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What’s all this hul­la­baloo re­cently about take-or-pay agree­ments be­tween SA coal ex­porters and Transnet, the state-owned trans­port util­ity? What’s a take-or-pay agree­ment any­way?

In essence, Glen­core is re­fus­ing to sign a freight and tar­iff [take-or-pay] agree­ment with Transnet for coal it will ex­port from its col­lieries in Mpumalanga to Richards Bay in KwaZulu-Natal.

To put the busi­ness stakes in con­text, Glen­core ex­ported 23.4m tons of coal from its SA as­sets dur­ing its 2014 fi­nan­cial year, a 14% in­crease year-on-year, at an av­er­age price of $68 per ton. That’s equal to around R19.3bn in an­nual rev­enue.

The way take-or-pay agree­ments work is that coal pro­duc­ers un­der­take to pay Transnet a per­cent­age of the tar­iff per ton if they fail to pro­vide the coal. Transnet ar­gues that an empty wagon is an un­re­cov­er­able cost, whereas coal pro­duc­ers will even­tu­ally re­ceive rev­enue – even for coal that was late for the sid­ing.

Transnet also ar­gues that it needs to be com­pen­sated for the in­vest­ment it has made on the rail­way, es­pe­cially as it in­vests through­out the cy­cle as it is do­ing now when the econ­omy is fac­ing head­winds and cap­i­tal for fixed in­vest­ment is hard to come by.

Glen­core coun­ters, how­ever, that the cap­i­tal for the Mpumalanga-Richards Bay coal line has long been sunk. Glen­core also won’t ac­cept the other ar­gu­ment that Transnet has to take care of its credit rat­ing since its credit is largely gov­ern­ment guar­an­teed. Glen­core says that take-or-pay agree­ments force it to put coal down the line even when it is un­prof­itable when, in fact, the coal could be sup­plied to Eskom, which an­a­lysts be­lieve is fac­ing a heavy coal sup­ply deficit from about 2018.

And it’s not just a Glen­core is­sue. Transnet has about 29 coal-ex­port­ing clients to which it will have to of­fer the same terms if amend­ments are made to a take-or-pay agree­ment with Glen­core.

The spat serves to show that re­la­tions be­tween Transnet and the pri­vate sec­tor have been bub­bling un­der for years.

Re­mem­ber Brian Molefe, CEO of Transnet, re­call­ing how one meet­ing with BHP Bil­li­ton’s SA coal busi­ness al­most de­te­ri­o­rated into fisticuffs on the is­sue of tar­iffs, and ad­di­tional claims by Transnet that BHP Bil­li­ton’s tar­iff agree­ment didn’t do enough to se­cure BEE? That is­sue, too, is not far from erupt­ing again ei­ther. Com­ment­ing on the take-or-pay ne­go­ti­a­tions with Glen­core, Transnet GM for group com­mer­cial Divyesh Kalan said that the Richards Bay Coal Ter­mi­nal, the coal ex­port ter­mi­nal in which Glen­core, BHP Bil­li­ton and An­glo Amer­i­can are the ma­jor share­hold­ers, failed to pro­vide stock­piles for cer­tain types of coals that ju­nior min­ing com­pa­nies mine.

As a re­sult, ju­nior min­ers are forced to sell their coal to traders, such as Glen­core, in or­der to se­cure some ac­cess to the ex­port mar­kets, and as­sum­ing they are un­able to get ex­port en­ti­tle­ment at other ter­mi­nals, Kalan said.

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