The tense, but eventually successful, haggling of a natural gas supply deal between Tanzania and Nigeria’s Dangote Cement is a pointer to what awaits East Africa as the region sets off the delicate journey of exploiting its new found vast reserves of oil and gas.
Tanzania’s President John Magufuli on December 10 announced that an agreement had been reached to supply natural gas to Dangote’s $500-million cement factory in the East African nation’s southeastern town of Mtwara, ending tensions after price negotiations with the state-owned Tanzania Petroleum Development Corporation (TPDC) stalled.
“They (Dangote Cement) will now buy natural gas directly from the state-run TPDC instead of going through middlemen,” Magufuli said after a meeting with the company’s chairman, and Africa’s richest man, Aliko Dangote.
Magufuli blamed unspecified middlemen for “interference”, saying Dangote Cement had sought “at-the-well prices” and that the issue had now been resolved to supply the company with the commodity at a “reasonable” tariff.
The Tanzania-Dangote price haggle offers a sneak-peek of the tough oil and gas supply contract negotiations that authorities in East Africa are certain to face in the exploitation of newly struck reserves.
East Africa has caught the attention of the global energy industry following the discovery of huge reserves of oil in Uganda and Kenya and natural gas in Tanzania. An estimated 6.5 billion barrels of oil were discovered in Uganda’s Albertine basin near the border with the Democratic Republic of the Congo (DRC). In Kenya it is estimated that the recoverable reserves total 750 million barrels of crude.
Tanzania said in February 2016 that it had discovered an additional 2.17 trillion cubic feet (tcf) of potential natural gas deposits, increasing its total estimated recoverable natural gas reserves to more than 57tcf.
The exploitation of these vast reserves will however require caution to ensure the region avoids the pitfalls of the unpopular oil curse. The nature of contracts reached with buyers has a direct impact on the country’s development.
Supply contract negotiations are not an easy task because one has to juggle maximizing revenue for government and investor protection from high cost of doing business. Given the lengthy life and complex nature of supply contracts, a miscalculation has monumental effects on either of the negotiating parties and it is vital that keen attention is paid during the entire process to attain a balance.
“One of the key concerns is that African governments that are major producers of fossil fuels (and other minerals) do not receive sufficiently large rents or revenues from the production of these extractive products. This is attributable to a number of reasons, including contracts and regimes that are not designed to extract maximum rents,” the African Development Bank (AfDB) and the African Union (AU) say in a joint study titled Oil and Gas in Africa.
Oil and gas supply contracts are particularly complex because they are not fully driven by demand-supply factors; at times they are driven by geopolitical factors. Newcomers in the game must tread carefully or risk being short-changed by the more experienced industry insiders who are privy to sale strategies.
The middle-men have a nose for quick cash and will not miss a chance to ride on the inexperience of new players in the industry to profiteer through deal-cutting. The middle-men, in most cases, fan graft in order to thrive, leaving in their wake massive damage.
Benchmarking with peers and best practice is the way to beat such odds because it helps build on contract experience. The World Bank-backed Extractive Industries Transparency Initiative (EITI) can help address such challenges by laying bare all the deals.
“Accountability and transparency in the management of public resources is critical in ensuring positive development results impact – and perhaps nowhere more so than when significant natural resource wealth such as oil and gas are present,” the AfDB and AU say in the report.
Under the EITI, mining firms are required to publish payments made to governments and to make public revenues received available for audit and monitoring. The EITI monitors and reconciles company payments and government revenues. Each signatory country owns the process, which is overseen by participants from the government, companies and national civil society.

