Africa can’t miss the opportunity of mining – related infrastructure ! Can China help ? May 2014 – Beijing Perrine Toledano @ CCSI – SDSN Extractives Thematic Group
Resource - driven countries have a huge funding gap that extractives industries can help fill By ¡2030: ¡ Resource-driven countries need � $ 1.3 ¡ tn ¡/ ¡year ¡ Extractive industries will invest � $ 2 tn ¡ (cumulated) ¡ 1 Source Reverse the curse: Maximizing the potential of resource-driven economies, McKinsey Global Institute, December 2013 � �
Closer look to SSA: Funding gap at $31bn / year…. US $ billion annually Source: World Bank
….While in the context of iron-ore mining alone, private investment expected: $45 bn , 2013
“Shared-use” can result in a win-win situation Infrastructure gap in a resource-driven country l e l l a Opportunities for: r a p s w o l l a e e s u h u Economies of scale t d h e t r o a b h S f o t n y e r m t n u Economies of Scope p u o o l e c v t e s d o h e h t d n u Developmental a e n i m impacts Onerous infrastructure development for mines
Whereas the traditional enclave model is costly for all Country
Example: Power self-supply is a loss for all — Reliability of Adequacy of Extent of Trans. Cost of Grid Supply National Supply Infrastructure Power Loss of large customers Utility Loss of an opportunity to use the mines as anchor customers exhibiting economies of scale In Africa: Mines investment in self – Direct cost of self-supply is generally much supply power infrastructure higher (offset by continuous supply and Mines 2000-2012: $1.3 billion consistent product quality) 2013-2020: $1.4 - $ 3.3 billion Weak utility Loss of exports and tax revenues Country Negative impact on GDP, and reduced Source: WB- VCC employment opportunities
Of course nuances are needed: costs for sharing infrastructure vary While sharing is generally beneficial, the associated Average cost Average benefit costs vary substantially between projects Range of cost Range of benefit Costs/benefits of a range of shared infrastructure projects 1= low, 2= medium, 3= high 3,0 2,5 2,0 1,5 0 Inf. class Rail Port Pipelines Water Power Power Power Type of Bulk Bulk Gas Bulk Bulk Base Precious industry Number of 7 4 1 1 2 2 2 projects assessed SOURCE: Vale Columbia Center; McKinsey Global Institute analysis
Of course nuances are needed: not all commodities present the same opportunities !
Taking all those nuances into account, the potential for shared use is tremendous ! Extractive industries will invest � $ 2 tn ¡ (cumulated) ¡by ¡2030 ¡ 30% shareable between mining industry and other users 70% shareable between operators 1 Source Reverse the curse: Maximizing the potential of resource-driven economies, McKinsey Global Institute, December 2013 10 � �
CASE STUDIES � 11
Rail and Port Case Study: Northern Mozambique - Nacala Corridor S Vale, main concessionaire to finance: S US$3.4bn railway investment MALAWI* S US$1bn port investment ( a g n i h c S Corridor is already open i L Nacala* ~400km( ~(262km( Fronteira( Velha* access and will continue to 29,3km( ( ( s o g a (~66km(( be under Vale: ( a L 504,2km( ( y e a r 79,1km( k t Branch(Off( a n 138,5km( N E Cuamba( S 4mtpa of 22mpta capacity 62,5km( 98,6km( ( Nacala* i Moa4ze( s s believed to be reserved for i s t ~298((km( a l u b general cargo m Makhanga( a C MOÇAMBIQUE* S Passenger services to Name Shareholders Total Distance Corridor Distance Construction/Rehabilitation Port continue running 1* CLN( 80%(Vale(20%(CFM( 91,8((km( 91,8((/((0((km( 91,8(km( Coal(Terminal( Exis4ng(Port( 2* CDN( 51%(SDCN((49%(CFM( 911,3((Km( 583,3(Km( 0(((/(845,3(km( U( CEAR( 797(((Km( 98,6Km( 3* 51%(SDCN((49%(CFM( 0((/(98,6(km( S Reportedly, corridor design U( 4* VLL( 100%(Vale( 138,5((Km( 138,5((Km( 138,5(/(0(km( ! allows capacity expansion Source: Vale (up to 30 mtpa)
Rail and Port Case Study: Mozambique - Nacala Corridor
From a logistic corridor, Nacala can become a development corridor… Idealised DC Configuration Idealised DC Configuration Agri-node & Anchor & “cluster” “cluster” Stranded investment feeder “TRUNK” Infrastructure: PPP DC logistics “catchment” Problem feeder Problem feeder “DENSIFICATION DENSIFICATION” ” Feeders often need Feeders often need to be funded thru to be funded thru’ ’ fiscus/grant fiscus/grant RADS RADS Stranded Anchor & investment “cluster” Resource-based African Development Strategy Source: P. Jourdan
…but it is not easy to implement shared use on the strategic rail – port logistic chain • Who will bear the capital of extra-capacity / capacity-expansion? • Who will be bear the cost of coordination and logistic efficiency loss? • Can the government afford the costs of building the capacity of a regulatory body to supervise shared use? • Can the government afford subsidies for less- profitable services? • Will the multi-purpose project be bankable?
