Shared use in mining railway infrastructure: Trends in Africa
06 August 2017
Given their limited financial resources, governments have historically looked to such mining-related infrastructure, especially mining-related railways, to unlock their economic potential and promote wider economic development.
A number of African railways were built during colonial times, some of them by private sponsors to support mining activities (e.g. the Zouerate-Nouadhibou railway built by Miferma to exploit the Kedia iron ore deposit in Mauritania and the Hahotoe-Kpeme railway built by CTMB to operate the Hahotoe phosphate mine in Togo, both in the early sixties). Certain African railways have also been financed and constructed by governments, especially in state-controlled economies backed by the USSR (e. g. the Sangaredi-Boké-Kamsar and the Kindia-Conakry railways in Guinea-Conakry in the seventies).
Given the cost of such infrastructure, the "integrated" model, whereby the railway is built by the mining sponsor, which is in turn granted the right to operate it under a concession agreement, is still the preferred option in Africa. It is also viewed favourably by lenders, as it gives the mining operator control over the use of the infrastructure.
However, this model has been criticised as creating de facto monopolies, preventing other potential users (and competitors) from accessing the railway. A number of concession agreements have been singled out as containing no or limited, vague and/or highly conditional undertakings in relation to third-party access (e. g. provided that third-party access does not impair the conduct of the project at all or subject to terms to be agreed with the "first-mover", with no specific settlement mechanism).
As a result, it has been suggested that an alternative model, whereby the mining-related infrastructure is owned and operated by a third-party private sector investor, should be developed in Africa. In support of this option, it has been argued that mining operators may prefer third-party private sector ownership over government ownership on account of efficiency and functionality issues, and that they may even prefer this model to the "integrated" model as it would enable them to focus their efforts and their capital on their core business.
However, this alternative model has not been successfully developed yet. The pool of third-party operators with the required financial, operational and technical expertise is quite small in Africa, and mining companies (and lenders) are wary of losing control over the railway, increasing the structuring and contractual complexity of their projects and, potentially, incurring higher transportation costs in jurisdictions where other risks are already high.
As a consequence, the case has been made for open-access regulations and tighter third-party access regimes in concession agreements (or for the entry into specific, detailed railway concession agreements) ensuring, among other matters, that the infrastructure is built to accommodate additional capacity and that tariffs are non-discriminatory.
African governments have also been encouraged to create or bolster independent regulatory agencies to monitor the operation of such infrastructure and the effectiveness of a third-party access regime (e. g. by reviewing or endorsing decisions concerning access and tariffs).
Other options exist to balance the legitimate expectations of the "first-movers" and the equally legitimate expectations of governments and new users. They include:
While mining companies are still weathering the current commodity price cycle and the perceived political risk of doing business in Africa remains high, flexibility will be key in encouraging the development of mining projects and related infrastructure. Governments should support third-party access where there is excess capacity and either some of the "first-mover" costs have been recouped or these can be shared meaningfully to further de-risk the project.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.
Sign-up to select your areas of interest
Sign-up