Transnet commits to expand coal exports

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[miningmx.com] — TRANSNET Freight Rail (TFR) has now committed to spending R15.4bn on expanding coal export capacity on the Richards Bay railway line to 81 million tonnes (mt) per year by 2014.

Previously, TFR had only been officially prepared to commit to spending R9bn on taking capacity to 75mt/year but had indicated it was in discussions with the coal exporters on pushing this to 81mt/year.

The expansion is subject to signing long-term take or pay contracts with the coal exporters. These are still being negotiated, but Transnet acting CEO Chris Wells is sounding the most optimistic in years that this will be achieved.

TFR and the coal exporters have been haggling over railage tariffs on the Richards Bay line since 2005, when the last long-term contract expired.

Coal has been exported since then in terms of a series of short-term contracts while the debate over the proposed take or pay contract raged.

Wells told Miningmx in Johannesburg on Tuesday: “There were previously so many imponderables that neither side felt it could sign a long-term contract, but we have now pretty much defined the future moves to a capacity of 81mt/year.

“The new draft contracts have been drawn up and are being circulated. Discussions are under way and the governance processes at the mining groups have begun.

“I would hope to everything largely in place by the end of January.’

Wells indicated serious efforts were also being made to resolve the other major debate between the coal exporters and Transnet, which is the further expansion of the line to match the 91mt/year ship loading capacity of the Richards Bay Coal Terminal (RBCT).

The main issue here is that the cost to Transnet of getting to 81mt/year is relatively low compared with the huge additional capital expenditure required to move beyond that level.

This is because the further expansion requires major provision of new infrastructure, such as widening tunnels on the line.

Wells said Transnet and the coal exporters had now agreed to a new independent study by consultants Oliver Wyman to assess likely demand for capacity on the line above 81mt.

That’s despite a prior study carried out by the RBCT itself, when it was evaluating the proposed Phase Five expansion of the terminal from 76mt/year to 91mt/year to see if sufficient volumes of export coal would be forthcoming.

In 2008 then RBCT chairperson Kuseni Dlamini reckoned there was realistic demand for up to 100mt/year.

He based that on the fact that coal companies which met the RBCT’s criteria for participation in Phase Five but could not be accommodated had offered to export another 10mt/year in total.

Wells said the latest study would be carried out in far more detail and on a mine-by-mine basis. It would also take into account Eskom’s future supply requirements.

“The focus of the study is to look at the most efficient way to move coal from both Mpumalanga and the Waterberg to either Richards Bay or Maputo in the short, medium and long term.

“The study should be completed by the first quarter of next year.’

Wells added another major independent study – this time by Australian consultants Aurecon – was being carried out on the Sishen/Saldanha iron ore line to determine its expansion beyond the level of 61mt/year which should be reached in 2012/2013.

He said: “That study will settle the debate over whether manganese exports should go out through Saldanha or Coega.

“It will also look at expanding the Sishen/Saldanha line to the capacity of about 85mt/year of iron ore and about 12mt/year of manganese, compared with current manganese export levels of around 5.5mt/year.’

Wells said he believed TFR had finally managed to establish a consistent level of improved performance on the Richards Bay line, where it was railing at a rate of about 1.4mt/week “week in and week out’.

He estimated TFR’s current annual capacity on the line at around 71mt/year and said he was now confident this performance could be maintained.

But the improvements had come too late to make much difference to this calendar year’s exports through the RBCT, given the negative impact of the three-week national strike in May.

Wells estimated RBCT’s exports for calendar 2010 at about 62mt to 63mt, marginally above the 61.1mt exported in 2009 which was the terminal’s worst performance in more than a decade.

Transnet’s financial year runs to end-March. Wells estimated TFR would rail 65mt in its financial year to end-March and that “the final figure could be one or two million tonnes above that’.

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