VZCZCXRO0717
PP RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #1158/01 2551454
ZNR UUUUU ZZH
P 121454Z SEP 06
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC PRIORITY 6013
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY PRIORITY

UNCLAS SECTION 01 OF 02 MAPUTO 001158 
 
SIPDIS 
 
SIPDIS 
 
AF/S FOR HTREGER AND JMALONEY 
STATE PASS OPIC 
JOHANNESBURG FSC FOR RDONOVAN 
JOHANNESBURG TDA FOR DSHUSTER 
UDOC RTELCHIN 
MCC FOR SGAULL 
EB/IFD/ODF FOR JGARBER 
USAID FOR AA/AFR AND AFR/SA 
 
E.O. 12958: N/A 
TAGS: EINV EAID ECON ELTN ETRD MZ
SUBJECT: MOZAMBIQUE:  BRAZILIAN COMPANY CVRD OPTS AGAINST 
BUYING OPIC-SUPPORTED NACALA LINE TO EXPORT COAL 
 
REF: A. MAPUTO 422 
 
     ¶B. MAPUTO 599 
 
¶1. (SBU) Summary.  Recent developments between the 
OPIC-supported US/Mozambican consortium managing the Nacala 
Corridor, CDN, and the Brazilian company CVRD indicate that 
CVRD probably will not, as previously thought, buy the Nacala 
railroad corridor to transport coal from the Moatize mines. 
Instead, CVRD is looking into the viability of the 
alternative Sena line, which connects Moatize with the port 
of Beira, in accordance with the wishes of World Bank 
staffers and CFM, the Mozambican railroad parastatal.  We 
understand, however, that CVRD only will be able to transport 
1-3 million tons of coal per year on the Sena line, a far cry 
from original estimates of 10-14 million tons per year via 
Nacala.  CDN will forge ahead with rehabilitation work on the 
Nacala line, despite the projected loss of CVRD traffic; CDN 
says it had not counted on coal traffic when it originally 
bid on the railroad concession.  One of the two American 
firms in the consortium, the Railway Development Corporation 
(RDC), is arranging to sell its shares to another partner in 
the consortium, the (Mozambican) Manica Freight company.  End 
Summary. 
 
--------------------------------- 
CVRD Ducks Option to Purchase CDN 
--------------------------------- 
 
¶2.  (SBU)  In March CVRD and CDN had reached agreement giving 
CVRD an option to purchase the Nacala line, which CVRD 
indicated it planned to use to export coal from Moatize. 
(Please see refs A and B for further background.)  CVRD 
failed to exercise its option to purchase CDN by the deadline 
of July 31 (Note - Ref B mistakenly reported CVRD had a 
year-end deadline) and asked CDN for an extension to August 
¶15.  CDN granted the extension.  However on August 15 
Fernando Couto, owner of Manica Freight, received an email 
from CVRD stating that CVRD was ceasing negotiations over the 
Nacala line because it had decided to re-examine the 
possibility instead of using the Sena line and port of Beira 
to export coal.  According to the email, as shared by Couto, 
CVRD was not closing the door to Nacala, but if CVRD returned 
it would be as a client of the railway, not its owner. 
 
--------------------------------------------- ---------- 
CDN Thinks it Can, It Thinks It Can -- Without the Coal 
--------------------------------------------- ---------- 
 
¶3.  (SBU)  With the termination of the CVRD deal, CDN has 
declared publicly and to emboffs in private meetings that the 
time has come to move forward (Couto indicated privately that 
CDN had put some of its plans on hold when it thought CVRD 
would buy it out).  In management terms, for CDN this will 
mean a change in shareholder holdings, with Fernando 
Couto/Manica Freight buying out RDC's shares in the 
concession, according to Couto.  Doing so leaves Manica 
Freight and Edlow Resources (another American company) as the 
primary private sector shareholders, which together hold 51% 
of CDN's shares; the Mozambican railroad parastatal CFM holds 
the remaining 49%.  On the operations and public relations 
side, moving forward means forging ahead with rehabilitation 
work on the Nacala line and, especially, the spur linking the 
line with Lichinga, the isolated capital of Niassa province, 
which CDN says is uneconomical but which the government 
considers a top priority for political reasons.  Couto told 
emboffs that CDN intends to operate the railroad profitably, 
despite CVRD's change of heart, explaining that CDN had never 
contemplated shipping Moatize coal when it originally bid to 
manage the railroad several years ago. 
 
---------------------- 
Why Did CVRD Back Out? 
---------------------- 
 
¶4.  (SBU)  Comment: It remains unclear why CVRD chose to 
shift its focus from the Nacala to the Sena railroad line. 
World Bank staff members were placing pressure on the 
Mozambican government and CVRD to re-examine the Sena line as 
recently as last May (see ref B).  And the head of CFM, a 
Beira native, is known to have sentimental attachment to 
Beira and favor the Sena corridor, despite CFM's minority 
holding in CDN.  Couto speculated that CVRD may have dropped 
the Nacala corridor option because of cash flow problems for 
 
MAPUTO 00001158  002 OF 002 
 
 
the giant Brazilian multinational.  According to Couto, CVRD 
this summer acquired properties in Canada and Australia and 
therefore did not want additional exposure at this time by 
buying out the Nacala corridor, which would have meant taking 
on a huge financial and logistical project involving building 
an 150 km link through the bush from the Nacala line in 
Malawi to Moatize.  Instead CVRD found it much easier, in 
this analysis, to opt for the cheaper alternative of the Sena 
corridor, even though the coal shipments would be much 
smaller in size -- a maximum of three million tons as opposed 
to 14 million tons via the Nacala corridor.  Whatever the 
reasons, the loss of CVRD,s coal is a large blow to CDN's 
projected operations.  Despite the setback, Couto seems 
determined to make CDN succeed. 
Raspolic