Prepare For  tough negotiations

Before money was invented, before the word entrepreneurship was formulated, people in ancient times traded by offering value. As far back as the Stone Age, people had to transact by exchanging goods that were of equivalent value to what was  to be received.
Today, this concept can be described by two words: value proposition. This has gained currency over time, but some entrepreneurs still miss the mark.
Business is based on the following basic principles; you are either saving your clients time and money, or making them more money. In supply and demand, distribution comes as a value-added product.
Geographic proximity to a product does not mean others have the same advantage. Cocoa is a good example. The product is largely found in West Africa. Any entrepreneur setting up a distribution channel to Singapore will be adding value on two fronts; firstly that area of Asia doesn’t have in the same abundance of cocoa as West Africa, and secondly from the logistics front.
In the knowledge economy, access to rare information elevates the value of those who have it. This is why companies call in consultants and advisors at an inflated cost. It is also why we keep going to conferences, paying international speakers large amounts of money to speak for 30 minutes. It’s all about the value one can bring to the table, and that comes from experience or study.
Scarce skills, like firewall experts, are rewarded handsomely, as cyber security threats rise. A shortage of something increases its value; art collectors can attest to that.
Marketers use this strategy to create a craving for a product and service. You are unlikely to see a Bugatti advertised on billboards and in newspapers. People who can afford the supercar know where to find it.
Entrepreneurs need to reprogram themselves to create value, rather than looking for money. Money chases value. No one holds a monopoly on cash; if you offer customers value, they will gladly give you their money.
Even Albert Einstein, a man of science rather than business, said, “Try not to become a man of success. Rather become a man of value.”
There are survivalist entrepreneurs who keep complaining as if money repels them. We need to be innovative in how we sell our products and services. The market will pay for the value you provide.
Jannie Mouton is well known for creating value. He did something unique through Capitec Bank. They entered a market which had gigantic financial institutions; they added value through two things in particular. They lowered bank charges and demystified the banking system. This related to the general population, most of whom were clients of other banks. Today, Capitec is one of the largest retail banks with four million clients, and they claim to be registering around 100,000 new clients every month.
Adding value is reliant on the industry that the entrepreneurs find themselves in. You need to make promises to clients that differentiate yourself from your competitors. You have to appeal to what they want. The successful execution of this can convert prospects into new customers.
While you are trying to make millions, never forget that at some point almost everyone in Zimbabwe was once a billionaire. It’s not really about the money, it’s about the value that you add through your company. Align yourself with a sense of value, then all these others things will fall in place

