Transnet’s inability to provide trains to move coal exports by rail might hit fiscus hard

TRANSNET Freight Rail last week notified coal export parties that it was under force majeure.

TRANSNET Freight Rail last week notified coal export parties that it was under force majeure.

Published Apr 19, 2022


THE SOUTH African fiscus could be dealt a huge blow this year as coal exports, one of the country’s largest foreign currency earners, are expected to shrink significantly due to a force majeure by Transnet.

Transnet Freight Rail last week notified coal export parties that it was under force majeure as circumstances beyond its control, such as the ongoing legal proceedings and vandalism on the coal line, will continue to detract from its ability to perform for at least the next six months.

The impact of these factors resulted in an annual rail performance of 58.3 million tons of coal delivered to Richards Bay Coal Terminal (RBCT) in 2021, the lowest since 1996, compared to its annual capacity of 77 million.

Managing director of mining investment firm Menar, Vuslat Bayoglu, said South Africa had a world-class infrastructure, but Transnet has experienced difficulties in providing trains to transport products to RBCT.

“The search for reliable energy sources like coal from South Africa could provide long-term opportunities for the South African coal mining sector if local logistical and regulatory challenges can be overcome,” Bayoglu said.

“[However] the decline in rail capacity is of concern. RBCT’s exports have declined sharply in recent years, equating to billions in lost revenue. Coal export volumes for 2021 dropped to 58.2 million tons from 70 million tons of coal exported in 2020.”

Coal exports have boosted the profitability of mining companies and contributed significantly to South Africa’s trade account and gross tax revenue, which rose R182 billion higher than projections this past financial year.

However, South Africa is now failing to benefit from the commodity boom due to freight rail woes.

Chief executive of corporate advisory firm Deal Leaders International, Andrew Bahlmann, said Australia’s mining and energy exports were taking advantage of rising global demand for coal, notwithstanding a ban by China on its coal imports from Australia.

Bahlmann said that even before Transnet’s force majeure, RBCT had reported that its coal export volumes in 2021 were the lowest in 25 years.

He said the closure of the Port of Durban due to KwaZulu-Natal flooding might be the final nail in the coffin – or it might be an excuse for years of mismanagement.

“Due to these logistics issues, South Africa’s exporters are unable to take advantage of high thermal coal prices to the extent they might have hoped to at a time when thermal coal is enjoying a resurgence that followed China’s ban on coal imports from Australia, as well as current gas and oil export logistics war-affected challenges,” Bahlmann said.

“However, the current opportunity to fully exploit export opportunities may be permanently lost to us as predictions are for South Africa’s main coal export markets to reduce their need for imports of thermal coal.

“As mineral exports were one of the primary reasons National Treasury last year overshot its revenue forecast, an inability to get our thermal coal exports to market will have dire consequences for GDP (gross domestic product) growth, jobs and business confidence.”

Transnet has long-term coal transportation agreements with coal export parties including Thungela Resources and Exxaro Resources.

In August last year, RBCT was unable to offload trains for approximately 10 hours, resulting in a 50 percent wagon capacity production plan following a massive power failure in Richard’s Bay.

TreasuryONE senior dealer Andre Botha said it was very easy to say that the Transnet force majeure would have a negative impact on South African growth, but everything was not doom and gloom.

“Force majeure does not mean a certainty of non-delivery of a contract; it takes the ability to sue the counterpart of the table,” Botha said.

“However, other modes of transport and/or harbours can be used to export goods. While this is a hiccup, other alternatives exist.”

[email protected]


Related Topics:

railway transport