State rail utility Transnet plans to nearly quadruple its coal deliveries to embattled electricity monopoly Eskom to potentially lower power prices.
Out of the 120-million tonnes of coal Eskom burns annually, only 7.5-million tonnes will be delivered on rail this year. A further 80-million tonnes are sent by conveyor belt, with trucking a major source of coal deliveries for Eskom.
Transnet plans to ramp deliveries up to 30-million tonnes in five years, just shy of a fourfold increase in deliveries to the utility, said Mike Fanucchi, chief customer officer and executive committee member at Transnet.
Train deliveries of coal fell by half over five years as vested interests in Eskom, Transnet and elsewhere diverted coal to road transport to secure lucrative supply contracts during a period of mismanagement and corruption at the utility.
A fire at the Majuba power plant load-out station where coal is delivered means there are about 1,900 trucks delivering coal to the plant daily. Majuba should accept 14-million tonnes of coal a year by rail but this has fallen to 6-million tonnes.
As Eskom under the leadership of then-CEO Brian Molefe pushed for coal from smaller suppliers on shorter-term and more expensive contracts rather than the large, long-term agreements on cost-plus terms with major mining companies, the quality of coal has deteriorated.
Eskom is engaged in rolling blackouts as it struggles with aged power plants and maintenance backlogs. Its tariffs have increased sixfold since 2006 as two new power plants ran tens of billions of rand over budget, leaving the company with R450bn of debt it can barely service.
The poor quality of some of the coal arriving at the fleet of 15 power plants has been one of the reasons for difficulties with boilers and maintenance.
Eskom and Transnet have set up a joint team to “get the right quality of coal to the right plants”, Fanucchi said in an interview with Business Day at the Investing in African Mining Indaba.
“We have a good relationship with André de Ruyter and he believes this is one of the main challenges,” he said, referring to the recently appointed CEO of Eskom.
“The objective of that team is to reduce the cents per kilowatt hour at Eskom,” he said.
“If we can help reduce that, then we reduce costs for our electric locomotives, which reduces costs for all our clients. We’re looking for very different commercial models with them to really take on a totally different partnering approach to move to the 30-million tonnes.”
By moving larger volumes on rail and working efficiently, costs of coal deliveries will become cheaper for Eskom.
In 2020, Transnet expects to move 11.5-million tonnes and then 15-million tonnes the following year as deliveries move up to 30-million tonnes quickly after that.
Transnet has a fleet of 72,000 wagons and it will see what it can move from other rail corridors or refurbish to meet the target.
“We have to work together with the trucking companies to make sure we don’t destabilise local communities as we go through this process,” Fanucchi said.
Transnet is working with Eskom and coal miners such as Exxaro Resources to move coal by rail from the Waterberg in northern Limpopo to the power plants in Mpumalanga, dusting off old studies into coal origins and destinations to optimise the coal flows into suitable power plants.
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