Thungela, a major coal exporter, announced on Thursday that state-owned logistics company Transnet informed it that it was under Force Majeure and it might not be able to fulfil its agreements with Coal Export Parties (CEPs) due to unforeseeable circumstances.
Transnet has long-term coal transportation agreements with CEPs, and Thungela is one of them. Transnet's rail arm Transnet Freight Rail has been plagued by the massive theft of copper cables which has dented its finances.
In a statement, Thungela said Transnet notified CEPs that factors previously communicated to the market regarding Transnet’s inability to perform services at its stated system capacity, such as the ongoing legal proceedings relating to the irregular locomotive acquisition and maintenance contracts, as well as the rife vandalism on the coal line, continue and are beyond its reasonable control.
"The impact of these factors resulted in an annual rail performance of 58.3Mt coal delivered to Richards Bay Coal Terminal (RBCT) in 2021, compared to its annual capacity of 77Mt. Transnet believes that these circumstances will continue to detract from its ability to perform for at least the next six months and that, accordingly, Transnet is under Force Majeur," it said.
Transnet's view is that the continued impact and duration of these factors actuate a termination right and expressed a desire to exercise this right to terminate the Agreements, Thungela said.
"Transnet, however, reiterated its commitment to continue to perform the rail services and has recently confirmed its commitment to work with the CEPs and RBCT to optimise and improve its performance," Thungela said.
Thungela said the CEPs are engaging actively with Transnet to clarify the contractual position and ensure the stability of coal deliveries to RBCT to continue to take advantage of the current strong market demand for South African coal.
"Through these engagements, Transnet has confirmed its intent to conclude an addendum to the agreements, which Transnet believes would assist Transnet in addressing certain factors affecting its performance but reaffirmed its commitment to the existing material commercial terms, and it is therefore unlikely that these developments would have any material commercial impact on Thungela," the coal exporter said.
Thungela said with coal rail services and export sales continuing, notwithstanding the ongoing discussions between the CEPs and Transnet, it does not currently envisage that this development will have a material impact on the group’s 2022 operational outlook, which was published on March 22, 2022.
"Thungela continues to engage with Transnet to clarify its contractual position. Thungela will continue assessing the situation and will update the market should the potential impact of this matter be determined as material to the group," Thungela said.
Meanwhile, Transnet resumed operations at its Durban port on Wednesday morning after severe flooding in KwaZulu-Natal. The port's operations were suspended as a precaution.
Access roads around the port were damaged, and container yards, truck depots, and trucks were flooded and damaged.
The floods destroyed homes, claimed over 306 lives, and caused damage to roads.
This is a developing story.
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