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TRANSNET AND THE COAL EXPORTS

Artwell Dlamini, writing in Business Day, quotes Xavier Prevost (a senior coal analyst at XMP Consulting) saying that South Africa's coal export shortcomings are Transnet's fault. The parastatal, in his opinion, is to blame for the erosion of the local coal industry's competitiveness. 'While Prevost agrees with top executives at Transnet, who argue that the reduction in coal exports is due to the lack of production at the coal mines, he says a number of potential exporters have delayed their production plans chiefly because rail capacity is insufficient. The Richards Bay Coal Terminal (RBCT), whose shareholders include coal miners, has ramped up its capacity to 91 million tons a year, gearing up for explosive export growth. 'But Transnet's coal line -- which connects coal miners to the terminal -- has a capacity of only about 70 million tons. This capacity gap demonstrates that Transnet is the weakest link in the domestic coal miners' bid to maintain market share abroad, and expand to lucrative markets in Asia. 'Mxolisi Mgojo, executive GM at Exxaro , echoes this point, saying mining operations the company developed for the expansion of the terminal cannot be fully exploited.'We need to lease entitlement and/or sell free on rail to other RBCT shareholders and/or place coal in an already oversupplied domestic market and/or reduce production,' he says. 'Besides rail capacity constraints, Transnet's rail operation -- Transnet Freight Rail -- suffers disruptions involving derailments and cable theft. This makes its service unreliable, unpredictable and inefficient, and makes production planning difficult. 'In its annual report for last year, the Chamber of Mines said the fall in coal exports was mainly because of'lower coal railings, production shortages and the diversion of some export quality coal to Eskom'. 'Illustrating SA's diminished stature in the global market, Prevost says that in 2008, Colombia overtook SA to become the leading coal exporter to Europe, SA's traditional market. Despite attempts to make inroads into the fast-growing Asian region, SA is still'small fry there', says Prevost. India, China and the rest of the region have always been Australia's favourite market because of the shorter shipping distances and rates. Even Colombia and the US, on the other side of the world, are exporting to India and China, Prevost says. 'Dick Kruger, chairman of Coaltech Research Association and assistant adviser to the Chamber of Mines, says local coal miners have been targeting Asia -- and India in particular -- in the past few years. Both India and China are building power plants. The Chamber of Mines says China is expected to build 500 new coal- fired power stations. Kruger says if South African coal miners could beat their Australian counterparts on cost, they could enter markets in China and South Korea. But rail transport, which is cheap, is a'dilemma'. 'According to Mgojo, it is almost impossible to move the required volumes by any other means, such as road, which is in any case more expensive. Rail capacity is unlikely to catch up soon. Transnet has committed to increase capacity to 80 million tons annually over the next five years. If its self-imposed target is achieved, this still leaves a 10- million-ton gap. 'Transnet spokesman John Dludlu says the company is engaging with its customers to address capacity challenges on both sides. Some of the steps Transnet is taking include buying new locomotives, introducing longer, 100-wagon trains, and changes in rostering so that locomotive crews are available 24 hours a day. 'Prevost thinks Transnet acting CEO Chris Wells' idea of allowing private companies, through private-public partnerships, to assist Transnet by investing in their own rolling stock is a good one.'I wish it could be implemented as soon as possible,' he says. But it takes years to increase rail capacity. 'In the meantime, the industry's competitiveness is at stake. Prevost says the RBCT now handles 91 million tons a year, while Mozambique's Matola port wants to expand to 6 million tons annually and Durban is also planning to expand. But, Prevost asks, where is the rail capacity to feed the three ports?'
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