A resolution to this lies in an early decision by the governments of Botswana, Zimbabwe, Mozambique and Namibia on the direction of the new railroad. The world's major powers, including the US, China, Japan and India are watching this railway proposal with keen interest as they recognise that whatever the decision will be, whether it is railway through South Africa, Namibia or Zimbabwe, it will either break or consolidate South Africa's 130 year old stranglehold on trade in and out of Southern and Central Africa. What is novel is that for the first time since Rhodes' railroad to Bulawayo in the 1880s, the decisions over the future lies not purely with South Africans but largely with Africans north and west of the Limpopo basin. The stakes could not be greater.
Railways and yet more railways - enter Vitol
Gaborone: Early this month, Greg Kinross, the president of Botswana and Toronto Stock Exchange listed CIC Energy, announced at the Capital Resources meeting in Gaborone that 9.9 percent of CIC Energy has been sold for $10 million in June to the Dutch energy firm Vitol. Vitol is a relatively large oil trading firm which has, with its partner Helios recently acquired interests in most of Shell's retail outlets in Botswana and Namibia.
It expects to control 1,300 retail outlets when its expansion is complete. All this would be minor news - a minor acquisition of a junior explorer which has not yet turned a profit or extracted one tonne of commercial coal.
But in January 2012, Vitol also announced the acquisition of a 35 percent interest in Matola Coal Terminal at Maputo from Grindrod Limited - the JSE listed integrated logistics services supplier. This is where the international coal business gets very messy.
The Matola Coal Terminal provides access to international markets for the export of coal. Where it starts to affect the region in a very big way is the impact that this acquisition will have on other railway proposals to build a heavy haul line to either Walvis Bay in Namibia or Ponto Techobanine in Mozambique.
Meanwhile, Mozambique Ports and Railways (CFM) and Transnet in South Africa have announced investment plans intended to increase rail capacity to the Matola Coal Terminal. Vitol and Grindrod have also announced that they would conduct a feasibility study for an expansion of capacity at the Matola Coal Terminal by 20 million tonnes per year. And now the commercial plot thickens considerably.
The only real asset that CIC Energy has is the huge coal deposit at Mmamabula, just a few kilometres across the border from South Africa's Waterberg coal fields which contain a significant proportion of South Africa's known coal reserves. CIC's deposits are in the vicinity of 2.4 billion tonnes, a fraction of Botswana's known reserves of 28.4 billion tonnes. CIC's business plan involves the export of coal to India, the middlings and discards are supposed to be used for generating 300mw of electricity that it would sell to BPC and a further 1,200mw for sale to Eskom.
So far, Eskom has not played ball and wants to keep the core business of generating coal fired power for itself - independent power producers are seen as being for 'exotic' energy sources, not core business. In Botswana, the six or seven potential coal mines along the eastern Kalahari basin which borders South Africa and Zimbabwe have the same business plan as CIC - sell 300mw to BPC but there is simply no demand in Botswana at that level over the next 20 years.
CIC which has been trying to develop its reserves for a decade and is rightly very anxious to start moving coal has been frustrated by the absence of a commercial coal railway to the coast. At this point, CIC just wants a railway to the coast and obviously anything will do. In the past, CIC and its partners had been the principal proponent of the Trans-Kalahari route to Namibia but it has now fallen in with Transnet and the route to Matola with Vitol at both ends of the African supply chain.
The difficulty lies in the fact that one of the shareholders in the alternative Mozambican route to a new port that would be built at Ponto Techobanine is the same Mozambican railway which is also a party with Transnet in doing the feasibility of the alternative route via South Africa.
At the moment, the Ponto Techobanine route seems to be stalled waiting for the Mozambique government to finally agree on the project. Two weeks ago, the Mozambique Minister of Transport and Communications, Paulo Zucula told the press that: "The competition to select the company that will conduct feasibility studies in the economic construction of the deep-water port in Techobanine, in Maputo province, will be released within weeks".
Mozambique has been dragging its feet over the project for many months and serious doubts are emerging in the markets as to whether construction of the R100 billion railway through Zimbabwe will ever go ahead.
But if Transnet completes its feasibility study and finds, as is expected, that the very short extension of the Waterberg heavy haul line to Mmamabula in Botswana would be profitable and should be undertaken, there will be major implications for the economies of all the countries on the other side of the Limpopo basin.
This would mean that the 20mt per annum exports of coal that CIC is expected to deliver to the world market would be taken out of the calculations of the feasibility study for either the Trans-Kalahari or the Ponto Techobanine route. It is well known that a volume of some 50mt per annum is needed to make either of these railways commercially viable.
So if CIC goes its own way and takes the Transnet route to Mozambique, two things will happen.
First, it will leave any other railway proposal as barely marginal because the Mmamabula deposit (along with Anglo's Morupule mine) are the best known quality coal deposits in Botswana.
Second, by going its own way, it might mean that Vitol with its planned 20mt expansion at Matola would have no capacity to handle extra throughput of the six or seven other mines that could be developed in Botswana.
A classic externality is occurring where one firm operating in pursuit of its own commercial interests could result in the failure of the export plans of all the other firms in the industry. It is natural for CIC to want to export and to do so quickly as its shareholders would demand, but if its plans result in an undermining of the commercial viability of all the other deposits in Botswana, then the government will have to intervene in order to assure the greater social good.
A resolution to this lies in an early decision by the governments of Botswana, Zimbabwe, Mozambique and Namibia on the direction of the new railroad. The world's major powers, including the US, China, Japan and India are watching this railway proposal with keen interest as they recognise that whatever the decision will be, whether it is railway through South Africa, Namibia or Zimbabwe, it will either break or consolidate South Africa's 130 year old stranglehold on trade in and out of Southern and Central Africa.
What is novel is that for the first time since Rhodes' railroad to Bulawayo in the 1880s, the decisions over the future lies not purely with South Africans but largely with Africans north and west of the Limpopo basin. The stakes could not be greater.
* These are the views of Professor Roman Grynberg and not necessarily those of the Botswana Institute for Development Policy Analysis where he is employed.