Thungela Resources, SA’s largest coal shipper, says Transnet Freight Rail’s announcement this week that it will terminate transport agreements with exporters is a contractual matter, not a force majeure event.
Transnet last week said it would terminate long-term rail transport agreements with coal exporters as permitted under force majeure, because of rampant cable theft and the inability to source spares for locomotives. The situation was now beyond its control, it said.
But Thungela CEO July Ndlovu says that by declaring force majeure Transnet is implying it is unable to meet its contractual obligations with coal exporters to rail 77-million tonnes of coal a year.
“What they are saying is probably true — that they are unable to rail 77-million tonnes per annum. They are saying they are unable to do so and the contract provides us certain protections, which we are invoking,” he said.
The state-owned rail operator said it expects the force majeure to be effective for at least the next six months, but has undertaken to fulfil the commercial terms of the agreements while it works with coal exporters to finalise new five-year agreements by June 30. Transnet says it is still committed to transport coal but the force majeure notice releases it from performance agreements with exporters.
Force majeure is a clause in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and prevent participants from fulfilling obligations.
“We are not in agreement with Transnet that a force majeure event exists, and if it does, whether in fact they can terminate the contract on that basis,” Ndlovu said. “We are in discussions ... but that has not disrupted the services. That is why we think there is a contractual dispute, not a service provision issue. We continue to get trains.”
Transnet declined to say further, saying it was in discussions with the export coal parties and did not want to go public until the negotiations were concluded.
In its statement to exporters, Transnet noted that the legal issues had severely affected the availability and reliability of locomotives, in particular on the north corridor that transports coal to the Richards Bay Coal Terminal (RBCT) for export. Transnet saw “no progress anticipated in the foreseeable future, at least not in this financial year”.
In 2019 the company asked the court to declare the R54bn procurement of locomotives from the Chinese Railway Rolling Stock Corporation unlawful after the transaction was found to be irregular.
Should we be unable to get to an amicable solution, the contract does provide for dispute resolution which could very well end up in court — but we are nowhere near there
— July Ndlovu, Thungela CEO
Ndlovu said: “We can resolve the contractual dispute now [but] that does not give me more sales. The great issue we have been having is how to solve the underperformance of the rail network.
“The contractual dispute I know has good headlines, but the biggest issue is, can SA take advantage of the current market? And for that we need our rail network to function at its optimal capacity. That is not what we did last year, and we need to work together.”
Ndlovu says the group has been in discussions with Transnet to find an amicable agreement.
“The discussions have been in good faith, they have not been easy, but they have been constructive. I think both parties are willing to find a solution without necessarily getting to court,” he said.
“But having said that, should we be unable to get to an amicable solution, the contract does provide for dispute resolution which could very well end up in court — but we are nowhere near there.
“Often I hear people say you should be angry. I can be as angry as I like and as disappointed as I like, but the reality is that we are joined at the hip and the only option we have is for us to work together to find a solution.”
Exxaro Resources says the events Transnet is relying on don’t constitute force majeure and “the agreements did not terminate”. Exxaro said Transnet's reliance on “any purported termination is invalid”.
Exxaro spokesperson Mzila Mthenjane said that while the company appreciated the issues that TFR was dealing with, “we need to be able to transport our coal to meet customer requirements offshore”, adding: “We are remaining at the table to continue the negotiations, and to help TFR to address and overcome the issues.''
Transnet’s rail performance in 2021 fell to the lowest in 25 years, with 58.3-million tonnes of coal delivered to RBCT compared with an annual capacity of 77-million tonnes.
According to the Minerals Council SA, bulk mineral miners had lost revenue of R35bn in 2021 due to Transnet not meeting targeted rail movements.
RBCT CEO Alan Waller said RBCT continues to receive and load coal from the mines, though still at a lower rate, as with 2021.
“At this point, other than the lower throughput rate, it has not adversely affected the operations” he said.
Ndlovu says the coal industry and Transnet are working together on the security of the coal line. “We have started to see significant reduction in vandalism in terms of the rail infrastructure, including cable theft. We have been working with them in terms of how we unblock this procurement problem they have,” he said.
“That is work in progress and we have some ideas. There are significant challenges ... but we think we can get to a solution. That is what I think will create value for us as a company, for the industry and for the country.”
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