Identifier
Created
Classification
Origin
06MAPUTO1158
2006-09-12 14:54:00
UNCLASSIFIED
Embassy Maputo
Cable title:  

MOZAMBIQUE: BRAZILIAN COMPANY CVRD OPTS AGAINST

Tags:  EINV EAID ECON ELTN ETRD MZ 
pdf how-to read a cable
VZCZCXRO0717
PP RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #1158/01 2551454
ZNR UUUUU ZZH
P 121454Z SEP 06
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC PRIORITY 6013
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY PRIORITY
UNCLAS SECTION 01 OF 02 MAPUTO 001158 

SIPDIS

SIPDIS

AF/S FOR HTREGER AND JMALONEY
STATE PASS OPIC
JOHANNESBURG FSC FOR RDONOVAN
JOHANNESBURG TDA FOR DSHUSTER
UDOC RTELCHIN
MCC FOR SGAULL
EB/IFD/ODF FOR JGARBER
USAID FOR AA/AFR AND AFR/SA

E.O. 12958: N/A
TAGS: EINV EAID ECON ELTN ETRD MZ
SUBJECT: MOZAMBIQUE: BRAZILIAN COMPANY CVRD OPTS AGAINST
BUYING OPIC-SUPPORTED NACALA LINE TO EXPORT COAL

REF: A. MAPUTO 422


B. MAPUTO 599

UNCLAS SECTION 01 OF 02 MAPUTO 001158

SIPDIS

SIPDIS

AF/S FOR HTREGER AND JMALONEY
STATE PASS OPIC
JOHANNESBURG FSC FOR RDONOVAN
JOHANNESBURG TDA FOR DSHUSTER
UDOC RTELCHIN
MCC FOR SGAULL
EB/IFD/ODF FOR JGARBER
USAID FOR AA/AFR AND AFR/SA

E.O. 12958: N/A
TAGS: EINV EAID ECON ELTN ETRD MZ
SUBJECT: MOZAMBIQUE: BRAZILIAN COMPANY CVRD OPTS AGAINST
BUYING OPIC-SUPPORTED NACALA LINE TO EXPORT COAL

REF: A. MAPUTO 422


B. MAPUTO 599


1. (SBU) Summary. Recent developments between the
OPIC-supported US/Mozambican consortium managing the Nacala
Corridor, CDN, and the Brazilian company CVRD indicate that
CVRD probably will not, as previously thought, buy the Nacala
railroad corridor to transport coal from the Moatize mines.
Instead, CVRD is looking into the viability of the
alternative Sena line, which connects Moatize with the port
of Beira, in accordance with the wishes of World Bank
staffers and CFM, the Mozambican railroad parastatal. We
understand, however, that CVRD only will be able to transport
1-3 million tons of coal per year on the Sena line, a far cry
from original estimates of 10-14 million tons per year via
Nacala. CDN will forge ahead with rehabilitation work on the
Nacala line, despite the projected loss of CVRD traffic; CDN
says it had not counted on coal traffic when it originally
bid on the railroad concession. One of the two American
firms in the consortium, the Railway Development Corporation
(RDC),is arranging to sell its shares to another partner in
the consortium, the (Mozambican) Manica Freight company. End
Summary.

--------------
CVRD Ducks Option to Purchase CDN
--------------


2. (SBU) In March CVRD and CDN had reached agreement giving
CVRD an option to purchase the Nacala line, which CVRD
indicated it planned to use to export coal from Moatize.
(Please see refs A and B for further background.) CVRD
failed to exercise its option to purchase CDN by the deadline
of July 31 (Note - Ref B mistakenly reported CVRD had a
year-end deadline) and asked CDN for an extension to August

15. CDN granted the extension. However on August 15
Fernando Couto, owner of Manica Freight, received an email
from CVRD stating that CVRD was ceasing negotiations over the
Nacala line because it had decided to re-examine the

possibility instead of using the Sena line and port of Beira
to export coal. According to the email, as shared by Couto,
CVRD was not closing the door to Nacala, but if CVRD returned
it would be as a client of the railway, not its owner.

-------------- --------------
CDN Thinks it Can, It Thinks It Can -- Without the Coal
-------------- --------------


3. (SBU) With the termination of the CVRD deal, CDN has
declared publicly and to emboffs in private meetings that the
time has come to move forward (Couto indicated privately that
CDN had put some of its plans on hold when it thought CVRD
would buy it out). In management terms, for CDN this will
mean a change in shareholder holdings, with Fernando
Couto/Manica Freight buying out RDC's shares in the
concession, according to Couto. Doing so leaves Manica
Freight and Edlow Resources (another American company) as the
primary private sector shareholders, which together hold 51%
of CDN's shares; the Mozambican railroad parastatal CFM holds
the remaining 49%. On the operations and public relations
side, moving forward means forging ahead with rehabilitation
work on the Nacala line and, especially, the spur linking the
line with Lichinga, the isolated capital of Niassa province,
which CDN says is uneconomical but which the government
considers a top priority for political reasons. Couto told
emboffs that CDN intends to operate the railroad profitably,
despite CVRD's change of heart, explaining that CDN had never
contemplated shipping Moatize coal when it originally bid to
manage the railroad several years ago.

--------------
Why Did CVRD Back Out?
--------------


4. (SBU) Comment: It remains unclear why CVRD chose to
shift its focus from the Nacala to the Sena railroad line.
World Bank staff members were placing pressure on the
Mozambican government and CVRD to re-examine the Sena line as
recently as last May (see ref B). And the head of CFM, a
Beira native, is known to have sentimental attachment to
Beira and favor the Sena corridor, despite CFM's minority
holding in CDN. Couto speculated that CVRD may have dropped
the Nacala corridor option because of cash flow problems for

MAPUTO 00001158 002 OF 002


the giant Brazilian multinational. According to Couto, CVRD
this summer acquired properties in Canada and Australia and
therefore did not want additional exposure at this time by
buying out the Nacala corridor, which would have meant taking
on a huge financial and logistical project involving building
an 150 km link through the bush from the Nacala line in
Malawi to Moatize. Instead CVRD found it much easier, in
this analysis, to opt for the cheaper alternative of the Sena
corridor, even though the coal shipments would be much
smaller in size -- a maximum of three million tons as opposed
to 14 million tons via the Nacala corridor. Whatever the
reasons, the loss of CVRD,s coal is a large blow to CDN's
projected operations. Despite the setback, Couto seems
determined to make CDN succeed.
Raspolic