Dark cloud over local coal mines

For the country’s coal mining firms, the future looks bleak. The investors in the country’s coal sector point to an influx of coal pouring from Mozambique as a blow to Malawi’s emerging extractive industry.

“Coal is not as lucrative as gold or uranium, but we will be doomed unless government takes a step to protect local investors from the imports flooding the market,” Nkhayuti Coal Mine director Dave Nyirenda says.

It is almost 10 months since Nyirenda dispatched the last consignment of coal to his customers, he decried.

“The last time I sold coal was in April,” he says.

His customers largely include tobacco companies who use it for curing the ‘golden leaf’, which accounts for up to 60 percent of the country’s foreign currency.

Besides, he looks up to manufacturing companies that rely on the fuel mineral to fire thermal factories.

Lately, he laments, buyers are increasingly shunning Malawi coal in preference for truckloads emanating from Mozambique. By Monday, workers at the mine had gone months without pay. Salaries aside, the investor is grappling with pressure from surrounding community whose demands include construction of teacher’s house and classroom block, and drilling of boreholes.

“When I make money, I have to decide whether to invest in corporate social responsibility or salaries for the suffering workers,” he says.

The coal mine employs about 40 Malawians from the surrounding villages and beyond. As their livelihood worsens, there are fears that the continued apathy towards local coal could have grave consequences on the country’s economy.

Recently, government marked the extractive industry as one of the key sectors for economic growth.

However, the sector which is supposed to be the engine room for the economy has been on the wane.

Uncertainty

The Ministry of Natural Resources, Energy and Mining is aware how coal from Mozambique is casting a dark shadow of uncertainty over Malawi’s coal, said Principal Secretary Ben Botolo.

As early as two months ago, he spoke of local companies losing grip of the existing market as the race for foreign coal goes unregulated.

“There is a general problem in the coal industry where the country is increasingly importing coal tax-free. We need to protect our coal mines, the jobs and the investors,” Botolo said.

The government official indicated that the ministry responsible for mines will join forces with the Ministry of Trade and Commerce to stop the “inflows of cheap, low-grade coal” from entering the country.

We talked to Botolo in August when Malawians around Mwaulambo in Karonga feared a silent closure of Eland Mine.

The officials at the mine bordering the rice field of Karonga North have not responded to our enquiry on the future of the business since then.

On Monday, a top placed person asked for more time to consult. However, the locals surrounding Eland Mine said the mine was almost quiet and miners were being laid off.

“We no longer see trucks carrying coal. They are carrying mining machines away,” group village head Maseya said in August.

Maseya was one of the traditional leaders from Mwaulambo who led their people in a protest aimed at demanding answers from Eland.

“We want Eland to clear the uncertainty over the future of the mine and make commitments not to leave without filling the vast pits they have excavated in the area,” Chief Mwakaoko stated.

Such are the shock waves across the district.

Besides Nyirenda’s coal mine at Nkhayuti and Elland ‘s at Mwaulambo, the district is home to Malcoal Limited’s Mine at Nkhachira near Kayerekera and Magnum at Mpata.

“Nobody has been spared the effects of dwindling demand for local coal. Even our friends at Kaziwiziwi and Mchenga Coal Mine in Rumphi are scaling down because business is poor,” he said.

Level the field

When asked about the joint effort with the Department of Mines, Weskes Nkombezi, the public relations officer for the Ministry of Industry and Trade, sounded unaware of any steps to safeguard local investors from coal imports.

“Coal imports from Mozambique?” Nkombezi asked. “I cannot immediately remember anything about that. Let me consult my friends in the ministry for more details.”

He did not pick his phone when we called again for updates. But Botolo reaffirmed: “We talked with our friends at the Ministry of Trade and Industry. We are still waiting for their response.

“We need to level the field because some Malawians may lose jobs if we continue importing coal with no duty while local companies pay tax.”

The tax-free regime could be the reason some consumers reportedly find foreign coal cheaper than local extractives. However, Nyirenda insists it is not as cheap.

“We give them at the same price as our competitors from Mozambique,” he said. According to the brains behind Nkhayuti, a tonne of coal from abroad sells at $160 each in Blantyre and $180 in Lilongwe. By contrast, locals demand around $158 in Lilongwe. The disparity largely constitutes transportation costs.

In Malawi, the transport bill accounts for over 30 percent of landed costs, the reason is gaining sway that establishing a railway line from the capital, Lilongwe, to Chitipa would help spur business and mining in the Northern Region.

This would also increase the profitability of minerals from the largest mining region.

Minister of Transport and Public Works Francis Kasaila recently said in Parliament that there is no investor interested to lay the hugely anticipated rail transport corridor.

The country’s coal cannot compete favourably on the liberalised market due to high trucking costs, he said. The World Bank ratings show the country’s transport costs are much higher than its neighbours, including Mozambique.

Yet, the country is home to a railway project which aptly sums up how graduating from hauling coal by road would enhance mining business in the country and beyond.

New coal

In 2012, Vale Logistics of Brazil constructed a railway line from its Moatze Coal Mines to the coastal port of Nacala.

The South American company envisages the transport corridor, which transverses Malawi from Kachasu in Chikwawa to Nkaya in Balaka, will cut the cost of hauling coal from the coal- rich hills in the west to the coastline of the Indian Ocean drastically.

As Mozambique’s coal speeds across the breadth of Malawi, the country’s mining industry is slumping. Mining contributed 0.9 percent to the gross domestic product (GDP) in 2014, shows the 2015 Annual Economic Report.

The figure represents the lowest ebb for the industry whose contribution soared from just three percent to almost 10 percent with the opening of Kayerekera Uranium Mine (KUM) in 2009.

The brains behind the government report forecast project the contribution to remain at less than one percent for the next two years following the suspension of production at KUM due to low uranium prices on the world market and high cost of production.

At stake is government’s dream to ensure the emerging industry contributes up to 20 percent of the GDP by next year.

Offering foreign companies tax breaks will not uplift local investors grappling with a myriad drawbacks as the country’s economy lies on a downward spiral, warned Nyirenda.

“A company which produces about 300 000 tonnes per month cannot compete favourably with multinationals with the capacity to churn out over a million tonnes,” he stated. n