Forget Money  Create Value

If South Africans had more electricity, they could see him on TV. Chris Yelland, the electrical engineer turned energy journalist entrepreneur, is the scourge of Eskom, South Africa’s nationalized power utility. His voice is critical, outspoken and more consistent than the electricity supply from Eskom.
“When I started Energize magazine [1997], a lot of doomsayers said to me ‘what the hell do you want to start a new magazine for?’ they also said ‘what more can you say before you run out of hot stories?’. Energy at that time was a boring subject. There was not a lot of interest. People just assumed when you switched on the plug and flicked the switch, electricity would come out the wall. Fortunately for us, and by chance, energy has become a hot topic. It actually affects everybody. Not just industry, not just commerce, but the man or woman in the street. We’ve had to learn that behind the plug lies a multi-billion-rand industry,” says Yelland.
Yelland has had a lot to talk about over the last 10 years. Eskom has the capacity to provide 41,194 megawatts (MW). Its aging fleet of power stations, many built 30 years ago, runs at 33,000MW, and cannot match the current demands of 38,000MW.
For many years South Africans have been smug towards electricity. A common joke told locally was: What did Zimbabweans use before candles? Electricity. Now, that joke, and the smugness, has come home to roost.
The short term solution is ‘load shedding’; in English, this means scheduled power cuts. They are words that mean shops close, mines shut down and computer nerds cringe at losing their unsaved data. According to Yelland, load shedding is a vicious circle; as the power utility pleads with the country to use less energy, it hampers its operations.
“Electricity consumption at this moment is at a seven-year low. Ever since 2008, [when load shedding first was implemented], it’s been going down. This means Eskom’s sales are going down. Their revenue is going down but their costs are going up. In the last six months of 2014, Eskom declared a profit of R9.3 billion (around $800 million), but that was over the winter period, when their prices are nearly double the summer period because demand for electricity is high. In the second six months of 2015, their projected profit is going to see a loss of R9 billion ($780 million). It’s going to wipe out the entire profit for the first six months of the year. Why? “Because they haven’t got enough electricity to sell. They are throttling the economy telling people to use less,” says Yelland.
A four-year delay in coal power plant projects Medupi and Kusile has made matters worse. The projects which were due to be completed in 2013 and 2014 were expected to bring around 10,000MW to alleviate the grid. The delays mean their price tags, estimated at R69.1 billion ($6 billion) and R80.6 billion ($7 billion) in 2007, have now nearly doubled to R154.2 billion ($13.3 billion) and R172.2 billion ($14.9 billion). Alone, they amount to an annual loss of R30 billion ($2.6 billion) in electricity sales.
“All 12 units will be online by 2020 at the earliest, if nothing further goes wrong. They are not a short term solution to South Africa’s needs,” says Yelland.
The power crisis has also meant Eskom spends around R1 billion ($86.7 billion) on diesel every month to run open-cycle gas turbines. Ironically, the country doesn’t have the infrastructure to run on gas, which the turbines are designed for and which would be a cheaper, cleaner alternative to diesel, says Yelland.
There is light in the gloom. A thousand megawatts is generated by renewable energy projects, built by private companies and then sold back to Eskom at set tariffs.
“The success stories are not government success stories, they are private: private capital; private technology; built, owned and operated privately; and then generated into the grid,” says Yelland.
What’s more, a study by the Council for Scientific and Industrial Research (CSIR) in South Africa, found that the cost of the renewable energy projects was less than the cost of the blackouts, and didn’t cost the tax payer a cent.
“In fact, it’s contributed towards reducing costs, meaning we had to spend less on diesel. Of course that’s only valid on shortages like the wave we have had at the moment. If we weren’t using diesel, if it was a normal country with a surplus of energy, [renewables] would cost us,” says Yelland.
Renewables do have a downside and are not the solution to Eskom’s crisis. The sun and wind are not constant. At any given time the 1,000MW of energy supplied will most likely produce 250MW.
“This is rated output, that is what is expected when the sun is blowing full blast and when the wind is blowing full ball. For every 100MW of renewable energy of capacity, you have to build an equal amount of conventional, mid-merit plants, to back up and provide power when the wind is not blowing or the sun is not shining. If you are trying to deliver 100MW and the sun goes behind a cloud, you can’t just switch off half of your customers,” says Yelland.
In the short term, Eskom’s crisis is further threatened by a R3-billion ($260 million) bailout to enable it to purchase diesel for the next month. Yelland believes Eskom needs to restructure.
“Eskom’s structure is the same structure as when it was set up 80 years ago. The world has changed since then. Other organizations like Sasol are not state-owned enterprises any longer. I believe if Eskom took on strategic equity partners, and listed on the stock exchange, it would raise significant capital resources without the need to raise tariffs. We need to inject new blood into something that is currently something akin to that of a dinosaur. [Eskom] is slow moving, ponderous and unable to adapt to the changing environment. If things carry on like this, it will go extinct just like the dinosaur did,” says Yelland.
You could argue that dinosaurs, when they were around, had more power.

