[miningmx.com] – TRANSNET’s plans to lift coal freight on its Richards Bay coal line to 85 million tonnes/year (mtpa) received a massive shot in the arm today after the world’s largest miner, BHP Billiton, signed a 10-year take-or-pay agreement worth R24bn or R2.4bn annually.
Transnet said a slew of agreements with its remaining 28 customers was due before the end of November which will bring to end nearly two years of negotiations, some of them quite tense, regarding future use of the coal line.
Ten of Transnet’s largest customers, including Anglo American, Glencore, and Exxaro Resources, control 93% of all coal freight on the line.
The importance of a take-or-pay agreement is that coal exporters pay for the rail service even if they don’t supply coal to the trains. This revenue underpin, in turn, gives investors confidence to buy Transnet bonds or other forms of finance it may raise.
“We have put our neck on the block by providing the trains and so this helps us with that investment,” said Brian Molefe, CEO of Transnet in a telephonic interview. “It helps with our investors and our ability to raise bonds,” he said.
In 2012, South African president, Jacob Zuma, outlined plans to spend R300bn improving the country’s rail, port and pipeline infrastructure through Transnet which subsequently dubbed the outlay its Market Demand Strategy (MDS).
One of central aspects of MDS is expenditure of some R30bn improving the rail infrastructure from the Limpopo province in the north of the country through to Richards Bay and Durban in KwaZulu-Natal province, as well as Saldanha in the Western Cape.
As part of this, Transnet wants to increase volumes on the coal line from Mpumalanga province to Richards Bay nearly 10mtpa to 85mtpa. It railed just under 70mtpa in its 2013/14 financial year.
Molefe said that of the increased volumes on the rail, BHP Billiton had agreed to take up about 800,000 tonnes. It had also agreed to provide a portion of its capacity on the line to black-owned emerging coal miners.
This is a hugely controversial element of the agreement given recent history between BHP Billiton’s energy coal division (Becsa) and Transnet.
Molefe said in 2012 that the sides had almost “come to blows” following a meeting in which Transnet accused Becsa of subverting the country’s empowerment efforts by not agreeing to hand over rail entitlement to black-owned companies.
This current agreement, which runs to March 31, 2024, allows for 5% of the rail contracted tonnage to be allocated to emerging miners through a transparent allocation process to be agreed to by all parties, said Molefe.
This is equal to 4mpta and doubles the current entitlement provided by Transnet to coal exporters through the Quattro scheme. Molefe declined to say how the entitlement would be divvied up but it’s likely existing Quattro members will be given first dibs on the rail in order for them to develop more scale in their businesses.
“We have evidence that black-owned companies have been forced to sell coal to existing big players for heavy discounts because they have no more entitlement through the Quattro scheme,” said Molefe.
The tariff adopted in BHP Billiton’s agreement is subject to confidentiality clauses, but Molefe disclosed it included “triggers”, or a sliding scale element which adjusted the tariff once the coal price had moved through a pre-agreed, confidential, threshold.