The “Power” problem – insufficient demand leading to insufficient supply • 33 ¡ out ¡ of ¡ 48 ¡ countries ¡ in ¡ Sub-‑Saharan ¡ Africa ¡ Hyrdo Power Potentials (MWe) have ¡national ¡power ¡systems ¡of ¡less ¡than ¡500 ¡ 50000 MW ¡ 40000 ¡ 30000 • 11 ¡ countries ¡ have ¡ national ¡ power ¡ systems ¡ of ¡ 20000 less ¡than ¡100 ¡MW. ¡ ¡ 10000 0 • Few countries have had enough demand to justify power plants large enough to exploit economies of scale whereas cheap and clean 1P Gas Reserves (bcm) energy reserves are plentiful ! 140 120 • Results: Reliance on expensive imports of fuel 100 80 for power generation 60 40 20 • Let’s use the Power of the Mines: 0 Mines’ anchor demand can unlock the stalemate ! Source: World Bank
Power case Study: DRC’s Copper Belt - Inga Dam and Katanga Mining DRC Inga 2 – Hydro Dam and transmission • lines in disrepair If copper mines could source from the hydro- • based grid : cost 0.18$/kwh but instead incur cost of diesel generation – 0.30$/kwh Katanga Mining (Glencore) : $283.5 million • loan to DRC’s utility to upgrade Inga 2’s electricity generation and transmission networks • Katanga Mining : reimbursed through utility bill credits + utility pays interest • Utility gains an upgraded network : future clients, backbone for distribution lines • Mining co gains access to cheap reliable Win – Win! supply
Water case studies: Mine provides excess water to community • Mine operations require to drain mining pit • eMalahleni municipality in South Africa - a water reclamation plant from 5 mines pumpint out 40-50 million liters/day of excess ground water. After water treatment, around 80,000 people are supplied with water. • Mines required to construct a desalination plant for its operations in the desert • Namibia: Areva uranium mine’s desalination plant has 30% excess capacity about to serve half of the region’s water requirements. • Use treated waste water from mine or neighboring communities • The Cerro Verde copper mine in Peru about to build a water treatment plant for the wastewater of Arequipa city to meet its water needs and improve the water quality for downstream communities. How do you incentivize that? : “0 water discharge”, “Restricted access to water rights “ !
ICT case studies: Exploit economies of scope to install the fiber optics Service Arrangement Ownership model a) Telecom adds capacity. 1. Mine builds own Example: Malaysia infrastructure b) Mine adds telecommunication capacity § Celcom and Petronas build fiber optic and leases to Telecom. network along gas pipeline with spare capacity. Example: Brazil § In 2001 Vale wanted to partner with a) Telecommunication capacity is added railroad partners and install fiber optic to required mining infrastructure at a along 10,000km of rail lines and lease to lower cost (e.g. power, pipeline and Telecoms. railways). 2. Mine does not build own Example: Mozambique: • Ncondezi Coal as an anchor customer for b) Mine provides anchor demand for infrastructure Telecom. service provider Vodacom. • Expansion of coverage to 10km around tower (3,000 contracts). c) Government, Telecom and mining companies coordinate efforts and investments.
Necessary pre-conditions to make shared use & resource corridors work Sound and Clear Legal Strong Framework Independent Planning Regulator Framework Credible Utility Maximise Infrastructure - Mine Synergies
Thank you! ptoled@law.columbia.edu CCSI’s Framework for Shared – Use: http://www.vcc.columbia.edu/content/ leveraging-infrastructure-investments- development
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