The Scourge  Of The Dinosaur  In The Dark

“Finally, after a turbulent seven years, we are on the brink of making history,” enthuses Zwelakhe Sisulu, a journalist-turned-magnate who believes manganese will eventually “do for South African mining what gold and diamonds did” back in the heyday.
The chairman of Kudumane Manganese, one of South Africa’s newest mining companies, makes the remark at a time when one of the doyen families of South African mining, the Oppenheimers, is exiting amid plummeting revenues. In November, Nicky Oppenheimer put an abrupt end to his family’s century-old hold on the diamond industry. He sold his 40% stake in De Beers, the world’s leading diamond company, to Anglo American for $5.1 billion.
Sisulu is finding it difficult to contain his excitement. And it’s not because his company is making money, just yet, but because when it does, it will make bucket loads, for thousands of years.
<img loading="lazy" decoding="async" class="alignleft size-medium wp-image-1237" src="/wp-content/uploads/2017/04/Kalagadi-12-4-2812-300x200.jpg" alt="" width="300" height="200" />
South Africa is one of the most resource-rich nations on earth, with mineral reserves estimated at more than $2.5 trillion, according to Business Insider. Manganese makes up a big part of that wealth, with the country known to have between 85 and 92% of the world’s high-grade manganese ore reserves. However, there’s something anomalous about how South Africa benefits from world manganese trade. It produces only 15% of the world’s manganese, compared with China, which produces more than 35%, a lower grade at that, and has less than 5% of the world’s manganese reserves and resources.
Most of the country’s reserves are found in the Northern Cape, in part of the Kalahari Basin, a large area covering 2.5 million square kilometers and straddling South Africa, Botswana, Namibia, Angola, Zambia and Zimbabwe. Most famous for having the biggest mineral deposits in the world, the basin is home to diamond, manganese, iron ore, zinc, copper and a host of other minerals. It also has a significant presence of limestone, gypsum, granite, verdite, mica and rose quartz.
South Africa’s new, albeit slow, manganese rush began more than seven years ago when Sisulu’s Kudumane Manganese—as well as several other consortia including Kalagadi Manganese and Tshipi é Ntle Manganese Mining—were granted prospecting rights that were later converted to full mining rights.
Thanks to the country’s policy of Black Economic Empowerment (BEE), the mines became post-apartheid South Africa’s first green fields projects to be commissioned on such a grand scale and with significantly higher local black ownership.
Three years before, the South African parliament adopted the Mineral and Petroleum Resources Development Act in 2002, which compelled all existing mining houses, including world leaders like Anglo American and De Beers, to cede at least 26.1% of their shareholding to blacks as a means to redress apartheid. The government then promised to ensure that henceforth, any new rights issued would be even better for the locals—guarantee them larger stakes, skill greater numbers of indigenous people, encourage innovation and find more sustainable ways of mining.
Collectively, it is estimated that the new mines have enough reserves to last the next 5,000 years. They are all also building sintering plants so they can participate more meaningfully in the mineral’s value chain—something old mines didn’t do much of.
<img loading="lazy" decoding="async" class="alignleft size-medium wp-image-1238" src="/wp-content/uploads/2017/04/Kalagadi-12-07-8213-300x200.jpeg" alt="" width="300" height="200" />
Delighted that theirs are “genuine deals”, Sisulu says “there was a lot of paper shuffling” and complacency in previous mining BEE transactions. “Blacks did not care about running a mine. One thing I’ve learnt is that you’ve got to dirty your hands in this business.” Insisting he’s “not reading a political catechism”, he says the new manganese dispensation has given Africa’s biggest economy “a golden opportunity for genuine ownership of assets by blacks, as well as a genuine rise of black professionals. If you look at gold and platinum mining, they remain exclusively white.”
When FORBES AFRICA talked to the budding oligarchs, they had all achieved critical mass. Some are now readying themselves to transport ore to their customers across the globe, while others are about to go into full production.
But it hasn’t been an easy road.
Over the years, the new miners lost a great deal of time and energy in bun fights over the “arranged marriages” the government forced them to enter into with international partners. None were afforded an opportunity to choose their foreign investors.
“The issue of forced marriages was a serious one,” laments Tshipi é Ntle Manganese Mining chairperson Sakumzi Macozoma, “besides the issue of compatibility, there were issues of investment horizons and simple diligence in doing the work that needed to be done.” He considers himself “lucky, in that our consortium worked well from day one”.
Sisulu admits to having it rough in the beginning, but is now pleased that “reason ultimately prevailed” and the relationship between them and their Japanese strategic equity partners is “working like a charm”.
Daphne Mashile-Nkosi, who heads Kalagadi Manganese, has not been as fortunate. The single-biggest shareholder and chairperson of Kalahari Resources has been in constant disputes with the bigger of her two strategic equity partners, giant steel maker ArcelorMittal International which owns half of Kalagadi. It took a High Court order to force ArcelorMittal to meet a R241.3 million shareholders’ agreement with Kalagadi. ArcelorMittal had expressed unhappiness with the way the business was being run by the local partner, claiming that certain material obligations under the Kalagadi Manganese shareholders agreement had been breached and that corporate governance was found wanting in the mining firm. ArcelorMittal also wanted to appoint a joint CEO. The High Court also ordered the company to pay the costs of the legal proceedings and ruled that ArcelorMittal discharge its financial obligations in the future, pro-rata to its shareholding in Kalagadi Manganese.
