The DMR shakes up coal exporters

[miningmx.com] — THE department of mineral resources (DMR) has radically restructured the Quattro scheme through which four million tonnes (mt) of coal is exported annually through the Richards Bay Coal Terminal (RBCT) by black economic empowerment (BEE) coal companies.

Former managers Mhlatuze Bay Coal Administrators (Mhlatuze) – run by coal industry veteran Bill Lamont – have been replaced by UBU Logistics – a subsidiary of UBU Investment Holdings (Ubu).

Lamont declined to comment when approached.

Key shareholders in Ubu include Alec Erwin – minister of public enterprises from 2004 to 2008 – and Portia Molefe, director general of public enterprises from 2005 to 2009 and former wife of Brian Molefe, who has just been appointed CEO of Transnet.

The Quattro scheme was set up by the RBCT to broaden use of the terminal by non-member, BEE coal producers following political criticism that it was restricting access to the coal export markets.

Coal industry sources say the latest changes have been insisted on by the DMR, despite the fact that it should not have such control over the actual administration of the scheme.

When approached, DMR spokesperson Zingaphi Jakuja asked for questions to be emailed to her. She failed to reply to those questions by the requested deadline.

The DMR’s involvement was confirmed by Portia Molefe who, replying to emailed questions, said: “We were nominated by the DMR. Please follow up with the department on the details.’

According to one coal industry source, “the DMR has unilaterally replaced Mhlatuze with a company no one has ever heard of.

“The immediate question is what experience these people have in the coal trade and the logistics of railing and exporting coal. The immediate answer appears to be none.’

Molefe said Ubu took over running Quattro on February 21.

“Ubu, like Mhlatuze, facilitates in the liaisons between the coal mines and the logistics owners – Transnet Freight Rail (TRF)/RBCT – and the end users, the traders,” she said.

“We coordinate the on-carriage and railings ex-plant to point of discharge at the RBCT. This is primarily a communications and administrative function provided by Ubu Logistics to all parties, as was the case with Mhlatuze.”

According to the Ubu website, the experience of its executives is mainly in high-level policy-making and government/private sector interaction.

Running Quattro requires hands-on management skills and experience rather than such “big picture’ exposure.

The most critical issue is to get the trains allocated, and then actually provided, by TFR to haul the coal to the RBCT.

The Quattro managers also have to make sure the members have the coal ready to be railed on time as agreed.

They must also work with RBCT management to ensure optimal use of the critically-important stockpile space allocated to the Quattro users at the terminal.

The new export allocations in terms of the Quattro scheme were supposed to have been finalised by the end of 2010, but have not yet been announced.

According to a coal industry source, there are a number of issues that must be dealt with.

One is that Quattro was intended for BEE companies that were actually mining their own coal. However, some members have instead been buying in coal from third parties and then exporting it.

The other issue concerns Quattro members which have received direct export allocations in terms of the R1.2bn Phase Five expansion of the RBCT which was commissioned on May 1 last year.

The stance of the DMR is that these companies – one of which is Exxaro Resources – should lose their Quattro allocations because they now have direct access to the terminal.

But Exxaro is only getting about 50% of its nominal export entitlement because of the inability of TFR to rail sufficient coal to Richards Bay.

The new members joining the RBCT, in terms of Phase Five, struck a deal with the existing RBCT members to “divvy up’ the available tonnages that TFR actually managed to deliver to the port.

Exxaro coal division GM Mxolisi Mgojo said at the group’s recent results presentation that Exxaro’s nominal RBCT entitlement rose from 1.8mt/year to 6.3mt/year following the commissioning of Phase Five.

But he commented TFR constraints limited Exxaro’s actual export entitlement to 3mt in 2010, while it would be only 3.4mt assuming TFR managed to deliver 70mt to the terminal during 2011.

Mgojo pointed out TFR had already revised this target to 68mt following problems during the first two months of the year.

Molefe said: “The allocation of capacity to Quattro members is the responsibility of the DMR. The administrator has no role in this.”