Malawi’s coal industry in ruins

…Mines forced to close as imports choke market

…Industry expert proposes power station in the north

By Marcel Chimwala

Malawi’s coal industry, which used to be one of the largest employers, is in ruins as imported coal from Mozambique has choked the market for local producers resulting in closure of over three quarters of the mines.

The mines that have closed operations include Mwaulambo, Nkhachira, Jalawe, Lisikwa, Njati and DDY Trading in the Northern Region and their officials say they have closed shop because of market constraints as a result of the development of coal mines in Mozambique’s Moatize coalfield which is closer to the commercial city Blantyre, host to many of Malawi’s coal consumers.

The northern coal miners explain that the situation has worsened because they are also not able to export to nearby Tanzania following import restrictions that have been adopted by the East African country.

We suspended production at Nkhachira Coal Mine because of low sales as most of Malawian buyers opt to import cheaper coal from Mozambique,

says Chairman for ASX-listed Intra Energy Corporation which used to run the closed Nkhachira Coal Mine in Karonga through its subsidiary Malcoal Mining.

Mozambique coal is sold at an average price of US$165 per metric tonne while Malawi coal sells at around US$190 per tonne.

Asked if the government has taken any step to protect the local coal industry since the miners started complaining of coal dumping a couple of years ago, Acting Director for Mines Department Atileni Wona says though his department would love to have a thriving coal industry, such trade issues fall within the Ministry of  Industry, Trade and Tourism.

The Ministry’s Spokesperson Wiskes Mkombezi , however, refuses to comment on the issue referring Mining & Trade Review to either Malawi Revenue Authority (MRA) or Ministry of Finance.

But he earlier said, in response to our questionnaire, that the imported product is cheaper only when the importers evade taxes.

There is need to understand what makes these products cheap. What is problematic is smuggled products on the markets. Smugglers endanger clean competition by avoiding taxes and in so doing they undercut law-abiding businesses. This threatens industrial growth. As such smuggling is a threat to economic growth and the law makes smuggling an offence,

he said.

Industrialists, however say Mozambique coal is flooding Malawi because it is exempted from import duty due to Southern Africa Development Community (Sadc) trade protocols that remove trade barriers between member countries.

Former Ministry of Natural Resources, Energy and Mining, who also served as Principal Secretary for Ministry of Industry and Trade Grain Malunga, however, says despite such trade protocols it is still possible to protect the local industry by putting in place appropriate regulations.

 It is possible for Malawi government to protect its coal industry by regulating it as Tanzania is doing because in allowing coal to come into the country duty free, we are killing the industry that is a huge employer,

says Malunga.

Malunga also proposes that the government should work with the industry in a public-private partnership to establish a 20MW coal-fired power station that will utilize coal from the northern coalfields, whose reserves are estimated at over 245-million tonnes.

He said construction of the 20 MW power plant would cost about $40.0 million but the plant will be able to generate $10.0 million per year hence able to pay back the capital cost in six years thus assuming that price of coal will be between $50 and $60 per tonne and the economic value of the unit price for electricity will be around 25 to 35 cents per kw hr.

He says:

Construction of a coal fired power plant in Karonga can promote coal mining in the northern region. This can create employment and boost energy availability for the development of agriculture (agro-processing and irrigation farming) and mining sector.

Despite boosting of coalfields in the North and the Lower Shire area, Malawi is struggling with electricity supply constraints attributed to environmental problems that affect the Shire River where the country generates up to 98% of its electricity.

Malunga says with such challenges it is high time Malawi seriously adopted coal as an alternative source of energy saying coal fired power plants are more reliable, affordable and have proven technologies that are safe and efficient.

Coal is abundant and easy to mine. This makes it cheaper than any other sources of energy. Most industrialised countries use coal as a source of energy and forms over 50% of their energy mix. United States of America generates about 45% of its electricity through coal while Australia generates about 75%,

he says.

When he toured Mchenga Coal Mine in July last year, Minister of Natural Resources, Energy and Mining Bright Msaka promised to engage the Ministry of Industry, Trade and Tourism on ways to protect the local coal industry from unfair competition posed by dumped coal imports.

Minister of Industry, Trade and Tourism Joseph Mwanamveka promised to engage experts in his Ministry to scrutinise the issue and come up with a remedy to regulate the industry in line with the rules of the World Trade Organisation.

However, as government officials confirm this month, there is no action on the issue and the coal industry currently on death bed is taking its last breath in the watch of a government which claims to promote consumption of locally made products through its “Buy Malawi Strategy.”

Ironically, the Malawi Government is also in the process of obtaining a loan from the Export and Import Bank of the People’s Republic of China to construct a coal fired power plant at Kammwamba in Neno to generate 300MW of electricity using Mozambique coal to be ferried through the newly constructed Nacala Railway, which Brazilian resources giant Vale has constructed.

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The article above was initially published in Malawi’s Mining & Trade Review Issue Number 46 that is circulating this February 2017.

The full edition is available for download here. This monthly publication is edited by Marcel Chimwala.