(This article was originally published Sunday.)
By Alex MacDonald
CAPE TOWN--African countries should approach equity investment
in infrastructure projects with caution, said a senior executive at
the International Finance Corp. Sunday.
"Taking an equity stake in infrastructure projects should be
carefully considered by any country, particularly those with
limited financial resources," said Tom Butler, Global Head of
Mining at the IFC, in an interview ahead of the Indaba mining
conference.
"Taxes and concession fees can provide more stable revenue
streams to governments and don't require up front investment by
governments, thus freeing up public money for investments in things
such as health and education, where private sector funding is not
as readily available," he added.
Standard Bank Group Ltd. (STD.JO) estimates that African nations
will need to spend more than $50 billion in the next 10 years on
new rail networks alone to meet growing demand for mineral
resources.
Some African governments have sought to use their own capital to
develop infrastructure but the results have been mixed, with some
companies raising concerns over project delays caused by
transportation development delays. Mr. Butler said a multi-user
transportation network that is privately owned but regulated by the
government would prove to be a more efficient and effective way of
allocating capital and generating a steady stream of revenue via
taxes and concession fees.
Rio Tinto PLC (RIO, RIO.LN) last month wrote down most of the
value of its $3.78 billion purchase of Mozambican coal assets in
2011 after failing to secure permits to barge coal down the Zambeze
river. It is now considering other transport options, including a
rail line, but the government is still working on creating a
third-party concession framework for new lines in the country.
Meanwhile in Guinea, Rio Tinto is still waiting for clarity from
the government on the terms of investment for its Simandou iron ore
project, including how the government plans to finance its share of
the rail and port infrastructure.
Rio Tinto signed an accord in April 2011 with Guinea to secure
Rio Tinto's mining title over its two Simandou iron ore blocs in
the south-east of Guinea. The accord gave the government the right
to take up to a 35% stake in the project and a 51% stake in a
special purpose vehicle for the project's 670 kilometer rail and
port infrastructure.
A year later, Rio Tinto and Aluminum Corp. of China Ltd. (ACH,
601600.SH, 2600.HK), or Chalco, agreed to create a joint venture to
develop and operate the Simandou mine. Through the joint venture,
Rio and Chalco own a 50.35% and 44.65% stake respectively in the
Simandou project while the remaining 5% is held by the IFC, a part
of the World Bank.
When asked how his views on infrastructure equity ownership
relate to Guinea, Mr. Butler said "Each country is unique. We are
fully committed to working with Rio Tinto and the Government of
Guinea on advancing the Simandou project, including the
infrastructure component."
Write to Alex MacDonald alex.macdonald@dowjones.com