Modeling the international competitiveness of Botswana\u27s coal

Botswana has vast proven deposits of steam coal, which for a long time it has wanted to develop but without much success. The main objectives of this study are: (1) to analyze the time schedule of coal exports likely to be forthcoming from Botswana and the land routes for these exports; (2) to determine the competitiveness of Botswana\u27s coal in the world steam coal markets and (3) to make recommendations on the appropriate policy for the exploitation of this coal. To accomplish these objectives, we construct a model of the seaborne steam coal trade consisting of exporters and importers with a substantial share in this trade. We econometrically estimate the long run marginal cost functions for net exporters and employ these to construct a spatial and dynamic model of the world steam coal trade with elastic supply and inelastic demand. This model is applied to simulate Botswana\u27s competitiveness in this trade over the period 1995 to 2010 from a 1990 base year with a decision criterion that minimizes the sum of discounted capital costs of mine development, variable supply costs, rail and maritime transportation costs. Finally, we employ the model to forecast the likely optimal size of mine, timing of production capacity and choice of export port for Botswana\u27s coal for the years 2005 and 2010. The base year for the forecast is 2000. The simulation results indicate that Botswana\u27s coal would have been competitive in the steam coal markets of Western Europe and Asia. The forecast results indicate that Botswana\u27s coal would also be competitive in these markets in the future. These results are least sensitive to changes in rail transportation and variable supply costs but are sensitive to capital costs for mine development