Miners help buy spares for locos
• Coal miners band together to help solve a crucial Transnet headache
The coal industry has stepped in to provide financial assistance to cash-strapped Transnet to procure locomotive spare parts.
The lack of parts has hamstrung the performance of the rail, ports and pipelines operator over the past few years, costing the economy billions of rand and thousands of jobs.
Since 2019, Transnet has been struggling to get a service provider that can assist in supplying spare parts for some of the trains it bought in a controversial deal for 1,064 locomotives. It has about 200 locomotives that remain idle and cannot be returned to the railway lines as the Chinese Railway Rolling Stock Corporation (CRRC) refuses to provide it with spare parts.
The CFO of Thungela, the country’s largest thermal coal exporter, on Wednesday told shareholders that the industry has come together under the banner of the Richards Bay Coal Terminal (RBCT) to help Transnet Freight Rail (TFR) procure some of the spare parts.
“A sustainable solution is dependent on the procurement of spares for the locomotives supplied by CRRC, either directly from CRRC or from alternative suppliers,” Deon Smith said.
“Thungela and the coal industry recognise the need for urgent intervention, and RBCT (on behalf of the industry) has placed orders with alternative suppliers for critical locomotive spares. Transnet is also in the process of procuring locomotive spares from alternative equipment manufacturers.”
CO-OPERATION
The coal industry’s move shows the private sector’s co-operation with the government to improve the rail network’s efficiency and reliability. It also indicates that the state’s capacity to run a sophisticated emerging-market economy is under pressure as it enlists the private sector to assist with everything from fighting crime to curbing persistent load-shedding.
Smith told investors that the annualised run rate for the industry for the year to date has been 47-million tonnes — less than the 50.3-million tonnes railed in 2022, a 30-year low.
RBCT is owned by more than 13 coal-mining houses, including subsidiaries of Glencore, South32, Sasol, Seriti, African Rainbow Minerals Coal and Exxaro Resources. RBCT was
established in 1976 with an original annual capacity of 12-million tonnes, and has expanded into an advanced 24-hour operation with a design capacity of more than 70-million tonnes a year.
Thungela, the coal miner spun off from Anglo American, said that the inconsistent, poor Transnet rail performance continues to weigh heavily on the coal mining industry.
The CRRC locomotives were intended for use on the North, Northeast and Cape Corridors, which account for about 50% of TFR’s revenue and support the primary exports of coal, chrome and manganese miners.
In January, Transnet unsuccessfully went to market, inviting eligible original equipment manufacturers to step in to rehabilitate the locomotives.
When this did not yield results, public enterprises minister Pravin Gordhan sought an audience with the Chinese government in a desperate attempt to get CRRC to play ball. This intervention has failed, despite SA’s close diplomatic relationship with China.
The main issue is the R3.6bn tax bill the SA Revenue Service imposed on CRRC after a tax audit concluded there was prima facie evidence that the company overstated the price of locomotives sold to Transnet, as part of what has since come to be known as state capture.
One of SA’s biggest institutional investors in the bond market, Futuregrowth Asset Management, has said it is difficult to make a business case for Transnet in its current form, warning that the turnaround plan outlined by the board in October is likely to fail unless the impasse over locomotives is resolved.
Smith also said the industry has helped provide permanent security to protect Transnet’s critical infrastructure.
“We have also helped TRF over the few months to reintroduce a full-time security outfit relative to the partial outfit that was put in place earlier this year,” he said. “If this initiative plus the spare parts deliver the results, we might see a slight improvement.”
It is uncertain when matters will improve, “because it is linked to when the new security initiative as well as the spare parts get traction”.
CABLE THEFT
TFR has been under siege from vandals and thieves, with the company in its 2022 annual report saying there was an exponential increase in cable theft over the past five years. More than 1,500km of cable was stolen, a 1,096% increase, with a net financial impact of R4.1bn.
Transnet confirmed it has received financial assistance from the coal mining industry.
“TFR can confirm that the coal industry through RBCT is indeed assisting with the procurement of locomotive spares, namely batteries and compressors. Transnet will foot the bill through a reimbursement mechanism agreed upon by Transnet and RBCT,” the entity told Business Day.
Thungela said RBCT and Transnet have entered into a co-operation agreement that allows for RBCT to purchase the spares on behalf of Transnet and for the costs to be recovered by RBCT’s shareholders, including Thungela and other coal-exporting parties.
“Spares are anticipated to arrive in the first half of 2024. This initiative is supported by a [co-operation] agreement signed between industry and Transnet where the parties work jointly to ensure the technical specifications are in order and cost recovery mechanisms are agreed upon,” Thungela said.
The Treasury earlier this month yielded to pressure, providing a R47bn guarantee that will make it easier for Transnet to borrow and go to the market for capital. Transnet will draw down an initial R22.8bn to deal with immediate liquidity matters such as settling maturing debt.
The cabinet this week approved the freight logistics road map, drafted by the government and big business to reform the ailing logistics sector. The blueprint also opens the door for increased private sector participation in the operation of ports and rail networks.
Smith said they are encouraged by the government’s moves in recent months in trying to remedy the logistics crisis that has caused enormous congestion at the ports and the rail network. “We are encouraged by the boldness [with which] the government seems now to look at the potential reforms required around rail. This will not only provide a reprieve for us as a company and industry but also as a tax base in SA.”