Kuseni Dlamini, Head Anglo American SA
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» RBCT may consider sixth phase expansion


RBCT, Spoornet miles apart on expansion
Brendan Ryan
Posted: Wed, 05 Sep 2007

[miningmx.com] -- SPOORNET - renamed Transnet Rail Freight - and the Richards Bay Coal Terminal (RBCT) seem as far apart as ever on agreeing terms to meet the RBCT’s new export capacity of 91 million tonnes/year.

That emerged from the presentations given by RBCT chairman Kuseni Dlamini and Spoornet CEO Siyabonga Gama at this week’s Coaltrans SA conference held in Sandton.

Dlamini raised the prospect of the RBCT going beyond the Phase Five expansion limit of 91 million tonnes/year, but Gama said Spoornet was still formulating "a business case" for expanding its capacity on the Richards Bay line to 91 million tonnes/year.

On its current planning, Spoornet does not envisage railing more than 86 million tonnes/year of coal exports to the RBCT.

Gama is not alone in his scepticism because several prominent coal industry analysts - including McCloskey Coal International MD Gerard McCloskey - have openly questioned whether the RBCT will ever achieve the 91 million tonne/year export level.

Gama ended his presentation by listing a number of "key challenges" to the 91 million tonne project. Most of these revolved around the sustainability of South African coal export volumes in the event of lower international coal prices; the impact on coal demand of the Kyoto Protocol as well as competing forms of energy becoming more viable.

He cited the impact on export volumes of sharply rising demand for coal from South Africa’s domestic market.

Gama also questioned the "nature and sustainability" of new entrants to the business; the distance of new coal reserves from Richards Bay and the "impact of present and future mining legislation."

At question time, Gama denied he was being sceptical and said he was rather just asking a number of "teasing questions" about Phase Five.

Dlamini told delegates the RBCT is now "investigating the requirement for further expansion beyond 91 million tonnes/year."

As part of this, the RBCT is looking at a number of factors including "Spoornet infrastructure and ramp-up capacity."

Dlamini also indicated a number of environmental impact assessments (EIAs) would be needed for any further expansion which would require more ground for additional stockyards, another extension of the berthing quay and an "additional rail loop in the central dune area."

Interviewed afterwards Dlamini declined to comment on the likely size of the expansion and its capital cost.

He agreed that it would be a major project and not a low cost, "brownfields" expansion of existing facilities.

The reason the RBCT is looking at a further expansion lies in the response to the tenders it put out last year to BEE companies to subscribe for the nine million tonnes/year of coal export allocation being made available as part of the Phase Five expansion.

The RBCT received 26 applications totaling 26.85 million tonnes/year of coal. Of those, 18 applications totaling 19 million tonnes/year met all the pre-qualification criteria

Eight individual companies were awarded coal quotas. That meant 10 companies offering a further total of 10 million tonnes/year in coal exports had met all of the RBCT’s requirements but were left out in the cold.

Those companies have no other way of getting that coal out of the country because it costs far more to rail coal out through the alternative ports of Durban and Maputo.

The coal handling terminals in both those ports have battled for years with Spoornet to get more rail capacity allocated to them.

Particular irritation for the RBCT is that, having invested R1.1bn to expand its facilities to accommodate BEE coal groups, it is battling to convince Spoornet to upgrade its capacity to rail those extra volumes.

"The decision to go to 91 million tonnes was a leap of faith from our side," says Dlamini.

Spoornet is reluctant to make a similar leap. Gama cites financial and business pressures on Spoornet which he says can no longer be viewed as a parastatal with an obligation to provide required infrastructure.

"Those days are gone," he says.

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Industry sources say that Spoornet is still a parastatal. It’s part of Transnet which has a monopoly on the country’s railways and harbours and which refuses to allow private sector participation in them.

In Western Australia mining groups BHP Billiton and Rio Tinto own and operate their own dedicated railway and port facilities which are integrated into their iron ore businesses.

Gama confirmed that the main sticking point concerns the rail tariffs to be charged for use of the expanded rail facilities. These have been under negotiation for more than two years.

"We want take or pay clauses in those contracts which guarantee railage volumes, " he said at question time.

That goes straight to the core of his concern over what would happen if international coal prices dropped. Exporters would chop back on export volumes.

That is exactly what has happened at the RBCT in the past. On that score at least, Gama’s caution is justified.