SA’s largest coal miner Exxaro is taking a hard line on Transnet’s inability to transport SA’s export coal to port and is challenging the state-owned rail utility’s claim that circumstances beyond its control have given it the right to cancel contracts with coal exporters.
Transnet, which is battling cable theft, vandalism and the effects of poor maintenance on its networks, told coal exporters on April 8 that it had terminated long-term coal transport agreements to ferry coal from Mpumalanga to Richards Bay. The bulk of SA’s coal exports go through Richards Bay Coal Terminal (RBCT), which is owned by coal exporters.
Ailing Transnet has been struggling to rail coal to the terminal and in 2021 managed to transport just 58.3-million tonnes, almost a quarter less than RBCT’s capacity. This forced mines to cut export production at a time when they could have cashed in on record global coal prices.
In its letter to coal exporters on April 8, Transnet Freight Rail (TFR) declared force majeure, invoking clauses in the long-term rail contracts that allow it not to fulfil these due to circumstances beyond its control.
But Exxaro hit back in a Sens statement on Thursday, saying: “After consultation with its legal advisers, Exxaro is of the view that the events relied upon by TFR do not constitute force majeure events, that the agreements did not terminate, and TFR’s reliance on any purported termination is invalid.”
Exxaro’s tough stance, which could see it go to court, is in contrast to the softer line taken by rival Thungela, which said the announcement was not expected to affect its operational outlook for 2022, given in March, while it is engaging with the rail operator to clarify its contractual position.
Exxaro stakeholder relations manager Mzila Mthenjane said that the discord at Transnet had already affected the group as reported in March.
Exxaro warned in March that railway problems cost it R5bn in lost exports during its year to end-December when production fell by 10%.
The miner said TFR had expressed the intention to finalise new five-year agreements with affected parties by June 30, while it has guaranteed that during this period Exxaro’s allocated capacity will remain in effect until a new agreement is concluded and that it will continue to render transport services in terms of its standard conditions of carriage.
Exxaro cautioned that the potential impact on its operations cannot be determined until the finalisation of the negotiations, which may result in amendments to the agreements.
Mthenjane said Exxaro, like other miners, was in discussions with Transnet to find a solution to the woes, but did not say what the next step would be.
Thungela CEO July Ndlovu said the company was “encouraged that Transnet has reaffirmed its commitment to existing material commercial terms and it is, therefore, unlikely that these developments would have a material commercial impact on our business”.
Thungela said in March that it expected production of 14-million tonnes to 15-million tonnes in its 2022 year, constrained by Transnet, and this was expected to rise above 16-million tonnes in 2023 if the rail performance normalises.
The firm is not alone in complaining that Transnet’s dysfunction is preventing it from taking full advantage of higher commodity prices, with Sasol, Kumba Iron Ore and Exxaro also citing issues.
Coal miners are mulling their options, with Transnet’s woes expected to persist for at least six more months, the miners said in separate statements.
This is not the first time Transnet has declared force majeure — an earlier declaration in 2020 has yet to be retracted.
Transnet cited as reasons legal matters related to the irregular locomotive acquisition, maintenance contracts and the vandalism of the coal line.
This year, coal prices have surged to records after the invasion of Ukraine, with Europe moving to ban Russian coal.
Further pressure on Transnet’s system has come from a fire at the RBCT, a cyberattack in 2021, and flooding in KwaZulu-Natal. Transnet said on Thursday that operations were not suspended as a result of the floods, but terminals were operating less efficiently, with challenges experienced in handling wet cargo.
In a bid to tackle the crisis, Transnet had moved towards “opening up” the infrastructure to enable private players with capacity and resources to use underutilised networks, releasing up to 16 slots on its infrastructure for the use of private players. These slots are, however, on the general freight lines rather than on the dedicated coal line to Richards Bay.
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