in the region (both in Mozambique and Malawi) because the railway line links them. Secondly there is the accessibility of transport for passengers and goods and services – being transported along that new corridor. The associated development will come in the form of electricity generation and transmission because people living in those areas now are growing their businesses and would therefore need access to electricity and water.

Lots of knock-on effects from it. Have you been involved at RMB in similar projects in the past?

We have. Particularly with the support of the ECIC, we have looked at and funded an independent power producer in Ghana. As with other ECAs and other support, we have also looked at other regional projects in the infrastructure space. The ECIC support is not only limited to infrastructure projects though. Their support is wide-ranging so it includes any sector. Previously the ECIC has supported RMB and another South African bank for a gold-mining project in Liberia. The ECIC will partner with South African banks to look and consider funding such projects in future.

That’s a very interesting point because if you’re a South African business that’s supplying into a project anywhere on the continent (I presume), then you could get the government’s support which comes in the form of a guarantee of the loan?

The form of support that the ECIC issues to South African banks is an insurance policy. First and foremost, it protects the South African bank in terms of political risk. Going into our neighbouring jurisdictions or going into sub-Saharan Africa, to the extent there’s an untoward government interference, the government of South Africa basically protects South African banks against that. In some instances that form of support extends to commercial insurance which would protect the bank in the event of a non-payment.

What about Zimbabwe? Now that we’re seeing things change there, is the ECIC and by definition, the banks (who rely on its underwriting) starting to get more involved in those projects or is it still a little early?

No. There’s already an advance to our project in Zimbabwe. RMB has an advisory mandate and we’re working together with the ECIC. It’s a US$250-m project and it is government-linked, but it’s a Public Private Partnership (PPP) that also looks at transportation and infrastructure. There was a sod-turning ceremony with the President of Zimbabwe declaring the PPP would take place Zimbabwe is definitely more open to business now. The South African banks are keen on Zimbabwe and their keenness is motivated by the political support from the ECIC.

The whole region needs this kind of expertise – this kind of complex analysis to get the project off the ground.

There are so many different elements that contribute to the success of a project of this nature – not least of all, strong sponsors with deep pockets who can do a lot of the groundwork and then present the project to the banks and the ECIC. Coupled with that are the financial, legal and insurance advisers who all work together to structure complex feasibility studies, financing and planning to bring about the successful project close.

Exciting times indeed as sub-Saharan Africa starts unlocking its potential. That was Inal Henry. She’s the Head of Export Financing at RMB and this special podcast was brought to you by RMB.