EDITORIAL: Transnet holds back the economy
The rail company and its shareholder owe us an explanation for lost opportunities — and a plan
Global coal prices have been hitting extraordinary highs lately as a result of Russia’s invasion of Ukraine. Spot prices of the thermal coal that fuels power stations have been at well more than $400 a tonne, which is up from less than $150 as recently as November and more than 370% higher than a year ago.
The war and the sanctions against Russia have triggered concerns about an energy supply crunch that has driven up prices across the board, and coal was already in short supply globally because of production issues at large exporters such as Indonesia and Australia.
SA is one of the world’s large coal exporters. Its miners should be well placed to take advantage. Yet the latest round of financial results from SA’s coal exporters has been a litany of disaster on the Transnet front, with the state-owned rail operator failing miserably in its task of getting SA’s coal to the ports.
Not that the miners are exactly suffering. Coal miner Exxaro last week reported its profits increased by more than 50% for the year to December. It could have earned much more but for the woes at Transnet Freight Rail which forced Exxaro to cut production at its coal mines by 10%, costing it R5bn or so in lost export sales.
Likewise African Rainbow Minerals, which last week reported that its coal earnings increased thanks to higher export thermal coal prices. But this was offset by lower sales volumes due to Transnet Freight Rail’s “logistics challenges”.
Thungela, the thermal coal exporter that was spun out of Anglo American in 2021, has yet to report results. But it has also flagged Transnet as a huge issue, warning the market in October that the rail operator’s performance had got worse, despite hopes of improvement earlier in the year.
The privately owned Richards Bay Coal Terminal, through which most of SA’s export coal goes, reported in January that export volumes had plummeted to 1996 levels. Coal exports of just 58.7-million tonnes were way down on the budgeted 71-million tonnes; Transnet Freight Rail was the main reason for this.
Nor is it just coal: other mining exports have been constrained as well, with the Minerals Council estimating SA lost out on R30bn of export sales in 2021. Agricultural exporters such as citrus producers have also faced big challenges in getting their goods to market.
It has been a constant refrain of cable theft and Transnet’s locomotives standing idle because they can’t be fixed or don’t have spares. Criminal syndicates are involved in the cable theft, which has reached industrial-scale proportions. State capture is blamed in part for the maintenance shambles with the heavy-haul locomotives that pull the coal, many of which were bought through the corrupt China South Rail contract. The private sector in the coal sector has tried to help, providing and paying for extra security on the lines and even offering to procure spares for the locomotives. All, apparently, to little avail.
Transnet and the government love to play the blame game, but the bottom line is that Transnet can’t get the trains to ports on time, if at all. Ultimately, that is a management problem, plain and simple. Not only have things not got better since Portia Derby took over as Transnet CEO in January 2020, they have got worse.
There have long been promises to allow private sector train operators on to Transnet’s network. President Cyril Ramaphosa announced in his state of the nation address that Transnet would start selling slots on the lines in April. Transnet has said it hopes to have a pilot private operator scheme in place from June. But that is on Transnet’s general freight lines, not on coal. Transnet has made it clear it has no intention of relinquishing its monopoly of the coal and iron ore rail operations that have long been its cash cow. Nor has it explained how it is going to improve the functioning of the lines themselves to ensure that the trains, whether private or public, can run on time.
SA has already lost out on some of the benefits of in 2021’s commodity boom. Now it stands to lose out again this year. Transnet and its shareholder owe us an explanation, and a plausible plan to tackle the too politely dubbed “logistical challenges”.
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