Mozambique: Brazilian CVRD Considering Buying Out

UNCLAS MAPUTO 000422 SIPDIS SIPDIS AF/S FOR HTREGER AND JMALONEY STATE PASS OPIC JOHANNESBURG FSC FOR RDONOVAN JOHANNESBURG TDA FOR DSHUSTER USDOC FOR RTELCHIN MCC FOR SGAULL USAID FOR AA/AFR AND AFR/SA SENSITIVE E.O. 12958: N/A TAGS: ECON EAID EINV ETRD MZ SUBJECT: Mozambique: Brazilian CVRD Considering Buying Out OPIC-backed Nacala Corridor Rail Consortium Sensitive But Unclassified - Handle Accordingly ¶1. (U) Summary: On March 31 the Brazilian company CVRD and the OPIC-supported US/Mozambique consortium managing the Nacala railroad corridor, CDN, reached an agreement giving CVRD the option, until the end of 2006, to purchase CDN. CVRD is currently assessing prospects in the Moatize coal basin. Should CVRD decide to go forward in developing the Moatize coal mine, CVRD likely will purchase CDN's rights to the railroad so that it can use the line - upon building a 130 kilometer spur linking Moatize to the railway inside Malawi - to export its coal through Nacala's deep-water bay. A decision is expected later this year. End Summary. ¶2. (U) On March 31 CVRD (Companhia Vale do Rio Doce) and the US/Mozambican consortium Corredor de Desenvolvimento do Norte (CDN),which operates the Nacala railway line and Nacala port, reached an agreement giving CVRD the option until the end of 2006 to purchase CDN's railway concession. The two American companies in the CDN consortium are Railroad Development Corporation and Edlow Resources. The Mozambican partners comprise a group of private investors, the railroad parastatal CFM, and the Manica Freight company. An undisclosed price has been agreed to, with the final figure to vary by only USD 300,000, depending on results of a study of CDN's accounts that CVRD will carry out this summer. According to Fernando Couto, head of Manica Freight, under the option agreement CVRD will assume all of CDN's USD 30 million liabilities to OPIC. (Note: In a meeting with emboffs, Couto expressed gratitude for OPIC financing for CDN's operations of Nacala line, which he indicated enabled CDN to negotiate from strength with CVRD for a buy-out price. End note.) Ultimately, the purchase is contingent on a positive decision by the CVRD board on the entire Moatize project. ¶3. (U) CVRD won the bidding to develop massive coal deposits in the Moatize region in Tete province in November ¶2004. (Note: AMCI, an American coal producer, has a five percent share in the CVRD project. End note.) The Moatize region is considered the largest unexplored coalfield in the world, with deposits estimated at 2.4 billion tons. CVRD began feasibility studies in early 2005 on various aspects of the project - the mine, a coal-fired power station, a 130 km railway spur to the Nacala line in Malawi (see below), and rehabilitating the Nacala line. According to Embassy sources, feasibility study results will be presented to the CVRD board this summer and a decision whether to proceed will be made by late fall. ¶4. (U) CVRD is planning to move 14-15 million tons of coal yearly out from Mozambique. Last year CVRD briefly assessed utilizing the Sena railway line to the port of Beira, but the idea was never seriously considered because Beira has a shallow port. Engineers concluded using Beira would require building a 14-kilometer pier to reach deep water. Beira was dropped, then, in favor of Nacala, which has the deepest port in southern Africa. ¶5. (U) Moving coal out via Nacala will require building a 130 km spur from Moatize eastward into Malawi to join the Blantyre - Nacala railway line. About 50 km of the additional spur would be in Mozambique, the other 80 km in Malawi. Couto said that construction of the spur would take three to four years. The existing rail line down to Nacala will have to be upgraded, with sidings added so that coal trains will not block other traffic on the line. ¶6. (SBU) Comment: OPIC's involvement was critical in enabling CDN to demonstrate the viability of this export corridor and as backing in negotiations with the Brazilian giant, CVRD. This deal is not yet concluded, but if it goes forward it will have a very positive impact on the northern railway corridor and Nacala port, an area which is also the focus of Mozambique's MCC proposal.