Rail & Port Proposals to Service Iron-Ore Projects in Western and Central Afric a

1. Leveraging extractive industry investments for domestic infrastructure needs:Rail and PortJune 2014

2. Rail & Port Proposals to Service Iron-Ore Projects in Western and Central Africa

3. Framework

4. (Step 1) Mining and Infrastructure Project in Perspective

5. (Step 1) Determining Potential Demand for Third Party Access Forestry Potential Mining Concessions • Historical rail and port throughput (if brownfield) • Road haulage along corridor that is suitable for rail • Project proposals • GIS mapping Source: MTC

6. (Step 1) What should be on rail? Distance: Truck vs. Rail Prices in the USA Goods: Tons by Commodity in China Source: WB 2011 Rail Reform

7. (Step 1) Understanding the Players and Interests • Prefer vertically integrated single user model • The more players involved, the higher the risk • Worst scenario with multi-user and multi-purpose access with unallocated capacity at financial close • Multi-purpose access to infrastructure • Transit fees • Multi-user access • Third party operating the rail and port infrastructure • Smaller mining companies may prefer a haulage regime • Large-scale subsequent parties may want their own infrastructure solution • Multi-purpose access • Strong government intervention • Cross-subsidization • Maximize benefits of the extraction of resources, but different views on what should be prioritized: • Ministry of Finance – Tax revenues • Ministry of Industry – Local processing • Ministry of Transport – access to infrastructure • Maximize returns of its investment • Control design, and operation of fully integrated logistics corridor • Scope for shared investment/use if does not interfere with own operations • Against multi-purpose access

8. (Step 1) The Importance of Timing

9. (Step 2) Cost Benefit Analysis of Open Access

10. (Step 3) Level of Government Intervention 1 INTERVENT ION SCENARIOS 2 3 4 5

11. (Step 3) Legal Framework Open Access Regime Regulatory Body 1 • Blanket-open access regime vs. industry specific regime • Regulation to apply to all access seekers and not only to the same industry • Important to clearly draft regulation to achieve open access • Mining contract should not contradict legislation SCENARIOS 2 3 • Monitor non-discrimination of access • Monitor/regulate access charges and tariffs • Guarantee infrastructure investments & expansion opportunities • Analyze and arbitrate access complaints 4 5

12. (Step 3) Infrastructure Ownership Government Participation Options Ownership Models* 1 Leading mining company SCENARIOS 2 Mining companies (SPV) 3 • Mining companies (SPV) • Tender to third party • Free equity • Golden share • Financed equity 4 • Multi-purpose (SPV) • Tender to third party 5 *Government should always retain ownership and control of the right of way

13. (Step 3) Infrastructure Design Company/Companies to design infrastructure which maximizes efficiency 1 SCENARIOS 2 • Excess capacity • Potential double track on railway • Expansion considerations 3 • Multi-purpose • Additional quays at port • Service road 4 Regional gauge on railway 5

14. Liberia – Infrastructure Design The PutuIron Ore Mine in South East Liberia will build its own railway line and port facility. The contract design lays the foundations for future expansion of rail: “The Railroad shall be designed so that it can be expanded on a commercially feasible basis to carry on a continuing basis twice as much traffic as is contemplated by the preceding sentence…” And port: "The Port shall be designed and constructed such that it can be expanded on a commercially feasible basis to handle twice as much capacity as is contemplated by the preceding sentence. Such expansion capacity shall include the possible construction of an additional 50 meters on the Iron Ore jetty and the driving of iron ore jetty piles at least 5 meters deeper. The Port basin shall be designed to facilitate further large scale development consistent with any expansion of the railroad (e.g., lengthening of primary wharf, room for additional wharf, or adequate protected anchorage).” “The land side of the port shall be designed to facilitate future expansion and public or third party access to general petroleum products and general cargo storage and handling facilities.”

15. (Step 3) Operating Model Vertically Integrated • High SCENARIOS 1 2 Haulage Regime* 3 4 5 Choice to be made according to regulatory/ monitoring capacity • Corridor Efficiency Access Regime • Low • Low • High • Non-Discriminatory Access Potential *Yet to be tested in practice

16. (Step 3) Regulator Attributes

17. (Step 4) What Should be the Negotiation Points? 1 INTERVENT ION SCENARIOS 2 3 4 5

18. Step (4) Selected Negotiation Points SCENARIOS 1 2 3* 4* 5* * Government will need to grant leading mining company founding rights & capacity allocation guarantees 18

19. Step (4) Government Negotiation Tactic

20. Keep ICT sector in mind when discussing railway project Service Arrangement Ownership model 1. Mine builds own infrastructure a) Telecom adds capacity. b) Mine adds telecommunication capacity and leases to Telecom. a) Companies building required infrastructure to mines (e.g. power, pipeline and railways) add telecommunication capacity at a lower cost. 2. Mine does not build own infrastructure b) Mine provides anchor demand for Telecom. c) Government, Telecom and mining companies coordinate efforts and investments.

21. Mines Build Infrastructure Win - Win • Example: Peru • MineraAntamina built fiber optic network along slurry pipeline which Telefonica del Peru uses to provide ICT services. • Mine maintains social license • a. Telecom adds capacity • Telecom expands coverage Source: Antamina • Example: Malaysia • Celcom and Petronas build fiber optic network along gas pipeline with spare capacity. • Mine maintains social license and adds revenue Source: Agilent • b. Mine adds telecommunication capacity and leases to Telecom • Example: Brazil • In 2001 Vale wanted to partner with railroad partners and install fiber optic along 10,000km of rail lines and lease to Telecoms. • Telecom expands coverage Source: Globo

22. Companies building required infrastructure to mines add telecommunication capacity at a lower cost • Objective: Leveraging economies of scope by sharing with other infrastructure industries (such as power utilities, water and sewage pipelines, railways) • Rationale: A large part of the costs is associated with costs of civil works. • Example: Canada • De Beers mine allowed power utility FNEI to use electricity grid infrastructure to build fiber optic cable. • FNEI with local municipalities then formed Western James Bay Telecommunications Network (WJBTN) to operate and provide telecommunications services. Source: Five Nations Energy • Example: Potential in Mozambique – Nacala Corridor: • Vale and Mozambique Ports and Railway (CFM) selected Siemens to install microwave-based telecommunications network for track-to-train data transmission. Source: InternationalRailway Journal

23. CCSI’s Framework for Shared – Use: http://ccsi.columbia.edu/work/projects/leveraging-infrastructure-investments-for-development/

24. Agree on the 5 key points that your colleagues which were not part of this breakout session should know about mining related rail & port infrastructure