CLARENCE TSHITEREKE: Coal remains the jewel in the crown of our minerals

At a coal colloquium in February in 2022 mineral resources & energy minister Gwede Mantashe revealed that the preliminary gross in situ value of SA’s minerals has been revised from about $2.5-trillion to $9.6–trillion, an increase of almost 290%.

It is important to underscore that coal accounts for about 43% of this estimated value, followed by platinum group metals at 31.5% and gold at 11.7%. Coal reserves of about 53bn tonnes make the resource the jewel in the crown of our mineral inheritance — an endowment that has been the source of both fortune and misfortune.

By production volume, at its most recent production peak in 2019 SA produced about 258-million tonnes of marketable coal a year. Production dropped to 248-million tonnes in 2020, and to 231-million tonnes in 2022. During the same period employment in the coal mines rose sharply, from 77,259 in 2016 to 90,977 by 2022.

In terms of efficiencies, there has been a clear misalignment — more miners have produced less coal since 2019 — but still we remain the fifth largest coal producer in the world. In 2021 about 25% or our coal production was exported, while in 2022 the figure doubled to 56.7%. In terms of domestic coal usage, about 53% is used for electricity generation (104-million tonnes in 2021), 33% for petrochemical industries, 12% for metallurgical industries, and 2% for domestic heating and cooking.

There has been a resurgence of SA coal exports to Europe, from 2.3-million tonnes in 2021 to 14.3-million tonnes in 2022, and demand is set to increase again this year. It is worth noting that our coal exports to Europe had peaked at  about 50-million tonnes in 2005, before a downward trend spawned by environmental sentiments.

Coal deliveries to Europe are increasing as we fill the void left by Russian coal supplies, with Europe again becoming the second-largest destination for our coal exports after India. In the same period SA coal shipments to South Korea surged to 5-million tonnes in 2022, from about 1.5-million tonnes in 2021.

The war in Ukraine has disrupted traditional trade flows and created an international energy crisis. Just as the 1973/74 oil crisis created demand for SA coal, the war in Ukraine has presented the same opportunity. Between March and September 2022 the price of coal more than doubled to $457/tonne due to geopolitical uncertainties in Europe. However, SA has been unable to exploit resurgent demand for coal due to declining production volumes and substandard transport/export infrastructure.

The scramble for reliable sources of energy internationally bodes well for SA’s much-needed foreign exchange earnings. In 2021 coal earned us handsome foreign revenue, contributing R130.57bn or 21.4% of annual total mining revenue of R608.99bn, compared to R69.5bn in 2010. In 2020 coal was the highest earner (pricing based on Eskom contracts) of total mineral sales, contributing 53.42% (R85.02bn) of R159.16bn.

In 2022 domestic coal sales reached R109.3bn — a tidy sum when compared to 2010 (R33.7bn). The composite for domestic and export sales values was R252bn in 2022. About 90,977 coal mineworkers received over R31.7bn in wages and salaries in 2022, which constituted 20.27% of the mining industry’s total wages of R153.8bn. About R27bn was paid to the state as employee income taxes, and R1.9bn was paid as royalties.

However, while coal demand has increased internationally, our capacity to export coal has been hamstrung by Transnet Freight Rail’s logistical failures. In October 2022 the Minerals Council estimated that an extra R151bn could have been earned in exports had the optimised logistical level been achieved across the main bulk commodity exports.

Since late 2022 SA’s coal transportation capacity has deteriorated further, with coal exporters resorting to trucking coal to the Richards Bay Coal Terminal for export. This has continued into the first quarter of this year, despite the inherent limitations on coal volumes transported and the risks of theft and swapping for inferior quality coal. Our inability to export coal consignments in 2022 was calculated to be equivalent of R22.7bn in lost export revenue based on 2021 average coal prices.

While the Richards Bay Coal Terminal has capacity to receive at least 32 coal trains per day, throughput dropped to an average of 18 trains per day in 2022. This brings into sharp focus SA’s freight and transportation logistics inefficiencies. It also underscores the strategic value of our railway network to the country’s economic success. It is fair to argue that the relative efficiencies of our national freight capacity must remain our constant concern. We urgently need sufficient locomotives, spare parts, dedicated maintenance crews and associated improvements in port capacity.

Equally, we simultaneously need to stem the increasing spate of overhead power cable thefts, vandalism of rail infrastructure and prolonged rail underinvestment to improve our effectiveness in moving coal to port. Sabotage and recurring derailments of coal trains undermine SA’s competitiveness at huge cost. So far, coal companies have been able to mobilise their own resources to secure the rail line to Richards Bay, but this is both undesirable and unsustainable.

• Dr Tshitereke is researching the potential socioeconomic impact of reducing SA’s reliance on coal-fired power stations