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Coal export dispute heats up
Brendan Ryan
Posted: Tue, 06 Jan 2009

[miningmx.com] -- TENSIONS are escalating rapidly between existing members of the Richards Bay Coal Terminal (RBCT) and the Phase Five expansion entrants to the terminal over future export allocations.

A coal industry source says matters are likely to come to a head at an RBCT board meeting to be held in February.

The row has been brewing since the middle of 2008, when it became apparent that Transnet Freight Rail (TFR) would not be able to deliver coal at anywhere near the RBCT’s expanded Phase Five capacity.

The terminal has the capacity to export 76 million tonnes (mt) annually. That will rise to 91 mt from July 1.

The debate over coal export volumes has become particularly heated because of the low level of annual exports through the terminal.

Current members may be forced to cut their export volumes even lower to make space for the newcomers.

Allegations of the bust-up between members and the Phase Five entrants have been denied by RBCT chief operating officer Raymond Chirwa.

Chirwa said: “How the coal volumes available for export will be divided is still under discussion. The matter should be decided before the Phase Five expansion is commissioned.

“The February board meeting is a routine board meeting and the stories of major dissent between the existing shareholders and the Phase Five exporters are just rumours. A very productive debate is under way.”

Coal exports for 2008 were the lowest in more than a decade despite record coal prices.

The RBCT exported 61.8 mt, which is 7% down on the 66.2 mt exported during 2007.

The last time the RBCT exported such a low volume was in 1996, when it shifted 59.6 mt. The terminal’s all-time annual throughput record was 69.2mt, set in 2005.

According to a coal industry source, “coal exports should rise this year but I cannot see them going above 66 mt because I cannot see TFR being able to rail more than an additional 4 mt above 2008 levels”.

Other industry forecasts put a cap of 69 mt on TFR’s throughput, but that’s working on TFR’s financial year to end-April 2010 instead of the calendar year 2009.

In the past when TFR railages fell below target the solution has been found in a formula based on a principle known to RBCT members as “equal misery”.

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That involved calculating a factor based on railage volumes against nominal terminal capacity. This was then applied equitably to the percentage shareholdings in the RBCT owned by the various members, to derive the actual export quotas that each received.

This time around there are serious complications. It seems shareholders are highly reluctant to be diluted further by having their short-term export volumes cut which must happen if “equal misery” is applied.

The existing shareholders - coal groups like Anglo American, BHP Billiton and Xstrata - gave up their extra export allocations in the Phase Five expansion to bring in the new participants.

According to a coal industry source, shareholders are proposing that the Phase Five entrants not be allowed to export until TFR can rail more than 76mt annually - the capacity owned by the existing shareholders.

That is completely unacceptable to the Phase Five entrants, who have invested R1.1bn to pay for the Phase Five expansion of the terminal to 91mt.

They will not be able to export the volumes of coal they are counting on to generate returns on their investments. The negative financial repercussions will be particularly severe for those companies which borrowed the money to fund their share of the construction costs.

“If the RBCT takes that decision, the repercussions will be enormous. My understanding is both sides are already consulting with senior legal counsel,” the source said.

There will also be a major political backlash, with the black economic empowerment (BEE) coal exporters protesting that the RBCT continues to shut them out of the export markets.

The prime reason for implementation of the Phase Five expansion in the first place was to open it up to BEE companies which are coming in along with the South Dunes Coal Terminal (SDCT).

When approached, SDCT MD Trevor McGiddy said he had no comment to make and referred queries to the RBCT.