53171 Infrastructure Advisory Success Stories This series provides an overview of successful public-private partnerships in various infrastructure sectors, where IFC was the lead advisor. Infrastructure Advisory Services 2121 Pennsylvania Avenue NW Washington DC 20433 ifc.org/infrastructureadvisory Mining Sector Mozambique: Moatize Coal Deposit In November 2004, IFC concluded a mandate advising the Government of Mozambique on selecting a developer for the Moatize coal deposit in the poverty-stricken Zambezi Valley. The Moatize Coal Project is intended to serve as anchor project to develop the Zambezi Valley, increase economic activity, and improve local social conditions while also contributing to the country's income. The winner was Brazil's Companhia Vale do Rio Doce (CVRD), which bid US$122.8 mil- lion for the rights to explore and develop the coal deposit. CVRD's proposal included an integrated feasibility study for the Moatize Coal Project and for associated railway and port infrastructure, plus studies to develop a 1,500 megawatt coal-fired power plant, along with pre-feasibility studies for other industrial projects. CVRD committed to spending US$6.5 million on community development projects during the project exploration phase and more than US$50 million during the production phase. IFC benefited from the support of DevCo to pay for international technical and legal consultants. Devco is a trust fund supported by the U.K. Department of International Development, the Swedish International Development Cooperation Agency, the De- partment of Development Cooperation of the Netherlands Ministry of Foreign Affairs, and IFC. Background transactIon structure Mozambique enjoyed some economic success from 2001 to 2004. A complex selection process was designed to create competition Its GDP had a sustained growth rate in excess of 7% spurred by among four large mining companies while ensuring transparency the Government's strategy of promoting economic development and credibility and obtaining the highest possible value for through some successful "mega projects". Even though these the Government. Bidders were required to be committed to capital-intensive projects contributed greatly to the country's environmental management and to undertaking community and economic growth, their trickle-down effect was not at the level social development programs in the region. the Government had anticipated and did not spur growth in the traditional and informal sectors. Consequently, Mozambique BIddIng continued to face great challenges: a GDP among the lowest in the Ten mining companies presented credentials for prequalification world with large disparities between regions, half the population and four were prequalified: the Anglo American Corporation, below the national poverty line, low life expectancy, and only 40% BHP Billiton Mitsubishi, CVRD, and Rio Tinto. literacy rate. CVRD was declared the winning bidder on November 12, 2004. The Zambezi Valley remained simultaneously one of the least In addition to a strong financial component, key elements of developed and one of the most populated regions of the countrty, CVRD's proposal included a strong commitment to community with approximately 3.5 to 4.0 million people living off subsistence and social development as well as a long-term strategy that agriculture. The region was ravaged by a 15-year long civil war and included the development of a mine with a capacity of 21 million remained largely on the sidelines of the economic development tonnes per year, 3% royalty (production tax); 5% free carried experienced by the rest of the country. interest for the Government in the project, and up to10% of IFc's role shares reserved for Mozambican nationals. Following 10 years of unsuccessful attempts to attract a company to develop the Moatize mine, in November 2003, the Government hired IFC to advise on the selection of developer and set the post-tender results conditions for its successful development. The Government's · CVRD spent approximately US$80 million on the objectives were socioeconomic and included : feasibility study, in addition to US$130 million on the fee for the exploration license. · engendering sustainable development, particularly in the Zam- bezi Valley; · The expected investment includes US$1.5 billion for · strengthening and diversifying Mozambique's productive base. developing the mine, US$1 billion for rehabilitating the Nacala railway line, more than US$1 billion for The project presented major challenges. In particular, the power generation, and US$0.5 to US$1 billion for complex geology and the limited availability of geological power transmission. information, which prevented potential investors from presenting · The success of the project brought international vis- well-informed offers; legacy issues; large capital investment ibility to Mozambique's potential as a coal producer, requirements; and complex infrastructure arrangements as the spurring investment by large international compa- 600-km long Sena railway line had just been awarded under a nies such as Tata, Riverdale, and India Coal in the 25-year concession --which made the project dependent on the Tete region of the Zambezi railway investor for its connection to the port of Beira. Valley that will result in large inflows of investment Specifically, IFC: to the region. · prequalified investors, resulting in the selection of four large international mining companies; · compiled all available data and assisted investors with due diligence; · defined the selection criteria and developed guidelines for the 12/2008 proposals; · assisted in negotiations with prequalified investors and lead the drafting of the bidding documents; and · assisted the Government in the evaluation of proposals.