Founder: Turnaround Talk
Like many countries that exhibit ineffective leadership, South Africa is currently experiencing a reckoning. Businesses and ordinary citizens are fed up with the energy crisis and Government’s empty assurances that it is putting measures in place to address the crisis or mitigate its public impact. Businesses and consumers are taking matters into their own hands. Similar measures are now being taken against Transnet.
Transnet’s operational challenges are not new. I was once a mining journalist, and the rail inefficiency narrative began as far back as 2007 and possibly earlier. However, at this time, there was no directive from Government that private rail operators should play a more significant role in South Africa’s logistical framework. President Cyril Ramaphosa’s view that the private sector would play a more significant role in driving economic growth in South Africa opened Pandora’s Box for the country’s beleaguered logistical behemoth.
Mining companies, who have been feeling that Transnet has hamstrung them for years, are now calling the company out, insisting that it gets its house in order.
A 30% improvement can be achieved
The article points out that, as rail performance continues to deteriorate, Exxaro Resources said industry has engaged enough with Transnet, and it is now up to the state-owned logistics company to get its house in order and address its inefficiencies.
“The underperformance of Transnet is prolonged and beyond our expectations,” said Exxaro CEO Nombasa Tsengwa. “There has been enough interaction between ourselves as the industry and Transnet, within the Minerals Council South Africa, where we’ve outlined very clearly where we believe the inefficiencies are. And we believe that it’s time for Transnet to meet us halfway and make sure that those inefficiencies are dealt with.”
The article adds that while Transnet Freight Rail is battling against a locomotive shortage and cable theft, Tsengwa says its own inefficiencies had affected railing performance, the deterioration of which has caused miners to lose out on billions in export opportunities.
Train availability could improve by some 30% if Transnet were to respond to the identified inefficiencies, she said.
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Maintenance and theft are major killers of value
The News24 article points out that statistics presented by the Minerals Council at a recent event shows that of more than 3 000 cancellations of trains headed to the Richards Bay Coal Terminal (RBCT), locomotive maintenance was the stated reason 22% of the time, while cable theft was the reason 16% of the time. But almost as disruptive were “operations” and “rail infrastructure”, which were the reasons for train cancellations 20% and 15% of the time, respectively.
Tsengwa’s comments on the logistics crisis comes as Exxaro held a pre-close briefing on Tuesday during which the miner warned that the six months ended in June had been very different to the half-year before.
The article adds that, in respect of Exxaro’s key commodities, the average benchmark export coal price for the first half of 2023 is expected to average $127 per tonne – down from $265 in the second half of 2022.
Total coal production and sales volume for six months are expected to decrease by 4% and 7% respectively, due to reduced demand from Eskom – Exxaro’s largest customer – as well as logistical constraints.
Demand exists
The News24 article points out that Exxaro’s head of marketing and logistics, Sakkie Swanepoel, said demand from Europe – which had been stoked by Russia’s invasion of Ukraine and resultant sanctions – had been very weak in the year to date thanks to large stockpiles, a mild winter and low gas prices. Indian demand for South African coal has meanwhile picked up in response to lower prices.
Swanepoel said the absolute coal prices in the market are not bad – provided one can move product on rail to RBCT and not with costly trucking to alternative ports. “But in a market where South African producers are not able to move a product via rail and through RBCT, a price of around $100 (a tonne) is really hurting, and I think we see serious curtailments in terms of exports on the back of that”, he said, noting that road transport of export coal is not feasible for Exxaro at current prices.
Transnet improved targets
The article adds that against a railing capacity of 81 million tonnes per annum in the export coal line, Transnet Freight Rail is aiming for 60 million tonnes this year – which would be an improvement on the 58 million tonnes it moved last year.
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So far, however, Exxaro warned the railing rate in the year to date, if annualised, was 46.5 million tonnes. Industry is holding thumbs that volumes will still be caught up in the months ahead. A maintenance shutdown on the coal line next month is also hoped to go smoothly.
The article adds that Eskom’s poor plant performance has also impacted off-take from Exxaro in the first half, but the company said improved performance at Medupi was promising and it remains “cautiously optimistic” the utility’s coal burn rates will improve in the second half of the year.
It’s less optimistic about rail, which Swanepoel said seems unlikely to improve anytime soon. Still, he said Exxaro would not yet have to curb production in response to rail constraints, although he said the company would likely reassess this later in the year.
Is Government missing a trick?
Transnet is currently in check with checkmate a swift move away.
If the company does not honour the request to ship up, mining houses will knock on President Ramaphoa’s door and ask him to make good on his promise about allowing private rail operators greater access to the network.
The greater question here is whether Government is missing a trick. We have already pointed out that Transnet wants to privatise. Indeed, allowing mining houses to join Transnet in the management of the rail network will address the operational challenges that are currently an issue.
By increasing their profitability, these mining houses will serve a national interest by growing our economy and hopefully creating jobs. Perhaps this reckoning, while uncomfortable for Transnet, won’t be so bad after all?