<div id="attachment_1235" style="width: 210px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-1235" class="size-medium wp-image-1235" src="/wp-content/uploads/2017/04/AV_00012786-200x300.jpg" alt="" width="200" height="300" />SOUTH AFRICA &#8211; 6 August 2009: Saki Macozoma is the chairperson of financial institutions STANLIB and Liberty Life, deputy chairman of the Standard Bank of South Africa and a director of the Liberty Group. (Photo by Gallo Images / Financial Mail / Robert Tshabalala)</div>
Other stumbling blocks remain. Transport, over which they have little control, is one of them.
Transporting manganese by road would cost the mines around 75% more than rail, the miners say. But they may not have to go that route, if the government delivers on its promise. After years of shirking its responsibility, the government has finally decided to come to the party.
In February, President Jacob Zuma announced that government-owned transportation utility Transnet would spend R300 billion ($36.7 billion) to increase railway capacity, build and improve port facilities and upgrade fuel pipelines. The plan is specifically aimed at speeding up resource shipments and includes a new railway line to transport 16 million tons of manganese to Coega, a new development zone that’s at the center of the world’s main trade routes, being equidistant from American, European and the Pacific Rim regions.
“It’s going to take time but we are happy it’s finally going to happen. The imponderable here is why did we wait? We knew it had to be done. But it’s not too late,” says Sisulu.
In a country where most leaders of mining consortia are, or were, politically well-connected, some may find it strange that Sisulu and Macozoma would not have been able to do something about the situation they are now finding their companies in.
Zwelakhe Sisulu’s father, Walter, recruited Nelson Mandela to the ruling, 100-year-old, African National Congress. The two went on to become close friends and each other’s confidantes when they were both incarcerated for close to three decades for political activism. When Mandela was released in 1990, Zwelakhe went on to become his press and private secretary.
“No-one would see Madiba if I didn’t want them to see him,” is how Sisulu best describes his role in Mandela’s life at the time.
When Mandela retired from active politics after serving a five-year term as head of state, Macozoma became one of the most powerful men in South Africa. A close confidant of Mandela’s successor, Thabo Mbeki, Macozoma formed the nucleus around whom Mbeki’s inner circle was built. Like Mandela, although much younger, he is also a former Robben Island prisoner.
But transport is not the only challenge the new miners are facing. Across the South African mining industry, output has dropped. Unrest and wildcat strikes have reared their ugly head. And the country is facing stiff competition from fellow African countries like Gabon.
All this is happening at a time when worldwide demand for manganese has slowed. South African Chamber of Mines figures show that primary manganese ore production increased by 57% in 2010 to 7.1 million tons, coinciding with the global economic recovery. Of the total production, 5.9 million tons were exported while 17% was consumed locally. Total sales amounted to R10.6 billion and the industry contributed 1.5% to the country’s total merchandise exports.
Right now the figures are nowhere near there. But when that upward curve comes again, Sisulu says, they will be able to take advantage: “For as long as you produce steel, you are going to need manganese.”
Manganese is widely used for steel production, to give it strength, hardness and durability. The metal’s demand is being driven, in the main, by the infrastructure, transport and other development needs of the world’s nations, especially the most populous and resource-hungry ones, like China, which accounts for half the world’s steel and iron production and consumes 676 million tons a year.
Imara SP analyst Stephen Meintjes says: “Short- to medium-term consolidation is likely until steel prices and consumption turn up again. This might dislodge some high-cost Asian producers facilitating more realistic prices in due course.”
South African manganese will eventually perform to its full potential in the world market, he reckons, and “nothing, except our vexed mining jurisdiction problems” will stand in its way.
Macozoma says: “Conservative estimates of world production of steel, in which manganese is a key ingredient, suggest that, barring the usual economic cycles, is going to be strong for the next 50 years or more. This is based on the urbanization rate in the world, which requires extensive infrastructure.”
So, will manganese be as good as gold, as Sisulu surmises?
“Way too optimistic, something like iron ore, which of course is still very good, maybe,” says Meintjes.
“Manganese is different from gold in that the latter was a store of value worldwide and was viewed as wealth in itself. Manganese is an industrial mineral so it depends on the levels of steel production in the world,” says Macozoma
That said, he quips: “Manganese is not a 20/20 game for South Africa. It is a five-day cricket test.”

Tag: Supply

FORBES AFRICA SOCIAL MEDIA

Prepare For tough negotiations

Forget Money Create Value

The Scourge Of The Dinosaur In The Dark

The Slow Rush