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Nacala corridor transaction reaffirms ‘Africa open for business’

Once the rail segment of the Nacala Logistics Corridor, in western Mozambique, is in full operation, coal exports are expected to increase by 40%.

This will have a direct impact on the Moatize coal mine, in Mozambique, which will be able to increase its production to 18-million tonnes a year, as well as reduce its transportation costs from mine to port, a statement issued by Rand Merchant Bank this week states.

According to diversified miner Vale, coal production at the Moatize mine rose from 3.7-million tonnes in 2012 to 11.3-million tonnes in 2017.

The corridor is a 912 km railway line that is used to transport coal from the Moatize coal mine to the Port of Nacala, where a new deep-sea coal export terminal, capable of loading large freighters in record time, has been built.

The existing railway lines in Mozambique were rehabilitated, while a new heavy haul railway line across the southern part of Malawi was built. The new line will see 60 wagons transporting coal to the port, from where it will be exported to Europe and Asia.

In addition to creating a secure dependable logistics corridor for the Moatize mine, the project has delivered significant benefits to the region, such as enabling a new freight and passenger corridor in Mozambique and Malawi.

According to RMB export financing head Inal Henry, over and above the immediate benefits of the corridor project, the Nacala transaction showcases the success of global sponsors and stakeholders working together with African governments to deliver a project for the good of Africa.

“It is confirmation that Africa is open for business and investment. We are proud to have played a part in the funding of this strategic sub-Saharan African project, which provides such wide and far reaching benefits for the local communities and economies,” he elaborated on Monday.

Further, in terms of financing, owing to a consortium of three export credit agencies (ECAs), the African Development Bank (AfDB) and a lending consortium of six international and four South African banks, a collaboration on funding for the revamp and extension of the Nacala Logistics Corridor has successfully raised $2.73-billion of the debt funding for the project.

The project’s total cost amounted to about $5.15-billion.

RMB acted as mandated lead arranger and funded about $113-million under the State-owned Export Credit Insurance Corporation (ECIC) to revamp and extend the corridor.

“RMB is no newcomer to structuring and funding ECA-backed projects. Our ECA team has strong relationships with the ECIC and international ECAs, which cover the import and export of capital goods and services to and from sub-Saharan Africa,” said Henry, who was involved in the transaction.

He further cited the transaction as a “successful collaboration between diverse parties”, which included the Mozambique and Malawi governments, as well as international sponsors Vale and Mitsui, across diverse funding structures.

According to Henry, the complex nature of the project required that there was cohesion and collaboration between the legal, financial, political, environmental, regulatory and compliance aspects of the project.

He explained that RMB was mandated under the $400-million ECIC-supported tranche and advanced funding together with Absa Bank, Investec and Standard Bank of South Africa.

“The South African banks took great comfort in having the South African government represented through its official ECIC in the financing. The ECIC brought great insight to the transaction and underpinned the South African lending tranche, while the AfDB advanced $300-million,” he said.

The Japan Bank for International Cooperation funded an additional $1.03-billion, while a consortium comprising Sumitomo Mitsui Banking Corporation, the Bank of Tokyo Mitsubishi, Mizuho Bank, Sumitomo Mitsui Trust Bank, Nippon Life Insurance and Standard Chartered Bank, funded $1-billion.

“By structuring ECA-backed tranches, we are able to deliver more competitive financing terms to our clients through longer tenors and at competitive interest rates. The Nacala project finance facility will be repaid in 14 years,” Henry pointed out.