Transnet ‘needs to up its game’

[miningmx.com] — TRANSNET needs to appoint a new CEO urgently as one of the key steps needed to improve its performance, according to Optimum Coal Holdings (Optimum) CEO Mike Teke .

Teke pointed out in Optimum’s results for the six months to end-December that – as of December 31 – the group had 318,000 tonnes of export coal sitting at its operations waiting to be railed to the Richards Bay Coal Terminal (RBCT) for export.

This build-up of stocks has taken place at a time when international coal prices are soaring because of rising demand caused by the cold European winter and supply constraints resulting from extreme weather conditions around the world.

Transnet Freight Rail (TFR) had undertaken to deliver 65 million tonnes (mt) of coal to the RBCT in the 2010 calendar year, but managed only 62.9mt mainly because of the extended strike during May.

Teke told Miningmx: “Exports are critical to our business, particularly as we are subsidising Eskom at our Optimum Colliery selling coal to them at R95/t.

“TFR is making improvements, but I think they have to work even harder at getting their efficiencies up and also in dealing with the issue of too many derailments on the Richards Bay line.

“A derailment can close the line completely for up to five days and, on top of that, we still have to deal with the problems of intermittent train cancellations, which mean more capacity is lost to the system.’

Teke said he was particularly worried about the leadership situation at Transnet, which has been without a CEO since March 2009 when former CEO Maria Ramos left.

The position has been filled since then in an acting capacity by chief financial officer Chris Wells but he has now resigned and will leave Transnet at the end of March.

Since mid-December, the role of CEO has been carried out by newly-appointed chairperson Mafika Mkwanazi while the search for a permanent CEO continues.

Teke said: “I was surprised to learn that Chris Wells was leaving because he had done a fantastic job. I am concerned because a leadership problem at the top can affect the stability of any organisation.’

Asked about the comments made by Mines Minister Susan Shabangu on coal supply security to Eskom at this week’s McCloskey Coal Conference, Teke drew a clear distinction between export coal and the kind of coal that Eskom needs.

Teke said Eskom’s power stations could not burn export grade coal because it was of too high a quality in terms of calorific value.

He pointed out Eskom’s power stations were specifically designed to burn lower quality coal.

However, that lower grade coal is precisely the kind that Indian buyers are looking to import for the new coal-fired power stations now either planned or under construction along the west coast of India.

Teke said: “In the first place, we don’t have the logistical capacity to export that coal to India. That’s why I am sitting with 318,000t of export coal on my mines at the moment.

“Secondly, if Eskom feels their supply of lower grade coal is being threatened that’s an issue they must address with the industry.

“There needs to be constructive discussion between Eskom and the coal suppliers over the introduction of a different pricing model for that kind of coal.

“Clearly, it’s a complex situation that must be dealt with carefully,’ he said.

Optimum boosted revenues 79% to R2.7bn in the six months to December (previous comparable six months – R1.5bn) and nearly quadrupled attributable profit to R274.6m (R69.7m).

Underscoring the group’s dependence on the export market, the numbers show a drop in “operational income’ at the collieries to R191.8m (R391.8m) but a jump in “results from operating activities ” to R441.1m (R239.7m).

The latter number takes into account the export side of the business.

Optimum is currently involved in a dispute with Eskom over the quality of coal supplied to the Hendrina power station.

In September, Optimum announced it was taking legal action to cancel the supply contract to the power station and the matter had gone to arbitration.

Optimum expects to complete the arbitration process by the end of April.