Next wave of mega projects still resources linked

Posted On Wednesday, 06 October 2004 02:00 Published by eProp Commercial Property News
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IDC will invest in the planned aluminium smelter at the Coega industrial development zone and the Sishen and Sishen South iron-ore projects.

Property-Housing-ResidentialAmong the mega projects in South Africa the Industrial Development Corporation (IDC) will invest in in coming years are the planned aluminium smelter at the Coega industrial development zone – which the development-finance institution insists will go ahead – and the Sishen and Sishen South iron-ore projects, in the Northern Cape.

"These will be our Mozals of the future," says chief operating officer Gert Gouws, referring to the 506 000 t/y Mozal alu-minium smelter in Mozambique, which is 24,04%-owned by the corporation.

Beyond the country’s borders, the IDC’s potential and confirmed mega projects include four in Mozambique – construction of a new port north of Beira; establishment of an opencast coal-mine at Moatize, in the north of the country; rehabilitation of the railway line from the planned mine to the coast; as well as an industrial-sands project in Gaza province.

"According to current plans, the old railway line from Moatize is to be rehabilitated and a new section to the new port – which will be called Suvane – is to be built," says Gouws.

He states that it is believed that building a new port will be a better option than upgrading the existing port of Beira.

The IDC has a 10% stake in the Corridor Sands project, the first phase of which, with a $500-million price tag, will entail the construction of three 125 000 t/y direct-current arc furnaces, a dedicated haul road linking the project area to a coastal storage facility and a 400-kV power line connecting the plant to the South African national grid.

Gouws’s description of the proposed gigantic South African and Mozambican projects as the IDC’s "Mozals of the future" is a response to whether the corporation will continue to have a significant suite of mega projects, as was the case in the last decade or so.

During this period, it pumped huge sums into Mozal – which is majority-owned by global resourcesgiant BHP Billiton – and Iscor and Saldanha Steel, which have been restructured into diversified miner Kumba Resources and steel maker Ispat Iscor, with current market capitalisation of R11,5-billion and R20,2-billion respectively.

Gouws stresses that the IDC is committed to investing in the planned $2,2-billion aluminium smelter at Coega.

"We are committed to the project – both the Minister of Public Enterprises, Alec Erwin, and the director-general at the Department of Trade and Industry, Dr Alistair Ruiters, have indicated that there will be a smelter at Coega, and discussions are taking place with Alcan and other potential participants," he says.

French aluminium producer Pechiney had, before its acquisition by Alcan last year, committed to a 49% stake in the Coega smelter.

Alcan, of Canada, is on record as saying it will decide by the end of this year whether it will participate in the project, with a planned capacity of660 000 t/y.

Kumba Resources, 14% owned by the IDC, has plans to expand production at the Sishen iron-ore mine and to implement a R2,2-billion greenfields project called Sishen South, which could add nine-million tons a year to the Northern Cape’s iron-ore production by 2010.

The IDC has, over the past decade, invested R51-billion in 3 500 projects, creating more than 160 000 new jobs, 19 000 of them in the 2003/4 financial year, ended in June.

Outgoing president and CEO Khaya Ngqula, hastens to add that the development-finance institution has also saved probably more than a million jobs during this period.

Ngqula notes that, when the corporation pumped R3-billion into a tottering Saldanha Steel andintegrated it into Iscor in the late 1990s, it saved tens of thousands of jobs.

"The investments we have made since 1994 have saved jobs in many sectors, including textiles and agriculture," he says.

The IDC has also helped accelerate the pace of black economic empowerment (BEE) in South Africa, with 26% by number and 19% by value of the financing approved since the 1994/5 financial year being channelled to projects controlled by previously-disadvantaged South Africans.

In fact, the corporation, with as-yet-unnamed partners, is to launch a R10-billion BEE fund in the coming weeks.

The corporation’s contribution will be R2,5-billion, says Ngqula, who leaves the IDC this month to take over the reins at South African Airways.

The BEE fund has been on the cards for some time, but the search for partners has taken longer than expected.

In another development, the IDC has expanded its development agencies concept to include townships, where an estimated 50% of South Africa’s population resides.

"The townships are not going to disappear, and the idea is for them to be places where people can live and work," says Ngqula, adding that township dwellersspend up to a third of their income to commute to work.

"We want to see that change, and it must happen in our lifetime." Recognising the huge potential presented by the 2010 soccer World Cup, the IDC has created astrategic business unit which will deal solely with projects associated with the tournament.

It is estimated that World Cup-associated projects – including the construction and rehabilitation of new stadiums, roads and hotels – will cost in the region of R100-billion.

"We will be engaging with the footballauthorities soon to discuss the 2010 World Cup," says Ngqula.

He adds that the corporation is to seek out more projects with a high development impact, such as the Nguni cattle project in the Eastern Cape.

Ngqula and Gouws say that such investmentsindicate that the corporation is not risk-averse, as has been suggested by its critics.

Gouws says that the IDC "goes where the banks are not prepared to go" and imposes modestcollateral requirements when it lends money.

He adds that, in terms of numbers, 70% of its investments during the last decade have been in small- and medium-sized enterprises.

The corporation’s capital and reserves, which have grown from R15,4-billion in June 1997 to R24,6-billion in June this year, coupled with its favourable debt:equity ratio of 22%, have enhanced its ability to lend and to take risk. One of the organisations which have criticised the IDC and other development-finance institutions in South Africa for allegedly not taking enough risk is the Congress of South African Trade Unions.

It has expressed the view that the development-finance institution has an inclination towards investments which increase exports and companies’ competitiveness, with less emphasis on ‘risky’ investments with greater job-creation potential.

The labour federation’s economist, Neva Makgetla, says "although it seems they are now trying to turn to new types of investment that can create more jobs, we have not yet seen the results – they have not yet produced on their proposals".

Meanwhile, Ngqula says the IDC wants to accelerate the search for a strategic equity partner for Foskor, its phosphate-mining and fertiliser-making subsidiary, currently reeling under the strong rand and high sulphuric acid and ammonia prices.

Foskor made a loss of R410-million in 2003/4, far worse than the preceding year’s R47-million.

This contributed significantly to the IDC’s own R803-million operating loss and was also a factor in the 11,4% decline in attributable income from R787-million to R697-million.

Ngqula, who chairs Foskor’s board but plans to step down when he moves to SAA, says the IDC intends to sell 10% or more of the fertiliser company,preferably to a big group which can lower its pro-curement costs.

He points out that the price of sulphuric acid, one of Foskor’s key inputs, has climbed from $16/t to $60/t in the last year.

Freight charges, which constitute about 28%of Foskor’s total costs, have also gone up con-siderably.

Last modified on Thursday, 26 June 2014 15:41

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