In this first of a two-part series, DOUGLAS RASBASH lays out the history of the Trans-Kalahari Railway that was designed primarily for carrying coal from Mmamabule to the Namibian port of Walvis Bay and points to a need for rebranding the ambitious project as a regional development endeavour in order to overcome the volatility of coal prices and give the project stronger appeal to a wider pool of potential investors
The Governments of the Republic of Botswana and the Republic of Namibia, having the desire to unlock their economic potential through trade expansion and development of tourism, undertook to build a railway line from coalfields in Botswana to a port in Namibia. Subsequently, the two governments concluded a Memorandum of Understanding on 30 November in Windhoek. The MoU was signed by ministers Mutorwa of Namibia and Eric Molale for Botswana.
In the signing ceremony, both ministers affirmed their commitment to the development of the Trans-Kalahari Railway (TKR) Project. The MoU resolved to: (i) Capacitate the TKR Project management office; ii) Establish a joint technical team; and iii) Approve an operational budget to advance the project.
There have been several MoUs over the years for the TKR, some of which the author attended in 2003, 2009, 2014 2016, 2018 and 2022. A prefeasibility study was conducted in 2011 and a Bilateral Agreement while a Project Management Office Agreement was signed in 2014. Following conclusion of the Project Management Office Agreement in 2015, the two governments began the process of setting up and operationalising the Project Management Office, located in Windhoek, in order to facilitate implementation of the project. Having due regard for the history of the TKR what needs to be done to make better progress this time around?
What has attracted transport planners and engineers to the TKR is a very low unit operating cost. This is due to the flat terrain from Botswana to the seaboard in Namibia that will allow 200 train wagons carrying 8 400 tons, whereas the routes to the Indian Ocean are bedevilled by the topography which considerably limits the train length and increases the unit costs pro-rata. The TKR Project entails development of an approximately 1500km long Cape Gauge railway line from the Mmamabule coalfields in Botswana through the Botswana-Namibia border into a coal handling terminal and associated loading facilities at Walvis Bay in Namibia.
The TKR Project involves movement of coal and other commodities along the railway route, with coal the anchor commodity. The two governments had previously resolved to develop the project through a Public-Private Partnership model based on a Design, Build, Own, Operate and Transfer (DBOOT) contractual arrangement with the developer.
A study carried out in 2016 identified all the risks and challenges associated with the project, the main one being the low price of coal prevailing at the time which rendered the project non-bankable. The study further developed mitigating factors to address the challenges and recommended that the governments should show commitment to the project while waiting for coal prices to go up by undertaking to resolve those project risks that are within their control such as (i) optimising and purchasing the railway route alignment, (ii) dealing with cross-border regulations, and (iii) dealing with wildlife and stock management along the route alignment.
Price of coal
Critical to the economic and financial feasibility of the TKR railway project is the global price of coal. At the time the first study was done in 2010, the price of coal was $114 per ton. The price of coal in 2016 was around $40 per ton. The diagram below clearly shows the price of coal (dark brown line) was well below the cost of production plus transport costs (light brown line) and was predicted to remain below this threshold for years to come.
However, the war in Ukraine has spiked the price of coal to an incredible $275 per ton. If this high price is sustained, there is greater propensity of attracting investment in the project from the private sector. The coal price renaissance is being watched carefully and plays a massive role in the risk analysis of any potential investor in this project.
Furthermore, concerns regarding global warming and the combustion of fossil fuels, which have depressed the outlook for coal prices, may again do so once the Ukraine crisis is resolved. Given the volatility of the price of coal and global security, another way forward is recommended; it entails the project being rebranded from a transport corridor to a regional development corridor.
From TKR to TKDC
A prerequisite for success will be rebranding the Trans-Kalahari Railway (the TKR) the Trans-Kalahari Corridor Development Programme (the TKCDP). This rebranding will go beyond construction of the railway line for movement of coal to include various economic sectors such as urban development, services, mining, agriculture, manufacturing industries, real estate and so on.
A major benefit of rebranding the project into a regional corridor development initiative is that the development of the corridor as a whole minimises the investment risk by spreading it over related economic activities, which in turn attracts a wider range of investors across different economic portfolios.
In reality, the railway line would in the long term attract development to it in a manner that is a bit like the Union Pacific Railway does across the United States. But instead of this happening informally and incidentally, it would be planned for proactively.
Land use planning
Seen in the context of corridor development with concomitant cluster development, new towns and industries along its route, land use will change and the value of the project increase. The increase in the value of land due to improvements in accessibility brought about by investment in transport infrastructure is planning gain. The area of territory influenced by the corridor is likely to be some 1500km long by 20km wide or 30,000 sq km. Planning gain will provide a significant source of income that could be used to offset the cost of infrastructure, provided land use change is effectively planned – and regulations introduced to tax the gain.