Eskom’s ailing power grid and the dead hand it places on the economy always gets plenty of airtime. That’s not the case when it comes to the dead hand Transnet’s ailing rail network places on the economy.
But trading updates from large coal producers in the past couple of weeks have served as a reminder of just how much SA is losing out as a result of the Transnet trains that don’t run, and the ports that can’t ship.
The “constraint on rail infrastructure” has forced SA’s coal exporters to cut production at a time when global export coal prices have hit all-time highs, because Transnet cannot get their coal to the privately owned terminal at Richards Bay through which SA ships its export coal. Transnet’s freight lines and trains have been rendered dysfunctional by ridiculous levels of theft — of everything from cables to signalling equipment — and because many of its heavy-haul locomotives are out of service because it can’t get spares for them.
Based on Transnet’s record for the first 10 months of the year, coal producer Exxaro estimates the industry is likely to export no more than 58.8-million tonnes of coal this year; Thungela Coal CEO July Ndlovu puts the number closer to 55-million. The Richards Bay terminal should be shipping 75-million tonnes.
It’s not just coal: the Minerals Council SA estimates the country will this year lose well more than R30bn in export revenue that it could have earned from coal, iron ore and chrome, as a result of Transnet’s ailing infrastructure and operations.
That is a drag on the balance of payments; it also means tax revenue lost to the fiscus. October’s medium-term budget showed just how important the commodities boom has been in enabling the government to extend social spending during the Covid-19 crisis while curbing the fiscal deficit. The troubles at Transnet and Eskom have prevented SA making the most of that commodities boom at a critical time.
And the opportunity cost has been particularly stark in the case of coal. At the time Thungela was unbundled from Anglo American and listed in June, the coal producer predicted the fundamentals of the coal market would remain supportive of prices in the near, medium and longer term, notes Ndlovu — but even Thungela didn’t imagine prices would run nearly as hard as they have done. Supply disruptions in India and Russia and geopolitical ructions between China and Australia created a tight market in a quarter in which demand from Europe increased because low renewable energy yields and high gas prices.
(Thungela reports in its trading update that benchmark export coal prices averaged $123 per tonne year to date but peaked at $210 in October, before reverting to about $141 — still way higher than the $80-$90 prediction in Thungela’s June prospectus. And with the world now realising that the transition away from coal may prove to be a lot slower than initially hoped, and no new investment going into new coal mines, Thungela sees the fundamentals remaining strong.)
No surprise then that the coal industry has intervened to try to get Transnet moving. Ndlovu says Transnet CEO Portia Derby and her team have been supportive and willing to collaborate. The coal industry has taken action to help secure the rail line, contracting with private contractors to tackle the crime and theft. Fin24 reported that Exxaro disclosed at the time of its trading statement that this had reduced cable theft on the North Corridor 80% since the collaboration began in the first week of November.
The industry has also intervened to try to get Transnet’s locomotives fixed. Ndlovu reports the efforts to find and procure spares for the older, Japanese locomotives supplied by Toshiba are expected to yield results in the first half of next year. Procuring spares for the Chinese locomotives is more complicated but could see progress in the second half of next year.
The Chinese locomotives are the ones that were procured, corruptly, in a R54bn contract with South China Rail under former Transnet CEO Brian Molefe, and the dispute with the Chinese over the corrupt contract has put paid to the spares.
State capture
In a real sense, Transnet’s woes do reflect the cost of state capture, as the government and Transnet’s leadership constantly remind us. But the government’s crippling procurement rules haven’t helped. The way the company has been run since state capture surely doesn’t seem to have helped much either. And there are now concerns about the huge amount of institutional knowledge and expertise that has walked out of the door this year as a result of the voluntary severance package put in place by Derby. The United Transport Workers Union has said Transnet had let go more than 2,900 employees, 41% of whom had more than 26 years of experience. Many were senior managers or artisans.
On the upside, Transnet seems to be open to private participation, as the coal industry collaboration (or takeover?) suggests. The government has announced the ports will be corporatised, easing entry for private concessionaires; Derby has announced an ambitious R100bn Durban port master plan which aims to bring in private investors; the intention is also there to bring private operators into rail.
Whether that will deliver the efficiencies and operational improvements SA so urgently needs depends in part on whether the government is willing to bring in efficient, independent, global scale operators — rather than using concessions to dish out goodies to the favoured local few. But the longer it takes to turn about SA’s rail infrastructure, the greater the economic damage will be.
• Joffe is writer at large
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